<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1996
REGISTRATION NO. 33-98374
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT
NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
DIAMOND CABLE COMMUNICATIONS PLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ENGLAND 4841 NONE
(Jurisdiction of incorporation) (Primary Standard Industrial (I.R.S Employer
Classification Code Number) Identification Number)
DIAMOND PLAZA CT CORPORATION SYSTEM
DALESIDE ROAD 1633 BROADWAY
NOTTINGHAM NG2 3GG NEW YORK, NY 10019
ENGLAND (212) 664-1666
011-44-115-912-2217
(Address and telephone number (Name, address and
of Registrant's principal telephone number of
executive offices) agent for service)
</TABLE>
----------------------
COPIES TO:
SCOTT D. MILLER, ESQ.
SULLIVAN & CROMWELL
9A IRONMONGER LANE
LONDON EC2V 8EY
ENGLAND
----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
----------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c) 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
================================================================================
<PAGE> 2
DIAMOND CABLE COMMUNICATIONS PLC
CROSS-REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY FORM S-1
<TABLE>
<CAPTION>
ITEM ITEM NUMBER IN FORM S-1 AND TITLE OF ITEM LOCATION IN PROSPECTUS
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus................................ Cover Page of Registration Statement;
Cross-Reference Sheet; Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page of Prospectus; Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges........ Prospectus Summary; Risk Factors
4. Use of Proceeds........................... Use of Proceeds
5. Determination of Offering Price........... *
6. Dilution.................................. *
7. Selling Security Holders.................. *
8. Plan of Distribution...................... Outside Front Cover Page; Plan of Distribution
9. Description of Securities to be
Registered................................ Prospectus Summary; Description of New Senior
Notes
10. Interests of Named Experts and Counsel.... *
11. Information with Respect to the Registrant Prospectus Summary; Risk Factors; Use of
Proceeds; Capitalization; Selected Financial
Data; Management's Discussion and Analysis of
Results of Operations and Financial
Condition; Business; Certain Regulatory
Matters; Company Organization; Shareholders;
Management; Certain Transactions; Description
of Company Debt; Taxation; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
- ----------------
* Omitted because inapplicable or the answer is in the negative.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1996
DIAMOND CABLE COMMUNICATIONS PLC
13 1/4% SENIOR DISCOUNT NOTES DUE SEPTEMBER 30, 2004
11 3/4% SENIOR DISCOUNT NOTES DUE DECEMBER 15, 2005
----------------------
Interest will not accrue on the 13 1/4% Senior Discount Notes due
September 30, 2004 (the "Initial Senior Notes") prior to September 30, 1999.
Interest on the Initial Senior Notes will be payable on March 31 and September
30 of each year, commencing March 31, 2000, at a rate of 13 1/4% per annum. See
"Description of Initial Senior Notes". The Initial Senior Notes are redeemable,
in whole or in part, at the option of the Company at any time on or after
September 30, 1999, at the redemption prices set forth herein plus accrued
interest to the date of redemption. The Initial Senior Notes are also
redeemable in whole, but not in part, at the option of the Company at any time
at 100% of the principal amount plus accrued interest to the date of redemption
(or, prior to September 30, 1999, at 100% of Accreted Value) in the event of
certain tax law changes requiring the payment of additional amounts as
described herein. In addition, in the event that the Company (i) sells certain
Equity Securities in a Public Offering or (ii) consummates a Trade Sale, prior
to March 31, 1997, the Company may, at its option, redeem up to a maximum of
$71,275,250 in aggregate principal amount at maturity of Initial Senior Notes
at a redemption price of 113.25% of Accreted Value. The Company is required to
offer to repurchase all outstanding Initial Senior Notes at 101% of principal
amount plus accrued interest to the date of repurchase (or, prior to September
30, 1999, at 101% of Accreted Value on the date of repurchase) after the
occurrence of a Change of Control. See "Description of the Initial Senior Notes
- -- Redemption". There can be no assurance that the Company will have the
financial resources necessary or otherwise be able to repurchase the Initial
Senior Notes under such circumstances.
Interest will not accrue on the 11 3/4% Senior Discount Notes due December
15, 2005 (the "New Senior Notes") prior to December 15, 2000. Interest on the
New Senior Notes will be payable on June 15 and December 15 of each year,
commencing June 15, 2001 at a rate of 11 3/4% per annum. See "Description of
the New Senior Notes" in the accompanying Prospectus. The New Senior Notes are
redeemable, in whole or in part, at the option of the Company at any time on or
after December 15, 2000, at the redemption prices set forth in the accompanying
Prospectus plus accrued interest to the date of redemption. The New Senior
Notes are also redeemable in whole, but not in part, at the option of the
Company at any time at 100% of the principal amount plus accrued interest to
the date of redemption (or, prior to December 15, 2000, at 100% of Accreted
Value) in the event of certain tax law changes requiring the payment of
additional amounts as described herein. Upon the occurrence of a Change of
Control the Company is required to offer to repurchase all outstanding New
Senior Notes at 101% of principal amount plus accrued interest to the date of
repurchase (or, prior to December 15, 2000, at 101% of Accreted Value on the
date of repurchase) after the occurrence of a Change of Control. In addition,
upon the occurrence of an Asset Disposition, the Company may be obligated to
make an Offer to Purchase all or a portion of the outstanding New Senior Notes
at 100% of the principal amount plus accrued interest to the date of repurchase
(or, prior to December 15, 2000, at 100% of Accredited Value on the date of
repurchase). See "Description of the New Senior Notes -- Redemption". There can
be no assurance that the Company will have the financial resources necessary or
otherwise be able to repurchase the New Senior Notes under such circumstances.
The Senior Notes constitute unsecured senior indebtedness of the Company.
In August 1996, certain of the Company's subsidiaries entered into a senior
syndicated bank lending facility of L.340 million. Indebtedness under the
senior bank lending facility is effectively senior to the Senior Notes as such
indebtedness will be incurred by a subsidiary of the Company, guaranteed by
certain of the Company's other subsidiaries and secured by liens on the assets
of certain of the Company's subsidiaries and a pledge of the issued shares of
certain of the Company's subsidiaries other than Jewel Holdings Limited. At
June 30, 1996, the Company had approximately L.338 million of indebtedness
outstanding, including approximately L.121 million and L.206 million in
accreted value of Initial Senior Notes and the New Senior Notes, respectively.
The Company has not issued, and does not have any current plans to issue, any
significant indebtedness that will be subordinated to the Senior Notes. The
Company is a holding company which conducts substantially all of its business
through subsidiaries, all of which are wholly-owned. The Senior Notes
effectively rank junior to any indebtedness of the Company's subsidiaries to
the extent of the assets of such subsidiaries and to any secured indebtedness
of the Company to the extent of the assets securing such indebtedness. The New
Senior Notes rank pari passu with the Initial Senior Notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SENIOR NOTES.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Prospectus is to be used by Goldman, Sachs & Co. in connection with
offers and sales of the Senior Notes related to market-making transactions at
negotiated prices related to prevailing market prices at the time of sale. The
Company will not receive any of the proceeds of such sale. Goldman, Sachs & Co.
may act as a principal or agent in such transactions. See "Plan of
Distribution".
GOLDMAN, SACHS & CO.
----------------------
The date of this Prospectus is September -, 1996.
<PAGE> 4
NOTE REGARDING THIS PROSPECTUS
This Prospectus relates to two different series of Senior Notes issued by
the Company:
- - The 13 1/4% SENIOR DISCOUNT NOTES DUE SEPTEMBER 30, 2004 (referred to
herein as the "INITIAL SENIOR NOTES"), and
- - The 11 3/4% SENIOR DISCOUNT NOTES DUE DECEMBER 15, 2005 (referred to
herein as the "NEW SENIOR NOTES").
Prospective investors in the Initial Senior Notes should refer to
"Summary--The Initial Senior Notes" and "Description of Initial Senior Notes"
for a description of the Initial Senior Notes.
Prospective investors in the New Senior Notes should refer to
"Summary--The New Senior Notes" and "Description of the New Senior Notes" for a
description of the New Senior Notes.
References herein to the "Senior Notes" apply to both the Initial Senior
Notes and the New Senior Notes.
____________________________
Diamond Cable Communications Plc (the "Company") is a public limited
company incorporated under the laws of England and Wales. The Company is a
holding company which holds all of the shares of (i) Diamond Cable
Communications (UK) Limited ("DCL") (formerly Diamond Cable (Nottingham)
Limited) and (ii) the group of companies comprising LCL (as defined herein), in
both cases through an intermediate holding company, Jewel Holdings Limited
("Jewel").
All share data in this Prospectus have been restated to reflect a
ten-for-one subdivision of the shares effective September 1, 1994. In this
Prospectus, except as the context may otherwise require, references to the
Company refer to the Company and/or its predecessor, references to the "Group"
refer to the Company and its subsidiaries, including as of September 30, 1995
LCL, and references to "Diamond" refer to the Company and its subsidiaries
excluding LCL. The principal executive office of the Company is at Diamond
Plaza, Daleside Road, Nottingham NG2 3GG, England, and its telephone number at
such address is 011-44-115-912-2217.
On September 27, 1995, the Group acquired substantially all of the share
capital of East Midlands Cable Group Limited ("EMCG"), East Midlands Cable
Communications Limited and East Midlands Cable Holdings Limited (collectively
"LCL"), and on October 4, 1995 the Group acquired all of the remaining share
capital (less than 1%) of LCL. See "The LCL Acquisition". For financial
accounting purposes, the acquisition was given effect as of September 30, 1995.
At and prior to September 30, 1995, substantially all of LCL's operating
activities were carried out through LCL Cable Communications Limited ("LCL
Cable") (now Diamond Cable (Leicester) Limited). On April 26, 1995, LCL Cable
became the principal operating subsidiary of EMCG. References herein to LCL may
also refer to LCL Cable or EMCG as appropriate.
____________________________
The Senior Notes are listed on the Luxembourg Stock Exchange. For a
discussion of the trading market in the Senior Notes see "Risk Factors --
Trading Market for the Senior Notes".
This prospectus contains certain forward-looking statements, identified as
such, with respect to which the Company is seeking to utilize the safe harbor
provided by the Private Securities Litigation Reform Act of 1995. These
statements are accompanied by, and should be read in conjunction with, an
explanation of important factors that could cause actual results to differ
materially from those in the forward-looking statements.
3
<PAGE> 5
The Company operates only in the United Kingdom and, accordingly,
publishes its financial statements in pounds sterling. 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. Merely for convenience,
this Prospectus contains translations of certain pounds sterling amounts into
U.S. dollars at specified rates. These translations should not be construed as
representations that the pounds sterling amounts actually represent such U.S.
dollar amounts or could have been or could be converted into U.S. dollars at
the rate indicated or at any other rate. Unless otherwise indicated, the
translations of pounds sterling amounts into U.S. dollars have been made at
$1.5529 per L.1.00, the noon buying rate in The City of New York for cable
transfers in pounds sterling as certified for customs purposes by the Federal
Reserve Bank of New York (the "Noon Buying Rate") on June 28, 1996. See
"Exchange Rates" for information regarding the Noon Buying Rate for the past
five fiscal years. On September 5, 1996 the Noon Buying Rate was $1.5667 per
L.1.00.
----------------------
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Company has been incorporated under English law. Service of process
upon directors and officers of the Company, and certain of the experts named
herein, who reside outside the United States may be difficult to obtain within
the United States. Furthermore, since most directly owned assets of the Company
are outside the United States, any judgment obtained in the United States
against it may not be collectible within the United States. The Company has
been advised by its English counsel, Freshfields, that there is doubt as to the
enforceability of certain civil liabilities under U.S. Federal securities laws
in original actions in English courts. The Company has also been advised by its
English counsel, Freshfields, that subject to certain exceptions and time
limitations, English courts will treat a final and conclusive judgment of a
U.S. court for a liquidated amount as a debt enforceable by fresh proceedings
in the English courts. Such counsel has expressed no opinion, however, as to
whether the enforcement by an English court of any judgment would be in pounds
sterling or as of which date, if any, the determination of the applicable
exchange rate from U.S. dollars to pounds sterling would be made.
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements included elsewhere in this
Prospectus. All information in this Prospectus with respect to the number of
homes in the Group's franchise areas is based either on CACI Information
Services reports (which use 1991 census data compiled by the U.K.'s Office of
Population Census and Surveys) or information published by the Independent
Television Commission ("ITC") and all information with respect to the number of
businesses is based on Company estimates. There can be no assurance that the
actual number of homes in a franchise area is not different from that reflected
in the 1991 census or the ITC data or that the estimated number of businesses
reflects the actual number of businesses in the relevant franchise areas.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THE GROUP
OVERVIEW
The Group operates a telecommunications and cable television business
focused on the East Midlands area of England. The Group is currently
constructing a broadband fiber-optic network to serve the approximately
1,229,900 homes and an estimated 60,600 businesses within its contiguous
franchise areas. The above totals include the areas covered by the
Chesterfield, Lincolnshire and South Humberside and Vale of Belvoir local
delivery licenses which the Group has been awarded but which have not yet been
formally granted. As of June 30, 1996, the Group's cable television and
telecommunications network had passed by civil construction (i.e. ducting)
approximately 369,000 homes and an estimated 19,700 businesses and a portion of
the network passing approximately 242,800 homes and an estimated 14,200
businesses had been activated. As of that date, the Group also had
approximately 78,400 residential telephone lines, 44,400 cable television
subscribers and 15,270 business telephone lines. Through that date,
approximately L.252 million had been invested (at original cost) in the
construction of the network and related systems. For the years ended December
31, 1993, 1994 and 1995, Diamond had total revenues of approximately
L.3,227,000, L.7,306,000 and L.15,993,000, and net losses of L.2,798,000,
L.8,679,000 and L.27,607,000, respectively. For the six months ended June 30,
1995 and June 30, 1996, the Group had total revenues of L.5,504,000 and
L.17,223,000 and net losses of L.7,704,000 and L.29,302,000, respectively.
The Group offers three basic services over its network infrastructure: (i)
residential telephone services allowing customers to place and receive local,
national and international calls and to use additional services such as
conference calling, call waiting, call forward, and call barring, (ii) business
telecommunications services which include the services provided to residential
customers as well as advanced telecommunications services such as Centrex
(which provides businesses, including those with multiple sites, with virtual
PABX and network services), direct dialing inward (DDI), high speed data
services and private circuits, and (iii) cable television services offering
more than 50 channels including movies, sports, news and information, music,
children's programming and general entertainment. See "Business -- Business
Telecommunications and Residential Telephone" and "Business -- Cable
Television".
HISTORY
The Company was founded in 1989 by Allan J. McDonald, a U.S. cable
operator, and Gary L. Davis, the Company's Managing Director. After the death
of Allan J. McDonald in July 1993, construction slowed while the McDonald
family, which owned substantially all of the Company, began to search for a
partner to help finance the construction and operation of the network. In May
1994, European Cable Capital Partners, L.P. ("ECCP") acquired a majority stake
in the Company. ECCP is a partnership in which various investment funds managed
by Goldman, Sachs & Co. or its affiliates
5
<PAGE> 7
(together, the "Goldman Sachs Affiliates") hold an 83.3% interest. The
remaining partnership interests in ECCP are held by affiliates of Robert T.
Goad and Ralph H. Booth II.
CERTAIN OPERATING DATA
The following table sets forth certain data concerning the Company's
franchises at and for the six months ended June 30, 1996 and at and for the
years ended December 31, 1993, 1994 and 1995.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
1993 1994 1995 1996
(DIAMOND) (LCL) (COMBINED)(1)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL AND COMBINED DATA
Homes passed by civils(2)................ 28,699 55,919 222,335 58,976 281,311 369,194
Homes activated(3)....................... 23,772 32,033 105,951 51,955 157,906 242,827
Homes marketed(4)........................ 22,964 31,330 77,657 48,950 126,607 190,551
CABLE TELEVISION
Basic service subscribers................ 5,625 8,936 20,261 10,488 30,749 44,402
Penetration rate of homes marketed(5).... 24.5% 28.5% 26.1% 21.4% 24.3% 23.3%
Average monthly revenue per subscriber(6) L.14.45 L.14.71 L.16.80 L.18.89 L.17.62 L.18.54
Churn(7)................................. 28.7% 28.5% 35.5% 31.0% 33.8% 37.4%
RESIDENTIAL TELEPHONE
Residential lines connected.............. 8,333 14,150 36,122 16,576 52,698 78,429
Penetration rate of homes marketed(5).... 36.3% 45.2% 46.5% 33.9% 41.6% 41.2%
Average monthly revenue per line(8)...... L.18.27 L.18.83 L.18.68 L.22.19 L.19.88 L.19.63
Churn(7)................................. 13.7% 13.8% 13.9% 17.2% 15.0% 17.9%
BUSINESS TELECOMMUNICATIONS
Business customer accounts............... 503 979 1,627 772 2,399 3,156
Business lines connected................. 1,906 3,928 7,036 2,843 9,879 15,273
Private circuits(9)...................... 30 70 151 10 161 194
Average lines per business account (10).. 3.8 4.0 4.3 3.7 4.1 4.8
Average monthly revenue per line(11)..... L.102.67 L.88.68 L.74.60 L.59.60 L.70.23 L.60.95
</TABLE>
NOTES TO CERTAIN OPERATING DATA
(1) Includes LCL on a pro forma basis as if it had been acquired at the
beginning of 1995.
(2) Homes passed by civils is the number of homes that have had ducting
buried outside.
(3) Homes activated is the number of homes that are capable of receiving
cable service without further extension of transmission lines, apart from
the final connection to the home.
(4) Homes marketed is the number of homes activated for which the initial
marketing phase has been completed.
(5) Penetration rate of homes marketed is calculated by dividing the number
of homes receiving basic cable television or the number of residential
lines connected, as the case may be, on the given date by the total number
of homes marketed for the given service as of such date, expressed as a
percentage.
(6) The average monthly revenue per cable television subscriber is calculated
by dividing total cable television subscriber revenues (excluding
installation revenues) for the period by the average number of cable
television subscribers (calculated as a simple average of the number of
basic service subscribers at the end of each month during the period) and
dividing that amount by 12 (for the years ended December 31, 1993, 1994
and 1995), or by six (for the six months ended June 30, 1996).
6
<PAGE> 8
(7) Churn is calculated by dividing net disconnections (total disconnections
less the number of disconnected accounts for which service is later
restored) in a period by the average number of subscribers in the period
(calculated as a simple average of the number of subscribers at the end of
each month during the period). Churn for the six months ended June 30,
1996 is annualized by multiplying the amount as calculated above by 2.
(8) The average monthly revenue per residential telephone line is calculated
by dividing (i) line and equipment rental, outgoing call charges and
incoming call charges for the period by (ii) the average number of
residential telephone lines (calculated as a simple average of the number
of subscribed lines at the end of each month during the period) and
dividing that amount by 12 (for the years ended December 31, 1993, 1994
and 1995) or by six (for the six months ended June 30, 1996).
(9) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(10) Average lines per business account is calculated by dividing the number
of business lines connected on the given date by the number of business
customer accounts on such date.
(11) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12
(for the years ended December 31, 1993, 1994 and 1995) or by six (for the
six months ended June 30, 1996).
7
<PAGE> 9
THE INITIAL SENIOR NOTES
<TABLE>
<S> <C>
Notes Offered..... 13 1/4% Senior Discount Notes due September 30, 2004 (the
"Initial Senior Notes").
Price............. Negotiated prices related to prevailing market prices at the
time of sale.
Maturity Date..... September 30, 2004.
Use of Proceeds... The Company will not receive any proceeds from secondary
sales of the Initial Senior Notes.
Yield and Interest 13 1/4% per annum (computed on a semi-annual bond equivalent
basis) calculated from September 28, 1994. Cash interest
will not accrue on the Initial Senior Notes prior to
September 30, 1999 (the "Cash Interest Date"). Thereafter,
cash interest on the Initial Senior Notes will be payable,
at a rate of 13 1/4% per annum, semi-annually on each March
31 and September 30, commencing March 31, 2000. For U.S.
federal income tax purposes, purchasers of the Initial
Senior Notes will be required to include amounts in gross
income in advance of the receipt of the cash payments to
which the income is attributable. See "Taxation -- United
States -- Original Issue Discount".
Ranking........... The Initial Senior Notes constitute senior unsecured
indebtedness of the Company. In August 1996, certain of the
Company's subsidiaries entered into a senior syndicated bank
loan permitting borrowing in two tranches up to an aggregate
amount of L.340 million (the "Senior Bank Facility"). The
Initial Senior Notes Indenture permits the Company to incur
additional indebtedness to acquire, construct and operate
additional cable franchises. The Company has not issued, and
does not have any current plans to issue, any significant
indebtedness that will be subordinated to the Initial Senior
Notes.
The Initial Senior Notes effectively rank junior to any
indebtedness of the Company's subsidiaries to the extent of
the assets of such subsidiaries and to any secured
indebtedness of the Company to the extent of the assets
securing such indebtedness. Indebtedness under the Senior
Bank Facility is effectively senior to the Initial Senior
Notes as it will be incurred by a subsidiary of the Company,
guaranteed by certain of the Company's other subsidiaries
and secured by liens on the assets of certain of the
Company's subsidiaries, and a pledge of the issued shares of
certain of the Company's subsidiaries. See "Risk Factors --
Holding Company Structure; Liens on Assets".
</TABLE>
8
<PAGE> 10
<TABLE>
<S> <C>
Optional Redemption.... The Initial Senior Notes are redeemable, in whole or in
part, at the option of the Company at any time on or
after the Cash Interest Date at the redemption prices
set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. In addition, in the
event that prior to March 31, 1997 the Company (i)
sells certain Equity Securities in a Public Offering;
or (ii) consummates a Trade Sale, the Company may, at
its option, redeem up to a maximum of $71,275,250 in
principal amount at maturity (25% of such principal
amount) of outstanding Initial Senior Notes from the
net proceeds thereof at 113.25% of the Accreted Value
thereof. See "Description of Initial Senior Notes --
Redemption -- Optional Redemption".
Tax Redemption......... In the event of certain changes affecting withholding
taxes applicable to certain payments on the Initial
Senior Notes, the Initial Senior Notes are redeemable,
as a whole, but not in part, at the option of the
Company, at any time at the Accreted Value thereof, or,
if such redemption is to occur on or after the Cash
Interest Date, at 100% of the principal amount at
maturity thereof, plus accrued and unpaid interest, if
any, to the date of redemption. See "Description of
Initial Senior Notes -- Optional Tax Redemption".
Change of Control...... Upon a Change of Control, each holder of the Initial
Senior Notes will have the right to require the Company
to repurchase such holder's Initial Senior Notes at
101% of the Accreted Value thereof in the case of any
such repurchase prior to the Cash Interest Date or 101%
of the principal amount at maturity thereof plus
accrued and unpaid interest, if any, to the date of
repurchase, in the case of any such repurchase on or
after the Cash Interest Date. There can be no assurance
that the Company would have the financial resources
necessary or otherwise be able to repurchase the
Initial Senior Notes upon a Change of Control. See
"Description of Initial Senior Notes -- Certain
Covenants -- Change of Control" and "Risk Factors --
Holding Company Structure; Liens on Assets".
Original Issue Discount The Initial Senior Notes were initially sold at a price
that represented an original issue discount for U.S.
federal income tax purposes. Thus, although cash
interest is not payable on the Initial Senior Notes
prior to the Cash Interest Date, original issue
discount will accrete over the term of the Initial
Senior Notes and will be included as ordinary income
(including for periods ending prior to the Cash
Interest Date) for United States federal income tax
purposes in advance of receipt of the cash payments to
which the income is attributable. The amount includible
in income by a particular investor will depend on the
price paid by the investor for the Senior Note. See
"Taxation -- United States -- Original Issue Discount".
</TABLE>
9
<PAGE> 11
<TABLE>
<S> <C>
Certain Covenants.............. The Initial Senior Notes Indenture contains
certain covenants which, among other things,
restrict the ability of the Company and its
Restricted Subsidiaries (as defined) to (i)
Incur additional Debt or issue Disqualified
Equity; (ii) pay dividends or make
distributions in respect of the Company's
capital stock or make certain other restricted
payments; (iii) create certain liens or enter
into certain sale and leaseback transactions;
(iv) engage in certain transactions with
Affiliates or Related Persons; or (v) sell
certain assets. In addition, the Initial Senior
Notes Indenture limits the ability of the
Company to consolidate, merge or sell all or
substantially all of its assets. These
covenants are subject to a number of important
exceptions and qualifications, and there can be
no assurance that these covenants will protect
the holders of the Initial Senior Notes from
developments that may adversely affect the
Company's ability to meet its obligations on
the Initial Senior Notes. See "Description of
Initial Senior Notes".
Form of Notes.................. The Initial Senior Notes have been issued
initially as a global security in bearer form
without coupons, which was issued in an
aggregate principal amount at maturity equal to
100% of the aggregate principal amount at
maturity of all Initial Senior Notes issued
under the Initial Senior Notes Indenture and is
held by The Bank of New York, as Book-Entry
Depositary. Beneficial interests in the Global
Senior Note are shown on, and transfers thereof
will be effected only through, records
maintained in book-entry form by DTC (with
respect to its participants). Ownership of the
Book-Entry Interests is limited to persons that
have accounts with DTC ("Participants") or
persons that may hold interests through
Participants ("Indirect Participants"),
including Morgan Guaranty Trust Company of New
York, as operator of the Euroclear System
("Euroclear") and Cedel Bank, societe anonyme
("Cedel").
Except as set forth under "Description of
Initial Senior Notes", Participants or Indirect
Participants are not entitled to receive
physical delivery of Initial Senior Notes in
definitive form or to have Initial Senior Notes
issued and registered in their names and are
not considered the owners or holders thereof
under the Initial Senior Notes Indenture.
Global Clearance and Settlement Book-Entry Interests trade in DTC's Same-Day
Funds Settlement System. Any secondary market
trading of Book-Entry Interests is expected to
occur through Participants and settle in
same-day funds. See "Description of Initial
Senior Notes -- Settlement".
</TABLE>
For additional information concerning the Initial Senior Notes and the
definitions of certain capitalized terms used above, see "Description of
Initial Senior Notes".
10
<PAGE> 12
THE NEW SENIOR NOTES
<TABLE>
<S> <C>
Notes Offered...... 11 3/4% Senior Discount Notes due December 15, 2005 (the
"New Senior Notes").
Price.............. Negotiated prices related to prevailing market prices at
the time of sale.
Maturity Date...... December 15, 2005.
Use of Proceeds.... The Company will not receive any proceeds from secondary
sales of the New Senior Notes.
Yield and Interest. 11 3/4% per annum (computed on a semi-annual bond
equivalent basis) calculated from December 15, 1995. Cash
interest will not be payable on the New Senior Notes prior
to December 15, 2000 (the "Cash Interest Date").
Thereafter, cash interest on the New Senior Notes will be
payable, at a rate of 11 3/4% per annum, semi-annually on
each June 15 and December 15, commencing June 15, 2001. For
U.S. federal income tax purposes, purchasers of the New
Senior Notes will be required to include amounts in gross
income in advance of the receipt of the cash payments to
which the income is attributable. See "Taxation -- United
States -- Original Issue Discount".
Ranking............ The New Senior Notes constitute senior unsecured
indebtedness of the Company. The Company has not issued,
and does not have any current plans to issue, any
significant indebtedness that will be subordinated to the
New Senior Notes.
The New Senior Notes will effectively rank junior to any
indebtedness of the Company's subsidiaries to the extent of
the assets of such subsidiaries and to any secured
indebtedness of the Company to the extent of the assets
securing such indebtedness. Indebtedness under the Senior
Bank Facility is expected to be effectively senior to the
New Senior Notes as it will be incurred by a subsidiary of
the Company, guaranteed by certain of the Company's other
subsidiaries and secured by liens on the assets of certain
of the Company's subsidiaries, and a pledge of the issued
shares of certain of the Company's subsidiaries. See "Risk
Factors -- Holding Company Structure; Liens on Assets".
Optional Redemption The New Senior Notes are redeemable, in whole or in part,
at the option of the Company at any time on or after
December 15, 2000 at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the
date of redemption. See "Description of the New Senior
Notes -- Redemption -- Optional Redemption".
</TABLE>
11
<PAGE> 13
<TABLE>
<S> <C>
Tax Redemption......... In the event of certain changes affecting withholding
taxes applicable to certain payments on the New Senior
Notes, the New Senior Notes are redeemable, as a whole,
but not in part, at the election of the Company, at any
time at the Accreted Value thereof, or, if such
redemption is to occur on or after the Cash Interest
Date, at 100% of the principal amount at maturity
thereof, plus accrued and unpaid interest, if any, to
the date of redemption. See "Description of the New
Senior Notes -- Redemption -- Optional Tax Redemption".
Change of Control...... Upon a Change of Control, each holder of the New Senior
Notes will have the right to require the Company to
repurchase such holder's New Senior Notes at 101% of
the Accreted Value thereof in the case of any such
repurchase prior to the Cash Interest Date or 101% of
the principal amount at maturity thereof plus accrued
and unpaid interest, if any, to the date of repurchase,
in the case of any such repurchase on or after the Cash
Interest Date. There can be no assurance that the
Company would have the financial resources necessary or
otherwise be able to repurchase the New Senior Notes
upon a Change of Control. See "Description of the New
Senior Notes -- Certain Covenants -- Change of Control"
and "Risk Factors -- Holding Company Structure; Liens
on Assets".
Equity Commitment...... The Indenture relating to the New Senior Notes provided
that an event of default would occur under the
Indenture if the Company did not receive an aggregate
of $100 million or more in gross cash proceeds from the
issuance of new equity prior to June 30, 1996, subject
to certain exceptions. In accordance with this
provision, prior to June 30, 1996, the Company's
existing investors subscribed to new equity capital in
an amount of $100 million.
Original Issue Discount The New Senior Notes were initially offered at an issue
price that represents an original issue discount for
U.S. federal income tax purposes. Thus, although cash
interest will not be payable on the New Senior Notes
prior to the Cash Interest Date, original issue
discount (i.e., the difference between the principal
and interest payable on the New Senior Notes and their
issue price) will accrete from the issue date of the
New Senior Notes and will be included as ordinary
income (including for periods ending prior to the Cash
Interest Date) for U.S. federal income tax purposes in
advance of receipt of the cash payments to which the
income is attributable. The amount includible in income
by a particular investor will depend on the price paid
by the investor for the New Senior Notes. See "Taxation
-- United States -- Original Issue Discount".
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C>
Certain Covenants.............. The New Senior Notes Indenture contains certain
covenants which, among other things, will
restrict the ability of the Company and its
Restricted Subsidiaries (as defined) to (i)
Incur additional Debt or issue Disqualified
Equity; (ii) pay dividends or make
distributions in respect of the Company's
capital stock or make certain other restricted
payments; (iii) create certain liens or enter
into certain sale and leaseback transactions;
(iv) engage in certain transactions with
Affiliates or Related Persons; or (v) sell
certain assets. In addition, the New Senior
Notes Indenture limits the ability of the
Company to consolidate, merge or sell all or
substantially all of its assets. These
covenants are subject to a number of important
exceptions and qualifications, and there can be
no assurance that these covenants will protect
the holders of the New Senior Notes from
developments that may adversely affect the
Company's ability to meet its obligations on
the New Senior Notes. See "Description of the
New Senior Notes".
Form of Notes.................. The New Senior Notes were issued initially as a
global security in bearer form without coupons,
which was issued in an aggregate principal
amount at maturity equal to 100% of the
aggregate principal amount at maturity of all
New Senior Notes issued under the New Senior
Notes Indenture and is held by The Bank of New
York, as Book-Entry Depositary. Beneficial
interests in the Global Senior Note will be
shown on, and transfers thereof will be
effected only through, records maintained in
book-entry form by DTC (with respect to its
participants). Ownership of the Book-Entry
Interests is limited to persons that have
accounts with DTC ("Participants") or persons
that may hold interests through Participants
("Indirect Participants"), including Morgan
Guaranty Trust Company of New York, as operator
of the Euroclear System ("Euroclear") and Cedel
Bank, societe anonyme ("Cedel").
Except as set forth under "Description of the
New Senior Notes", Participants or Indirect
Participants are not entitled to receive
physical delivery of New Senior Notes in
definitive form or to have New Senior Notes
issued and registered in their names and are
not considered the owners or holders thereof
under the New Senior Notes Indenture.
Global Clearance and Settlement Book-Entry Interests will trade in DTC's
Same-Day Funds Settlement System. Any secondary
market trading of Book-Entry Interests is
expected to occur through Participants,
including Euroclear and Cedel, and settle in
same-day funds. See "Description of the New
Senior Notes -- Settlement".
For additional information concerning the New Senior Notes and the
definitions of certain capitalized terms used above, see "Description of the New
Senior Notes".
</TABLE>
13
<PAGE> 15
SUMMARY FINANCIAL DATA
The summary consolidated financial data for the Group at and for the years
ended December 31, 1993, 1994 and 1995 and at and for the six months ended June
30, 1995 and 1996 set forth below should be read in conjunction with, and are
qualified in their entirety by reference to, "Selected Financial Data", "Pro
Forma Income Statement Data", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and the Audited Consolidated
Financial Statements and related Notes which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994 1995(1) 1995 1996 1996(2)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications............... L.1,237 L.3,402 L.5,852 L.2,400 L.5,053 $7,847
Residential telephone..................... 1,251 2,545 6,662 2,020 7,882 12,240
Cable television.......................... 719 1,324 3,479 1,084 4,288 6,659
Other revenues............................ 20 35 -- -- -- --
--------- --------- ---------- --------- ---------- ---------
Total revenue........................... 3,227 7,306 15,993 5,504 17,223 26,746
Operating costs and expenses:
Telephone................................. (1,097) (3,067) (5,454) (2,061) (5,873) (9,120)
Programming............................... (324) (701) (1,844) (582) (2,563) (3,980)
Selling, general and administrative....... (1,630) (4,573) (13,031) (4,010) (10,542) (16,371)
Depreciation and amortization............. (2,520) (4,038) (8,867) (2,852) (9,735) (15,118)
Profit (loss) on disposition of assets.... (2) 11 11 -- (11) (17)
--------- --------- ---------- --------- ---------- ---------
Total operating costs and
expenses.............................. (5,573) (12,368) (29,185) (9,505) (28,724) (44,606)
--------- --------- ---------- --------- ---------- ---------
Operating loss.............................. (2,346) (5,062) (13,192) (4,001) (11,501) (17,860)
Unrealized gain/(loss) on interest rate swap -- -- (868) -- 319 495
Interest income............................. -- 1,415 3,887 2,355 1,868 2,901
Interest expense, and amortization
of debt discount and expenses............. (231) (3,836) (17,118) (6,534) (20,129) (31,258)
Foreign exchange gains (losses) net......... (221) (1,196) 925 476 141 219
Other expenses.............................. -- -- (1,241) -- -- --
--------- --------- ---------- --------- ---------- ---------
Net loss.................................... L.(2,798) L.(8,679) L.(27,607) L.(7,704) L.(29,302) $(45,503)
========= ======== ========= ======== ========= ========
BALANCE SHEET DATA:
Property and equipment, net................. L.18,021 L.35,127 L.163,721 L.73,513 L.220,911 $343,053
Total assets................................ 19,882 138,606 374,172 148,449 431,667 670,336
Total debt(3)............................... 21,889 103,068 319,492 107,620 337,850 524,647
Shareholders' equity(4)..................... (5,660) 26,092 25,133 25,171 60,645 94,177
OTHER DATA:
EBITDA(5)................................... L.174 L.(1,024) L.(6,423) L.(1,149) L.(1,447) $(2,247)
Deficiency of earnings to fixed
charges(6)................................ (2,798) (8,679) (27,607) (7,704) (29,302) (45,503)
Capital expenditures........................ 11,880 21,252 136,314 41,232 64,511 100,179
</TABLE>
NOTES TO SUMMARY FINANCIAL DATA
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of
$1.5529 = L.1.00, the Noon Buying Rate on June 28, 1996.
(3) Total debt for periods prior to December 31, 1994 consisted of advances
from shareholders and capital lease obligations. Total debt at December
31, 1994 and June 30, 1995 consisted of the Initial Senior Notes and
capital lease obligations. Total debt at December 31, 1995 and June 30,
1996 consisted of the Initial Senior Notes, the New Senior Notes, capital
lease obligations and the mortgage loan.
(4) The Company raised additional equity financing of L.64.6 million in the
six months ended June 30, 1996 and of L.27.0 million and L.40.4 million in
the years ended December 31, 1995 and 1994, respectively.
14
<PAGE> 16
(5) Earnings before interest, taxes, depreciation and amortization and
foreign exchange translation gains and losses ("EBITDA") is presented
because it is a widely accepted financial indicator of a leveraged
company's ability to service and incur indebtedness. EBITDA should not,
however, be considered as a substitute for net income as a measure of
operating results or for cash flows as a measure of liquidity.
(6) Represents the amount by which loss before income taxes and fixed charges
("earnings") failed to cover fixed charges. Fixed charges consist of
interest expense (including amortization of debt issuance costs and debt
discount) plus the portion of rental expense under operating leases which
has been deemed by the Company to be representative of the interest factor
(1/3 of rental expense). Because fixed charges exceeded earnings for all
periods presented, a ratio of earnings to fixed charges is not presented.
15
<PAGE> 17
EXCHANGE RATES
The following table sets forth, for the years, periods and dates
indicated, the average, high, low and period-end Noon Buying Rates for pounds
sterling expressed in U.S. dollars per L.1.00:
<TABLE>
<CAPTION>
YEAR AVERAGE(1) HIGH LOW PERIOD-END
<S> <C> <C> <C> <C>
1991............................ 1.76 2.00 1.60 1.87
1992............................ 1.76 2.00 1.51 1.52
1993............................ 1.49 1.59 1.42 1.48
1994............................ 1.54 1.64 1.46 1.57
1995............................ 1.58 1.64 1.53 1.55
1996 (through September 5, 1996) 1.54 1.57 1.49 1.57
</TABLE>
- --------------
(1) The average of the Noon Buying Rates on the last day of each full month
during the period.
The Noon Buying Rate on September 5, 1996 was $1.5667 = L.1.00. For a
discussion of the impact of exchange rate movements on the Group's financial
condition and results of operations as well as its ability to service its U.S.
dollar-denominated obligations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Foreign Exchange".
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Group as of June 30, 1996. This table should be read in conjunction with
"Selected Financial Data", the Group's Consolidated Financial Statement and
Notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1996
(in thousands)
<S> <C> <C>
Long-term debt (2):
Mortgage................. L. 2,500 $3,882(1)
Capital lease obligations 8,753 13,593
Initial Senior Notes..... 121,059 187,993
New Senior Notes......... 205,538 319,179
---------- ---------
Total long-term debt....... 337,850 524,647
Shareholders' equity(3).... 60,645 94,176
---------- ---------
Total capitalization....... L.398,495 $618,823
========== =========
</TABLE>
- --------------
(1) Based on the Noon Buying Rate in effect on June 28, 1996 of L.1.00 =
$1.5529.
(2) In August 1996, certain of the Company's subsidiaries entered into the
Senior Bank Facility which permits additional borrowings or the issuance
of guarantees of up to L.340 million.
(3) As required under the terms of the New Senior Notes, the Company procured
subscriptions for additional ordinary shares for proceeds of $100 million
(L.64.6 million net of issue costs) prior to June 30, 1996. These shares
were subscribed to by certain of the Company's existing investors.
17
<PAGE> 19
RISK FACTORS
An investment in the Senior Notes is subject to a number of risks, which,
together with the other information set forth in this Prospectus, should be
considered carefully by prospective investors prior to any purchase of Senior
Notes.
REQUIREMENT FOR ADDITIONAL FUNDS; SENIOR BANK FACILITY
The development, construction and operation of the Group's cable
television and telecommunications network will require substantial capital
investment. The Company estimates that the total further cost required from
June 30, 1996 for its current construction plan for its network in the Group's
franchises will be approximately L.585 million prior to January 1, 2001,
although this estimate could vary significantly depending on the number of
customers actually connected to the network, the availability of construction
resources and other reasons described below. The Group is obligated under the
terms of its telecommunications licenses, and under the milestone requirements
set out in the LDLs that the Group has recently been granted or awarded to
construct the network to reach an aggregate of 1,021,894 premises (homes and
businesses) within prescribed time periods. At June 30, 1996, the portion of
the network in the Group's franchise areas that had been activated was
approximately 257,000 premises. See "Business -- Milestones".
In August 1996, certain of the Company's subsidiaries entered into a
senior syndicated bank loan permitting borrowing in two tranches up to an
aggregate amount of L.340 million to help meet the Group's funding
requirements. Indebtedness under the Senior Bank Facility will be incurred by a
subsidiary of the Company, guaranteed by certain of the Company's other
subsidiaries and secured by a lien on the assets of Jewel and its subsidiaries
and a pledge of the issued shares of certain of the Company's subsidiaries
other than Jewel but including DCL and LCL. The Company will be able to draw on
only a portion of such facility until certain conditions are met, including
conditions related to the operating cash flow of Jewel's subsidiaries which are
not currently met. The Company believes that available cash resources, the
initial tranche available for borrowing under the Senior Bank Facility, and
cash flows from operations will be sufficient to complete the planned
construction through the first quarter of 1997. Thereafter, the Company expects
to be able to utilize the remaining amounts under the Senior Bank Facility or,
if such remaining amounts are not available or are insufficient to complete the
planned construction of the network, to obtain further debt or equity
financing. To the extent that the Group is unable to utilize the Senior Bank
Facility, the amounts required to complete the Group's planned build out exceed
its estimates or the Group's operating cash flow does not meet expectations,
the Group will require additional debt or other financing. There can be no
assurance that any such debt financing will be permitted under the terms of the
Group's existing and anticipated debt instruments which limit the incurrence of
additional debt by the Group, or that any such financing will be available on
acceptable commercial terms or at all. See "Business -- Franchise Areas". See
"-- Potential Adverse Consequences of Financial Leverage" and "-- Holding
Company Structure; Liens on Assets".
The foregoing information is forward looking in nature. In addition to the
reasons provided above, actual results may differ materially for the following
reasons. There can be no assurance that (i) the Group will be able to access
all amounts available under the terms of the Senior Bank Facility; (ii) actual
construction costs will not exceed the Company's expectations; (iii) conditions
precedent to advances or the availability of funds under any of the Group's
existing and anticipated debt instruments will be satisfied when funds are
required; (iv) the Group will be able to generate sufficient cash from
operations to meet any unfunded portion of its capital requirements when
required; (v) the Group will not acquire additional franchise areas, which
would require additional capital expenditures; or (vi) the Group will not incur
losses from its exposure to foreign currency exchange rate fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Company Debt -- Senior Bank Facility". To date,
the Group has funded its capital expenditure needs primarily through equity
investments, and proceeds from the issuance of the Senior Notes. The inability
of the Group to secure additional financing could result in a failure to comply
with the minimum build milestones set forth in its licenses and could
ultimately lead to the revocation of such licenses. See "-- Requirement to Meet
Build Milestones" and "Certain Regulatory Matters -- Cable Telecommunications".
18
<PAGE> 20
ABILITY TO MANAGE NETWORK DEVELOPMENT AND EXPANSION
The Company has undertaken a rapid acceleration in the build out of its
existing franchise areas. During the first six months of 1996 and the year
1995, over 87,800 and 174,000 homes, respectively, were passed by civils
construction by the Company's cable network, as compared with approximately
27,000 homes passed by civils construction in all of 1994. The Company intends
to continue the rapid growth and development of network construction to meet
the Group's regulatory milestones. The development of the Group's network will
depend on, among other things, the Group's ability to build out its system in a
timely manner at reasonable costs. The Group may encounter difficulty in
obtaining qualified contractors and may encounter cost overruns or delays in
construction. Although the Company believes it will be able to negotiate
construction contracts at competitive rates, construction costs could increase
significantly over the next few years as the demand for cable construction
services rises in response to overall growth in the industry. As with other
U.K. cable operators, the Group is generally required to use underground
construction, which is more expensive and time consuming than aerial
construction. The Group cannot broadly employ mechanized construction methods
due to existing underground utility infrastructure, and is responsible for the
expense of restoring surface area after construction is completed. Given the
current high levels of cable construction in the U.K. and the corresponding
demand for materials, the Group may also from time to time experience shortages
or price increases for critical components such as fiber optic cable, ducting
and cabinets. In addition, the rapid growth in the number of homes passed has
led and may continue to lead to a prolonged lag between network construction
and marketing.
The number of homes constructed by the Group's civils cable network has
substantially exceeded homes activated and homes marketed since the Company
began to accelerate the construction of its network in 1995. The Company has
accelerated the activation of homes and the release of homes for marketing. As
a result, the Company has experienced and expects to continue to experience a
substantial increase in subscribers to its services, which may place
significant strains on the operational resources and financial controls of the
Group. In particular, the capacity of the Group's subscriber management system
will need to be substantially upgraded in order to handle the expected increase
in subscribers. The Company is reviewing its internal procedures and subscriber
management system with a view to improving their reliability and reducing the
number of transactions required to be input into the system manually. There can
be no assurance, however, that the Group will successfully upgrade a new
subscriber management system or that the Group will not experience difficulties
with its existing system. Management of the Group's expected growth will also
require continued development of the Group's other operating and financial
controls and may place additional stress on the Company's management and
operational resources. If the Group is unable to manage its expected rapid
growth and development successfully, the Group's operating results and
financial condition could be materially adversely affected.
LIMITED HISTORY OF CABLE TELECOMMUNICATIONS AND CABLE TELEVISION IN THE U.K.;
CUSTOMER ACCEPTANCE
Cable telecommunications and cable television have a limited history in
the U.K. Although initial customer acceptance of Diamond's services has been
encouraging, the Company is unable to predict with certainty how demand for
these services may develop over time. The Group's future profitability depends
in large measure on the development of customer acceptance of the Group as an
attractive alternative to its competitors as a provider of telephone services
as well as a preference for cable television over other forms of in-home
entertainment. Since June 30, 1995, the Group has, through the acquisition of
LCL and the acquisition of LDLs in other new franchise areas, significantly
expanded the number of homes in its franchise areas. The Group's future success
will depend in part on customer acceptance of its cable telecommunications and
television services and its ability to extend its brand name in these new
franchise areas.
The Group like most other U.K. cable operators, has to date experienced
significant annual cable television subscriber churn. The Group's cable
television subscriber churn during the six months ended June 30, 1996
(annualized) was 37.4%. The Group continues to focus on ways it can reduce
churn. However, there can be no assurance that such efforts will successfully
reduce churn levels or that the Group will not experience higher churn levels
in the future, which could have a material adverse effect on the Group's
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview".
19
<PAGE> 21
SIGNIFICANT COMPETITION
The provision of cable television and telecommunications services over a
single integrated network infrastructure is still in the relatively early
stages of development and the Group faces significant competition from
established competitors in each of its business telecommunications, residential
telephone and cable television business areas. The Company believes that
competition will intensify in each of these business areas, particularly
business telecommunications.
BUSINESS TELECOMMUNICATIONS
The Group competes primarily with British Telecommunications plc ("BT")
and a number of other competitors, the largest of which is Mercury
Communications Limited ("Mercury"), in providing business telecommunications
services to businesses in its franchise areas. The Group competes largely on
the basis of quality of services offered and price. BT, the former state-owned
telephone monopoly and Mercury, which is a majority-owned subsidiary of Cable &
Wireless plc, each have resources substantially greater than those of the
Group. In addition, each of Mercury and BT has a national presence which may
permit it to offer telecommunications, data transmission and other services on
a nationwide basis to business telecommunications customers with nationwide
operations beyond those that the Group is currently able to offer on its own.
The Company expects that competition with Mercury and BT and other service
providers entering the business telecommunications market, such as Energis
Communications Limited ("Energis"), which operates a telecommunications service
using the national electricity transmission network infrastructure, will
intensify in the future. See "Business -- Competition -- Business
Telecommunications".
RESIDENTIAL TELEPHONE
The Group's principal competitor in providing telephone services to
residential customers is BT, which has an established market presence, fully
built networks and resources substantially greater than those of the Group. As
the substantial majority of U.K. residential telephone customers are currently
customers of BT, the Group's growth in residential telephone services depends
upon BT customers changing to the Group's telephone system. The Company
believes that price is currently one of the most important factors influencing
the decision of U.K. customers to switch to a cable telephone service. As a
result, the Group currently seeks to provide its telephone subscribers with
monthly savings on the cost of calls compared to BT. BT, however, has
implemented significant price cuts for certain categories of calls and has
announced a pricing initiative which has led to further price reductions for
certain users. While Diamond has reacted to previous BT price reductions by
reducing its rates in order to maintain its competitive price advantage,
Diamond did not take such action in response to the most recent BT price
initiative. The Company believes that BT will be required for regulatory and
competitive reasons to continue to reduce its prices in the future. See
"Business -- Competition -- Residential Telephone" and "Certain Regulatory
Matters -- Cable Telecommunications -- Price Regulation". There can be no
assurance that such price cuts will not adversely affect the residential
telephone operations of the Group or that the Group will be able to continue to
offer customers cost savings as compared to BT. The Group also competes, to a
lesser extent, with Mercury in providing residential telephone service. To
date, Mercury has not made a substantial effort to enter the residential
telephone market and has concentrated on the business telecommunications
market.
In addition to BT and Mercury, the Group competes in the telephone
business with cellular telephone operators and other service providers, and
competition from these and other service providers is expected to intensify in
the future. For example, recently Ionica, a company with a license to offer
telecommunications services using radio technology, has installed a GPT System
X telephone exchange in Nottingham as part of its national program. See
"Business -- Competition -- Residential Telephone".
CABLE TELEVISION
The Group competes directly with television programming provided by
terrestrial (over-the-air) broadcast television stations and DTH satellite
services and may be subject to competition from satellite master antenna
television systems ("SMATV" systems). The Group's cable television programming
also competes to varying degrees with other entertainment media, including home
video (generally video rentals). The Company expects that in the future the
Group may face competition from programming provided by video-on-demand
services, including those that may be provided by national PTOs. See "Certain
Regulatory Matters -- Restrictions on National PTOs". The extent of competition
from other
20
<PAGE> 22
service providers depends upon, among other factors, the quantity and quality
of the programming offered, the price (including the amount of up-front and
service costs), and, with respect to DTH satellite and broadcast services, the
quality of the broadcast signal. The Group also competes with other companies
(which may include PTOs and other cable operators) for the award of new
franchises, the purchase of existing franchises and new sources of capital. The
full extent to which existing or future competitors using existing or new
methods of delivery of television services will compete with cable television
services may not be known for several years. An increase in the number of
channels offered by terrestrial and DTH satellite services could have an
adverse effect upon the Group's ability to compete effectively in the cable
television industry. In addition to the four existing terrestrial channels, a
license to operate an additional commercial terrestrial channel (Channel 5) was
awarded on October 27, 1995 to commence broadcasting on or before January 1,
1997. See "Business -- Competition -- Cable Television".
The Broadcasting Act 1996 includes provisions for the regulation of
digital terrestrial television, which will result in several additional
terrestrial channels serving a substantial percentage of the U.K. population.
Some of the channels will be reserved for digital simultaneous broadcasting by
the existing terrestrial broadcasters. The introduction of digital terrestrial,
as well as digital satellite, television will provide both additional
programming opportunities as well as increased competition for the Group. See
"Certain Regulatory Matters -- Future Developments -- Digital Broadcasting".
POTENTIAL ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
The Group is highly leveraged. At June 30, 1996, the Group had
approximately L.338 million aggregate amount of long-term indebtedness
outstanding. As the Group draws down amounts available under the Senior Bank
Facility, the amount of debt outstanding will increase further. The indentures
governing the Initial Senior Notes and the New Senior Notes permit the Group to
incur substantial additional indebtedness to fund the build out or expansion of
the Group's telecommunications and cable television business, as well as to
acquire, and fund the build out and operation of, new cable franchises. The
ability of the Group to make scheduled payments under present and future
indebtedness will depend on, among other things, the Group's ability to
complete the build out of the franchises on a timely and cost effective basis,
the Company's ability to access the earnings of its subsidiaries (which may be
subject to significant contractual and legal limitations), the future operating
performance of the Group and the Group's ability to refinance its indebtedness
when necessary. Each of these factors is to a large extent subject to economic,
financial, competitive, regulatory and other factors that are beyond the
Group's control. In addition, any future borrowings are likely to contain
covenants which limit the Group's operating and financial flexibility. See
"Description of Company Debt".
The degree of the Group's leverage could have important consequences to
holders of Senior Notes, including (i) increasing the Group's vulnerability to
adverse general economic and industry conditions; (ii) limiting the Group's
ability to obtain additional financing to fund future working capital needs,
capital expenditures, acquisitions or other general corporate purposes,
including the build out of the franchises; (iii) requiring a substantial
portion of the Group's cash flow from operations to be dedicated to debt
service requirements, thereby reducing the funds available for operations and
future business opportunities; and (iv) increasing the Group's exposure to
increases in interest rates given that certain of the Group's borrowings may be
at variable rates of interest. In addition, the Company may under certain
circumstances be obligated to offer to repurchase its outstanding debt
securities prior to maturity and there can be no assurance that the Company
will have the financial resources necessary or otherwise be able to repurchase
those securities in such circumstances.
HOLDING COMPANY STRUCTURE; LIENS ON ASSETS
The Company is a holding company that conducts substantially all of its
business through subsidiaries. The ability of the Company and its creditors,
including holders of the Senior Notes, to benefit in the distribution of any
assets of any of the Company's subsidiaries upon any liquidation of any such
subsidiary will be subject to the prior claims of the subsidiary's creditors,
including trade creditors and, to the extent that such subsidiary is not
directly owned by the Company, to the prior claims of any other subsidiaries
directly or indirectly owning such subsidiary. The ability of the Company to
pay interest on the Senior Notes or to repay the Senior Notes at maturity or
otherwise, will be dependent upon the cash flows of its subsidiaries and the
payment of funds by those subsidiaries to the Company in the form of repayment
of loans, dividends or otherwise. The Company's subsidiaries have no
obligation, contingent or otherwise, to pay amounts due pursuant to the Senior
Notes or to
21
<PAGE> 23
make funds available therefor, whether in the form of loans, dividends or
otherwise. In addition, the creditors of the Company's subsidiaries (including
the lenders under the Senior Bank Facility) have imposed restrictions on the
rights of the Company to receive from its subsidiaries repayment of or interest
in respect of intercompany loans. Certain of the Company's subsidiaries are
prevented from paying dividends by capital lease arrangements entered into by
those subsidiaries. Further, applicable English law limits the amount of
dividends which may be paid by the Company's subsidiaries to the extent they do
not have profits available for distribution, and other statutory and general
law obligations affect the ability of directors of the Company's subsidiaries
to declare dividends and the ability of the Company's subsidiaries to make
payments to the Company on account of intercompany loans. In addition, the
ability of the Company and its creditors, including holders of the Senior
Notes, to benefit from distributions of assets of the Company's subsidiaries
may be limited to the extent that the outstanding shares of any of its
subsidiaries are pledged to secure other debt of the Company or its
subsidiaries. The Indentures relating to the Senior Notes limit, but do not
prohibit, the incurrence of additional indebtedness by the Company's
subsidiaries. Such subsidiaries are expected to incur substantial additional
indebtedness during the next five years, including indebtedness under the
Senior Bank Facility.
A substantial portion of the Group's existing and future indebtedness
(other than the Senior Notes) will be secured by liens over the assets of
certain of the Company's subsidiaries and the shares in the Company's
subsidiaries (other than shares in Jewel). The principal fixed assets of the
Company's subsidiaries are cable headends, cable television and
telecommunications distribution equipment, telecommunications switches and
customer equipment. The value of a substantial portion of these fixed assets is
derived from their employment in the Group's cable television and
telecommunications businesses. These assets are highly specialized and, taken
individually, can be expected to have limited marketability. Consequently, in
the event that secured creditors seek to realize on the collateral securing
debt of the Company's subsidiaries, these creditors would be likely to seek to
sell the business as a going concern (possibly through a sale of pledged shares
of subsidiaries), either in its entirety, or by franchise or other business
unit, in order to maximize the proceeds realized. The amounts (and the timing
of the receipt of any amounts) available to satisfy the Company's obligations
under the Senior Notes after any such sale may be adversely affected by
provisions of U.K. insolvency laws favoring secured creditors.
HISTORICAL OPERATING LOSSES
The Group had incurred aggregate operating and net losses, from
commencement of operations through June 30, 1996 of approximately L.50.2
million and L.98.9 million, respectively, which includes aggregate operating
and net losses of L.13.3 million and L.23.8 million respectively for LCL
incurred prior to its acquisition in September 1995. Although the Company
believes that the continued expansion of its network ultimately will provide
the Group with revenues that will exceed its operating expenses, the Company
expects to continue to incur additional net losses and there can be no
assurance that the Group's operations will become profitable. The Group's
ability to achieve profitability will depend in large measure on its ability to
attract a sufficient number of subscribers to its services, permitting its
relatively fixed costs to decline in relation to the number of subscribers and
as a percentage of revenues. See "-- Limited History of Cable
Telecommunications and Cable Television in the U.K.; Customer Acceptance".
Failure to become profitable or generate sufficient positive operating cash
flows would impact the Group's ability to sustain operations and obtain
required additional funds. See "-- Requirement for Additional Funds; Senior
Bank Facility" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources".
POTENTIAL CHANGES IN GOVERNMENT REGULATION
The activities of cable television and telecommunications operators in the
U.K. are regulated and supervised by various entities: the ITC, the Office of
Telecommunications ("OFTEL") under the direction of the Director General of
Telecommunications (the "Director General") and the Department of Trade and
Industry ("DTI") on behalf of the Secretary of State for Trade and Industry
(the "Secretary of State"). Changes in laws, regulations or government policy
(or in the interpretation of existing laws or regulations) affecting the Group,
its competitors or the industry generally, such as licensing requirements,
price regulation, interconnection arrangements, the introduction of equal
access, the imposition of universal service obligations, acceleration of the
date (which is scheduled for 2001, but is subject to review in 1998) on which
BT, Mercury and other PTOs can convey broadcast entertainment services over
their existing national networks or a change in policy allowing more than
22
<PAGE> 24
one cable television license in a franchise area, could have a material adverse
effect on the Group. Any such change could follow a change of government in the
U.K. or could occur in any event. It is the stated policy of the Labour Party
to review the restrictions on national PTOs, should the Labour Party become the
governing party. A General Election is required to be held by spring 1997 but
may be called earlier. See "Certain Regulatory Matters -- Restrictions on
National PTOs".
As the U.K. is a member of the European Union, the Company may be subject
to regulatory initiatives of the European Commission ("EC"). Changes in EC
directives, particularly to the extent that they introduce provisions requiring
the Group to provide access to its cable network infrastructure to other
service providers, could have a material adverse effect on its business.
LIMITATIONS ON ACCESS TO PROGRAMMING
The Company's ability to offer competitive cable television services is
dependent on its ability to obtain suitable programming at a reasonable cost.
While various sources of programming are available to cable system operators in
the U.K., British Sky Broadcasting Group plc and its wholly-owned subsidiary
British Sky Broadcasting Limited (collectively, "BSkyB") are the leading
suppliers of cable programming and the exclusive suppliers of certain
programming, including Sky Sports and the most popular premium movie channels
available in the U.K. BSkyB also competes with the Group by operating a
direct-to-home ("DTH") satellite service that provides programming, including
programming that is also offered by the Group, to approximately 3.25 million
subscribers in the U.K. BSkyB's programming is important in attracting and
retaining cable television subscribers and, in the absence of more alternative
programming sources, BSkyB may be able to set and raise prices for its
programming without significant competitive pricing pressure. In both 1995 and
early 1996, BSkyB implemented significant increases in the per subscriber price
for its important movie and sports premium channels. To date, the Group has
not had a formal contract with BSkyB, and the Group is not currently in
discussions with BSkyB relating to a definitive written programming supply
contract. There can be no assurance that BSkyB will continue to supply
programming to the Group on reasonable commercial terms or at all. Further,
existing or potential arrangements between BSkyB and other cable operators may
hinder the development of alternative programming through cooperative ventures
among cable operators. On July 24, 1996, the U.K. Director General of Fair
Trading ("DGFT") announced the results of an inquiry launched by the U.K.
Office of Fair Trading ("OFT") in December 1995, to review BSkyB's position in
the pay TV market, such review to cover the supply of programming to pay TV
including to cable operators, access to encryption and subscriber management
services and the supply of programming to cable operators. As a result of this
inquiry, BSkyB has given certain informal undertakings and the cable industry
is currently awaiting the approval of a revised BSkyB rate card by the OFT. See
"Business -- Cable Television -- Programming". Moreover, the Group has not
entered into written contracts with many of its other program suppliers. The
loss of BSkyB or other programming, a deterioration of the perceived quality of
BSkyB or other programming, or a material increase in the price that the Group
is required to pay for BSkyB or other programming could have a material adverse
effect on the Group.
DEPENDENCE ON KEY PERSONNEL
The Group's business is managed by a small number of key executive
officers, the loss of certain of whom could have a material adverse effect on
the Group. The Company believes that its future success will depend in large
part on its continued ability to attract and retain highly skilled and
qualified personnel, particularly as the Group experiences a rapid growth in
the scope of its business as construction of its cable network accelerates. The
Group has entered into service or management contracts providing for the
services of certain of its key executive officers and employees. The Company
has not obtained life insurance policies covering such key executive officers.
See "Management".
REQUIREMENT TO MEET BUILD MILESTONES
The Group is obliged by the milestones in its telecommunications licenses
and the new LDLs to construct a network to pass an aggregate of 1,021,894
premises within prescribed time periods. At June 30, 1996 the portion of the
Group's network that had been activated was approximately 257,000 premises
(homes and businesses). At December 31, 1995 the Group was obligated to meet
specified milestones in eight of the Group's franchise areas where building was
due to have commenced. Compliance with the milestones in these areas is in each
case monitored by OFTEL. During June 1996,
23
<PAGE> 25
OFTEL informed the Company that it did not agree with the Company's historical
method for calculating compliance with its milestone obligations. Based on
OFTEL's method of calculating premises passed, at June 30, 1996, the Group
failed to meet its year-end 1995 milestones in six of its eight franchise
areas. The Company has renegotiated its milestone obligations with OFTEL. See
"Business -- Milestones" and "Certain Regulatory Matters -- Cable
Telecommunications -- Network Construction and Service Obligations". In five of
the seven franchise areas in which the Group has been granted or awarded LDL's
by the ITC, the Group is formally required under the LDLs, to meet its first
milestone obligations by year-end 1996. Due to delays in the granting of
telecommunications licenses, which are required before construction can
commence, the ITC's Director of Cable & Satellite has indicated that, in the
case of the franchises where there is a year-end 1996 milestone, he will
recommend to the ITC (subject to its formal approval) that the ITC formally
modify the Group's milestones. Failure of the Group to meet its construction
milestones under its telecommunications licenses could result in the
commencement by the Director General of proceedings to require compliance.
Similarly, the ITC may commence proceedings to require compliance with the
build milestones in the LDLs. If the Group were unable to comply, its licenses
in respect of which milestones have not been met could be revoked and awarded
to other cable operators, which could have a material adverse effect on the
Group. Failure to comply with a build milestone in the LDLs recently awarded
could also result in the ITC imposing a fine and shortening the license period
of the LDL. In addition, a failure to meet certain build requirements may in
certain circumstances preclude the Group from making additional borrowings or
could lead to an event of default under the Senior Bank Facility, which could
in turn lead to an event of default under the Senior Notes and other
indebtedness of the Group. See "-- Requirement for Additional Funds; Senior
Bank Facility", "Business -- Milestones" and "Certain Regulatory Matters".
RAPID TECHNOLOGICAL CHANGES
The cable television and telecommunications industries are subject to
rapid and significant changes in technology. The Company believes that the
Group's network has been designed with a capacity sufficient to accommodate
anticipated business demands and technological changes, as well as to permit
new services, including advanced interactive telecommunications services which
the Company intends to provide as they become generally available in the
future. The Group's network generally employs fiber-optic cable to the 500-home
level for both cable television and telecommunications services. The system
includes GPT System X and Northern Telecom DMS local exchange switches with
synchronous digital hierarchy (SDH) multiplexing transmission equipment in a
self-healing loop configuration. There can be no assurance, however, that
existing, proposed or as yet undeveloped technologies will not become dominant
in the future or otherwise render cable television or telecommunications
services less competitive, less profitable or less viable.
CURRENCY RISKS; NO EXCHANGE RATE HEDGING TRANSACTIONS
A substantial portion of the Group's outstanding indebtedness, including
the Senior Notes, is denominated in dollars. The Group's revenues are generated
in pounds sterling while the interest and principal obligations with respect to
this indebtedness will be payable in dollars. The Group has not entered, and
currently does not expect to enter, into transactions to hedge the risk of
exchange rate fluctuations but keeps its positions under review. Changes in the
currency exchange rate may have a material adverse effect on the Group's
ability to make payments on this indebtedness, including the Senior Notes.
In addition, foreign currency translation gains and losses are reported as
part of the profit or loss of the Group. Therefore, changes in currency
exchange rates may have a material adverse effect on the results of operations
of the Group. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Foreign Exchange".
CONTROL OF THE GROUP; POTENTIAL CONFLICTS OF INTEREST
ECCP, which is affiliated with Goldman, Sachs & Co., owns 66.7% of the
outstanding shares of the Company. Certain investment funds managed by Goldman,
Sachs & Co. or its affiliates directly own 4.2% of the Company's outstanding
shares. As a result, ECCP has the ability to exercise control over the business
and affairs of the Company by virtue of its continuing ability to control the
board of directors. Pursuant to a shareholders agreement, ECCP has the right,
which it has exercised, to appoint four of the Directors of the Company, one of
whom may exercise voting control at meetings of the Directors. See
"Shareholders -- Shareholders Agreement". In the event that circumstances arise
in
24
<PAGE> 26
which the interests of ECCP or of the shareholders as a whole conflict with the
interests of the holders of the Senior Notes, such as if the Group were to
encounter financial difficulties or were unable to pay its debts as they
mature, the holders of the Senior Notes could be disadvantaged by the actions
that ECCP and the other shareholders may seek to pursue. In addition, the
shareholders may pursue acquisitions, divestitures, financings, currency
exchange or interest rate hedging or other transactions that could enhance the
value of their equity investment, even though such transactions might involve
risks to the holders of the Senior Notes. Holders of the Initial Senior Notes
and New Senior Notes must rely on the covenants described under "Description of
Initial Senior Notes -- Certain Covenants" and "Description of New Senior Notes
- -- Certain Covenants", respectively, to protect their interests and there can
be no assurance that those covenants will protect the holders of the Initial
Senior Notes or the New Senior Notes from the risks described above.
LIMITED INSURANCE COVERAGE
The Group obtains insurance of the type and in the amounts that the
Company believes is customary in the U.K. for similar companies. Consistent
with this practice, the Group does not insure the underground portion of its
cable network. Accordingly, any event or circumstance damaging a significant
portion of the system's cable network could result in substantial uninsured
losses.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Notes were issued at an original issue discount for U.S.
federal income tax purposes. Consequently, purchasers of the Senior Notes
generally will be required to include amounts in gross income for U.S. federal
income tax purposes in advance of receipt of the cash payments to which the
income is attributable. See "Taxation -- United States -- Original Issue
Discount" for a more detailed discussion of the U.S. federal income tax
consequences for the owners of the Senior Notes resulting from the purchase,
ownership and disposition of the Senior Notes.
If the Company goes into liquidation after the issuance of the Senior
Notes, the claim of a holder of the Senior Notes with respect to amounts owing
in respect thereof may be limited to an amount equal to the sum of (i) the
issue price of the Senior Notes and (ii) that portion of the original issue
discount which has accreted in respect of the period before the Company goes
into liquidation. Any original issue discount that was not accreted as of the
date on which the Company goes into liquidation may not be provable, and any
cash interest accruing under the Senior Notes in respect of any period after
the Company goes into liquidation would not be provable, in the liquidation of
the Company (although bankruptcy law provides for any surplus remaining after
payment of all other debts proved in the liquidation to be available towards
paying interest accrued on debts in respect of any period after the Company
went into liquidation).
TRADING MARKET FOR THE SENIOR NOTES
The Senior Notes are a new issue of securities for which there is
currently a limited market. The market prices for the Senior Notes can be
expected to fluctuate depending upon prevailing interest rates, the market for
similar securities and other factors. No assurance can be given that a holder
of Senior Notes will be able to sell such Senior Notes in the future or that
such sale will be at a price equal to or higher than the price paid by the
holder. Although Goldman, Sachs & Co. have informed the Company that they
currently intend to make a market in the Senior Notes, they are not obligated
to do so and any such market-making may be interrupted or discontinued at any
time without notice. Accordingly, there can be no assurance as to the ongoing
development or liquidity of any market for the Senior Notes. If an active
public market does not develop or is interrupted, the market price and
liquidity of the Senior Notes may be adversely affected. Moreover, because
Goldman, Sachs & Co. are affiliated with the Company, they will be required to
deliver a current prospectus and otherwise comply with the registration
requirements of the Securities Act in connection with any secondary market sale
of Senior Notes which may affect their ability to continue market-making
activities. See "Plan of Distribution".
25
<PAGE> 27
SELECTED FINANCIAL DATA
The selected financial data set forth below for the Group as of December
31, 1992, 1993, 1994 and 1995 and for each of the years in the four year period
ended December 31, 1995 have been excerpted or derived from the audited
financial statements of the Group which as of December 31, 1994 and 1995 and
for each of the years in the three-year period ended December 31, 1995 are
included elsewhere herein, which have been audited by KPMG, independent
auditors. The selected financial data as of, and for the year ended, December
31, 1991 have been excerpted from the unaudited financial statements of Diamond
and the selected financial data as of, and for the six months ended June 30,
1995 and 1996 set forth below have been derived from the unaudited financials
statements of the Group, and, in the opinion of the Company, have been prepared
on a basis substantially consistent with that of the audited periods.
The selected data have been prepared in accordance with United States
generally accepted accounting principles ("U.S. GAAP") and should be read in
conjunction with, and are qualified in their entirety by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and the Consolidated Financial Statements of the Company and LCL
Cable and the related Notes thereto, which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1991 1992 1993 1994 1995(1) 1995 1996 1996(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications........... L. -- L.178 L.1,237 L.3,402 L.5,852 L.2,400 L.5,053 $7,847
Residential telephone................. -- 153 1,251 2,545 6,662 2,020 7,882 12,240
Cable television...................... 170 458 719 1,324 3,479 1,084 4,288 6,659
Other revenues........................ -- 11 20 35 -- -- -- --
--------- --------- --------- --------- ---------- --------- ---------- ---------
Total revenue....................... 170 800 3,227 7,306 15,993 5,504 17,223 26,746
Operating costs and expenses:
Telephone............................. -- (140) (1,097) (3,067) (5,454) (2,061) (5,873) (9,120)
Programming........................... (90) (184) (324) (701) (1,844) (582) (2,563) (3,980)
Selling, general and administrative... (942) (914) (1,630) (4,573) (13,031) (4,010) (10,542) (16,371)
Depreciation and amortization......... (691) (1,530) (2,520) (4,038) (8,867) (2,852) (9,735) (15,118)
Profit/(loss) on disposition of assets (432) (3) (2) 11 11 -- (11) (17)
--------- --------- --------- --------- ---------- --------- ---------- ---------
Total operating costs and
expenses.......................... (2,155) (2,771) (5,573) (12,368) (29,185) (9,505) (28,724) (44,606)
--------- --------- --------- --------- ---------- --------- ---------- ---------
Operating loss.......................... (1,985) (1,971) (2,346) (5,062) (13,192) (4,001) (11,501) (17,860)
Unrealized (loss)/gain on interest rate
swap.................................... -- -- -- -- (868) -- 319 495
Interest income......................... -- -- -- 1,415 3,887 2,355 1,868 2,901
Interest expense, and amortization
of debt discount and expenses........... (7) (53) (231) (3,836) (17,118) (6,534) (20,129) (31,258)
Foreign exchange gains/(losses) net..... (432) (1,314) (221) (1,196) 925 476 141 219
Other expenses.......................... -- -- -- -- (1,241) -- -- --
--------- --------- --------- --------- ---------- --------- ---------- ---------
Net loss................................ L.(2,424) L.(3,338) L.(2,798) L.(8,679) L.(27,607) L.(7,704) L.(29,302) $(45,503)
========= ========= ========= ========= ========== ========= ========== =========
BALANCE SHEET DATA:
Property and equipment, net............. L.2,431 L.8,678 L.18,021 L.35,127 L.163,721 L.73,513 L.220,911 $343,053
Total assets............................ 2,634 9,487 19,882 138,606 374,172 148,449 431,667 670,336
Total debt(3)........................... 5,295 13,779 21,889 103,068 319,492 107,620 337,850 524,647
Shareholders' equity(4)................. (3,395) (6,733) (5,660) 26,092 25,133 25,171 60,645 94,177
OTHER DATA:
EBITDA(5)............................... L.(1,294) L.(441) L.174 L.(1,024) L.(6,423) L.(1,149) L.(1,447) $(2,247)
Deficiency of earnings to fixed
charges(6).............................. (2,424) (3,338) (2,798) (8,679) (27,607) (7,704) (29,302) (45,503)
Capital expenditures.................... 2,187 7,799 11,880 21,252 136,314 41,232 64,511 100,179
</TABLE>
(See notes to Selected Financial Data)
26
<PAGE> 28
NOTES TO SELECTED FINANCIAL DATA
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of
$1.5529 = L.1.00, the Noon Buying Rate on June 28, 1996.
(3) Total debt for periods prior to December 31, 1994 consisted of advances
from shareholders and capital lease obligations. Total debt at December
31, 1994 and June 30, 1995 consisted of the Initial Senior Notes and
capital lease obligations. Total debt at December 31, 1995 and June 30,
1996 consisted of the Initial Senior Notes, the New Senior Notes, capital
lease obligations and the mortgage loan.
(4) The Company raised additional equity financing of $100 million (L.64.6
million net of issue costs) in the six months ended June 30, 1996 and of
L.27.0 million and L.40.4 million in the years ended December 31, 1995 and
1994, respectively.
(5) Earnings before interest, taxes, depreciation and amortization and
foreign exchange translation gains and losses ("EBITDA") is presented
because it is a widely accepted financial indicator of a leveraged
company's ability to service and incur indebtedness. EBITDA should not,
however, be considered as a substitute for net income as a measure of
operating results or for cash flows as a measure of liquidity.
(6) Represents the amount by which loss before income taxes and fixed charges
("earnings") failed to cover fixed charges. Fixed charges consist of
interest expense (including amortization of debt issuance costs and debt
discount) plus the portion of rental expense under operating leases which
has been deemed by the Company to be representative of the interest factor
(_ of rental expense). Because fixed charges exceeded earnings for all
periods presented, a ratio of earnings to fixed charges is not presented.
27
<PAGE> 29
PRO FORMA INCOME STATEMENT DATA
In two stages, on September 27, 1995 and October 4, 1995, Diamond acquired
LCL for approximately L.109.1 million in cash. The Unaudited Pro Forma
Condensed Consolidated Income Statement Data set forth below reflects (i) the
acquisition and related financing and (ii) the New Senior Notes Offering as if
they occurred on January 1, 1995. This Unaudited Pro Forma Condensed
Consolidated Income Statement Data and the accompanying Notes should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes which are included elsewhere in this Prospectus.
The pro forma information does not purport to represent what the Company's
results of operations or financial position would have been had the acquisition
been completed on January 1, 1995, nor does it give effect to any events other
than those discussed in the Notes below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
DIAMOND LCL PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
(IN THOUSANDS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Business telecommunications......... 5,324 1,717 L. -- L.7,041
Residential telephone............... 5,522 3,511 -- 9,033
Cable television.................... 2,894 2,033 -- 4,927
---------- --------- ---------- ----------
Total revenue..................... 13,740 7,261 -- 21,001
---------- --------- ---------- ----------
Operating costs and expenses:
Telephone........................... (4,409) (1,946) -- (6,355)
Programming......................... (1,662) (1,003) -- (2,665)
Selling, general and administrative. (12,069) (4,345) -- (16,414)
Depreciation and amortization....... (6,654) (4,286) (3,638)(a) (14,578)
---------- --------- ---------- ----------
Total operating costs and expenses (24,794) (11,580) (3,638) (40,012)
---------- --------- ---------- ----------
Operating loss........................ (11,054) (4,319) (3,638) (19,011)
Unrealized loss on interest rate swap. -- (868) -- (868)
Interest expense, net................. (13,462) (3,042) (15,867)(b) (32,371)
Foreign exchange gains, net........... 925 -- -- 925
Other expenses........................ (1,241) -- -- (1,241)
---------- --------- ---------- ----------
Loss before extraordinary items L.(24,832) L.(8,229) L.(19,505) L.(52,566)
========== ========= ========== ==========
</TABLE>
NOTES TO THE PRO FORMA INCOME STATEMENT DATA
A pro forma income statement has not been presented for the six months
ended June 30, 1996 since the results of LCL and the effect of the issue of the
New Senior Notes are included in the Unaudited Condensed Consolidated Financial
Statements of the Company for the six months ended June 30, 1996 included
elsewhere in this prospectus.
For convenience, certain financial information in notes (a) and (b) is
translated into U.S. dollars at $1.5529 per L.1.00, the Noon Buying Rate on
June 28, 1996.
(a) Pro forma adjustments made to reflect the acquisition of LCL for a
purchase price of L.109.1 million in cash. In addition to the outstanding share
capital of LCL, all the outstanding zero coupon subordinated unsecured bonds
were acquired. The total cash consideration paid was funded by the issuance of
additional equity to certain of the Company's existing shareholders, cash on
hand and an acquisition banking facility which was repaid from the proceeds of
the New Senior Notes.
The following represents the allocation of the excess of purchase price
over the estimated fair values of the acquired net assets of LCL. The fair
value of the acquired net assets is not materially different from the
historical net book value, except as noted in the table below.
28
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C>
(IN THOUSANDS)
Acquired net assets/(liabilities) at book value (September 30, 1995):
EMCG............................................................... L. (5,413)
EMCC............................................................... 55
EMCH............................................................... --
Acquired zero coupon bonds........................................... 23,296
Less certain fair value adjustments(1)............................... (5,794)
Goodwill and intangibles............................................. 96,993
--------------
Aggregate purchase consideration..................................... L.109,137
==============
_________________
(1) Fair value adjustments represent:
(IN THOUSANDS)
- remeasurement of fixed assets................................. L. (1,667)
- accruals for direct acquisition costs......................... (4,127)
--------------
L. (5,794)
==============
</TABLE>
(2) The adjustment to depreciation and amortization represents amortization
of the excess of purchase price over the estimated fair values of the
acquired net assets of LCL (allocated to intangible assets and goodwill),
over 20 years, being L.4,850,000 per annum, of which L.1,212,000 is
charged in the statement of operations of Diamond.
(b) Increased interest expense is based upon the pro forma consolidated
debt of the Group following the issuance of debt securities at the rate
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
(IN THOUSANDS)
<S> <C> <C>
New Senior Notes due 2005(1)............... L.17,691 $27,473
Amortization of debt issuance costs(2)..... 446 693
Adjustment to interest expense from assumed
retirement of existing indebtedness(3)..... (2,270) (3,525)
-------- -------
Total...................................... L.15,867 $24,641
======== =======
</TABLE>
- ----------
(1) Interest is compounded on a semi-annual basis using a rate of 11.75% per
annum.
(2) Debt issuance costs and related costs of L.8.8 million are amortized over
10 years which represents the expected life of the New Senior Notes on a
constant yield to maturity basis.
(3) Represents the elimination of the interest expense associated with the
zero coupon bonds outstanding during the period which were all purchased
by Diamond as part of the acquisition of LCL.
(c) The extraordinary loss of L.1.9 million arising in EMCG from the early
repayment of debt has been excluded from the pro forma statement of operations.
(d) Items which have not been adjusted for in the unaudited condensed pro
forma combined financial information include:
(i) the effects of trading of either Diamond or LCL since
December 31, 1995;
(ii) any costs of integration and rationalization of the two
businesses, as no reliable estimate of the totality of such costs
can currently be made;
(iii) the expected benefits of the enlarged group's organization
and financial management, synergies and elimination of duplicate
efforts;
(iv) the effects of any possible share capital restructuring; and
(v) the subscription by the shareholders to additional equity during June
1996.
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Group should be read in conjunction with the
consolidated financial statements of Diamond and related Notes and the
consolidated financial statements of LCL and related Notes which are included
elsewhere in this Prospectus.
OVERVIEW
The Group has partially constructed, and is continuing to construct, a
fiber-optic cable telecommunications and television network in its franchise
areas. Through June 30, 1996, approximately L.252 million had been invested (at
original cost) in the construction of the Group's network and related systems,
and the network had passed approximately 388,700 premises (homes and
businesses).
The development and the installation of the network in each of the Group's
franchise areas requires significant capital expenditure. In particular, as the
Group's build out has accelerated and it has begun to use a higher proportion
of outside contractors in its construction, the Group's civil engineering costs
per meter have risen. These expenditures, together with the associated
operating expenses, will continue to result in significant cash requirements.
The contiguity of the Group's franchise areas will allow the Group to provide
its services through a single integrated network infrastructure, achieving a
number of economies of scale and cost benefits.
The Group earns substantially all of its telecommunications revenues from
monthly fees for line rental, toll usage and ancillary services (including
charges for additional services purchased at the customer's discretion). Cable
television revenues are earned primarily from monthly customer fees for basic
and premium services. The ability of the Group to generate sufficient revenues
to cover cash expenditures and become profitable will depend upon a number of
factors, including the Group's ability to attract customers, revenues per
customer, churn rates and construction costs. These factors are expected to be
primarily influenced by the success of the Group's operating and marketing
strategies as well as market acceptance of cable telephone and television
services. In addition, the Group's profitability may be influenced by, among
other things, changes in the industry's regulatory environment. See "Business
- -- Certain Regulatory Matters".
One important measure of the success of the Group's operating and
marketing strategy is the churn rate which measures the frequency of service
terminations among customers using a given service. Service may be terminated
either by the customer (on prior notice to the Group) or by the Group
(generally when the customer is delinquent in payment). Churn is calculated as
the annualized number of net customer service disconnections, that is, total
disconnections less the number of disconnected accounts for which service is
later restored, during a given period expressed as a percentage of the average
number of subscribers for that period. In the cable television area, Diamond's
experience to date has been that the likelihood of churn for a given customer
is highest in the period shortly after the customer activates service. In
addition, cable television churn tends to be subject to seasonal variations
with churn tending to be highest in the early months of each year.
LIQUIDITY AND CAPITAL RESOURCES
The Group expended net cash to fund investing activities of L.9.9 million,
L.71.9 million, L.155.5 million and L.65.1 million in 1993, 1994, 1995 and the
first six months of 1996, respectively. In 1995, there were net sale proceeds
of L.56.2 million from marketable securities and net cash of L.108.8 million
invested in the LCL Acquisition. Net cash provided by financing activities was
L.9.8 million, L.112.4 million and L.212.2 million in 1993, 1994 and 1995,
respectively and net cash provided by financing activities was L.63.0 million
in the first six months of 1996, of which L.64.6 million was provided by the
issue of equity referred to below. The Group's investing activities (other than
temporary
30
<PAGE> 32
investments of the proceeds of the issuance of the Initial Senior Notes, new
equity and the New Senior Notes) consisted almost exclusively of the ongoing
construction of the network (L.9.8 million in 1993, L.19.1 million in 1994,
L.102.9 million in 1995 and L.65.1 million in the first six months of 1996). As
noted above, during the third quarter of 1995, the Group expended net cash of
L.108.8 million for the acquisition of LCL which was funded by new equity, and
a banking facility, which was repaid from the proceeds of the New Senior Notes
in December of 1995. In 1993 and 1994, the Group generated positive cash flows
from operating activities of L.37,000 and L.496,000, respectively, and in 1995
generated negative cash flows from operating activities of L.4.1 million. In
the six months to June 30, 1996 the Group's net cash provided by operating
activities was L.1.6 million. The Company expects that it will record operating
cash flow deficits over the near term as it incurs costs associated with the
accelerated expansion of its cable network. Diamond's cash and funding
requirements historically have been met principally through equity capital,
advances from its shareholders, and the issuance of the Initial Senior Notes in
September 1994, the issuance of the New Senior Notes in December 1995, and from
bank and lease financing.
The Group is obligated by the milestones in its telecommunications
licenses and the new LDLs to construct a network to reach an aggregate of
1,021,894 premises within prescribed time periods. Due to financing constraints
previously faced by the Company, the build out of Diamond's network did not
meet Diamond's original regulatory milestones. LCL also had failed to meet its
original regulatory milestones. In the past, both Diamond and LCL requested and
received appropriate milestone modifications or waivers from the Director
General. The Group has recently obtained further milestone modifications after
OFTEL informed the Company that it did not agree with the Company's historical
method for calculating compliance with its milestone obligations. See "Risk
Factors -- Requirement to Meet Build Milestones" and "Business--Milestones".
The Company estimates that the total further cost required after June 30,
1996 for its current construction plan for the network in the Group's franchise
areas will be approximately L.585 million prior to January 1, 2001, although
the amount could vary significantly. The Company believes that available cash
resources, the initial tranche available for borrowing under the Senior Bank
Facility, and cash flows from operations will be sufficient to complete the
planned construction through the first quarter of 1997. Thereafter, the Company
expects that the Group will be able to utilize the remaining amounts under the
Senior Bank Facility or, if such remaining amounts are not available, to obtain
further debt or equity financing.
The statements in the preceding paragraph are forward-looking in nature.
To the extent that (i) the Company is unable to access all of the amounts
available under the Senior Bank Facility, (ii) the amounts required to complete
the Group's planned build out exceed its estimates or (iii) the Group's
operating cash flow does not meet expectations, the Company will require
additional debt or other financing. There can be no assurance that any such
debt financing will be permitted under the terms of the Group's current and
anticipated debt instruments limiting the incurrence of additional debt, or
that any such financing will be available on acceptable commercial terms or at
all. Further, the amount of funding required by the Group may vary
significantly depending on many factors, including the ability of the Group to
meet its construction schedule, variations in construction costs, the number of
customers and the services they subscribe for, the nature and penetration of
new services that may be offered by the Group in the future and changes in
technology. The Group may also make franchise acquisitions or investments,
including investments in LDLs, or investments in programming, as a result of
which additional funds would be required to complete construction of the
network. See "Business -- Franchise Areas".
The ability of the Company to pay interest on the Senior Notes or to repay
the Senior Notes, at maturity or otherwise, will be dependent upon the cash
flows of its subsidiaries and the payment of funds by those subsidiaries to the
Company in the form of dividends, repayment of loans or otherwise which
payments are subject to certain restrictions.
31
<PAGE> 33
The Group's revenues are denominated in pounds sterling, while its
obligations to pay interest and principal on the Senior Notes are denominated
in U.S. dollars. Therefore, the Group is subject to currency exchange risks
that may adversely affect the Group's ability to meet its obligations under its
outstanding debt instruments as they become due.
GROUP RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1995 AND
1996
The Group continued to experience significant increases in its
subscribers, revenues and expenses during the six-month period ended June 30,
1996. In general, such increases were attributable to the Group's continued
network construction and marketing of new homes and businesses. Homes passed by
the civils network increased by 87,883 homes (31%) from December 31, 1995 to
June 30, 1996. The number of homes that had been passed by civils construction
at June 30, 1996 exceeded homes activated by 126,367 compared to a difference
of 123,405 homes at December 31, 1995. The difference between homes passed by
civils construction and homes activated is a result of the accelerated pace of
civils construction coupled with the lead times between civil construction and
activation and the time required to construct and activate additional remote
hub and switch sites for the larger network. The pace of construction continues
to be maintained and in the three months to June 30, 1996 an additional 50,653
homes were passed by civils and 37,637 were marketed, equivalent to 74%.
REVENUE
For the six months ended June 30, 1996, total revenues were L.17.22
million, a 212% increase over total revenues of L.5.50 million for the
comparable period of 1995. This growth is attributable to increases in revenues
in all three of the Group's primary lines of business and additional revenues
of L.5.26 million resulting from the inclusion of LCL's results for the six
months ended June 30, 1996.
Business Telecommunications. Business telecommunications revenue was
L.5.05 million for the six-month period ended June 30, 1996, compared to L.2.40
million for the comparable period in 1995, representing an increase of 110%.
This growth was due primarily to an increase in the number of Diamond's
business lines installed from 5,122 at June 30, 1995 to 11,845 at June 30,
1996, and the inclusion of L.1.19 million of revenue attributable to LCL in the
six months ended June 30, 1996. There were 3,428 business lines for the LCL
operation at June 30, 1996. The growth in the number of business lines for
Diamond is partially offset by lower monthly revenue per line. The monthly
revenue per line decreased from L.80.75 in the six months ended June 30, 1995
to L.60.57 in the comparable period in 1996. This was due to a combination of
(i) Diamond's success in marketing Centrex Services which has the effect of
increasing the average number of lines held by existing and new customers
taking those services (Diamond operated 729 Centrex lines at June 30, 1995
compared to 4,929 Centrex lines at June 30, 1996); (ii) the installation for
existing customers of an increasing number of lines utilized for incoming calls
in addition to existing lines dedicated solely to outgoing calls; and (iii) a
reduction in certain tariffs in response to price reductions by the
competition.
Residential Telephone. Residential telephone revenues were L.7.88 million
for the six-month period ended June 30, 1996, compared to L.2.02 million for
the comparable period in 1995, representing an increase of 290%. The growth in
residential telephone revenue resulted from an increase in the number of
Diamond's residential telephone lines from 23,584 at June 30, 1995 to 56,332 at
June 30, 1996 and the inclusion of L.2.70 million of residential telephone
revenue for LCL for the six months ended June 30, 1996. There were 22,097
residential telephone lines for the LCL operation at June 30, 1996. Monthly
revenue per line for Diamond increased from L.18.19 for the six-month period
ended June 30, 1995 to L.18.37 in the six-month period ended June 30, 1996. The
Group's churn rate was 17.9% for the first six months of 1996 as compared to
15.3% for the first six months of 1995. The increase in churn in 1996 is
attributable in part to a tightening of credit terms for certain customers and
marketing efforts by BT aimed at regaining former customers.
32
<PAGE> 34
Retail tariffs for usage in both the business telecommunications and
residential telephone areas are likely to decrease as competition increases and
as BT lowers its prices during the next few years. However, the Company
believes that these decreases may be offset by increased customer usage. See
"Business -- Certain Regulatory Matters -- Cable Telecommunications -- Price
Regulation".
Cable Television. Cable television revenues were L.4.28 million for the
six-month period ended June 30, 1996, compared to L.1.08 million for the
comparable period in 1995, representing an increase of 295%. This growth in
cable television revenue was primarily due to a combination of (i) an increase
in the number of Diamond's cable television subscribers which rose from 12,895
at June 30, 1995 to 30,996 at June 30, 1996, (ii) an increase in the average
monthly revenue per subscriber from L.16.50 in the six months ended June 30,
1995 to L.18.43 in the six months ended June 30, 1996 and (iii) the inclusion
of cable television revenue for LCL for the six months ended June 30, 1996 of
L.1.36 million. The increase in average revenue per subscriber is primarily due
to increases in cable television pricing. The Group's churn rate was 37.4% for
the first six months of 1996 as compared to 42.6% for the first six months of
1995.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges payable
to BT and Mercury, increased from L.2.06 million for the six-month period ended
June 30, 1995 to L.5.87 million for the comparable period in 1996, an increase
of 184%. This increase reflects the substantially larger volume of telephone
business generated by the Group. As a percentage of combined business
telecommunications and residential telephone revenues, these direct costs
decreased from 46.6% for the six-month period ended June 30, 1995 to 45.4% for
the comparable period in 1996 due in part to reduced interconnect charges paid
to other operators.
Direct costs for cable television programming, which are based on the
number of subscribers and per-subscriber rates charged by programming
suppliers, increased from L.0.58 million for the six-month period ended June
30, 1995 to L.2.56 million for the comparable period in 1996, a 340% increase.
As a percentage of cable television revenues, these direct costs were 53.7% for
the six-month period ended 1995 and 59.8% for the same period in 1996. The
percentage increase stemmed from an increase in rates charged by certain
programming suppliers, and an increase in the number of channels provided as
part of program packages which were not fully offset by increases in the
subscriber rates charged to existing subscribers by the Group.
Selling, general and administrative expenses increased by 163% from L.4.01
million for the six-month period ended June 30, 1995 to L.10.55 million for the
comparable period in 1996. The increase was due to a combination of increased
sales commissions and higher administrative costs associated with the expansion
of the Group's business and the inclusion of expenses related to LCL during the
first six months of 1996.
Depreciation and amortization expenses increased by 241% when comparing
the six-month period ended June 30, 1995 to the comparable period in 1996,
which reflects increased capital expenditures associated with the acceleration
of the Group's network construction as well as the LCL acquisition.
INTEREST EXPENSE
Interest expense was L.6.53 million and L.20.12 million for the first six
months of 1995 and 1996, respectively. The 1996 increase is due primarily to
the increase in accretion of the discount on the Senior Notes of L.19.09
million during the first half of 1996 (as compared to L.6.39 million during the
first six months of 1995). In addition, other interest expense was of L.0.58
million and the amortization of debt financing costs was L.0.45 million in the
first six months of 1996. Interest received was L.1.86 million in the six-month
period ended June 30, 1996, through temporary investment of the proceeds of the
Senior Notes.
33
<PAGE> 35
Other expenses during the first six months of 1996 included an unrealized
loss of L.0.37 million on the mark-to-market valuation of an interest rate swap
commitment.
NET LOSS
As a result of the foregoing factors, the Group had a net loss of L.29.30
million in the six-month period ended June 30, 1996, compared to a net loss of
L.7.7 million recorded in the comparable period of 1995.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1995
During the three years ended December 31, 1995, the Group experienced
significant increases in its subscribers, revenues and expenses. In general,
such increases were attributable to the Group's continued network construction
and marketing of new homes and businesses and to the acquisition of LCL. The
number of homes reached by the Group's civils network increased from
approximately 19,400 homes at January 1, 1993 to approximately 281,300 homes at
December 31, 1995.
REVENUE
Total revenues for the Group, which consist of business
telecommunications, residential telephone and cable television revenues,
increased by 128% from L.3.2 million in 1993 to L.7.3 million in 1994, and by
88% to L.13.7 million in 1995 (excluding LCL). Additional revenues of L.2.25
million in 1995 were attributable to LCL for the period after acquisition.
Business Telecommunications. The Group's business telecommunications
revenue was approximately L.1.2 million in 1993, L.3.4 million in 1994 and,
excluding LCL, L.5.3 million in 1995. Business telecommunications revenues of
L.528,000 were generated by LCL in the period following acquisition, giving
total business telecommunications revenues of L.5.85 million for 1995 for the
Group. The growth in Diamond business telecommunications revenue was due to an
increase in the number of business lines connected, which was partly offset by
a decrease in monthly revenue per line. At December 31, 1993, Diamond had 1,906
business lines connected, which grew to 3,928 business lines at December 31,
1994 and 7,036 lines at December 31, 1995. Including LCL, the Group had 9,879
business lines at December 31, 1995. Diamond's average monthly revenue per line
has declined from L.102.67 in 1993 to L.88.68 in 1994 and L.74.60 in 1995. This
was due to a combination of (i) an increase in the proportion of small business
customers in 1994 and 1995 which tend to generate lower monthly revenues per
line, (ii) a reduction in tariffs in response to price reductions by the
competition, and (iii) Diamond's success in marketing Centrex services which
has the effect of increasing the average number of lines held by existing and
new customers taking those services. Diamond operated 529 Centrex lines at
December 31, 1994 compared to 1,393 Centrex lines at December 31, 1995.
Residential Telephone. The Group's residential telephone revenue increased
from approximately L.1.2 million in 1993 to approximately L.2.5 million in 1994
and, excluding LCL, approximately L.5.5 in 1995. Including LCL, the Group's
residential telephone revenue was approximately L.6.7 million in 1995.
Diamond's residential telephone revenues have benefitted from the increase in
residential lines connected, which was partly offset during 1995 by slightly
lower monthly revenue per line. Diamond's line penetration rate increased from
36.3% at December 31, 1993 to 45.2% at December 31, 1994 and 46.5% at December
31, 1995, while average monthly revenue per line increased from L.18.27 per
month in 1993 to L.18.83 per month in 1994 and decreased to L.18.68 per month
in 1995 in part due to Diamond's continued policy of maintaining its
residential pricing at a discount to BT and the continuation of its program of
providing free off-peak evening and weekend calls between Diamond's telephone
customers, the number of which increased substantially in 1995.
Cable Television. The Group's cable television revenue increased by 84%
from L.0.7 million in 1993 to L.1.3 million in 1994 and, excluding LCL, by
118% to L.2.9 million in 1995, primarily as a result of the increase in Diamond
subscribers of 58% from year-end 1993 to year-end 1994 (from
34
<PAGE> 36
5,625 to 8,936) and of 126% from year-end 1994 to year-end 1995 (from 8,936 to
20,261). Including LCL, the Group's cable television revenue in 1995 was
L.3,479,000. Diamond's average monthly cable television revenue per subscriber
increased from L.14.45 in 1993 to L.14.71 in 1994 and increased to L.16.80 in
1995. The increase in revenues per subscriber is primarily due to changes in
the pricing and programming structure during 1994 and 1995. Diamond continues
to focus on changes in the pricing and packaging structure for cable television
programming, the future addition of new services and incentive programs for its
sales and marketing personnel.
OPERATING COSTS AND EXPENSES
The Group's telephone expenses increased from L.1.1 million in 1993 to
L.3.1 million in 1994 and, excluding LCL, to L.4.8 million in 1995, reflecting
the substantially larger volume of telephone business generated by Diamond.
Including LCL, the Group's telephone expenses for 1995 were L.5.5 million. As a
percentage of combined business telecommunications and residential telephone
revenues, Diamond's telephone expenses increased from 44% in 1993 to 52% in
1994 and decreased to 44% in 1995. The increase in 1994 was primarily due to
reductions in customer tariffs not fully reflected in reduced interconnect
charges from BT. The ratio of interconnect call charges to call revenues
remained the same in 1995 as in 1994. The improvement in margins during 1995
was due to increases in revenues in 1995 that did not result in similar
increases in other relatively fixed telephone expenses.
Direct costs for cable television programming, which generally depend on
the number of subscribers and per subscriber rates charged by programming
suppliers, increased from L.324,000 in 1993 to L.701,000 in 1994 and, excluding
LCL, L.1.5 million in 1995. Including LCL, the Group's programming costs were
L.1.8 million in 1995. Programming costs as a percentage of cable television
revenue for Diamond were 45% in 1993, 53% in 1994 and 53% in 1995. The increase
in 1994 stemmed from higher rates charged by certain programming suppliers and
increases in the number of channels provided as part of program packages, which
were not fully offset by increases in the subscriber rate charged by Diamond.
In January 1995, the largest supplier of programming to the Group, BSkyB,
raised its per subscriber fees for Sky Movies, The Movie Channel and Sky Sports
by up to 16.8% for a single channel and increased its fees for certain other
channels by lower amounts. An additional increase in BSkyB's prices took effect
on January 1, 1996. See "Business -- Cable Television -- Programming". As part
of a review of the pricing and packaging of its cable television offerings,
Diamond increased the pricing of the premium service packages offered to new
customers (effective in the fall of 1994 and in the summer of 1995) in
anticipation of these increases.
Selling, general and administrative expenses incurred by Diamond increased
by 180% from approximately L.1.6 million in 1993 to L.4.6 million in 1994 and,
excluding LCL, by 158% to L.11.8 million in 1995. The increases were due to a
combination of increased sales commissions and higher administration costs
associated with the expansion of the Group's business. Selling, general and
administrative expenses of the Group were L.13.0 million in 1995.
The increases in Diamond's depreciation expense of 60% from 1993 to 1994
and 120% from 1994 to 1995 are the result of increased capital expenditures
associated with Diamond's construction activities.
INTEREST AND OTHER EXPENSES
Net interest expense was L.231,000, L.2,421,000 and L.13.2 million in
1993, 1994 and 1995, respectively. The 1994 increase is due primarily to the
accretion of the discount on the Initial Senior Notes of L.3.2 million, which
was partially offset by interest received of L.1.4 million through temporary
investment of the proceeds of the Initial Senior Notes. The 1995 increase is
due primarily to the accretion of the discount on the Initial Senior Notes and
New Senior Notes of L.14.3 million, and other interest expense of L.2.8
million, which was partially offset by interest received of L.3.9 million
through temporary investment of the proceeds of the Initial and New Senior
Notes.
35
<PAGE> 37
Other expenses in 1995 included costs incurred in connection with a
proposed share offering of L.1.2 million and an unrealized loss of L.0.9
million on the mark-to-market valuation of an interest rate swap commitment.
NET LOSS
Largely for the reasons described above, the Group's net losses increased
by 210% from L.2.8 million in 1993 to L.8.7 million in 1994 and, excluding LCL,
increased by 190% to L.25.1 million in 1995. Net losses during 1995 for the
Group were L.27.6 million.
Inflation has not had a significant impact on the Group's results of
operations during the three-year period ended December 31, 1995.
FOREIGN EXCHANGE
A substantial portion of the Group's existing debt obligations are
denominated in U.S. dollars, while the Group's revenues and accounts are
generated and stated in pounds sterling. Foreign currency translation gains and
losses, except for unrealized gains and losses on available-for-sale
securities, are reported as part of the profit or loss of the Group. In the
year ended December 31, 1995, the Company recognized an unrealized foreign
exchange gain on the translation of its dollar-denominated indebtedness of
L.613,000, an unrealized loss on its short-term securities of L.330,000 and a
net realized foreign exchange gain of L.312,000 relating to its operations and
the sale of dollar denominated available-for-sale securities. For the six
months ended June 30, 1996, the Group has recognized an unrealized foreign
exchange gain on the translation of its Senior Note liability of L.0.22 million
and a net realized foreign exchange loss of L.0.08 million relating to its
operations.
The Company does not expect to enter into transactions to hedge the risk
of exchange rate fluctuations but keeps its positions under review. Therefore,
changes in currency exchange rates may continue to have a material effect on
the results of operations of the Group and may materially affect the Group's
ability to satisfy its debt obligations.
36
<PAGE> 38
BUSINESS
The Group operates a telecommunications and cable television business
focused on the East Midlands area of England. The Group is currently
constructing a broadband fiber-optic network to serve the approximately
1,229,900 homes and an estimated 60,600 businesses within its contiguous
franchise areas. The above totals include the areas covered by the
Chesterfield, Lincolnshire and South Humberside and Vale of Belvoir local
delivery licenses which the Group has been awarded but which have not yet been
formally granted. As of June 30, 1996, the Group's cable television and
telecommunications network had passed by civil construction (i.e. ducting)
approximately 369,000 homes and an estimated 19,700 businesses and a portion of
the network passing approximately 242,800 homes and an estimated 14,200
businesses had been activated. As of that date, the Group also had
approximately 78,400 residential telephone lines, 44,400 cable television
subscribers and 15,270 business telephone lines. Through that date,
approximately L.252 million had been invested (at original cost) in the
construction of the network and related systems.
The Group offers three basic services over its network infrastructure: (i)
residential telephone services allowing customers to place and receive local,
national and international calls and to use additional services such as
conference calling, call waiting, call forward, and call barring, (ii) business
telecommunications services which include the services provided to residential
customers as well as advanced telecommunications services such as Centrex
(which provides businesses, including those with multiple sites, with virtual
PABX and network services), direct dialing inward (DDI), high speed data
services and private circuits, and (iii) cable television services offering
more than 50 channels including movies, sports, news and information, music,
children's programming and general entertainment. See "-- Business
Telecommunications and Residential Telephone" and "-- Cable Television".
37
<PAGE> 39
CERTAIN OPERATING DATA
The following table sets forth certain data concerning the Company's
franchises at and for the years ended December 31, 1993, 1994 and 1995 and at
and for the six months ended June 30, 1996 and certain data concerning the LCL
franchises at and for the year ended December 31, 1995, which reflect on a pro
forma basis the acquisition of LCL.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30
1993 1994 1995 1996
(DIAMOND) (LCL) (COMBINED)(1)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL AND COMBINED DATA
Homes passed by civils(2)................ 28,699 55,919 222,335 58,976 281,311 369,194
Homes activated(3)....................... 23,772 32,033 105,951 51,955 157,906 242,827
Homes marketed(4)........................ 22,964 31,330 77,657 48,950 126,607 190,551
CABLE TELEVISION
Basic service subscribers................ 5,625 8,936 20,261 10,488 30,749 44,402
Penetration rate of homes marketed(5).... 24.5% 28.5% 26.1% 21.4% 24.3% 23.3%
Average monthly revenue per subscriber(6) L.14.45 L.14.71 L.16.80 L.18.89 L.17.62 L.18.54
Churn(7)................................. 28.7% 28.5% 35.5% 31.0% 33.8% 37.4%
RESIDENTIAL TELEPHONE
Residential lines connected.............. 8,333 14,150 36,122 16,576 52,698 78,429
Penetration rate of homes marketed(5).... 36.3% 45.2% 46.5% 33.9% 41.6% 41.2%
Average monthly revenue per line(8)...... L.18.27 L.18.83 L.18.68 L.22.19 L.19.88 L.19.63
Churn(7)................................. 13.7% 13.8% 13.9% 17.2% 15.0% 17.9%
BUSINESS TELECOMMUNICATIONS
Business customer accounts............... 503 979 1,627 772 2,399 3,156
Business lines connected................. 1,906 3,928 7,036 2,843 9,879 15,273
Private circuits(9)...................... 30 70 151 10 161 194
Average lines per business account(10)... 3.8 4.0 4.3 3.7 4.1 4.8
Average monthly revenue per line(11)..... L.102.67 L.88.68 L.74.60 L.59.60 L.70.23 L.60.95
</TABLE>
NOTES TO CERTAIN OPERATING DATA
(1) Includes LCL on a pro forma basis as if it had been acquired at the
beginning of 1995.
(2) Homes passed by civils is the number of homes that have had ducting
buried outside.
(3) Homes activated is the number of homes that are capable of receiving
cable service without further extension of transmission lines, apart from
the final connection to the home.
(4) Homes marketed is the number of homes activated for which the initial
marketing phase has been completed.
(5) Penetration rate of homes marketed is calculated by dividing the number
of homes receiving basic cable television or the number of residential
lines connected, as the case may be, on the given date by the total number
of homes marketed for the given service as of such date, expressed as a
percentage.
(6) The average monthly revenue per cable television subscriber is calculated
by dividing total cable television subscriber revenues (excluding
installation revenues) for the period by the average number of cable
television subscribers (calculated as a simple average of the number of
basic service subscribers at the end of each month during the period) and
dividing that amount by 12 (for the years ended December 31, 1993, 1994
and 1995), or by six (for the six months ended June 30, 1996).
(7) Churn is calculated by dividing net disconnections (total disconnections
less the number of disconnected accounts for which service is later
restored) in a period by the average number of
38
<PAGE> 40
subscribers in the period (calculated as a simple average of the number of
subscribers at the end of each month during the period). Churn for the six
months ended June 30, 1996 is annualized by multiplying the amount as
calculated above by 2.
(8) The average monthly revenue per residential telephone line is calculated
by dividing (i) line and equipment rental, outgoing call charges and
incoming call charges for the period by (ii) the average number of
residential telephone lines (calculated as a simple average of the number
of subscribed lines at the end of each month during the period) and
dividing that amount by 12 (for the years ended December 31, 1993, 1994
and 1995) or by six (for the six months ended June 30, 1996).
(9) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(10) Average lines per business account is calculated by dividing the number
of business lines connected on the given date by the number of business
customer accounts on such date.
(11) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12
(for the years ended December 31, 1993, 1994 and 1995) or by six (for the
six months ended June 30, 1996).
INDUSTRY OVERVIEW
The U.K. Cable and Broadcasting Act 1984 (the "CBA") established the Cable
Authority to administer the award of franchises for particular geographic
areas. Upon the award of a franchise, a cable operator was issued a cable
television license by the Cable Authority and was required to obtain a
telecommunications license pursuant to the Telecommunications Act 1984 (the
"Telecommunications Act"). The telecommunications and the cable television
licenses authorized the installation and operation of cable systems to provide
cable television services and to convey telephone services under agreements
with the then existing national PTOs (principally BT and Mercury) following
approval by the Director General.
Although by 1990, cable television licenses covering approximately
two-thirds of total U.K. households had been awarded by the Cable Authority,
the construction of broadband networks and the development of cable services by
licensees was slow for several reasons. Cable networks in the U.K. generally
must be buried underground, resulting in relatively high construction costs,
and the provision of cable television services alone did not provide the
economic returns required to justify such costs. In addition, although the
cable companies were allowed to provide telecommunications services, they were
required to act as agent for a national PTO, thereby limiting margins in the
telephone business. Finally, the availability of attractive programming was
limited and consequently cable television penetration was low. As a result of
high construction costs, limited margins and low cable television penetration,
returns on cable network investment were inadequate to attract significant
capital.
Fundamental changes in the U.K. regulatory framework in 1990 and 1991,
combined with increased availability of programming, have resulted in
significant investment in the cable industry since that time. As part of these
changes, the CBA was replaced by the Broadcasting Act 1990 (now amended by the
Broadcasting Act 1996) and the Cable Authority was replaced by the ITC. See "--
Certain Regulatory Matters -- General". In 1991, the Secretary of State
completed the liberalization review of the U.K. telecommunications market (the
"Duopoly Review"), which resulted in major policy changes designed, among other
things, to foster competition in the local telephone loop, where BT held almost
all of the market share. See "-- Certain Regulatory Matters -- Cable
Telecommunications -- Duopoly Review" and "-- Certain Regulatory Matters --
Cable
39
<PAGE> 41
Telecommunications -- Interconnect Arrangements". Pursuant to such policy
changes (i) new entrants (including foreign companies) could apply to the
government to operate new telecommunications networks over fixed links, (ii)
cable operators were permitted to provide voice telephony services and to
switch their own telephone customers' calls, instead of acting as agents of BT
or Mercury, and (iii) cable operators were permitted to form expanded
telecommunications networks by interconnecting their systems with one another.
Once cable operators started to install their own telephone switches they could
develop and market a wider range of telecommunications services without relying
on BT or Mercury for switching of calls and implementation of services. This
allowed cable operators to reduce interconnect charges paid to BT and Mercury
resulting in higher margins. As a result, cable operators were able to justify
the investment required to construct a cable network.
To further encourage cable companies to construct cable television and
telephone networks, current U.K. government policy restricts the ability of BT
and Mercury to use their telephone networks for conveying broadcast
entertainment to homes in cable franchise areas until at least 1998. U.K.
regulatory policy has also been to award only a single cable television license
for each franchise area. As a result of these government policies, cable
operators currently hold the only licenses to provide both cable television and
telecommunications services within their franchises. By operating a single
fiber-optic network infrastructure to provide both cable television and
telecommunications services, the cable operators can achieve significant
economies in designing, constructing, marketing and operating their networks.
BT cannot offer broadcast entertainment on its dedicated telecommunications
network and achieve similar economies of scope in existing cable franchise
areas, and BT has stated that these government policies have limited its
ability to develop and implement a national fiber-optic local access network in
the U.K. See "-- Certain Regulatory Matters -- Restrictions on National PTOs".
In addition, fiber-optic networks permit cable operators to offer
high-quality advanced telecommunications services at competitive prices. The
extensive use of fiber optics and digital switches allows for reduced system
maintenance costs and expenses, and improved transmission quality, as well as
increased capacity as compared to predominantly analog-based networks. The
modern design of cable networks and, in the case of the Group, its use of
synchronous digital hierarchy ("SDH") and other advanced technologies, have
enabled cable operators to offer many telecommunications services, particularly
to business customers, that older copper pair telephone networks are not
currently able to support. Furthermore, networks that use self-healing ringed
network architecture, such as the Group's, provide more reliable service than
their predecessors.
In addition to the onset of a more favorable regulatory environment, the
availability of programming has improved substantially since the 1980s. The
launch of DTH satellite services by Sky Television in 1989, followed in 1990 by
British Satellite Broadcasting (which merged with Sky Television later that
year to form BSkyB), substantially increased the range of programming available
to cable operators, and enhanced the attractiveness of multichannel cable
television services.
As a result of the foregoing factors, significant investment in U.K. cable
television followed the conclusion of the Duopoly Review. In particular,
several North American cable operators and telephone companies initiated
significant investment in the U.K. cable industry. In addition, cable companies
in the U.K. began to access capital markets to finance construction. The U.K.
cable industry has also begun to consolidate as evidenced by the 1995 merger of
SBC CableComms and TeleWest Communications. Moreover, improved products and
services at competitive prices and growing demand for cable television and
telecommunications services encouraged U.K. cable operators to pursue rapid
construction programs. Increased investment in cable networks and residential
customers' increasing acceptance of services offered by cable operators is
evidenced by an increase in the number of homes passed by cable networks and by
an increase in customers subscribing to their services.
40
<PAGE> 42
BUSINESS TELECOMMUNICATIONS AND RESIDENTIAL TELEPHONE
OVERVIEW
The Group derives its business telecommunications and residential
telephone revenues from connection charges, monthly line rental charges, call
charges, special residential service charges, special business service charges
(e.g., private business circuits) and interconnection fees payable to the
Group. In the U.K., the historical practice has been that all calls, local or
national, are charged by time and distance.
Switching its own traffic enables the Group to offer a wider range of
services than would otherwise be possible, to monitor usage and manage doubtful
accounts, to gather information about customer calling patterns and use this
information in its marketing programs, and to structure rates and discount
programs accordingly. Following the acquisition of LCL and the new LDLs that
have been awarded, the Group's larger network will reduce the dependence on
interconnection and increase margins. As part of the Company's strategy of
increasing the volume of calls switched locally and minimizing interconnect
charges payable to BT, Mercury, Energis and other telecommunications providers,
the Group has from time to time discussed with other cable operators the
development of inter-franchise telephone networks which would allow calls
between franchise areas covered by these networks to be completed without using
BT or Mercury switches or interconnections or reduce the costs of such
interconnections. However, no assurance can be given as to whether or when any
such inter-franchise networks will be developed.
BUSINESS TELECOMMUNICATIONS
The Group has achieved its share of the business telecommunications market
in the areas which its network has passed by providing high-quality services at
competitive prices. The Group had 3,156 business telecommunications customer
accounts at June 30, 1996 including connections to a number of important
corporate and governmental entities such as The Boots Company, Imperial
Tobacco, Cargill, CCN, the Nottinghamshire County Council, the Nottingham City
Council, Leicestershire County Council, Leicester City Council, Ashfield
District Council, North East Lincolnshire District Council, the Nottinghamshire
Constabulary (including the local 999 emergency number), the Leicestershire
Constabulary and the Lincolnshire Constabulary, the U.K. Inland Revenue
national headquarters and their main sites in Leicester, Nottingham, Lincoln
and Mansfield, the Nottingham Health Care N.H.S. Trust, the Nottingham City
Hospital N.H.S. Trust, the Nottingham Trent University, Leicester University,
Lincoln University, Central Television, BBC Radio Nottingham, Radio Trent, the
Nottingham Building Society, the Vision Express Group, Knoll Pharmaceuticals,
Pedigree Pet Foods and the Northcliff Group (4 Regional Newspapers including
Nottingham Evening Post and Leicester Mercury).
The focus of the business marketing effort in the Group's franchise areas
has been to attract large and medium-sized corporate and governmental
customers, which generate high volumes of traffic and revenue. In total, at
June 30, 1996, 3,156 business accounts are operated by the Group for one or
more telephone lines giving the Group an average of approximately 4.8 lines per
business account. In many cases these customers have transferred all or a
portion of their telephone lines to the Group's service from those of its
principal competitors. A number of these customers have been specifically
targeted, and in some cases the network has been built out to pass these
customers. The Company plans to continue this strategy of focussing a portion
of the Group's network build and marketing effort on town centers and
industrial estates in its other franchise areas in order to capitalize on
business telecommunications opportunities. The Company believes that its
success in attracting these important customers has fostered a positive image
in the community and enhanced the Group's credibility with other business
customers.
The Group currently offers a range of special business services,
including:
- Custom Calling Features. The Group offers business customers
three-way conference calling and fully itemized and analyzed monthly
billing at no extra fee. At an extra charge, Diamond provides
services similar to those offered to residential customers including
call waiting, call
41
<PAGE> 43
forward and alarm calls. Additionally, data bills on high density
3.5" floppy disks are made available to customers.
- - Centrex. Centrex allows the customer to use the facilities of the Group's
central exchange instead of purchasing its own PABX (electronic
switchboard), and allows the customer to link geographically separated
sites within the Group's network with common numbering, features and
facilities. Centrex offers significant advantages over networking PABXs
including reduced call charges and data calls using ISDN instead of
point-to-point data circuits.
- - DDI (Direct Dialing Inward). Direct Dialing Inward offers multiple unique
numbers at a customer's premises via a smaller number of access lines.
- - Private Circuits. Private (leased) circuits permit the subscriber to rent
a circuit between two points, for example between two office buildings, at
fixed rates. This permits the rapid exchange of data between subscriber
owned computers or exchanges without passing through the public network.
The subscriber can choose from among different circuit capacities, such as
64 KBit/s for low speed applications, and 2, 8, 34 and higher MBit/s
speeds for other computer, moving image, multiplexed voice and other high
capacity data applications such as main frame computer lines, video
conferencing and local area networks (LANs) between local offices.
- - Digital Services. The Group offers digital connection to the public
network using DASS2 (Digital Access Signalling System) and Q931 (European
specification). The Group offers Primary Rate ISDN (30 x 64kbps channels)
for voice and data, or Basic Rate ISDN offering 2 channels of 64kbit and a
16kbps overhead which the Group is planning to use for "D" channel
services (i.e. telemetry, alarm circuits, etc). The network allows
transparency for DPNSS (Digital Private Network Signalling System) where
customers are linking privately owned telephone systems over the public
network.
- - Caller ID. Caller identification allows the customer to identify the
origin of the inbound call which is essential for the successful operation
of computer telephone integration.
The Group is currently evaluating a range of voice platforms on which it
will shortly offer the following services:
- - Voice mail. Voice mail allows callers to leave messages that the recipient
can later retrieve by telephone from his or her voice "mailbox". The
Company expects this service to become available by the end of 1996.
- - Virtual Numbering. This allows the customer to call the voice platform and
call forward all calls to various destinations, such as office, car, home,
voice mail. The Company expects this service to become available at the
end of 1996.
The Group is currently conducting trials upon a fully managed data service
based upon frame relay technology.
In the business telecommunications area, the Group generally competes on
the basis of the quality of services provided rather than on price, although
the Company believes that its charges for services to business customers are
competitive with those of BT, Mercury and other operators.
The Company believes the Group has achieved favorable penetration in the
business telecommunications market due to three factors. First, the Group's
strategy in business telecommunications is to target large and medium-sized
corporate and governmental customers, which generate the most telephony revenue
and the Company has given priority to building out its network to such
customers. Second, the Group's fiber-optic network infrastructure provides
customers with several advantages including superior service
42
<PAGE> 44
reliability (due to the self-healing loop architecture), greater system
capacity and the ability to provide an extensive range of digital services.
Third, the Group provides a high level of customer service including custom
tailored network services and frequent communication with major customers. The
Company believes that this combination of quality service and attractive rates
has enabled the Group to achieve a substantial share of the market of large and
medium-sized business telecommunications customers in the areas it has
marketed.
Telephone subscribers changing to a cable operator currently must change
their telephone numbers. As a result certain business customers have been
reluctant to switch carriers because they would lose their existing telephone
numbers. In response to this, Diamond has provided its business customers with
the opportunity to use the Group's telephone service for their outgoing
telephone calls, which carry higher revenues than incoming calls, and for their
specialized telecommunications needs, while retaining their existing service
provider (and their existing telephone number) for incoming telephone calls.
For a description of certain developments relating to number portability, see
"-- Certain Regulatory Matters -- Cable Telecommunications -- Number
Portability" and "-- Competition -- Business Telecommunications".
RESIDENTIAL TELEPHONE
The Group had residential telephone line penetration of 41.2% of homes
marketed at June 30, 1996. The Company believes Diamond is achieving relatively
high residential telephony penetration due to (i) Diamond's well-recognized
brand name; (ii) its strategy of providing residential customers with superior
services; and (iii) Diamond's competitive rates (including free Diamond to
Diamond calls). In the residential telephone area, the Group generally competes
on the following basis:
Reliability. Diamond's fiber-optic network infrastructure provides
reliable, high-quality transmission across a modern network. In addition, the
Company believes that Diamond's early concentration on attracting prominent
business and governmental customers has enhanced its credibility with
residential customers.
Special Services. By switching its own traffic, the Group is able to offer
a variety of special services to residential customers. All residential
customers receive three-way conference calling capabilities and fully itemized
monthly billing at no extra fee. The Group provides three-way conference
calling free of charge in order to stimulate additional call and/or termination
charges. Additional "Custom Calling Features" offered by the Group for an extra
charge include: call waiting, call barring (prevents unauthorized outgoing or
incoming calls) and call diversion (i.e., call forward). The Group's network
architecture provides a flexible platform for the Group to offer a wide range
of additional telephony services as they become available in the future. These
services are expected to include voice mail and distinctive telephone rings for
different members of a household.
Cost Savings. The Group seeks to provide residential telephone customers
with savings on the cost of line rental and usage charges compared to BT. In
order to encourage customers to subscribe to both television and telephone
services, the monthly line rental charge for customers who subscribe to both
services is offered at a discount to the monthly charge for customers who
subscribe to telephone service only. Further discounts are available if a
customer remains a subscriber to both services for an extended period of time.
Free Evening and Weekend Calls. The Group allows free calls between the
Group's residential customers located within the same local calling area during
evening and weekend hours. The incremental cost of these calls to the Group is
negligible because they do not require interconnection with another operator.
The Company believes that this service has encouraged its subscribers to
recommend its services to other potential subscribers, particularly friends and
family members, and is believed by the Company to increase calling traffic
generally. The Company believes this word-of-mouth marketing reinforces its
well-recognized brand name. The Company believes that this strategy of
providing residential customers with superior services at lower rates has
resulted in attractive residential telephone penetration rates.
The Company regularly evaluates its pricing strategy and intends to remain
price competitive in its residential telephone business. The Company believes
competitive pricing is particularly important initially as it introduces
services and seeks to gain market share. However, over time the Company expects
customer service to become a more important component of its marketing
strategy.
43
<PAGE> 45
CABLE TELEVISION
PROGRAMMING
The Company currently offers a wide range of cable television programming,
including satellite and broadcast channels, tape delivered channels and FM
radio. This range includes more than 50 television channels, many of which are
available 24 hours a day. Local programming is provided only on a limited basis
and may be offered on a larger scale in the future. In addition, the Company
launched its first pay-per-view event in March 1996 with the televising of the
Mike Tyson - Frank Bruno Heavyweight Championship Boxing Match.
The Company believes that the availability of a wide variety of quality
programming is the most important factor influencing a consumer's decision to
subscribe for and retain cable television service. Consequently, the Group
devotes considerable resources to obtaining access to a wide range of
programming that it believes will be appealing to both existing and potential
subscribers of its basic and premium services. The Group may from time to time
pursue investments in programming providers.
The following sets forth the television programming currently offered by
the Company.
<TABLE>
<CAPTION>
<S> <C>
PROGRAMMING DESCRIPTION
NEWS AND INFORMATION
CNN International 24-hour international news service
Euro Business News European business news service
Parliamentary Channel Live coverage of the U.K. Parliament
Sky News(1) 24-hour U.K. news service
The Weather Channel(11) 24-hour weather information
Channel Guide Summary of programming schedule
Preview Channel Sampling of all cable channels
Diamond Vision/Cable 7 Local programming
GENERAL INTEREST
BBC1 U.K. broadcasting television
BBC2 U.K. broadcasting television
ITV Central U.K. broadcasting television
Channel 4 U.K. broadcasting television
Yorkshire Television U.K. broadcasting television
Bravo Classic movies and television series
NBC Super Channel U.S. and world news and entertainment
QVC - The Shopping Channel Home shopping
Sky One(1) Drama, films, serials and sports
Discovery Channel(2) Science and education programming
The Family Channel(3) Family programming
The Learning Channel(2) Education and documentary programming
The History Channel(1)(5) History programming
Travel Channel(9) Travel programming
TNT(4) Movies and other entertainment
U.K. Gold Classic U.K. television programming
U.K. Living Lifestyle programming
Live TV 24 hour U.K. entertainment and news
Paramount(8) Entertainment and reviews
Sky Soap(1)(5) Old soap dramas
The Sci-Fi Channel Science fiction programming
Sky Travel(1)(5) Travel programming
Vision(7) Religious programming
Christian Channel(5) Religious programming
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
<S> <C>
PROGRAMMING DESCRIPTION
MOVIES
Sky Movies Plus(1)(6) 24-hour feature movies
Sky Movies Gold(1)(6) Classic movies
The Playboy Channel(6) Adult entertainment
The Movie Channel(1)(6) 24-hour feature movies
HVC(6)(10) Cult thriller movies
The Adult Channel(6)(10) Adult entertainment
CHILDREN
The Disney Channel(1)(6) Children's entertainment
Cartoon network(4) Children's cartoons
The Children's Channel(3) Children's entertainment
Nickelodeon(8) Children's entertainment
MUSIC
VH-1 Music videos
CMT Europe Country music videos
MTV Europe Music videos
Performance(7) Classical music and opera
The Box Music videos selected by customer requests
Landscape Classical music accompanying scenic videos
MCM Euromusique Music Videos
SPORTS
Eurosport International sporting events
Sky Sports(1)(6) U.K. and international sports
Sky Sports2(1)(5)(6) U.K. and international sports
Sky Sports3(1)(6) U.K. and international sports
INTERNATIONAL
Zee TV(6) Asian sub-continent related programming
Asia NET Asian programming
Namaste(9) Asian programming
Rai Uno(12)(6) Italian language programming
RTL Plus(12)(6) German language programming
SAT 1(12)(6) German language programming
TVE International(12)(6) Spanish language programming
TV5(12)(6) French language programming
CNE Chinese news and entertainment
</TABLE>
(1) Programming acquired from BSkyB.
(2) The Discovery Channel and the Learning Channel share a single channel.
(3) The Family Channel and The Children's Channel share a single channel.
(4) TNT and Cartoon network share a single channel.
(5) Sky Soap, Sky Travel, Sky Sports 2, the History Channel and the Christian
Channel share a single channel.
(6) These services are offered for an additional charge or upon subscribing to
other services requiring an additional charge.
(7) Performance and Vision share a single channel.
(8) Paramount and Nickelodeon share a single channel.
(9) The Travel Channel and Namaste share a single channel.
(10) HVC and the Adult Channel share a single channel.
(11) Planned for the autumn of 1996.
(12) These five European channels are offered as a package at a single price.
The Group obtains most of its programming from suppliers pursuant to
informal arrangements that are typically contemplated to run from three to five
years. The arrangements generally provide for payments by the Group based on
the number of subscribers to the service. Some programming, such as that
provided by the BBC and other terrestrial broadcasters, is provided to the
Group without charge.
BSkyB currently provides the Group with 12 channels on a non-exclusive
basis and also offers this programming (together with additional programming)
to its DTH satellite customers, in competition with the
45
<PAGE> 47
Group and other cable operators. BSkyB is the leading supplier of cable
programming in the U.K. and the exclusive supplier of certain programming. Its
programming is generally popular in the U.K. and is important in terms of
attracting and retaining cable television subscribers. In the absence of more
alternative programming sources, BSkyB may be able to set and raise prices for
its programming without significant competitive pricing pressure.
The Group pays a monthly fee to BSkyB for programming based on the number
of the Group's subscribers taking the various BSkyB channels at the end of each
month. The fees vary by channel. The aggregate amount payable by Diamond to
BSkyB during 1995 was approximately L.823,000 (approximately 45% of total
programming expenses) and L.1,478,000 (58%) in the six months to June 30, 1996.
Pursuant to informal undertakings given by BSkyB to the DGFT (announced on
March 7, 1995), BSkyB agreed to offer cable operators a new incentive discount
scheme which would not be dependent on a cable operator taking all of BSkyB's
channels. In addition, BSkyB agreed to charge for the supply of programming to
its DTH business on a basis which is no more favorable than that applied to
cable operators and to maintain separate accounting records for such business.
Subsequently, a number of U.K. cable operators expressed concerns to the OFT
about BSkyB's programming charges and on August 18, 1995 the DGFT announced
that he had approved a revision by BSkyB of its wholesale price list for the
supply of programming to cable operators. The revised price list applied to the
Group with effect from the fall of 1995 and marginally increased the prices
paid by the Group for BSkyB programming. Under the revised price list, an
additional increase took effect on January 1, 1996 and the price paid by the
Group for Sky Movies, the Movie Channel and Sky Sports was increased by up to
22% compared to the January 1995 price.
In a separate development, it was reported on September 3, 1996 that the
ITC was investigating the bundling of certain channels by BSkyB and in
particular requirements that cable companies have to acquire a package
including two premium movie channels in order to obtain the Disney Channel from
BSkyB. A decision by the ITC is reported to be expected by the end of 1996.
In May 1995, BSkyB entered into agreements with subsidiaries of NYNEX
CableComms Group PLC ("NYNEX") and TeleWest Communications plc ("TeleWest")
relating to the grant by BSkyB of a non-exclusive right and license for NYNEX
and TeleWest to receive BSkyB's channels and "pay-per-view" type services in
the U.K. when available, to distribute BSkyB's channels to residential,
commercial and public premises customers and to distribute the "pay-per-view"
services to residential customers. The agreements, which continue until June
1999, also provide for the parties to negotiate in good faith for the provision
of "pay-per-view" type services to commercial customers. The OFT announced on
June 19, 1995 that it considered that these agreements, which include
undertakings by the two cable companies not to compete with BSkyB with respect
to film or sport programming, contain significant restrictions on competition.
While the agreements are continuing, the restrictions have been suspended
indefinitely.
In addition, the EC has asked BSkyB to comment on a formal complaint to
the EC, alleging that BSkyB has infringed Article 85 of the Treaty of Rome by,
among other things, certain provisions of its agreements with NYNEX and
TeleWest. The complainants requested the EC to impose fines and require BSkyB
to suspend certain provisions of the NYNEX and TeleWest agreements. The EC
suspended its investigation pending the outcome of the OFT inquiry into the
BSkyB's wholesale pricing of pay TV. The DGFT announced on July 24, 1996, that
the agreements between BSkyB, Telewest and Nynex are registrable under the
Restrictive Trade Practices Act 1976 and have now been amended to address
concerns expressed by the DGFT. He stated that consideration of these
agreements could not be completed until finalized versions of the agreements as
amended had been furnished by the parties.
In December 1995, the DGFT announced a further review of BSkyB's position
in the pay TV market to cover the supply of programming to pay TV (including to
cable operators) and access to encryption and subscriber management services,
following concerns raised by certain cable operators. The DGFT reported the
results of the OFT's inquiry into BSkyB's position in the wholesale pay TV
market on July 24, 1996. The OFT concluded that although BSkyB was not acting
anti-competitively, the competitive process was being impaired. BSkyB was not
referred to the Monopolies and Mergers Commission (the "MMC") but gave new
informal
46
<PAGE> 48
undertakings and accepted modifications to those given in March 1995. BSkyB
agreed: not to require carriage of basic channels in excess of 80% of homes;
not to position new channels as bonus channels; to ensure that its Videocrypt
conditional access system is made freely available without discrimination to
programmers on the basis of a published rate card on cost-related terms; to
unbundle its channels (other than premium-bonus channels); to maintain separate
accounts for the DTH, with actual or notional charges not less than offered to
cable operators; to revise the structure of the cable rate card and to submit a
revised rate card to the OFT by July 31, 1996. The OFT is believed to be
consulting with the cable industry before approving the rate card, which is
expected to take effect 60 days following such approval.
Following the publication of the OFT's findings, the U.K. cable companies
are also reported to be considering seeking renewed EC intervention over unfair
market dominance by BSkyB, particularly if the structure of the new rate card
currently before the OFT does not offer fundamentally different terms.
On February 6, 1996 the DGFT announced that he was referring an agreement
between the Premier League and BSkyB and the BBC, by which the Premier League
collectively sells the exclusive television rights for Premier League football
matches, to the Restrictive Practices Court (the "Court") for containing
significant restrictions on competition. The Court will decide whether the
restrictions are against the public interest in which case the Court may order
the parties not to give effect to, enforce, or try to enforce the restrictions
in the agreement and not make any other similar agreement. BSkyB, the Premier
League and the BBC are understood to have successfully resisted an attempt made
by the OFT to accelerate the review. The OFT were reported on August 3, 1996,
to have failed to convince the Court that it should oblige the parties to file
their statements by mid-October at the latest. The review is now only likely to
get under way in late November 1996 and is unlikely to be decided until 1997.
The OFT is currently considering whether a number of other arrangements
for televising football and other sporting events contain significantly
anti-competitive restrictions.
The Group has commenced discussions with other cable operators and media
companies for the purpose of exploring ways in which it could obtain viable
sources of alternative programming and has from time to time discussed the
development of cable television channels to provide programming, including
local programming, through the Group's network.
Diamond currently charges L.13.99 per month for its basic cable television
service (44 channels and one converter box that provides cable service to one
television) and offers additional pay services. Generally, there is no charge
to the subscriber for service or repair of the cable television network or
customer premises equipment.
LCL subscribers may subscribe to a full range of cable television
programming, including 45 television channels as part of the basic service
package. The channels offered are largely the same as those offered by Diamond.
LCL subscribers are required to take the basic package and are permitted to
subscribe to one or more premium channels.
ADVERTISING
Currently, the Group receives negligible revenues from advertising, and it
does not expect to receive any significant advertising revenues until its
subscriber base has expanded enough to provide a sufficient audience for
potential advertisers. However, the Company believes there may be significant
potential demand for further outlets for local advertising. The Group's
franchise areas have relatively limited outlets for local advertising. For
example, Nottingham is served by one local daily newspaper, one regional
commercial television broadcast station and one regional AM/FM commercial radio
station. The Company believes that cable television advertising may present an
attractive opportunity for both local and national advertisers, and that such
advertising will become increasingly popular as cable networks build out and
their subscriber base increases and potential advertisers become more familiar
with cable television. Advertising provides an attractive revenue source as the
marginal costs of advertising are low. Currently, a number of suppliers (not
including BSkyB) allot the Group time (usually one or two minutes per hour)
during which advertising may be inserted by the Group
47
<PAGE> 49
free of charge. In addition, if local cable television channels are developed
the Company expects that these would also include local advertising time.
FUTURE SERVICES
The Group's network has been designed to enable it to provide customers
with a wide range of advanced interactive services as they become available,
including pay-per-view programming. The Company currently expects to introduce
a pay-per-view service once one becomes more generally available to the
industry. Such a service would enable cable subscribers to order specific
sporting events, concerts, feature films or other special events on a per-event
basis for an additional charge. However, the Company cannot provide any
assurances as to if or when such a service will be generally implemented.
Other interactive services that may be offered by the Group in the future
include video games that would be transmitted periodically (or possibly upon
subscriber request) to a special converter box at a subscriber's home where
they would be available for use by the subscriber (as with a traditional video
game) and video-on-demand services that would enable individual subscribers to
request specific programming from the service provider's inventory for viewing
at a specific time. See "-- Competition -- Cable Television". Additional
services could include video telephone services and video conferencing, access
to on-line databases and the Internet and interactive transactional services.
However, there can be no assurance that the Group will be able to develop and
deliver any of these products on a timely and competitive basis.
SALES AND MARKETING
Cable television and residential telephone services are marketed to the
residential customer on an integrated basis. Residential salespeople work on a
contract basis and are paid on a commission basis. The residential sales teams
are comprised of approximately 150 residential specialists employed by
independent sub-contracting companies supervised by the Company. A program is
in place, beginning with a "Sorry to Disturb You" pre-construction notice
providing general information about the Company's services and describing the
construction process, followed by a "Thank You for Your Patience" packet
containing an apology for the inconvenience caused during construction,
complete information on the cable television and telephone services offered by
the Company, and ending with an after-sale satisfaction survey. The approach is
designed to inform potential customers of construction status, to minimize
inconvenience during construction and to achieve a loyal customer base. A key
element in ongoing customer relationships is the provision of effective
customer service.
COMPETITION
The Group's business telecommunications, residential telephone and cable
television businesses compete with various companies using a variety of
technologies.
BUSINESS TELECOMMUNICATIONS
The Group competes primarily with BT and Mercury in providing business
telecommunications services. The Group competes primarily in the business
telecommunications area on the basis of quality of service and to a lesser
extent price. The Company believes the Group's call charges are competitive
with those of BT and Mercury.
The Company believes that the Group's ability to compete effectively with
BT had been adversely affected, particularly with respect to businesses, because
there had historically been no telephone number portability in the U.K. (i.e., a
new customer could not transfer its BT telephone number to the Group's system).
The Company believes that this discouraged some customers from changing from BT
to the Group's service because of the costs and inconvenience associated with
changing numbers. In response to this, the Company provided its customers with
the opportunity to use its services for all outgoing telephone traffic, while
continuing to use other providers for incoming traffic. For a discussion of
certain regulatory developments which will lead to the introduction of number
portability in the U.K. See "-- Certain Regulatory Matters -- Cable
48
<PAGE> 50
Telecommunications -- Number Portability". The Company believes that number
portability will offer little improvement to the Group's results in residential
areas but could offer marginal increased sales in the small business area where
number recognition and number advertising for the two and three line customer
is an issue. Overall, the Company believes that number portability will be
relatively neutral in its effect on the Group's business.
Both BT and Mercury have resources substantially greater than those of the
Group, and each has a national presence which may permit it to offer
telecommunications, data transmission and other services on a national basis to
business telecommunications customers with national operations beyond those
that the Group is currently able to offer on its own. The Company expects that
competition with Mercury and BT and other service providers entering the
business telecommunications market will intensify in the future.
Energis has nearly completed construction of a national network along
existing electrical power pylons and launched telephony services. To date,
Energis has not marketed residential telephony lines and generally has
concentrated on the larger business telecommunications market. Energis' service
offering, along with plans announced by MFS Communications and other, smaller,
long distance operators, and the emergence of International Simple Reseller
(ISR) companies have increased competition in the long distance and
international telecommunications markets. It is also possible that utilities,
such as the rail or water companies, will seek to use their existing
infrastructures to construct telecommunications networks that will compete with
the Group's telecommunications business. Diamond concluded an interconnection
agreement with Energis in May 1995, and LCL concluded an interconnection
agreement with Energis in April 1995.
RESIDENTIAL TELEPHONE
BT, with the large majority of the residential telephone market in the
U.K., is the Group's principal competitor in providing residential telephone
services. BT has a fully built national telephone network and, due to its
extensive experience in the marketing and operation of telecommunications
services in the U.K. and its large financial resources, it is a formidable
competitor to the Group. However, BT's ability to respond to price competition
from local cable operators is restricted by its license obligation not to show
undue preference to, or unduly discriminate against, different classes of
customers throughout the U.K. This effectively obligates BT to price all of its
services equally to the same classes of customer throughout the U.K., although
BT may provide discounts to high volume users. However, as the U.K.
telecommunications market becomes more competitive the Company expects BT to
have greater pricing flexibility in the future.
The Group seeks to compete with BT in the residential market primarily by
emphasizing the competitive cost and, to a lesser extent, quality of service
advantages of its cable telephone services. For example, the Group currently
seeks to provide its telephone subscribers with monthly savings on the cost of
calls compared to BT. To date, the Group generally has been able to price its
cable telephone call charges below those of BT; however, there can be no
assurance that the Group will be able to continue to do so in the future. BT
currently is subject to regulatory controls over the prices it may charge
customers, which last until July 31, 1997. OFTEL has issued proposals for
revised price controls until 2001. See "-- Certain Regulatory Matters -- Cable
Telecommunications -- Price Regulation". These controls impose significant
downward pricing pressure on charges in the U.K. telephone service market. As a
result, BT has implemented significant price cuts for certain categories of
calls and has implemented a new price initiative concerning per second pricing,
which has led to further price reductions for certain users. In the past,
Diamond has generally reduced certain of its rates following BT's price
reductions in an effort to maintain its price competitiveness versus BT. The
Company believes that BT will be required by its telecommunications license to
reduce the average level of its prices further in each of the next few years.
The impact of BT's price cuts on the financial performance of Diamond has been
partially offset by reduced interconnection costs charged by BT for the
conveyance of calls. There can be no assurance, however, that any such price
cuts will not adversely impact the financial performance of the Group's
telephone operations.
BT also has started to market its services more aggressively to maintain
its market position over other service providers. For example, BT recently
began providing voice mail services on a national basis and caller
49
<PAGE> 51
ID services in digital switch areas, and has implemented on a national basis
other services currently offered by the Group in its franchises, such as
itemized billing and time-based charges.
Following a period of consultation begun in March, 1996, HM Government
announced on June 6, 1996 that BT and Mercury would no longer have the
exclusive right to provide international services over their own networks.
Applications for international licenses are currently being considered.
In both the business telecommunications and residential telephone areas,
the Group faces additional competition from (or may in the future compete with)
Mercury Communications and cellular providers such as Vodafone, Cellnet,
Mercury One2One and Orange and also faces competition from radio based
telecommunications providers such as Ionica.
CABLE TELEVISION
As a result of the practice of the ITC of not granting more than one cable
television license within a franchise area, the Group does not compete with
other cable operators for subscribers within its franchise areas. The Group
does, however, compete with programming provided by terrestrial stations, DTH
satellite services, video cassette rental stores and SMATV systems and may in
the future compete with programming provided by video-on-demand and other
entertainment services provided by national PTOs and others. The Group also
competes with other companies (which may include national PTOs and other cable
operators) for the award of new franchises, the purchase of existing franchises
and new sources of capital.
The principal current (and potential) competitors for the Group's cable
television business are the following:
Broadcast. Television viewing in the U.K. has long been one of the most
popular forms of entertainment and daily viewing time in the U.K. averages over
230 minutes per person (Source: BARB). Until 1989, four broadcast channels were
the only source of television programming. Although the national television
channels in the U.K. generally are perceived as providing high-quality
programming, the Company believes that most viewers prefer a wider variety of
television programming. The market share of cable television and satellite
service programming is approximately one-third of all viewing in homes with
cable television and satellite services (Source: BARB). In addition, the
Company believes that acceptance of alternative programming, as evidenced by
the penetration of DTH satellite services (discussed below) and the widespread
use of VCRs, indicates a willingness on the part of many consumers in the U.K.
to pay for additional programming.
In addition to the four existing terrestrial channels, a license to
operate an additional commercial terrestrial channel (Channel 5) was awarded on
October 27, 1995, to commence broadcasting on or before January 1, 1997.
The Company believes that its primary competitive advantages over
terrestrial television are significantly more programming options, access in
the future to advanced interactive services and, in some areas, improved
television reception. The Company believes that terrestrial television benefits
from its position as the traditional source of low cost television in the U.K.
Under the Broadcasting Act 1996, the ITC has been given responsibility for
the licensing and future regulation of digital terrestrial television which, on
introduction, is expected to provide an additional 18 or more new terrestrial
channels serving between 60% and 90% of the U.K. population. Some of the
channels will be reserved for digital simultaneous broadcasting by the existing
terrestrial broadcasters. The introduction of digital terrestrial, as well as
digital satellite, television will provide both additional programming
opportunities as well as additional competition for the Group. See "-- Certain
Regulatory Matters -- Future Developments -- Digital Broadcasting".
DTH Satellite. DTH satellite television service providers obtain
programming from a variety of sources (including some of those used by the
Group) and transmit the programming signal up to a satellite which then
50
<PAGE> 52
retransmits the signal down to customers. In order to receive a satellite
service, the customer must have an outdoor reception dish.
DTH satellite services are widely available in the U.K. and are becoming
increasingly popular. The number of DTH satellite subscribers has increased
from 500,000 subscribers in 1989 to more than 3.25 million subscribers at June
30, 1996. BSkyB is the leading supplier of satellite programming in the U.K.
See "-- Cable Television -- Programming". The Sky Multi-Channels package
provided by BSkyB currently offers subscribers approximately thirty channels
and BSkyB has announced plans to launch eleven more channels.
In the multichannel television market, BSkyB is the Group's principal
competitor as well as one of its most important sources of programming. The
Group provides to its subscribers all of the channels included in the Sky
Multi-Channels package. BSkyB has recently become the subject of a further
review by the OFT, concentrating on among other things its supply of
programming to cable operators. See "-- Cable Television -- Programming". There
can be no assurance that BSkyB will continue to provide programming to the
Group on reasonable commercial terms. However, as other programming sources
become available, the Company believes that the Group may become less dependent
on programming from BSkyB. See "-- Cable Television -- Programming".
The Company believes that DTH satellite services will continue to be
significant competitors in the future. However, the Company believes that cable
television has a number of competitive advantages over DTH satellite service,
including the following: (a) the significant up-front or ongoing costs for the
purchase or rental of a satellite dish and related equipment required for DTH
(ranging from approximately L.150 to L.400 for the purchase of a satellite dish
and related equipment, including installation charges, or approximately L.12.50
per month for rental of a dish and related equipment); (b) the perception that
satellite dishes are unsightly; (c) the long-term contracts (one-year)
generally required for DTH satellite services; and (d) the ability of cable
networks to offer telephone services and in the future to offer interactive and
integrated entertainment, telecommunications and information services in
addition to television programming.
The Company believes that the principal competitive advantage of DTH
satellite service is the monthly service charges for basic services and premium
services which are lower than those for comparable services provided by the
Group. The Company believes that DTH satellite services may become more
competitive with cable service if digital compression technology is implemented
in the U.K. such that satellite services can provide more channels and direct
specific programming to particular subscribers.
Other Competitors. The Group also faces competition from video cassette
rentals, and SMATV systems (which receive signals from either broadcast or
satellite sources and then distribute them by cable to a discrete group of
subscribers). Currently, no video-on-demand service is commercially available
in the U.K. (although BT has conducted residential trials). However, the
successful introduction of a video-on-demand service in the Group's franchise
areas, particularly by a national PTO, would result in the Group's services
being subject to increased competition. See "-- Certain Regulatory Matters --
Restrictions on National PTOs". SMATV systems can compete with cable television
within a franchise area, but currently there are only a few SMATV systems
licensed for or operating in the Group's franchise areas.
New Technologies. The extent to which new media and technologies will
compete with cable television systems in the future cannot be predicted and
such media or technologies may become dominant in the future and render cable
television systems less profitable or even obsolete. Certain operators
currently are deploying digital compression technology in the U.S. If digital
compression technology is deployed successfully in the U.K., it will enable the
Group, as well as its terrestrial and digital DTH satellite competitors, to
increase significantly the number of channels they are currently able to offer
to their customers. An increase in the number of channels offered by
terrestrial and DTH satellite services at competitive costs could affect the
Group's current competitive position.
51
<PAGE> 53
FRANCHISE AREAS
The Group has been granted or awarded (but not formally granted)
telecommunications and cable television licenses to provide business
telecommunications, residential telephone and cable television services in
fifteen franchise areas that form a contiguous cluster of 1,229,900 equity
homes. The table below sets forth the number of homes in the individual
franchises areas according to CACI Information Services (for the Diamond and
LCL franchises) and ITC (for new LDL franchises).
<TABLE>
<CAPTION>
OWNERSHIP EQUITY HOMES
<S> <C> <C>
DIAMOND FRANCHISES
Nottingham............................. 100% 270,000
Mansfield.............................. 100% 85,000
Newark-on-Trent........................ 100% 42,000
Grantham............................... 100% 22,000
Melton Mowbray......................... 100% 19,000
Lincoln................................ 100% 52,000
Grimsby and Cleethorpes................ 100% 64,000
------------
554,000
------------
LCL FRANCHISES
Leicester and Loughborough............. 100% 203,000
Burton-upon-Trent(1)(2)................ 100% 94,000
Hinckley(1)(2)......................... 100% 45,000
------------
342,000
------------
NEW LDLS
Ravenshead(1)(2)....................... 100% 2,900
Bassetlaw(1)(2)........................ 100% 41,000
Lincolnshire and South Humberside(2)(3) 100% 174,000
Chesterfield(2)(3)..................... 100% 107,000
Vale of Belvoir(2)(3).................. 100% 9,000
------------
333,900
------------
Total.................................. 100% 1,229,900
============
</TABLE>
- ----------
(1) The Group has been granted an LDL for each of these franchise areas and
is awaiting the grant of the necessary telecommunications license.
(2) It is expected that telecommunications licences for these franchises will
either be granted following the grant of the LDLs or will form part of the
national telecommunications licence.
(3) The Group has been awarded an LDL for these franchise areas on condition
that it satisfy certain conditions including closing of the senior bank
facility.
Diamond's original franchise areas comprise a substantial regional market
centered around the City of Nottingham. In addition, the LCL franchises and the
Ravenshead, Bassetlaw, Lincolnshire and South Humberside, Chesterfield and Vale
of Belvoir LDLs are contiguous to the original Diamond franchises. Unlike many
other companies in the U.K. cable industry, all of the Group's franchises are
concentrated in a single region and the Group owns a 100% interest in the
licenses associated with each franchise. The Company believes that the Group's
regional focus provides it with a number of potential advantages, including the
ability to (a) achieve significant cost benefits in designing, constructing and
managing a single network infrastructure over an extensive area, (b) be more
responsive to customer needs than its national competitors, thereby increasing
customer loyalty and (c) increase its name recognition.
Under present rules, the telecommunications licenses covering these
franchises last for 23 years from the date from which the cable system first
becomes operative. Thereafter, these licenses are not extendable
52
<PAGE> 54
and application must be made for a new license. The telecommunications license
for the Nottingham franchise, which was the first to become operative, expires
in 2013. The telecommunications licenses currently held by the Group all
incorporate construction milestones which are reviewed by OFTEL. LDLs include
milestones that are reviewed by the ITC. See "-- Milestones". For descriptions
of the Group's other licenses, see "-- Certain Regulatory Matters".
The Company may from time to time seek to acquire one or more new or
existing franchises either in public tenders by the ITC or by private purchases
from third parties. The Company anticipates that it will generally seek to
acquire franchises that are contiguous to the Group's existing franchises and
therefore can easily be integrated into the Group's existing operations. No
agreement for any specific material acquisition has been reached or is
currently pending. The Group currently operates solely in the U.K. and
currently expects that any future acquisitions would be of franchises or
businesses in the U.K.
Three of the Group's LDLs have been awarded on condition that it satisfy
certain financial conditions. An LDL enables an operator to provide cable
television and (when held in conjunction with a telecommunications license)
telecommunications services, utilizing not only cable networks but also
microwave distribution systems. See "-- Certain Regulatory Matters".
When such licenses are applied for by one operator, they are then
generally advertised for competitive auction by the ITC. No license has been
awarded for certain other geographic areas that are contiguous to the Group's
franchise areas. The Group may bid for additional LDLs, if the acquisition
price (including the estimated additional capital costs to complete the
network) for the additional franchise areas provide an attractive return, in
order to further improve the Group's operating leverage and increase asset
value. If the Group were to be awarded any of the LDLs it may bid for in the
future, the areas would be constructed in parallel with the existing
franchises, but it is expected that the completion of the network for the
enlarged area would be later than that planned for the existing area. In
addition, to complete construction of an enlarged franchise area, the Group
would be required to expend additional funds which, depending on the size of
the franchise area, could be significant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
In addition, the Group operates a master antenna television service to
approximately 16,000 council properties in Nottingham. This service is provided
by the primary cable television network without the necessity to build and
operate a separate master antenna service system.
CONSTRUCTION
As of June 30, 1996, approximately 388,700 of the premises in the Group's
franchise areas had been passed by civils construction and a portion of the
network passing approximately 257,000 premises had been activated. The number
of premises activated represents 25.2% of the Group's aggregate milestone
requirements. Construction has now commenced in 8 of the Group's franchise
areas. While the projected rate of construction is governed principally by the
applicable regulatory milestones, the path of construction in the Diamond
franchises has, to date, been driven in part by the Company's strategy of
targeting large business telecommunications customers. As a result, Diamond
often concentrated the build out of its network to business telecommunications
customers who were being solicited or to areas with a higher density of
potential business telecommunications customers.
The Group has undertaken a rapid acceleration in the build out of its
existing franchise areas. During the Group's first six months of 1996 and the
year 1995 over 87,800 and 174,000 homes respectively were passed by the civils
construction cable network, as compared with approximately 27,000 homes passed
during all of 1994. The Company intends to continue the rapid growth and
development of network construction to meet the Group's regulatory milestones.
The Group may encounter difficulty in obtaining qualified contractors and may
encounter cost overruns or delays in construction. As with other U.K. cable
operators, the Group is generally required to use underground construction and
cannot broadly employ mechanized construction methods due to existing
underground utility infrastructure. The number of homes passed by the Group's
civil cable network substantially exceeded homes activated and homes marketed
at June 30, 1996. At that date
53
<PAGE> 55
48% of the homes passed by civils by the Group's network had not yet been
marketed. The Company expects to accelerate the release of homes for marketing
in order to reduce the percentage of homes passed that have not been marketed
over the next twelve months which may place additional stress on the Company's
management and operational resources. If the Group is unable to manage its
expected rapid growth and development successfully, the Group's operating
results and financial condition could be materially adversely affected.
Diamond originally relied on its own construction team for the build out
of its network. The Company has decided to use both its own construction team
and outside contractors for the remaining build and believes that maintaining
some in-house construction capability will enable it to reduce the costs of
construction and to manage its build out better. Diamond is currently
constructing approximately 12% of the network with its in-house team.
The Company plans construction of each franchise in order to activate
service to customers in stages as the franchise is developed and thereby
benefit from subscriber revenues prior to the completion of construction in the
entire franchise. The Group's cable television and residential telephone
revenues have been limited to some extent by the Company's strategy of
targeting the build out of its network towards large business
telecommunications customers. The Group does not incur the cost of bringing the
cable from the curbside duct to the home unless and until a customer elects to
subscribe for service.
Cable operators have the benefit of and must comply with the New Roads and
Street Works Act 1991 (the "Street Works Act") which permits them to construct
on public highways on the same basis as public utilities. This has, to some
extent, reduced construction delays. See "-- Certain Regulatory Matters -- Cable
Telecommunications -- Network Construction and Service Obligations".
The Company expects that the Group's residential cable network will extend
approximately 14,235 kilometers (plus 920 kilometers to interconnect the
residential build) and pass approximately 1.2 million homes once completed. If
the Company is able to meet its current construction schedule, by December 31,
1997 the Group will have completed approximately 57% of its aggregate milestone
requirements. The network will be substantially completed by the end of 2001.
The Company estimates that the additional capital expenditures required for the
Group to substantially complete the network (including subscriber connection
expenses) will be approximately L.642 million (of which L.585 relates to
capital expenditures occurring from June 30, 1996 through January 1, 2001). The
foregoing statements are forward-looking in nature. For a discussion of the
Company's plans to fund such construction and a list of factors that could
cause actual results to differ materially from those suggested, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
54
<PAGE> 56
MILESTONES
The Group is obliged by the milestones in its telecommunications licenses
and LDLs to construct a network to pass an aggregate of 1,021,894 premises
within prescribed time periods. See "-- Certain Regulatory Matters -- Cable
Telecommunications -- Network Construction and Service Obligations".
Both the Company and LCL failed to meet their original regulatory
milestones. Diamond had failed to meet the milestones in its original licenses
due principally to the unavailability of sufficient funding in periods prior to
the acquisition in May 1994 by ECCP of a majority stake in Diamond (the "ECCP
Acquisition") and the decision to allocate resources to the building out of the
Nottingham franchise. Having obtained revisions to its licenses, Diamond raised
approximately $143 million at the end of September 1994 through the issuance of
the Initial Senior Notes and, after a slight delay due to construction planning
and the hiring of contractors, began to accelerate the pace of the build out of
its network.
At December 31, 1995, the Group was obligated to meet specified milestones
in eight of the Group's franchise areas where building was due to have
commenced. Compliance with the milestones in these areas is in each case
monitored by OFTEL. During June 1996, OFTEL informed the Company that it did
not agree with the Company's historical method for calculating compliance with
its milestone obligations and that the number of premises passed should be
based only on the number of premises activated (the number of premises that can
be connected to the cable network without further extension of transmission
lines, apart from the final drop to the home). In calculating premises passed,
the Company had historically included premises passed by civils construction
(premises with ducting buried outside) but not yet activated. Based on OFTEL's
method of calculating premises passed, at June 30, 1996 the Group failed to
meet its year-end 1995 milestones in six of its eight franchise areas. In three
of these franchise areas -- Grantham, Newark-on-Trent and Melton Mowbray, the
1995 year-end milestones represented the final milestones required under each
telecommunications license.
The Company has renegotiated its milestone obligations with OFTEL. In the
five franchise areas where the final milestone has not yet fallen due, the
Director General has formally modified the interim but not the final milestone
obligations under the licenses to provide new quarterly milestones. In the
other three franchise areas, the Director General has not made any formal
modification to the existing licenses but OFTEL has indicated that it does not
currently intend to take immediate action to enforce the licenses, on the
condition that the Group meet the final milestones in November 1996 or, in the
case of Melton Mowbray, October 1996.
In the seven franchise areas in which the Group has been granted or
awarded LDLs by the ITC, the Group is formally required under the LDLs to meet
its first milestone obligations by year-end 1996 or, in the case of two LDLs
recently awarded, year-end 1997. However, due to delays by the DTI in the
granting of telecommunications licenses, which are required before construction
can commence, the ITC's Director of Cable & Satellite has indicated that, in
the case of five franchises where there is a year-end 1996 milestone, he will
recommend to the ITC (subject to its formal approval at its September 1996
meeting) that the ITC formally modify the Group's licenses to remove milestones
that fall due at year-end 1996 and otherwise shift the annual milestones back
by 12 months.
The following table sets forth the milestones that have been approved by
OFTEL and incorporated into the Group's telecommunications licenses and, in the
case of the LDL franchises, the milestones either stated or expected to be
stated in the LDLs. Since the actual milestones that the Group is required to
meet are specified individually for each of the franchises, the Group could
meet the aggregate milestones but still fail to meet one or more individual
franchise milestones and therefore subject a telecommunications license or LDL
to the risk of revocation or termination.
55
<PAGE> 57
<TABLE>
<CAPTION> AFTER
GROUP FRANCHISE AREAS(1) 1994 1995 1996 1997 1998 1999 2000 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ORIGINAL DIAMOND FRANCHISES
Nottingham............................. 45,000 80,000 132,000 190,000 230,000 230,000 230,000 230,000
Mansfield.............................. 15,000 35,000 42,000 66,000 66,000 66,000 66,000 66,000
Newark-on-Trent........................ 3,000 13,500 13,500 13,500 13,500 13,500 13,500 13,500
Grantham............................... 3,000 14,000 14,000 14,000 14,000 14,000 14,000 14,000
Melton Mowbray......................... 3,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Lincoln................................ 3,000 20,000 18,000 43,000 43,000 43,000 43,000 43,000
Grimsby and Cleethorpes................ 3,000 25,000 35,000 57,000 63,000 63,000 63,000 63,000
------- ------- ------- ------- ------- ------- ------- --------
Diamond Cumulative Totals(2)........... 75,000 197,500 264,500 393,500 439,500 439,500 439,500 439,500
------- ------- ------- ------- ------- ------- ------- --------
NEW LDL FRANCHISES
Ravenshead(3).......................... -- -- -- 2,500 2,500 2,500 2,500 2,500
Bassetlaw(3)........................... -- -- -- 1,000 10,000 19,000 19,000 32,800
Lincolnshire and South Humberside(3)(4) -- -- -- 5,000 25,000 45,000 70,000 144,000
Chesterfield(4)........................ -- -- -- 8,000 28,000 60,000 80,000 89,000
Vale of Belvoir(4)..................... -- -- -- 1,000 2,000 3,000 4,545 4,545
------- ------- ------- ------- ------- ------- ------- --------
New LDL Cumulative Totals.............. -- -- -- 17,500 67,500 129,500 176,045 272,845
------- ------- ------- ------- ------- ------- ------- --------
LCL FRANCHISES
Leicester and Loughborough............. 40,620 53,620 76,000 100,000 149,000 200,670 200,670 200,670
Burton-upon-Trent(3)................... -- -- -- 10,000 29,000 45,000 66,000 77,675
Hinckley(3)............................ -- -- -- 8,000 16,000 23,000 31,204 31,204
------- ------- ------- ------- ------- ------- ------- --------
LCL Cumulative Totals.................. 40,620 53,620 76,000 118,000 194,000 268,670 297,874 309,549
------- ------- ------- ------- ------- ------- ------- --------
Aggregate Cumulative Totals............ 115,620 251,120 340,500 529,000 701,000 837,670 913,419 1,021,894
======= ======= ======= ======= ======= ======= ======= =========
Aggregate Annual Totals................ 115,620 135,500 89,380 188,500 172,000 136,670 75,749
</TABLE>
- --------------
(1) In the year in which the milestone for a given franchise area ceases to
increase, the milestone is printed in bold.
(2) The cumulative total milestones originally set out in Diamond's original
telecommunication licenses as at dates specified in the licenses during
1994, 1995 and 1996 were 313,500, 399,500 and 439,500 premises,
respectively.
(3) Milestones reflect the recommendation by the ITC's Director of Cable &
Satellite (subject to formal approval at the ITC's September 1996 meeting)
that the Group's LDL licenses to remove milestones that fall due at
year-end 1996 and otherwise shift the annual milestones back by 12 months.
(4) The Group was awarded these franchises subject to its satisfaction of
certain conditions.
The table below sets forth by franchise and date the number of premises
activated.
<TABLE>
<CAPTION>
PREMISES ACTIVATED BY FRANCHISE
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, 1996 JUNE 30, 1996
1995 1995 1995
<S> <C> <C> <C> <C> <C>
DIAMOND FRANCHISE
AREAS
Nottingham.......... 46,562 57,697 79,866 98,504 110,548
Mansfield........... 11,686 11,686 11,686 20,863 32,755
Newark-on-Trent..... 0 5,634 7,420 7,420 8,392
Grantham............ 0 0 0 0 3,503
Melton Mowbray...... 0 0 0 0 0
Lincoln............. 0 0 5,177 5,177 12,459
Grimsby and
Cleethorpes....... 1,994 7,806 8,057 13,386 21,604
----------- ------------- ------------ -------------- -------------
Cumulative Diamond
Total Premises.. 60,242 82,823 112,206 145,350 189,261
----------- ------------- ------------ -------------- -------------
LCL FRANCHISE AREAS
Leicester and
Loughborough...... 44,137 51,409 57,366 61,007 67,766
----------- ------------- ------------ -------------- -------------
Aggregate Cumulative
Total........... 104,379 134,232 169,572 206,357 257,027
=========== ============= ============ ============== =============
</TABLE>
56
<PAGE> 58
The Group is potentially subject to enforcement orders from the Director
General for failure to meet its milestones, which could lead to revocation of
the relevant licenses. Similarly, in the event that the Group failed to meet
the milestones for any of its new LDLs, the ITC would have power to shorten the
LDL period, impose fines or commence proceedings leading to revocation. In
addition, under the Senior Banking Facility failure to meet the Group's
milestone obligations could under certain circumstances prevent further
borrowing or result in an event of default. See "-- Certain Regulatory Matters
- -- Cable Telecommunications -- Network Construction and Service Obligations".
The Group has not been subject to date to any enforcement action by OFTEL or
the ITC due to missed milestones; however, there can be no assurance that OFTEL
or the ITC will not take such action in the future.
SOURCES OF SUPPLY
The Group obtains services and equipment for the construction and
operation of its cable systems from numerous independent suppliers. As the
Group has grown and its construction and purchasing needs have increased, the
Group has sought to use its increased buying power to obtain more favorable
pricing and contract terms.
With certain exceptions, the Company believes that the Group can purchase
the services and equipment it needs to operate its business from more than one
source. However if a supplier of a product that involves significant lead time
for production and delivery were to be unwilling or unable to supply the Group,
the Group could suffer delays in the operation of its business, which could
have an adverse effect on the Group. Further, in the case of certain supplies,
limited competition in the provision of these materials has subjected (and may
in the future subject) the Group to price increases higher than those
experienced with other supplies.
For certain products, the Group depends on a single supplier. Diamond has
obtained exclusively from GPT certain telephone equipment, namely its switches,
primary multiplexers and certain telephone transmission equipment. LCL has
obtained such equipment from Nortel Limited. The Group obtains all of its cable
television transmission equipment and set top converters from Scientific
Atlanta. Scientific Atlanta, GPT and Nortel Limited are among the largest
providers of cable television and telephone equipment in their respective
markets. While the Group to date has experienced no significant difficulty in
receiving products from these companies, the failure or inability of any of
these companies to continue to supply the Group with these products in the
future would have a material adverse effect on the Group.
Diamond has not experienced significant difficulty in obtaining timely
deliveries of equipment and services. In order to reduce warehousing expenses,
maximize inventory control and minimize the possibility that the Group will not
have the required inventory to proceed with construction in a timely manner,
the Group recently centralized its warehouse operations. Due to the high level
of construction in the U.K. cable industry, delays may be encountered in
obtaining certain supplies such as fiber optic cable; however the Group is
making efforts to avoid such delays.
NETWORK ARCHITECTURE
The network being constructed by the Group comprises an overlay of a cable
television network and a telecommunications network. Portions of the network
currently in the ground utilize conventional tree and branch architecture and
the other portions utilize optical fiber node architecture with nodes serving
up to 2,500 homes. Both of these portions of the network may need to be
upgraded to achieve higher capability and reliability. This upgrading is not
expected to require significant additional capital expenditure.
The Group is now constructing a cable system in which optical fiber is
employed to areas serving approximately 500 homes for both cable television and
telecommunications services. The geography of the Group's franchise areas and
the location of the cable television network's headends and the
telecommunications network's switches dictate to some degree the physical
construction of the cable television and telecommunications network. The
Nottingham central network control office will control and monitor all other
locations which will be interconnected to Nottingham supertrunking fiber
network.
57
<PAGE> 59
Five exchanges are currently in operation in Nottingham which is presently
interconnected with three other exchanges, Mansfield, Lincoln and Grimsby.
Leicester's existing exchange is presently interconnected with 2mb circuits to
Nottingham. A second exchange in Leicester (Northfields) has been in service
since July 1996. The Company expects that an additional five exchanges will be
commissioned through the build out.
In addition to the existing exchanges, six remote concentrator units
("RCUs") are being interconnected to the Nottingham headend. The Company
expects that an additional eight RCUs will be added during the build program.
There are presently three cable television headend locations. The Nottingham
location will monitor all headend locations. The interconnects are all fiber
optics with two-way capability and status monitoring.
The cable television headends consist of Scientific Atlanta and Magnavox
fiber transmitters, fiber receivers, satellite receivers, signal processors,
modulators, encoding equipment and network status monitoring and Panasonic
automated tape distribution equipment. The cable television network is being
constructed with Scientific Atlanta transmission equipment. The upper side of
the downstream bandwidth will be 750 MHZ. From the headends, fiber is deployed
to nodes for feeder distribution, and from the nodes coaxial cable is installed
to the distribution points.
The telephone exchanges for call switching and sorting are GPT System X
and Northern Telecom DSM-100 platforms. The telecommunications network near the
exchange is fed directly by copper. Outside the copper service area, the
telecommunications network uses Northern Telecom or GPT SDH multiplexing
equipment in a fiber self-healing loop configuration operating at 155 Mb/s
("STM 1"). Four nodes of 500 homes will be served off of each 2,000 home fiber
ring. GPT and ASCOM 120 line primary multiplexers are located in the same
street cabinet with the SDH multiplexers, and from there copper is fed down to
approximately 30 homes per street cabinet. As the telephone network grows more
distant from the exchange, additional SDH rings operating at 622 Mb/s ("STM 4")
will support four STM 1 rings. The telecommunications network has been designed
so that as penetration and traffic intensifies, ring splitting will enable
additional capacity to be carried. All network equipment, both cable television
and telephone is powered by battery backed-up power supplies.
Telecommunications and cable television services are transmitted to the
home through the same "Siamese" drop cable. The "Siamese" cable consists of two
twisted pair telephone cables and a cable television coaxial drop cable
manufactured in the same cable housing/insulation package so that both services
are installed at the same time. From a subscriber's home, the telephone cable
is run through the street cabinet up to the 500 home hub cabinet where calls
are processed through a primary multiplexer which handles many calls and
transmits them to the telephone switching equipment. The calls are then routed,
if possible, to their final destination via the lowest cost routing, be it BT,
Mercury, Energis or the Group's own network.
The duct system is constructed with 89mm diameter duct with a 2.4mm wall
thickness. Trunk cable routes usually containing multiple fiber and coaxial
cables usually contain four to six ducts. Distribution cable routes carry the
drop cable to the subscriber premises and usually contain one or two ducts. A
subscriber drop is placed inside either 25mm or 50mm duct which is buried in
its approach to a residence to reduce cable drop cuts and other maintenance.
The diagram below shows the general design of the network.
The network will support 100% cable television penetration and 100%
telephone penetration based upon cabinet space but only 50% telephone
penetration based upon transmission equipment with hardware expandability to
96%.
The Company believes that the Group's network architecture design, with
respect to both telecommunications and cable television, will facilitate the
transition to a deeper fiber distribution. It should allow for efficient
utilization of primary multiplexers and eliminate the need for expensive
digital cross connects to maximize switch port utilization. The Company
believes that the network design has taken into account the need to be flexible
with respect to both node and hub sizes and future developments that may lead
to integration between the telecommunications and the cable television
networks.
58
<PAGE> 60
The existing Diamond and LCL networks will be integrated in phases. The
initial objective has been to physically connect the two networks together
through a fiber interconnect and this has been achieved with 2mb circuits which
are in place. The main purpose of the interconnect is for the central network
control office (located in Nottingham) to have the ability to control the
Central Northern Telecom exchange in Leicester, mainly for telephone purposes.
This interconnect will also enable Nottingham to monitor the Leicester cable
television headend and transfer data of RF information between the two
locations.
The physical connection point will be in Loughborough which is located
between Nottingham and Leicester and is the desired location for the third
exchange for the LCL franchise areas.
Once the two networks physically have been joined and the interfacing is
complete, maintenance and monitoring of call traffic can be accomplished which
will be followed by integration of the wholesale and then the retail billing
processes.
EMPLOYEES
As of June 30, 1996, the Group had 651 employees, consisting of 504
employees in operations and 147 employees in civils construction. The Group has
not entered into any collective bargaining agreement with employees and the
Company currently believes that its labor relations are good.
LEGAL PROCEEDINGS
No member of the Group is a party to any material legal proceedings, and
the Company is not currently aware of any threatened material legal
proceedings.
PROPERTIES
The Group completed construction of and moved into a new 44,000 square
foot head office and headend/switch site in Nottingham during 1995. The total
cost of construction and fitting the new building was approximately L.3
million. The Group has entered into a commercial mortgage of L.2.5 million
which has contributed towards this total cost. The building permitted the Group
to consolidate three of its former operating sites in Nottingham into a single
location, and further expansion is possible at this location if required by
future growth.
At June 30, 1996, the Group leased or rented 23 properties for
administrative and sales offices, hub, switch and head-end sites, warehouses
and equipment sites. As of June 30, 1996, the Group leased an aggregate of
approximately 183,000 square feet of real property of which approximately
107,700 square feet consisted of external equipment and warehouse storage
space.
59
<PAGE> 61
THE LCL ACQUISITION
Diamond acquired LCL in 1995, which included franchises covering an
aggregate of 342,000 homes and an estimated 20,100 businesses. The acquisition
was completed in two stages as described below.
On September 27, 1995 Diamond acquired from SaskTel Holding (U.K.) Inc.,
Fundy Inc. and John Laing PLC and its affiliates the entire share capital of
East Midlands Cable Holdings Limited ("EMCH") and East Midlands Cable
Communications Limited ("EMCC") (formerly Fundy Cable Communications Limited)
together with substantially all of the share capital of EMCG. EMCH has one
wholly owned subsidiary Diamond Cable (Burton-upon-Trent) Limited (formerly
Burton-upon-Trent Cable Communications Limited), which held the LDL license for
Burton-upon-Trent which has now been transferred to DCL. EMCC's principal
assets are its shareholdings in EMCH and EMCG. EMCG, through its operating
subsidiaries, Diamond Cable (Leicester) Limited and Diamond Cable (Hinckley)
Limited (formerly LCL Cable Communications Limited and Hinckley Cable
Communications Limited respectively), held the PDSL and LDL licenses
respectively for Leicester and Loughborough and for Hinckley and which have
subsequently been transferred to DCL. Diamond Cable (Leicester) Limited
continues to hold the Telecommunications license for Leicester and
Loughborough. The three acquired cable franchises are contiguous to the Diamond
network and together comprise 342,000 homes and an estimated 20,100 businesses.
On October 4, 1995 Diamond acquired the remaining share capital
(approximately 1%) of EMCG not already owned by it as a result of the September
27 transaction. The aggregate purchase price paid for EMCG, EMCH and EMCC was
L.109.1 million, which was paid in cash. The purchase price was funded by the
issuance of additional equity to certain of the Company's existing
shareholders, cash on hand and the Acquisition Facility, which has been repaid.
See "Description of Company Debt -- Description of Acquisition and Capital
Expenditure Debt".
60
<PAGE> 62
CERTAIN REGULATORY MATTERS
GENERAL
Cable television and cable telephone service industries in the U.K. are
governed by legislation under the Telecommunications Act, the Broadcasting Act
1990, which replaced the CBA, and the Broadcasting Act 1996. The operator of a
cable television and cable telephone franchise in the U.K. covering more than
1,000 homes requires the following two principal licenses for each franchise
area:
(a) a telecommunications license, granted under the
Telecommunications Act by the Secretary of State and supervised by the DTI
and OFTEL, which authorizes the installation and operation of the
telecommunications network used to provide cable television and cable
telephone services, and
(b) a cable television license, which authorizes the provision of
broadcasting services within a defined geographical area and which may be
either:
(i) a Prescribed Diffusion Service License ("PDSL"), granted
under the CBA prior to 1991, which allows an operator to provide
cable television and other entertainment services by means of a
cable network, or
(ii) an LDL granted since January 1, 1991 under the
Broadcasting Act 1990, which allows an operator to deliver
television and other programming services by means of a licensed
telecommunications network including a cable network.
Each type of license described above contains various conditions and in
the event of the breach of such conditions, the Director General or the ITC, as
appropriate, could issue an enforcement order and ultimately commence
proceedings to require compliance or to revoke such licenses.
Under the Broadcasting Act 1990, cable operators may elect to replace
certain PDSLs with LDLs with similar terms.
The regulatory environment in the UK has generally encouraged the
development of the cable telecommunications and the cable television industry
by, among other things, licensing only one operator for each cable franchise
area and restricting the national PTOs from using existing telecommunications
networks to carry broadcast entertainment.
The Labour Party has stated that it would review the existing regulatory
structure if it came into power. See "-- Restrictions on National PTOs".
CABLE TELEVISION
The Broadcasting Act 1990
The Broadcasting Act 1990 established the ITC to license and regulate
commercial television services (terrestrial and satellite) and the Radio
Authority to regulate radio services. The ITC's functions are, among other
things, to grant licenses for television broadcasting activities and to
regulate the commercial television sector by issuing codes on programming,
advertising and sponsorship, monitoring programming content and enforcing
compliance with the Broadcasting Act and cable television license conditions.
The ITC has the power to vary cable television licenses and impose fines and
revoke such licenses in the event of a breach of the license conditions. The
ITC also enforces ownership restrictions on those who hold or may hold an
interest in licenses issued under the Broadcasting Act. See "-- Cable
Television Licenses -- Ownership Restrictions".
61
<PAGE> 63
Cable Television Licenses
General. As of July 1, 1996, cable television licenses had been granted
for franchise areas covering approximately 16.5 million homes in the U.K. out
of approximately 22 million total homes nationally. The ITC has indicated that
it will grant only one cable television license for each geographical area for
the foreseeable future. The ITC also has indicated that certain areas, for
which cable television licenses have yet to be awarded, may be advertised at
the request of applicants. Such licenses (LDLs) are generally awarded after
competitive bids. Before awarding an LDL, the ITC must be satisfied as to
certain matters, including the technical specification of the proposed system;
that the applicant has sufficient funding to run the franchise; and that the
applicant is a fit and proper person to be awarded a license. The ITC will
award the LDL to the highest bidder unless there are exceptional circumstances,
including that the coverage proposed to be achieved by another applicant is
substantially greater than that indicated in the technical plan of the highest
bidder, such that it is appropriate to award the license to that other
applicant. In addition, all applicants must undertake to pay a percentage of
qualifying revenue ("PQR") to the ITC in each year of the license. As of 11
July, 1996 LDLs had been awarded for 22 areas in the U.K. by this process, bids
had been submitted for three areas and were awaiting the award of an LDL, and
LDLs for two further franchise areas had been advertised.
Cable operators may carry U.K. licensed broadcast services, foreign
satellite programmes or text in their services. Cable television licenses also
require cable operators to ensure that advertising and foreign satellite
programs carried by them as part of their services conform to the restrictions
set forth in the codes on advertising, sponsorship and programming issued by
the ITC. Cable television licenses also impose an obligation on licensees to
provide any information which the ITC may require for purposes of exercising
its statutory functions.
Term, Renewal and Revocation of Cable Television Licenses. The Group holds
eight PDSLs which were issued for a 15-year term. The Group also holds four
LDLs which were granted on September 1, 1995 for 15-year terms and the Group
has been awarded a further three LDLs (which have not yet been granted).
An application may be made to the ITC to extend a PDSL for up to an
additional eight years if the cable operator holds a 23-year telecommunications
license. Fees would continue to be payable on the same basis as for the
unextended PDSLs and no PQRs or cash bids would be payable during this 8-year
term. If the Group elects to extend the PDSLs, the Group will upon expiration
of such PDSLs as so extended, be required to apply for a new LDL under the
competitive bid procedures described above. If the Group elects not to extend a
PDSL, the Group may apply to the ITC (no earlier than five years prior to the
expiration of the PDSL) for a replacement 15-year LDL, with respect to which it
must agree with the ITC on the amount of the cash bid and PQR payments that
will be payable over the term of the LDL (based on what would have been offered
if the franchise had been offered for competitive bids).
The Group's PDSLs will currently all expire in 2005. The Group has not yet
applied to extend any of its PDSLs, nor has it applied for any replacement LDLs
under the procedure outlined above, since more than five years remain before
their expiration.
The ITC may refuse an application for renewal, but only on limited
grounds, including that the ITC proposes to grant a license in an area
different from that described under the existing license or that the applicant
is not providing services through the whole of its franchise area.
The ITC may, after consultation with the DTI and the Director General,
revoke a cable television license if an operator fails to comply with its
conditions or with any direction of the ITC and the ITC considers revocation to
be in the public interest. The ITC must be notified of changes in control of
the licensee, of changes in directors and of certain other changes in
shareholdings in the licensee. If there is any change in either the nature or
characteristics of an operator that is a corporate entity, or any change in
persons controlling or having an interest in it, the ITC can revoke the license
if, as a result, it would not have awarded the license had the new ownership or
control existed at the time the application for the license originally was
considered. The ITC can also revoke any cable television license in order to
enforce restrictions on ownership contained in the Broadcasting Act 1990 (see
below) and can impose fines and shorten the license period of LDLs.
62
<PAGE> 64
A cable television license is transferable only with the consent of the
ITC and several of the Group's cable television licenses have recently been
transferred to DCL from various of the Group's wholly owned subsidiaries with
that consent.
The Group also holds two licenses to provide television program services
under the Broadcasting Act 1990. The license for the Leicester Community
Channel came into force on June 29, 1992 and the license for Diamond Vision on
August 29, 1995, and both licenses are for a period of 10 years.
Ownership Restrictions. The ITC has a general duty to ensure that cable
television licenses are held by "fit and proper" persons and may exercise
control over who may hold a license where financial assistance is provided to,
or influence is exercised over, a licenseholder which may produce results which
it considers adverse to the public interest. The Broadcasting Act 1990 also
contains specific restrictions on the types of entities which may hold cable
television licenses or significant interests therein. Cable television licenses
may not be held by a local authority, an advertising agency, a religious or
political body (or one of its officers) or any entity controlled by them.
Ownership restrictions also apply to ownership of different licensed services
(including local delivery services, television, satellite and radio services
and newspapers), or associates of entities operating such services. See "--
Media Ownership". While PDSLs in most respects continue to be regulated under
the Broadcasting Act 1990 and the Broadcasting Act 1996 as if the CBA remained
in force, the ownership restrictions for PDSLs and LDLs are substantially
similar.
There is currently no restriction on the number of cable television
licenses which may be held by any person.
CABLE TELECOMMUNICATIONS
THE TELECOMMUNICATIONS ACT
The Telecommunications Act provides a licensing and regulatory framework
for telecommunications activities in the U.K. and established OFTEL under the
Director General as an independent regulatory authority. Telecommunications
policy is overseen by the DTI. The DTI on behalf of the Secretary of State also
has primary licensing authority under the Telecommunications Act, although it
may delegate that authority to the Director General. The functions of the
Director General are, among other things, to monitor and enforce compliance
with telecommunications license conditions, establish and administer standards
for telecommunications equipment and contractors, and investigate complaints
and exercise certain functions concurrently with other regulators to promote or
ensure competition in telecommunications markets. The Director General may
modify telecommunications licenses either with the agreement of the licensee
following a statutory period of public consultation or following a report by
the MMC. The Director General is also empowered to issue enforcement orders
requiring compliance with telecommunication license conditions which have been
breached (see below).
TELECOMMUNICATIONS LICENSES
The Group holds eight telecommunications licenses and has applied for a
national telecommunications license to cover those areas for which it does not
presently hold a telecommunications license, which may include the areas for
which it has been granted or awarded LDLs. The national telecommunications
license is intended to cover the Group's LDL franchises, but the Group has the
option of relying on its original applications for individual telecommunications
licenses for those areas. However, no assurance can be given that a national
telecommunications license will be granted to the Group. In addition, the Group
holds temporary telecommunications licenses granted under section 7 of the
Telecommunications Act on September 16, 1994 and December 21, 1994 to
interconnect telecommunications systems run by Diamond Cable (Newark on Trent)
and Diamond Cable (Lincoln) Limited, and to run telecommunications systems in
the Coalville area of Leicestershire, respectively. These temporary licenses may
be revoked by the Secretary of State on one month's notice. A telecommunications
license authorizes a cable operator to install and operate the physical network
used to provide cable television and cable telecommunications services. It also
authorizes the operator to connect its system to other television and
telecommunications systems, including those operated by the PTOs, the
terrestrial broadcasting authorities and satellite broadcasting systems.
Although the telecommunications license granted to a cable operator is for a
particular area, it is not exclusive and, as a
63
<PAGE> 65
result, a cable telephone operator is subject to competition with respect to
the provision of telephone services from national PTOs such as BT and Mercury
and other telephone service providers in its franchise area. See "--
Competition -- Business Telecommunications" and "-- Competition -- Residential
Telephone". Following the Duopoly Review, the Government has granted a
telecommunications license to any applicant provided the applicant has
satisfied certain requirements, including with respect to financial viability
and, in some cases, service commitments. See "-- Duopoly Review".
A cable operator's telecommunications license contains conditions
regulating the manner in which the licensee operates its telecommunications
system, provides telecommunications services, connects its systems to others
and generally operates its business. A cable operator's telecommunications
license also contains a number of detailed provisions relating to the technical
aspects of the licensed system (e.g., numbering, metering and the use of
standard technical interfaces) and the manner in which the licensee conducts
its business (e.g., publication of certain prices, terms and conditions). In
addition, a cable operator's telecommunications license contains prohibitions
on undue preference and discrimination in providing service and unfair
cross-subsidy of other services. The cable operator's telecommunications
license also requires the licensee to comply with certain codes of practice and
to provide any information which the Director General may require for the
purposes of carrying out his statutory functions. Failure to comply with an
enforcement order in respect of a breach of a telecommunications license
condition might give rise to revocation, an injunction by the Director General
or to a third party's right to damages.
In December 1995 the Director General issued a statement setting out
OFTEL's proposals for a new telecommunications license condition, which would
prohibit any abuse of a dominant position by a supplier in the
telecommunications market, and any anti-competitive agreement between
undertakings materially affecting competition in the telecommunications market.
The proposed condition forms part of a package with price controls
proposed for BT. BT is reported to have accepted the package of license
modifications, so that the condition may be incorporated into BT's
telecommunications license after public consultation and, subsequently, into
the telecommunications licenses of cable operators including the Group.
However, BT is also reported to be considering challenging the proposed fair
trading rules described above, in the courts.
The fees payable for the telecommunications license consist of an initial
fee payable on the grant of the license and annual fees thereafter. The annual
fees are based on a proportion of the costs of the Director General in
exercising his functions under the Telecommunications Act and in certain cases
a proportion of costs of the MMC incurred in relation to license modification
references under the Telecommunications Act.
A telecommunications license is not transferable. However, certain changes
in ownership of an entity holding a license are allowed, subject to compliance
with a notification requirement.
NETWORK CONSTRUCTION AND SERVICE OBLIGATIONS
Where a cable operator holds a PDSL or an LDL replacing a PDSL (see "--
Certain Regulatory Matters -- General"), the milestones are contained in the
corresponding telecommunications license and are reviewable by OFTEL.
Where, on the other hand, a cable operator holds a new LDL which is not a
conversion from a PDSL, the milestones are contained in the LDL and are
reviewable by the ITC.
Each of the Group's existing telecommunications licenses prescribes
milestones which require the Group to construct its network to pass a specified
number of premises within prescribed time periods. The milestones may be varied
by the Director General if he considers that the variation would enable the
licensee to meet the final milestone more easily. The final milestones can be
modified only following a public consultation period and with the approval of
the Director General. If the milestones prescribed by a telecommunications
license are not met, the Director General may take enforcement action which, if
not complied with, could result in the revocation of such license. Similarly,
the LDLs which the Group has acquired contain build milestones which
64
<PAGE> 66
may be varied by the ITC. See "-- Construction -- Milestones". The Company
understands that all milestones from now on will be contained in LDLs. The
Company also understands that the ITC will have jurisdiction to enforce these
milestones. To date, the ITC has not published any guidelines on enforcement of
milestones.
Where a cable network has been installed, a licensee must provide a cable
television service to anyone who reasonably requests it. A cable operator is
not required to provide telephony services, but where it does so, and achieves
a 25% or more share of the relevant market for such services (as determined by
the Director General) within its licensed area, the licensee may, at the
direction of the Director General, be required to ensure that telephone
services are available to anyone in the licensed area who reasonably requests
them. The Group has not received any such direction from the Director General.
Under a telecommunications license, the cable operator is subject to and
has the benefit of the Telecommunications Code promulgated under the
Telecommunications Act. The Telecommunications Code provides certain rights and
obligations with respect to installing and maintaining equipment such as ducts,
cables and cabinets on public or private land (including the installation of
equipment on public highways). The activities of cable operators under the
Telecommunications Code are also subject to planning legislation.
Cable operators have the benefit of, and must comply with, the Street Works
Act which provides them with the same rights and responsibilities with respect
to construction on public highways as other public utilities. The Street Works
Act standardizes fees for inspections of construction works by local
governmental authorities and standardizes specifications for reinstatement of
property following excavation. As a result, construction delays previously
experienced by cable operators because of separate and often lengthy
negotiations with local governmental entities have been reduced.
Cable operators are required to post bonds for local authorities in
respect of their obligation to ensure reinstatement of roads and streets in the
event the operators become insolvent, cease to carry on business or have their
telecommunications license terminated. In order to install equipment on private
property cable operators must obtain easements from occupiers, property owners
and others.
TERM, RENEWAL AND REVOCATION OF TELECOMMUNICATIONS LICENSES
To date, telecommunications licenses have generally been granted for
periods of 15 or 23 years. Seven of Diamond's telecommunications licenses were
granted for an initial period of 23 years, and one was granted for an initial
period of 15 years, both periods commencing on the date specified by the
Secretary of State (which, in practice, is the date on which the cable system
first becomes operative). The 15-year telecommunications license was
subsequently amended to a 23-year license. The Company expects that the Group's
anticipated national telecommunications license or licenses for the franchises
covered by its new LDLs will be for 23-year terms.
Upon expiration, a telecommunications license cannot be extended and
application must be made for a new license.
A telecommunications license may be revoked if the licensee fails to pay
the license fees when due or fails to comply with an enforcement order, upon
the occurrence of certain insolvency-related events or if the cable television
license relating to the licensee's system is revoked. A telecommunications
license may also be revoked if, among other things, the licensee fails to give
the required notification to the DTI of changes in shareholdings and changes in
control and agreements affecting control of the licensee or if the DTI
concludes that any such change would be against the interests of national
security or the U.K. Government's international relations.
DUOPOLY REVIEW
In 1991, the U.K. Government concluded in its Duopoly Review that the
termination of the duopoly policy (which permitted only BT and Mercury to
operate local, national or international fixed-link networks in the U.K. to
provide public telephone services) might increase competition and benefit
consumers in the U.K.
65
<PAGE> 67
telecommunications market. As a result, the U.K. Government revised its policy
and determined that application for licenses would be considered from any
person seeking to operate new telecommunications networks over fixed links
within the U.K. Such licenses normally would be granted subject to the general
statutory duties of the DTI and the Director General to ensure the provision of
telecommunications services, to satisfy all reasonable demands for them and the
ability of a person providing the services to finance their operations.
The Duopoly Review also recommended specific amendments to license
conditions that are particularly important to cable operators. Until the
Duopoly Review, for a cable operator to provide telephone services it had to
enter an agreement with BT or Mercury with respect to the terms and conditions
(including price) under which the operator would provide telephone services,
obtain a determination from the Director General that services could be
provided and operate its network as agent for either BT or Mercury. Since the
Duopoly Review, cable operators have been permitted to provide all forms of
wired telecommunications services in their own right, including the ability to
switch their own traffic. The Duopoly Review also recommended changes to and
further study of arrangements relating to interconnection, number portability
and equal access (discussed below).
As a result of the Duopoly Review, the Group has applied for and received
modified telecommunications licenses to enable the Group to provide wired
telecommunications services in its own right.
INTERCONNECT ARRANGEMENTS
The ability of cable operators to provide viable voice and other
telecommunications services is dependent on their ability to interconnect
cost-effectively with the telecommunications networks of other PTOs in order to
complete calls that originate from a customer on their cable network but that
terminate off their network or that originate from a customer off their cable
network and terminate on their network. Until the Duopoly Review, cable
operators with contiguous franchises were severely constrained in their ability
to connect their networks without using the services of BT or Mercury. Since
the Duopoly Review, operators of contiguous cable franchises have been allowed
to interconnect their systems without regard to whether they are under common
ownership.
The DTI is able to consider applications by cable operators to join more
distant franchises, and Diamond has a license to link two of its non-contiguous
franchises.
PTOs are required under their telecommunications licenses to enter into
interconnection agreements with other PTOs such as the Group (if requested to
do so by such a PTO), and the Group has interconnection agreements with BT,
Mercury and, since April 1995, Energis. The BT agreements may be terminated by
either party upon two years' notice, the Mercury agreement may be terminated by
either party upon three years' notice and the Energis Agreements may be
terminated by either party on 6 months' notice. If the Group is unable to
negotiate acceptable pricing terms with BT, Mercury or Energis in connection
with any continuation or extension of these agreements or scheduled reviews of
these agreements, the Group may request that the Director General determine
such terms. A recent case has established that it is possible for a regulated
company to challenge in the U.K. courts a determination by the Director General
of terms of interconnection agreements. The Director General also has the power
to make determinations in respect of certain obligations of any party under an
interconnection agreement.
Operators who interconnected with BT had to pay Access Deficit
Contributions ("ADCs") to BT designed to compensate BT for the imputed losses
incurred by it in providing local services throughout the U.K. and that
resulted from the restrictions imposed on BT in re-balancing its prices. On
February 13, 1996, a modification was made to BT's license by the Director
General, which removed the obligation to pay ADCs falling due in respect of
periods after February 7, 1996.
OFTEL currently determines standard interconnect charges. The first
interim charge determination covered the period from April 1, 1995 to March 31,
1996. Interim charges are based on forecast financial statements (on a fully
allocated costs basis). OFTEL is currently assessing final charges based on
BT's final financial statements for that period. Final charges may involve a
readjustment of charges made under the
66
<PAGE> 68
interim determination where appropriate. OFTEL has recently published draft
interim charges for the period from April 1, 1996 to March 31, 1997, and is
reviewing comments made during the public consultation period.
On March 20, 1996, the Director General published a consultation paper in
which OFTEL proposed basing interconnection charges on incremental cost. It is
proposed that this would take effect from August 1997, subject to a network
price cap. This would impose an RPI-X cap on interconnect prices. Within that
cap it is proposed that OFTEL would impose floors and ceilings for each
interconnection service, which would control BT's prices for its various
interconnection services.
In June 1996, the Director General published a statement in which he made
it clear he is proposing to replace the annual determination of charges with a
system of network controls for those services which are not competitive, using
baskets of interconnection services, each subject to a charge cap formula of
RPI-X. Charges for those services which are expected to become competitive
during the next control period, i.e. from August 1997 until the middle of 2001,
will not be included in the network baskets, but will be governed by safeguard
caps of RPI plus 0%. Charges for those services which are expected to become
competitive before August 1997 which are determined by the Director General to
be competitive during the control period, will be free of network controls. The
value of "X" has not as yet been decided. Neither have the "floors and
ceilings" of individual prices within the baskets. Further work on these areas
and on the model by which the Director General is to base charges on
incremental costs is to be carried out during the remainder of 1996. The
complete proposals will be put out to public consultation early in 1997. If BT
agrees to them, these will become effective on August 1, 1997. If BT were to
fail to agree, there would be a reference to the MMC. In the period before
recommendations of the MMC were implemented, the current interconnection regime
would continue.
PRICE REGULATION
Although to date the Group has for the most part been able to price its
cable telephone call charges below those of BT, there can be no assurance that
it will be able to continue to do so in the future. BT currently is subject to
controls over the prices it may charge customers for network services,
including a requirement that the overall basket of charges may not be changed
by more than an amount equal to the percentage change in the Retail Price Index
("RPI") less 7.5% (and BT may, as a result, have to decrease prices). In
particular, BT may not increase charges for certain services by more than the
amount of the percentage change in the RPI.
On June 3, 1996 OFTEL published its latest proposals on price control for
BT's services. The retail price controls will continue until 2001 and are
stated to be the last such controls. The controls will only be put in place
where consumer protection is required, that is, for low to medium spending
residential customers and small businesses. See "-- Competition -- Residential
Telephone".
BT has limited opportunity for differential pricing to the same class of
customer because it is subject to prohibitions on undue preference and undue
discrimination across the U.K. Following the Duopoly Review, BT's
telecommunications license was modified to permit it to offer discounts to high
volume users, subject to several conditions. However, BT may not offer
discounted services in local markets without offering the discounts nationally
if such discounts result in undue discrimination or unfair cross-subsidy.
Following modifications made to BT's telecommunications license in 1995, the
Director General is proposing an amendment to BT's telecommunications license
to ensure that BT's interconnect prices are sufficiently transparent to enable
a comparison between the component elements of BT's charges to the Group and
other operators with those charged by BT to itself and to ensure that BT does
not favor its own business over that of other operators. The proposals for
price controls will mean further modification of interconnect prices in 1997.
The telephone service prices charged by the Group and other service
providers other than BT currently are not regulated by the Director General,
although undue preference, undue discrimination, linked sales and cross-subsidy
regulations within each of its franchise areas do apply to the Group.
EQUAL ACCESS
67
<PAGE> 69
At present, most residential customers rent an exchange line from BT and
the only way in which a residential BT customer can choose to route calls over
the Mercury trunk network is by dialing a special access code or by purchasing
a special telephone instrument with which (by pressing a special button) it is
possible to select the Mercury network. The stated policy of the U.K.
Government in the Duopoly Review was to introduce true equal access, whereby
local telephone systems with a market share of 25% or more will have to offer
access to each available fixed link trunk system without discrimination between
systems. BT's and Mercury's and cable operators' licenses have been amended to
enable the Director General to require them to make available equal access,
either by pre-selection or on a call-by-call basis, subject to, among other
things, a cost-benefit study indicating that the gains will outweigh the likely
costs. Many cable operators opposed the Duopoly Review in this respect because
equal access would reduce one of the current attractions of a cable operator's
telephone system. True open access might enable cable companies to offer equal
access benefits to their customers on attractive terms. Modifications made to
each of the Group's telecommunications licenses also provide that the relevant
licensee may be required by the Director General to make equal access available
once the Group first provides 25% of the available exchange lines in any local
exchange area of BT or in the relevant franchise area. The timing and terms of
the introduction of equal access are unclear, and there can be no assurance
that the implementation of true equal access in the future will not adversely
affect the ability of cable operators to market their telephone services.
NUMBER PORTABILITY
Telephone subscribers changing their telephone service to a cable operator
have historically had to change their telephone numbers. As a result certain
business customers have been reluctant to switch carriers because they would
lose their existing telephone numbers. In response to this, Diamond has
provided its business customers with the opportunity to use the Group's
telephone service for their outgoing telephone calls, which generally carry
higher revenues than incoming calls, and for their specialized
telecommunications needs, while retaining their existing service provider (and
their existing telephone number) for incoming telephone calls.
In January 1994, the Director General announced that OFTEL was working on
directives to require BT to introduce number portability for the cable
operators who had provided OFTEL with the necessary information as to where and
when they could provide portability to BT. The Director General's statement
indicated that number portability may be introduced in the geographic areas
where it is technically feasible in the foreseeable future. BT rejected a
framework proposed by OFTEL for determining the charges payable for number
portability in the event of a dispute between BT and other operators. In April
1995, the Director General referred the matter to the MMC to establish whether
the failure of BT to reach agreements with other operators on the commercial
terms and conditions for number portability was against the public interest,
and if so, whether the adverse effects could be remedied or prevented by
modifications to the conditions of BT's telecommunications license. On December
14, 1995 the Director General announced the MMC's conclusions, including that
the absence of number portability operated against the public interest, that
the absence of number portability was an obstacle to operators' (including
cable operators) ability to win customers from BT, that the introduction of
number portability will strengthen competition, and that BT's
telecommunications license should be modified (following a statutory
consultation period) to enable the allocation of BT's costs incurred in this
regard between BT and other operators (including cable operators), with BT
bearing the greater share. The MMC also noted that there is general agreement
in the industry that reciprocity should continue to be an essential element in
the introduction of number portability, and that the arrangements to be made
for allocating portability costs need to take account of the fact that BT will
not always be the exporting operator. It is understood that BT's
telecommunications license will be modified in the near future, and that the
telecommunications licenses of the other national PTOs will be modified
thereafter.
RESTRICTIONS ON NATIONAL PTOS
The Duopoly Review maintained restrictions upon BT and other national PTOs
from conveying or providing entertainment services (such as the cable
television services currently provided by the Group) over their national
telecommunications networks. The U.K. government stated that the restrictions
upon the conveyance of such services nationally (for example, on behalf of
other service providers) may be reviewed in
68
<PAGE> 70
1998, but the restrictions regarding provision by the national PTOs themselves
were not intended to be reviewed until 2001. The Duopoly Review policy did not
prevent the national PTOs from providing cable television services of the kind
currently provided by the Group, but it did require that such services be
provided through separate systems by separate subsidiaries of the national PTOs
under separate licenses similar to those held by the Group. The ITC's policy of
granting one cable television license for each geographic area has ensured that
no national PTO subsidiaries compete with the Group in the provision of cable
television services in the same area. BT currently owns and operates one
broadband cable franchise in the U.K., in Westminster, central London. Since
April 1, 1994, cable television services may be provided locally by the
national PTOs without requiring separate subsidiaries, although all other
licensing requirements, including the need for the national PTO to obtain an
LDL to provide cable services within each locality, will remain applicable to
both national PTOs and to other cable operators such as the Group. In November
1994, the DTI stated that if national PTOs (including BT and Mercury)
successfully bid for a new cable television license, the DTI would be prepared
to issue a telecommunications license to enable any such national PTO to convey
entertainment services over its own systems within the relevant franchise area.
The DTI also reiterated the U.K. Government's commitment to the Duopoly
Review restrictions on national PTOs such as BT with regard to the conveyance
and provision of cable television services, while noting that national PTOs
could bid for new franchise areas and provide video-on-demand services to
individual residential customers.
Following a consultative document issued in March 1996, the U.K.
Government announced on June 6, 1996, that it was ending the duopoly between BT
and Mercury as international carriers from the U.K. A license holder may now
provide international services from the U.K. on telecommunications facilities
owned and controlled by the company providing the service, and will be able to
offer services on any route it chooses. Potential operators were invited to
submit applications for the first tranche of licenses by the end of June 1996.
The DTI issued a further consultative document on 22 July 1996 setting out its
proposals for licensing new international services, with a notice listing
applicants for the licenses.
On September 29, 1993, the ITC issued a statement in which it concluded
that national PTOs such as BT could provide a "video-on-demand" service
nationally over its telecommunications network without requiring further
regulatory changes in respect of the conveyance of such services (although the
programming itself might require a license). A "video-on-demand" service was
defined by the ITC as a service in which individual programs are transmitted to
only one household at a time in response to a particular request. As such, a
"video-on-demand" service in this context does not embody cable television
services of the kind provided by the Group for simultaneous reception in
multiple residential households. The ITC noted that its conclusions were shared
by other regulatory bodies (i.e., the DTI and OFTEL), but that its conclusions,
if disputed, could only be definitively resolved in the courts.
Currently, no video-on-demand service is commercially available from any
PTO. However, BT ran a pilot program for this service to the homes of a limited
number of BT employees and is understood to have run an interactive TV,
including video-on-demand, commercial pilot program. Mercury has also announced
that it is considering a video-on-demand pilot program. The existing
restrictions on the provision of broadcast entertainment services by national
PTOs have been the subject of continued political debate. In July 1994, the
House of Commons Trade and Industry Select Committee issued a report on optical
fiber networks in which it recommended, among other things, (i) that national
PTOs be permitted to apply to provide broadcast entertainment on a franchise by
franchise basis, subject to all existing franchises being exclusive for seven
years from the grant of the original licenses, (ii) that all restrictions on
national PTOs conveying or providing entertainment be lifted by the end of
2002, provided that the PTOs permit fair and open access to their networks and
(iii) that national PTOs (amongst others) be entitled to bid for cable
television franchises in unfranchised areas by the end of 1995. The committee's
recommendations are not binding and need not necessarily lead to a change in
government policy. The DTI, OFTEL and the ITC have stated that lifting these
restrictions would limit competition by jeopardizing the investment programs of
cable operators and the DTI has subsequently reaffirmed that the U.K.
Government would not pursue the committee's recommendations. It is understood
to be the policy of the Labour Party to review the restrictions on national
PTOs, should the Labour Party be elected to Government, and in a speech by the
Labour Party leader on October 3, 1995, it was
69
<PAGE> 71
proposed that a Labour government might increase BT's regulatory freedom. A
General Election is required to be held by Spring 1997 but may be called
earlier.
FUTURE DEVELOPMENTS
DIGITAL BROADCASTING
The Broadcasting Act 1996 introduced provisions for the licensing of
digital terrestrial broadcasting and introduced a "must carry" requirement on
cable companies where both program provider and cable operator use digital
technology to ensure the universal availability of designated public service
channels. Must carry obligations concerning public service channels already
apply to holders of PDSLs.
The Broadcasting Act 1996 permits the initial availability of six
television multiplexes, or frequency bands giving substantial national
terrestrial coverage, each with the ability to carry several television
channels. The new legislation includes provisions for the ITC's licensing of
"multiplex providers", who would initially be allocated, in aggregate, the six
multiplexes for 12-year license periods. Each multiplex provider would contract
with broadcasters for the transmission of the broadcasters' television services
via its allocated frequency. All existing terrestrial broadcasters, including
Channel 5, would be offered half a multiplex and the BBC would be awarded its
own multiplex, with competition between other operators for the remaining
capacity.
In addition, the U.K. Government is consulting on the implementation of
the European TV Standards Directive which will provide for the technical and
economic underpinning of the digital television market, and for conditional
access licensing. The proposals outlined in the most recent consultation paper
include the granting of a single new Class License under the Telecommunications
Act, covering all conditional access systems and services. The draft license
published by the DTI includes what is said to amount to a right on the part of
cable operators to transcontrol in respect of digital services. This is a right
given to all cable operators to remove or alter broadcasters' conditional
access signals and replace these with signals used for conditional access
purposes on the cable operator's systems. It is presently envisaged that there
will be a further round of consultation concerning these proposals, leading to
implementation of a Statutory Instrument and the Class License in November or
December 1996. Those operators who do not merely self-provide technical
conditional access services will have to provide such services to all
broadcasters who require such services, on a fair, reasonable and
non-discriminatory basis.
MEDIA OWNERSHIP
The Broadcasting Act 1996 amends the media ownership rules contained in
the Broadcasting Act 1990. It relaxes the earlier rules limiting ownership
between terrestrial television, satellite and cable broadcasters, except for
those broadcasters which are already in more than 20% ownership by a newspaper
with more than 20% national newspaper circulation. Qualifying terrestrial
broadcasters are now allowed to have controlling interests in cable and
satellite companies, provided their total interests do not exceed 15% of the
total television market (defined by audience share including public service
broadcasters) and qualifying cable companies will be able to control
terrestrial television companies, subject to the 15% total television market
limit and certain restrictions on the number of terrestrial licenses held.
Newspaper groups with less than 20% national newspaper circulation are now able
to control television broadcasters constituting up to 15% of the total
television market, subject to a limit on the number of terrestrial licenses
held, unless the ITC decides that such control would be against the public
interest. Newspaper companies, the license holders of Channel 3 and Channel 5
and satellite and cable broadcasters, are to have the ability to control any
number of digital terrestrial television licenses, in addition to any analogue
licenses.
Previous U.K. Government proposals have also contemplated a more
integrated system of media ownership and control in the longer term, to take
account of the increasing number of broadcasters and technological convergence,
and involving regulation of the media-market as a whole. The Company can give
no assurance as to whether these proposals for regulation will be enacted or,
if they were enacted, as to what their content would be or what effect they
might have on the Group's business.
70
<PAGE> 72
BSM SERVICES
In August 1995 OFTEL issued a consultative document which addressed the
potential development of broadband switched mass-market ("BSM") services in the
U.K. and related regulatory issues. BSM services involve the delivery of
video-quality images over a switched system, at prices intended to encourage
the development of a mass market. The consultative document suggested that
dominant operators (potentially including cable operators) should be required
to provide, on transparent and non-discriminatory terms, broadband conveyance
(including switching) as a network business to service providers which could
have direct commercial relationships with individual customers. Requirements
for accounting separation and the possible need for some form of price control
were also considered. OFTEL suggested that BT is likely, at an early stage, to
be considered a dominant operator, possibly when it starts to roll out BSM
services aimed at covering a significant portion of the U.K., either nationally
or in a specific regional market. OFTEL suggested that such regulation should
only be applied to the cable sector when it becomes dominant, either nationally
or in a specific regional market and is able to compete on equal terms with BT
and any other BSM services distributor. In the meantime the document recognized
the importance of encouraging continuing local investment in the cable
industry's infrastructure. The document also raised the question whether
license obligations on cable operators to provide cable television services
where their systems have been installed should not apply to BSM services (other
than the broadcast entertainment services for which they have exclusive cable
distribution rights in their franchise areas) until they become dominant in
their relevant markets. The stated purpose of the consultative document was to
raise issues in order to stimulate debate to assist in the development of the
kind of regulatory regime that will best promote the new services. The August
1995 consultative document was followed by a consultative document in February
1996 and by a statement by the Director General in June 1996, both of which
were concerned with promoting competition in the current market for services
such as on-line information, electronic data interchange and voice messaging.
71
<PAGE> 73
COMPANY ORGANIZATION
The Company owns all of the share capital of Jewel. Jewel owns 100% of
the shares of DCL and (directly or indirectly) the companies comprising LCL.
DCL was incorporated in 1989. Following a reorganization of the business of
DCL at the beginning of 1996 DCL now provides, among other things,
telecommunications and cable television services to all customers and owns,
builds and operates the entire cable and communications system throughout the
area of the Group franchises. As such, DCL holds PDSLs for Nottingham, Melton
Mowbray, Mansfield, Lincoln, Grimclee, Grantham, Newark-on-Trent. LDLs for
Lincolnshire and South Humberside, Chesterfield and Vale of Belvoir have been
awarded in favor of DCL but have not as yet been formally granted.
DCL also holds a Telecommunications Act Licence for Nottingham. DCL has
applied for a National Telecommunications Act Licence in all other areas
excluding those presently covered by the PDSLs, where such licences are already
currently held by other Diamond Franchisees. These are Diamond Cable (Melton
Mowbray) Limited, Diamond Cable (Mansfield) Limited, Diamond Cable (Lincoln)
Limited, Diamond Cable (Grimclee) Limited, Diamond Cable (Grantham) Limited,
Diamond Cable (Newark-on-Trent) Limited and Diamond Cable (Leicester) Limited.
These companies are (directly or indirectly) wholly owned subsidiaries of the
Company. They will continue to run the systems in their areas. The Company's
other subsidiaries are Diamond Cable Construction Limited, Diamond Cable
Acquisitions Limited, Diamond Cable CPE Limited, Diamond Cable (Lincolnshire)
Limited, Diamond Visual Communications Limited, East Midlands Cable
Communications Limited, East Midlands Cable Holdings Limited, East Midlands
Cable Group Limited, LCL Cable (Holdings) Limited, Diamond Cable (Chesterfield)
Limited, Diamond Cable (Vale of Belvoir) Limited, Mightpaper Limited and LCL
Telephones Limited, all of which are directly or indirectly 100% owned.
DCL was founded by the late Allan J. McDonald and by Gary L. Davis, the
Company's Managing Director. Mr. McDonald co-owned a group of cable television
companies in the Southeast United States and Bermuda. Immediately prior to the
acquisition by ECCP, approximately 99.6% of DCL's equity was held by trusts in
which Mr. McDonald's immediate family are beneficiaries (the "McDonald
Interests"), while the remaining 0.4% was held by CGT Family Corporation
("CGT"), in which Mr. Davis and his family are shareholders. Mr. McDonald and
his family had up to that time provided nearly all start-up, operating and
construction capital.
In May 1994, the McDonald Interests sold a 79.6% stake in DCL to ECCP.
ECCP is a partnership in which various investment funds managed by Goldman,
Sachs & Co. or its affiliates (together the "Goldman Sachs Affiliates") own an
83.3% interest. The two other partners in ECCP are affiliates of Robert T.
Goad, who is the Company's Chief Executive Officer, and Ralph H. Booth II,
respectively. Messrs. Goad and Booth are founders and principals in ECE
Management, which has been retained to provide management services to the
Company. See "Management -- Management Agreement". Mr. Goad has actively
operated and held ownership interests in U.K. cable systems since 1989, prior
to which time he acquired and developed cable systems in the United States. See
"Management". Mr. Booth is president of Booth American Company, a family-owned
U.S. media company operating cable systems, serving approximately 140,000
subscribers, and various radio interests.
Diamond Cable Communications Plc was incorporated on August 31, 1994. On
September 1, 1994, in preparation for the offering of the Initial Senior Notes,
DCL shareholders exchanged DCL shares for shares of the Company in proportion
to their DCL holdings. In August 1995, the Company exchanged all of its shares
in DCL for shares of Jewel, as a result of which Jewel became an intermediate
holding company.
In addition, in October 1994 and February 1995 Investor Investments AB
("Investor Investments"), a subsidiary of Investor AB, and Creative Artists
Agency, Inc. ("CAA"), respectively, became shareholders. These shareholders
have subscribed for a total of approximately L.25.1 million in additional
equity capital in the Company (including their participation in the June 1996
subscription for additional equity). On August 6, 1996 CAA transferred its
interest in the Company to DCI Partners ("DCI"), a California general
partnership in which
72
<PAGE> 74
Michael S. Ovitz is the principal general partner and Robert Goldman and Robert
Kavner are the other general partners. See "Shareholders".
73
<PAGE> 75
SHAREHOLDERS
The following table sets forth, as of August 31, 1996, certain information
regarding beneficial ownership of the Company's ordinary shares of 2.5 pence
each ("Shares") held by (i) each person known by the Company to beneficially
own more than 5% of any class of the Company's outstanding voting securities
and (ii) all directors and executive officers of the Company individually and
as a group.
<TABLE>
<CAPTION>
SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1)
<S> <C> <C>
European Cable Capital Partners, L.P.(2)..............
85 Broad Street, New York, NY 10004 39,482,443 66.7%
AmSouth Bank of Alabama, as Trustee(3)................
1901 Sixth Avenue North, Third Floor,
AmSouth/Harbert Plaza, Birmingham, AL 35203 8,750,238 14.8%
DCI Capital Partners..................................
9830 Wilshire Boulevard,
Beverly Hills, California CA 90212 3,909,754 6.6%
Investor Investments AB...............................
Arsenalsgatan 8c, P.O. Box 161574, S-103 24
Stockholm, Sweden 3,909,754 6.6%
Booth English Cable Inc.(4)...........................
33 West Fort St., Suite 1230 Detroit, MI 48226 4,118,601 6.9%
Robert T. Goad(5).....................................
c/o Columbia Management, Inc. P.O. Box 499,
Carmel, IN 46032 2,991,099 5.1%
Gary L. Davis(6)......................................
The Coach House, Cavendish Road, The Park,
Nottingham, England 654,000 1.1%
William W. McDonald...................................
One Office Park Circle, Suite 300,
Birmingham, AL 35223-2585 503 0.00085%
All directors and executive officers of the Company as
a group(7)............................................ 3,645,602 6.2%
</TABLE>
- ----------
(1) The percentage of Shares owned has been calculated based on the
59,138,791 Shares which are outstanding, plus, in the case of Mr. Davis,
654,000 Shares issuable upon the exercise of currently exercisable Share
options. See "Executive Compensation".
(2) A Delaware limited partnership in which the following investment funds
managed by Goldman, Sachs & Co. or its affiliates together hold an 83.3%
interest: European Cable Capital Partners Holding, Inc., as general
partner, 0.5%, GS Capital Partners, L.P., 75.3%, Stone Street Fund 1994,
L.P., 3.7%, and Bridge Street Fund 1994, L.P., 3.9%. The other limited
partners are Booth English Cable, Inc., 9.1%, and Columbia Management,
Inc., 7.6%, which are affiliates of Booth American Company and Robert T.
Goad, respectively. In addition, other investment funds managed by
Goldman, Sachs & Co. or its affiliates directly own 4.2% of outstanding
Shares.
(3) AmSouth Bank of Alabama holds Shares as trustee for the Kathryn A.
McDonald Grantor Trust, the John L. McDonald Grantor Trust, the Jennifer
C. McDonald Grantor Trust and the Allan J. McDonald, Jr. Grantor Trust.
(4) Booth American Company indirectly maintains an interest in Shares through
the 9.1% interest maintained by Booth English Cable, Inc. in ECCP and a
0.9% direct interest in Shares held by Booth English Cable, Inc..
74
<PAGE> 76
(5) Mr. Goad indirectly maintains an interest in Shares through the 7.6%
interest maintained by Columbia Management, Inc. in ECCP.
(6) The number of Shares in the table consists of 654,000 Shares issuable
pursuant to options granted to CGT on January 5, 1995. See "Executive
Compensation".
(7) Includes the interests held by Mr. Goad, Mr. Davis and Mr. McDonald.
The authorized share capital of the Company consists of L.1,750,001.50
divided into 70,000,000 Shares with voting rights, of which 59,138,791 Shares
are outstanding, and six non-voting deferred shares of 25 pence each, all of
which are outstanding but none of which carry voting rights. Five of the
non-voting deferred shares are held by AmSouth Bank of Alabama, as trustee for
the McDonald Interests ("AmSouth"), and one is beneficially owned by CGT, a
company in which Mr. Davis and his family are interested. The non-voting
deferred shares entitle the holders thereof only to the repayment of the
amounts paid up on such shares after payment to the holders of Shares of
L.100,000 for each Share. The holders of non-voting deferred shares will not be
entitled to the payment of any dividend or other distribution.
ECCP
ECCP is a Delaware limited partnership, of which European Cable Capital
Partners Holding Inc. ("Holding") is the general partner and the Goldman Sachs
Affiliates, Booth English Cable, Inc. and Columbia Management, Inc. ("Columbia
Management") are the limited partners. Holding is wholly-owned by a Goldman
Sachs Affiliate. Booth English Cable, Inc. and Columbia Management are
affiliates of Ralph H. Booth II and Robert T. Goad, respectively. Under the
partnership agreement governing ECCP, the Goldman Sachs Affiliates effectively
control ECCP and as a result effectively control 66.7% of the currently
outstanding Shares of the Company.
MCDONALD INTERESTS
The McDonald Interests consist of four separate trusts of which immediate
members of the family of Allan J. McDonald are beneficiaries and of which
AmSouth is the trustee. Pursuant to the Shareholders Agreement (discussed
below), the McDonald Interests have the right to appoint one member of the
board of directors of the Company. Otherwise, the McDonald Interests maintain
no active role in the management or operation of the Company.
SHAREHOLDERS AGREEMENT
The Shareholders Agreement, dated September 1, 1994, among ECCP, AmSouth,
as trustee for the McDonald Interests, CGT, GS Capital Partners, William W.
McDonald and the Company, regulates the relationship between certain of the
shareholders. Pursuant to provisions of the Company's Articles of Association,
the Shareholders Agreement confers on ECCP the right to appoint up to four
directors, one of whom may exercise voting control at meetings of the
directors, and on the McDonald Interests the right to appoint one director, Mr.
Davis is to continue to be a director for so long as he remains Managing
Director of the Company. See "Certain Transactions -- Shareholders Agreement"
for additional information relating to the Shareholders Agreement. While many
of the provisions of the Shareholders Agreement terminate on a listing of, or
the giving effect to trading arrangements in respect of, the ordinary shares,
some do not and in particular ECCP and CGT have agreed to support the election
of one director nominated from time to time by the McDonald Interests, and the
McDonald Interests and CGT have agreed to support the election of up to four
directors nominated from time to time by ECCP. The Shareholders Agreement may
be varied or terminated at any time by the parties and may be terminated in
whole or in part by ECCP and the McDonald Interests.
Pursuant to the Shareholders Agreement, certain matters may not be
determined without prior written approval of the McDonald Interests and the
holders of a majority of the Ordinary Shares. These matters include: (i) any
issue of shares in the Company at a price less than the lower of the price paid
by ECCP for ordinary shares in the acquisition by ECCP (taking account of the
price at which ECCP has subscribed for further equity)
75
<PAGE> 77
and the fair value at the time of such share issue determined by an independent
expert, (ii) any capital reconstruction or reorganization or amendment to the
Company's Articles of Association, if unfairly prejudicial to the McDonald
Interests, (iii) the sale of certain franchises -- see "Business -- Franchise
Areas", (iv) any transaction by the Company with any party or affiliate of a
party on any basis other than on commercial arm's-length terms, (v) any
material amendment to the Company's business plan that would likely frustrate
in a materially adverse manner the achievement of the construction milestones
set out in the business plan, (vi) (save in restricted circumstances) the
service by the Board of a notice to compel a shareholder to dispose of
interests in the Company's shares that may jeopardize a material license of the
Company and (viii) the winding up of the Company or any equity repayment by the
Company.
As to other provisions see "Certain Transactions -- Shareholders
Agreement".
RELATIONSHIP AGREEMENTS
CAA transferred its interest in the Company to DCI Capital Partners on
August 6, 1996. See "Company Organization".
Investor Investments and DCI entered into Relationship Agreements (the
"Relationship Agreements") with ECCP dated October 12, 1994 and June 21, 1996,
respectively. Under the Relationship Agreements, Investor Investments and DCI
each have the right to appoint one director to the board of the Company.
Pursuant to each of the Relationship Agreements (as well as its obligations
under the Shareholders Agreement), prior to an admission of ordinary shares to
listing or similar arrangements, ECCP has agreed to procure (so far as it is
legally able) that the Company will invite Investor Investments and DCI to
subscribe for a proportion of any further shares which the Company may issue
wholly for cash, such proportion to be equivalent to Investor Investments' or
DCI's (as the case may be) percentage interest in ordinary shares.
Pursuant to the Relationship Agreements, ECCP has agreed to procure (so
far as it is legally able) that the Company will not take certain actions
without the prior written approval of Investor Investments and DCI. These
actions are: (i) any capital reconstruction or reorganization, if unfairly
prejudicial to Investor Investments or DCI, as the case may be, (ii) any
transaction by the Company with ECCP or its affiliates on any basis other than
on commercial arm's-length terms, and (iii) the winding up of the Company or
any equity repayment by the Company.
As to the provisions of the Relationship Agreements see "Certain
Transactions -- Relationship Agreements".
76
<PAGE> 78
MANAGEMENT
Certain information concerning the directors, senior management and
certain key employees of the Company is set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AGE POSITION HELD
Lord Francis Pym... 74 Director and Non-Executive Chairman
Robert T. Goad..... 41 Director, Chief Executive Officer
Gary L. Davis...... 51 Director and Managing Director
Richard A. Friedman 38 Director
William W. McDonald 65 Director
Thomas Nilsson..... 47 Director
Muneer A. Satter... 35 Director
John L. Thornton... 42 Director
Nicholas R. Millard 45 Chief Financial Officer
J.A. Duncan Craig.. 40 Chief Accounting Officer
Stephen D. Rowles.. 43 Telecommunications director
</TABLE>
(All of Diamond Plaza, Daleside Road, Nottingham NG2 3GG England)
Lord Pym has been a Director and Non-Executive Chairman since February
1995. He is a current Member of the House of Lords and a former Member of
Parliament and served, among other things, as Secretary of State for Defence
from 1979 to 1981 and Foreign and Commonwealth Secretary from 1982 to 1983. He
was President of the Atlantic Treaty Association from 1985 to 1988. Lord Pym is
also a director of Christie Brockbank Shipton Ltd., St. Andrews (Ecumenical
Trust) Ltd. and The Landscape Foundation.
Mr. Goad has been a Director and Chief Executive Officer since May 1994
and served as Chief Financial Officer from May 1994 until July 1995. Mr. Goad
is a founder of and principal in ECE Management and has been President of
Columbia Management since 1984.
Mr. Davis has been a Director and Managing Director since he co-founded
the Company in 1989. From 1970 to 1989, Mr. Davis practiced law in the United
States, specializing from 1979 to 1989 in the cable television industry and
governmental regulations. Mr. Davis is also a director of Nottingham
Development Enterprise Limited and a director and Chairman of the Cable
Communications Association.
Mr. Friedman has been a Director since May 1994. Mr. Friedman is a general
partner of Goldman, Sachs & Co. and head of that firm's Principal Investment
Area. Mr. Friedman joined Goldman, Sachs & Co. in 1981. From 1987 to 1991, Mr.
Friedman was head of the firm's Media Group. Mr. Friedman is a member of the
firm's Investment Committee and a member of its Real Estate Principal
Investment Committee, and is on the Advisory Committees or Boards of Directors
of Alliance Broadcasting, L.P., Globe Manufacturing Co., Marcus Cable Company,
L.P., Maryland Cable Holdings Corp. and Polo Ralph Lauren Enterprises, L.P.
Mr. McDonald has been a Director since July 1993. Mr. McDonald is Chairman
of McDonald Investment, Inc., a company with cable television and real estate
interests in the United States and Bermuda which he formed in 1988, and is
Chairman of a supervisory committee that advises the trustee for the McDonald
Interests. Mr. McDonald has been an active owner of cable systems since 1967.
Mr. Nilsson has been a Director since February 1995. Mr. Nilsson is
Managing Director of Investor U.K. Limited, London and was Managing Director of
AB Export Invest from 1985 to 1994. He is also Chairman of Grunnebo AB,
Hasselfors and Forvaltnings AB and a Board Member of European Acquisition
Capital, Compagnie Immobel de Belgique, STORA Finance, Tufton Oceanic
Investments Ltd., Industri Kapital Limited and Memex I&C AB.
77
<PAGE> 79
Mr. Satter has been a Director since May 1994. Mr. Satter is an executive
director of Goldman Sachs International and co-head of that firm's European
Principal Investment Area. Mr. Satter joined Goldman, Sachs & Co. in 1988. Mr.
Satter is also on the Advisory Committee or Board of Directors of Advanstar
Communications, Inc., Bran & Luebbe GmbH and Empe Holdings GmbH.
Mr. Thornton has been a Director since May 1994. Mr. Thornton is a general
partner of Goldman, Sachs & Co. and a managing director of Goldman Sachs
International. Mr. Thornton joined Goldman, Sachs & Co. in 1980 and is now one
of two partners responsible for that firm's business in Europe. Mr. Thornton is
also a director of Ford Motor Company, British Sky Broadcasting Group plc and
Laura Ashley plc.
Mr. Millard has been Chief Financial Officer since July 1995. Prior to
joining the Company, Mr. Millard was Group Financial Controller and a Director
of the Industrial Division of Brent International Plc. Mr. Millard is a
Chartered Accountant with experience at Arthur Andersen.
Mr. Craig has been Chief Accounting Officer since 1990. Prior to joining
the Company, Mr. Craig was Finance Director of Video Magic Leisure Group plc, a
retail video distribution company which became a publicly quoted company in
1989. Mr. Craig is a Chartered Accountant with experience at KPMG and Price
Waterhouse.
Mr. Rowles has been Telecommunications director since January 1992. Prior
to joining the Company, Mr. Rowles was a founder of RPL Telecommunications plc,
a PABX equipment and systems vendor, and served there as a director from 1982
through 1991.
BOARD OF DIRECTORS
The Company's Articles of Association (the "Articles") provide that unless
otherwise determined by ordinary resolution, the number of directors (other
than alternate directors) shall be not less than two but shall not be subject
to any limit. Presently, the Board of Directors comprises eight members.
The Shareholders Agreement grants ECCP the right pursuant to the Articles
to appoint up to four members of the Company's board of directors, one of whom
may exercise voting control at meetings of the directors. The McDonald
Interests are given the right to appoint one director. Under the Relationship
Agreements between ECCP and Investor Investments and ECCP and DCI dated October
12, 1994 and June 21, 1996 respectively, Investor Investments and DCI each have
the right to require ECCP to procure (so far as it is legally able) that the
Company appoints one director designated by each of them. Presently Messrs.
Goad, Friedman, Thornton and Satter are the ECCP appointees, Mr. McDonald is
the McDonald Interests appointee and Thomas Nilsson is the Investor Investments
appointee. DCI has not yet made an appointment. While CGT is not given the
right to appoint any director, the Shareholders Agreement provides that Gary L.
Davis will continue to be a director for so long as he remains Managing
Director of the Company. Prior to obtaining a listing of or making trading
arrangements in respect of the Company's ordinary shares, the parties to the
Shareholders Agreement have agreed to discuss the practicality of continuing
such rights (in so far as they arise out of the Shareholders Agreement) in
force after the listing becomes effective.
MANAGEMENT AGREEMENT
DCL has entered into a 10-year management agreement with effect from June
1, 1994 (the "Management Agreement") with ECE Management, a company controlled
by Ralph H. Booth II and Robert T. Goad. ECE Management has agreed pursuant to
the Management Agreement to manage and act as agent (under the supervision and
control of DCL's board of directors) in connection with the day-to-day business
and affairs of the Company, including the construction of the Company's cable
network, the operation and administration of the Company's business, retaining
consultants, and the preparation of operating budgets and business plans. The
Management Agreement provides for an annual management fee of $200,000 per year
and reimbursement of ECE Management's expenses.
Principals and affiliates of ECE Management have been involved in the U.K.
cable industry since 1989 when affiliates of Mr. Goad and his company, Columbia
Management, acquired a controlling interest in the
78
<PAGE> 80
100,000 home franchise for South Bedfordshire. In 1990, Mr. Goad and his
affiliates were joined by Mr. Booth through Booth American Company ("Booth
American"), a family-owned U.S. media company with cable systems serving
approximately 140,000 subscribers and an approximate 50% interest in Secret
Communications, L.P., a radio company with thirteen radio stations in six major
markets. Together, the group applied for four additional contiguous franchises
in Hertfordshire and Bedfordshire. The group was successful in winning three of
the four franchises bringing the total homes under franchise to approximately
400,000. In October 1993, Columbia Management and Booth American signed a joint
venture agreement with International CableTel Inc. ("ICTL") whereby the parties
established English Cable Enterprises, Inc. ("English Cable") in which ICTL
acquired a 70% interest with Booth American and Columbia Management retaining
the remaining 30% (which has subsequently been exchanged for a direct interest
in ICTL).
In addition to Mr. Goad and Mr. Booth, the management team at ECE
Management includes Gary Cox and Mark S. Simonian. Gary Cox is a principal in
ECE Management with primary responsibility for network design and architecture.
Mr. Cox has over twenty years experience in the cable television industry
including serving as Chief Operating Officer of Communications Services, Inc.
("CSI") upon the management buyout of that company in 1984. CSI was
subsequently sold to Tele-Communications, Inc. in 1989 at which time it had
approximately 275,000 subscribers. Mr. Cox also participated in the development
of the network architecture for the English Cable system. Mr. Simonian joined
ECE Management as a principal in June 1994 and prior to that served as a
Director in the Media and Telecommunications Group at CS First Boston
Corporation. See "Certain Transactions -- Management Agreement". Options over a
total of 220,000 Shares and 440,000 Shares were granted to certain principals
of ECE Management on February 23, 1995 and October 24, 1995 under the Senior
Management Options Scheme (described below) with an exercise price of L.3.44
per Share and L.4.11 per Share, respectively.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Group during
the years ended December 31, 1993, 1994 and 1995 for Gary L. Davis (the
Managing Director of the Group during the years ended December 31, 1993, 1994
and 1995), during the years ended December 31, 1994 and 1995 for Stephen D.
Rowles and during the year ended December 31, 1995 for Nicholas R. Millard. No
other executive officer of the Group received compensation in excess of
$100,000 for 1993, 1994 or 1995. See "-- Employment Agreements and Other
Arrangements" below for a description of certain other transactions involving
Mr. Davis. In addition, the following sets forth the compensation by the Group
to Mark Harris and Paul Niles for the year ended December 31, 1995 who, while
not executive officers of the Group, would have been among the most highly
compensated executive officers during 1995 had they been such.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
<TABLE>
<CAPTION>
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS (#) COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
1995 $233,025 $77,675 $31,547 --
Gary L. Davis, 1994 $164,691 $39,162 $49,297 --
Managing Director............ 1993 $23,640 $41,253 $171,301 872,000 --
Nicholas R. Millard,
Chief Financial Officer...... 1995 $69,908 $34,954 $16,223 60,000 --
Stephen D. Rowles, 1995 $76,620 $46,605 $14,281 --
Telecommunications director.. 1994 $98,341 $29,764 $11,027 60,000 --
Mark Harris,
Technical director........... 1995 $125,663 $40,391 $23,025 30,000 --
Paul Niles
Construction director........ 1995 $69,908 $46,605 $9,644 30,000 --
</TABLE>
79
<PAGE> 81
(1) Payments made in 1993, 1994 and 1995 in pounds sterling are presented in
U.S. dollars based on an exchange rate of $1.4775 to L.1.00, $1.5665 to
L.1.00 and $1.5535 to L.1.00, the Noon Buying Rates on December 30, 1993,
1994 and 1995.
(2) Mr. Davis' "Other Annual Compensation" for 1995 includes $18,642 for
house rental, $8,543 for the lease of a car, $926 for health insurance and
other living expenses of $3,436. Mr. Davis' "Other Annual Compensation"
for 1994 includes $17,073 for house rental, $8,489 for the lease of a car,
$847 for health insurance and other living expenses of $10,538. The
remaining $12,350 of this amount represents a loan to Gary Davis from
("MMI"). See "-- Employment Agreements and Other Arrangements". Mr. Davis'
"Other Annual Compensation" for 1993 includes $13,815 for house rental,
$6,427 for the lease of a car, and $810 for health insurance. The
remaining $150,250 of this amount represents a loan to Gary Davis from
("MMI"). See "-- Employment Agreements and Other Arrangements". Mr
Millard's "Other Annual Compensation" includes pension contributions of
$3,495, $6,181 for the provision of a car, $343 for health insurance,
$6,059 for house rental, and $145 for other living expenses. Mr. Rowles'
"Other Annual Compensation" for 1995 includes $9,427 for the provision of
a car, $660 for health insurance and pension contributions of $4,194. Mr.
Rowles' "Other Annual Compensation" for 1994 includes $6,192 for the
provision of a car, $605 for health insurance and pension contributions of
$4,230. Mr. Harris' "Other Annual Compensation" includes $19,747 for the
provision of two cars, $2,455 for school fees and $823 for health
insurance. Mr. Niles' "Other Annual Compensation" includes $2,796 pension
contributions, $6,024 for the provision of a car, and $824 for health
insurance.
SENIOR MANAGEMENT OPTION SCHEME
The Company adopted a Senior Management Option Scheme on October 27, 1994
which has not been approved by the U.K. Inland Revenue. Under the scheme the
Board of Directors may, for a period of 10 years, grant options over Shares
with an exercise price of L.3.44 or such other price as the Board of Directors
may determine, to executives or other individuals associated with the Group
selected by the Board of Directors. Options granted on or before April 30, 1995
can be exercised as to 50% of the shares subject to the option on or after June
30, 1998 and as to the other 50% on or after June 30, 1999, in each case, until
the seventh anniversary of the date of grant of the option. Options granted
after April 30, 1995 can only be exercised as to 50% on or after the fourth
anniversary of the date of grant, and as to the remaining 50%, on or after the
fifth anniversary of the date of grant, in each case, until the seventh
anniversary of the date of grant of the option. Options may be exercised early
in certain circumstances if the option holder ceases to be a director or
employee of the Group or if there is a change in control of the Group.
Options over a total of 728,000 Shares were granted to directors, senior
management and certain principals of ECE Management on February 23, 1995 and
July 19, 1995 under the Senior Management Option Scheme with an exercise price
of L.3.44. Of these 218,000 were granted to Gary Davis and 10,000 to Lord Pym.
On October 24, 1995, options over a total of 490,000 shares were granted
to directors, senior management and certain principals of ECE Management under
the Senior Management Option Scheme with an exercise price of L.4.11 per share.
Options were granted on January 5, 1995 to CGT, in which Mr. Davis and his
family are shareholders, over 654,000 Shares with an exercise price of L.3.44
and are exercisable at any time up to January 5, 2002. These options were not
granted under the Senior Management Option Scheme but are subject to some of
the provisions of the Senior Management Option Scheme.
According to the rules of the Senior Management Option Scheme, the
aggregate number of shares which have been or may be issued pursuant to options
granted under the Senior Management Option Scheme and options granted under any
other option scheme of the Company may not exceed 10% of the Company's then
current issued share capital.
80
<PAGE> 82
Set forth below is certain information regarding options granted to the
executive officers and employees whose compensation is disclosed above.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE PRICE
NAME GRANTED (#) YEAR (L./SHARE)
<S> <C> <C> <C>
Gary L. Davis...... 872,000 100% L.3.44
Nicholas R. Millard 60,000 100% L.3.44
Stephen D. Rowles.. 60,000 100% L.3.44
Mark Harris........ 30,000 100% L.3.44
Paul Niles......... 30,000 100% L.3.44
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
NAME EXPIRATION DATE TERM
5% (L.) 10% (L.)
<S> <C> <C> <C>
Gary L. Davis...... January 5, 2002 and L.1,221,170 L.2,845,850
February 23, 2002
Nicholas R. Millard July 19, 2002 84,025 195,815
Stephen D. Rowles.. February 23, 2002 84,025 195,815
Mark Harris........ February 23, 2002 42,012 97,908
Paul Niles......... February 23, 2002 42,012 97,908
</TABLE>
COMPENSATION OF DIRECTORS
The Articles of Association of the Company provide that the ordinary
remuneration to directors who are not executive officers shall not exceed in
aggregate L.300,000 (excluding amounts payable under any other provision of the
Articles of Association) or such higher amount as the shareholders may
determine by an ordinary resolution. Such directors may be paid extra
remuneration by way of salary, commission or otherwise as the Board may
determine. The aggregate remuneration paid to Directors of the Company during
1994 and 1995 was L.374,025 (excluding loans to Mr. Davis by MMI described
below).
The Board may appoint one or more directors to executive offices on such
terms as it may determine. All Directors are also entitled to reimbursement for
all reasonable travelling, hotel and other expenses properly incurred in the
performance of their duties as directors, including any expenses incurred in
attending meetings of the Board or of committees of the Board or general
meetings or separate meetings of the holders of any class of shares or
debentures of the Company.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
DCL entered into a Service Agreement with Mr. Davis, on May 17, 1994 (the
"Service Agreement"), which provides that Mr. Davis will act as Managing
Director of the Company for a period of two years from May 6, 1994 and
thereafter unless and until terminated by six months' notice. The Service
Agreement further provides that in carrying out his duties, Mr. Davis will act
under the direction of DCL's board of directors. The Service Agreement provides
that Mr. Davis' initial salary will be L.150,000 a year plus a bonus of up to
half his salary calculated by performance criteria determined annually by the
board of directors of DCL. Mr. Davis' salary will be reviewed by the DCL's
board of directors annually from May 1996.
From 1990 through May 1994, Mr. Davis received advances totalling
approximately $640,000 from MMI. At the time of the acquisition by ECCP, the
McDonald Interests made a capital contribution of $1.3 million to DCL for the
purpose of having DCL repay Mr. Davis' outstanding loan, inclusive of estimated
tax liabilities. The Company declared a bonus to Mr. Davis in December 1995 in
an amount sufficient to repay the loan and meet any related tax liabilities
(together amounting to approximately $1.2 million) and such amount has been
charged against income in the Company's Consolidated Statement of Operations in
applicable years. The related tax liabilities have been agreed upon with the
Inland Revenue and were paid by the Company on March 8, 1996. The loan from MMI
remains outstanding.
DCL has entered into service contracts with each of Mr. Craig and Mr.
Rowles for a minimum period of three calendar years commencing January 31,
1994.
81
<PAGE> 83
With respect to Mr. Goad, the ECCP partnership agreement provides that
while the Management Agreement is in force, ECCP shall maintain Mr. Goad as
chief executive officer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not have a compensation committee.
During 1995, Robert Goad and Gary Davis were the only officers and employees of
the Company who participated in deliberations of the Board of Directors
concerning executive officer compensation.
BOARD OF DIRECTORS
The Company's Articles of Association (the "Articles") provide that unless
otherwise determined by ordinary resolution, the number of directors (other
than alternate directors) shall be not less than two but shall not be subject
to any limit. Presently, the Board of Directors comprises eight members.
The Shareholders Agreement grants ECCP the right pursuant to the Articles
to appoint up to four members of the Company's board of directors, one of whom
may exercise voting control at meetings of the directors. The McDonald
Interests are given the right to appoint one director. Under the Relationship
Agreements between ECCP and Investor Investments and ECCP and DCI dated October
12, 1994 and June 21, 1996, respectively, Investor Investments and DCI each
have the right to require ECCP to procure (so far as it is legally able) that
the Company appoints one director designated by each of them. Presently Messrs.
Goad, Friedman, Thornton and Satter are the ECCP appointees, Mr. McDonald is
the McDonald Interests appointee and Thomas Nilsson is the Investor Investments
appointee. DCI has not yet made an appointment. While CGT is not given the
right to appoint any director, the Shareholders Agreement provides that Gary L.
Davis will continue to be a director for so long as he remains Managing
Director of the Company. Prior to obtaining a listing of or making trading
arrangements in respect of the Company's ordinary shares, the parties to the
Shareholders Agreement have agreed to discuss the practicality of continuing
such rights (in so far as they arise out of the Shareholders Agreement) in
force after the listing becomes effective.
MANAGEMENT AGREEMENT
DCL has entered into a 10-year management agreement with effect from June
1, 1994 (the "Management Agreement") with ECE Management, a company controlled
by Ralph H. Booth II and Robert T. Goad. ECE Management has agreed pursuant to
the Management Agreement to manage and act as agent (under the supervision and
control of DCL's board of directors) in connection with the day-to-day business
and affairs of the Company, including the construction of the Company's cable
network, the operation and administration of the Company's business, retaining
consultants, and the preparation of operating budgets and business plans. The
Management Agreement provides for an annual management fee of $200,000 per year
and reimbursement of ECE Management's expenses.
82
<PAGE> 84
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to the Management Agreement, ECE Management has agreed to manage
and act as agent (under the supervision and control of DCL's board of
directors) in connection with the day-to-day business and affairs of Diamond,
including the construction of Diamond's cable network, the operation and
administration of Diamond's business, the retaining of consultants, and the
preparation of operating budgets and business plans. The contract provides for
an annual management fee of $200,000 (approximately L.128,800 based on the June
28, 1996 Noon Buying Rate) per year. In addition, DCL has agreed to reimburse
ECE Management for expenses incurred in the performance of its duties, and to
indemnify ECE Management from any liability incurred in connection with the
performance of its duties, except in the case of ECE Management's willful
misconduct, gross negligence or bad faith. See "Management Agreement". ECE
Management is directly or indirectly owned by Robert T. Goad (55% beneficial
interest) and Ralph H. Booth II (45% beneficial interest). The Company believes
that the terms of the Management Agreement are, taken as a whole, as favorable
to the Company as those which could have been obtained from an unaffiliated
third party through arm's-length negotiation. During 1995, the Group recorded
expenses of L.1,085,000 as amounts paid or payable to ECE Management. The
Company may terminate the Management Agreement if ECE Management ceases to be
an Affiliate (as defined therein) of Mr. Booth and Mr. Goad. In addition, the
Company may terminate the Management Agreement (after consultation with ECE
Management) if Diamond materially underperforms compared to ECE Management's
business plan, provided such underperformance is not caused by events which are
beyond ECE Management's control.
SHAREHOLDERS AGREEMENT
Pursuant to the Shareholders Agreement, certain matters may not be
determined without prior written approval by the McDonald Interests and the
holders of a majority of the ordinary shares. See "Shareholders -- Shareholders
Agreement".
The Shareholders Agreement also provides that each party thereto will (so
far as it is able) procure that any contract between the Company and that party
or any of its affiliates is made on an arm's length commercial basis. Unless
ECCP agrees otherwise on any particular occasion, the Company is required to
retain Goldman Sachs & Co. or an affiliate of Goldman, Sachs & Co. exclusively
to perform all investment banking services for customary compensation and on
other terms consistent with an arm's length transaction.
The Shareholders Agreement also places certain restrictions on the
transfer of shares held by the parties and grants certain registration rights.
RELATIONSHIP AGREEMENTS
Pursuant to the Relationship Agreements, ECCP is required to procure (so
far as it is legally able) that certain actions by the Company are not taken
without the prior written approval of Investor Investments and DCI. See
"Shareholders -- Relationship Agreements".
The Relationship Agreements also provide that each party thereto will (so
far as it is able) procure that any contract between the Company and that party
or any of its affiliates is made on an arm's-length commercial basis. Unless
ECCP agrees otherwise on any particular occasion, the parties are required to
procure (so far as they are legally able) that the Company retains Goldman,
Sachs & Co. or an affiliate of Goldman, Sachs & Co. exclusively to perform all
investment banking services for customary compensation and on other terms
consistent with an arm's-length transaction.
The Relationship Agreements also place certain restrictions on the
transfer of shares held by the parties and grant certain registration rights.
83
<PAGE> 85
OTHER RELATIONSHIPS
Goldman, Sachs & Co. acted as underwriter in connection with the New
Senior Notes offering and received underwriting commissions of approximately
$6,750,000. In connection with the offering of the Initial Senior Notes,
Goldman, Sachs & Co. received underwriting commissions of $4,875,000. Goldman,
Sachs & Co. acted as advisor in connection with Diamond's acquisition of LCL
and received an advisory fee for their services amounting to L.1,091,000.
Goldman Sachs International is acting as agent and financial advisor in
connection with the Senior Bank Facility for which it will earn fees of
L.400,000. In addition, Goldman, Sachs & Co. received a fee of $750,000 for
financial advisory services that Goldman, Sachs & Co. rendered to the Company.
John Thornton, who is a general partner of Goldman, Sachs & Co. and a
Director of the Company, is also a director of BSkyB, a principal supplier of
programming to the Group and a principal competitor of the Group. See "Business
- -- Cable Television -- Programming" and "Business -- Competition -- Cable
Television -- DTH Satellite".
Robert T. Goad, a Director and the Chief Executive Officer of the Company
also has an indirect minority interest in ICTL, which has significant cable
interests in the U.K.
84
<PAGE> 86
DESCRIPTION OF COMPANY DEBT
SENIOR BANK FACILITY
In August 1996 certain of the Company's subsidiaries entered into a L.340
million senior syndicated bank loan and guarantee facility, the Senior Bank
Facility.
Indebtedness under the Senior Bank Facility will be incurred by a
subsidiary of the Company, guaranteed by certain of the Company's other
subsidiaries and secured by a lien on the assets of Jewel and its subsidiaries
and a pledge of the issued shares of certain of the Company's subsidiaries
other than Jewel but including DCL and LCL.
The Senior Bank Facility is divided into two tranches. The aggregate
amount that may be drawn down under both tranches at any time is no more than
L.340 million. These drawings are subject to the satisfaction of certain
conditions at the time of each drawing. The Tranche A draw downs bear interest
at adjusted sterling LIBOR plus a margin. All Tranche A borrowings are expected
to be capable of being refinanced with borrowings under Tranche B (if
available). Tranche B borrowings up to a stated amount are subject to
additional conditions, including conditions relating to operating cash flow of
Jewel's subsidiaries which are not currently met. Tranche B borrowings bear
interest at adjusted sterling LIBOR plus a margin that is lower than the margin
on Tranche A borrowings and varies depending upon the leverage ratio of Jewel
and its subsidiaries. The loan will require quarterly repayment of outstanding
principal amounts beginning in 2001, with final repayment in 2004. The Senior
Bank Facility contains various covenants, including financial covenants
restricting the leverage of Jewel and its subsidiaries and requiring the
maintenance of specified interest and fixed charge coverage ratios and
operating cash flow, restricting a change of control of the Company or Jewel
and restricting the payment of dividends and intra-group debt.
Under the Senior Bank Facility, certain subsidiaries of the Company are
required to enter into interest rate protection agreements in relation to a
proportion of the projected loans outstanding for the period January 1, 1998 to
June 30, 2001.
OTHER COMPANY DEBT
As of June 30, 1996, the Group had outstanding long-term indebtedness
under capital leases in an aggregate principal amount of approximately L.8.75
million. The most significant of these capital leases are for
telecommunications and cable television distribution equipment.
DCL has a number of capital leases with GPT for System X local exchange
telephone switches and other telecommunications equipment. Most of these
agreements have a primary rental period of five years. Rent is payable
quarterly, and some of the agreements provide for fixed rate finance, others
for financing by reference to LIBOR from time to time. As at June 30, 1996, the
capital outstanding under the GPT leases was approximately L.0.79 million.
In addition, DCL has entered into capital leases with Nortel Limited for
multiple user exchanges and other telecommunications equipment. These leases
are for a seven-year primary period and rent is payable monthly, calculated
according to a LIBOR based formula. As at June 30, 1996, the capital
outstanding under the Nortel Limited lease was approximately L.1.72 million.
DCL has the right to prepay its obligations under the Nortel Limited leases on
payment of a termination sum calculated by reference to a prescribed formula.
DCL has five-year lease purchase finance agreements with IBM for computer
equipment, the last of which expires in December 1999. As at June 30, 1996, the
capital outstanding under the IBM agreement was approximately L.239,000.
85
<PAGE> 87
LCL entered into two capital leases with Nortel Limited for transmission
and digital exchange equipment which have been transferred to DCL. These leases
are for a seven-year primary lease period expiring in August 2002 and the rent
is payable quarterly on a LIBOR based formula. As at June 30, 1996, the capital
outstanding under the Nortel Limited leases was approximately L.5.58 million.
DCL has the right to prepay its obligations under the Nortel leases on payment
of a prescribed termination sum. LCL also entered into capital leases for
computer systems with IBM which have been transferred to DCL and several hire
purchase agreements with various finance companies for motor vehicles. As at
June 30, 1996, the capital outstanding under the IBM leases was approximately
L.246,000 and the capital outstanding under the various hire purchase
agreements was approximately L.178,000.
DCL also has a mortgage for L.2.5 million to partly fund the construction
of the Company's headquarters in Nottingham. The mortgage is repayable over a
period of 20 years from the date of drawdown of July 1995, subject to a capital
repayment moratorium that expires in September 1996.
On July 3, 1995, LCL entered into a five-year interest rate swap agreement
with CIBC pursuant to which LCL pays interest on a quarterly basis at a fixed
rate of 8.79% on a variable notional amount and receives interest based on the
same notional amount at a floating rate calculated at sterling LIBOR. The swap
was entered into to hedge LCL's obligations under a loan agreement that was
subsequently repaid by the Company on behalf of LCL. At the time of repayment,
L.2.0 million had been drawn down under the loan agreement. The swap has been
recorded on the balance sheet at December 31, 1995 in other liabilities at its
fair value of L.1.3 million. See Note 16 to Notes to the Consolidated Financial
Statements.
86
<PAGE> 88
DESCRIPTION OF INITIAL SENIOR NOTES
The Initial Senior Notes have been issued under an Indenture, dated as of
September 28, 1994, as amended by the First Supplemental Indenture, dated as of
May 31, 1996 (collectively, the "Initial Senior Notes Indenture"), between the
Company and The Bank of New York, as trustee (the "Trustee"). A copy of the
form of the Initial Senior Notes Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary of certain provisions of the Initial Senior Notes Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the Initial Senior Notes Indenture,
including the definitions of certain terms therein and those terms made a part
of the Initial Senior Notes Indenture by reference to the Trust Indenture Act,
as in effect on the date of the Initial Senior Notes Indenture. In this
section, references to the Company are to Diamond Cable Communications PLC. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions". Article and Section references are
to articles and sections of the Initial Senior Notes Indenture.
GENERAL
The Initial Senior Notes constitute general unsubordinated obligations of
the Company, limited to $285,101,000 aggregate principal amount at maturity and
will mature on September 30, 2004. The Initial Senior Notes have been issued in
an aggregate principal amount at maturity to generate gross proceeds of
approximately $150 million. The Initial Senior Notes will accrete at a rate of
13 1/4%, compounded semiannually, to their aggregate principal amount by
September 30, 1999 (the "Cash Interest Date"). Cash interest will not accrue on
the Initial Senior Notes prior to the Cash Interest Date. Thereafter, cash
interest on the Initial Senior Notes will be payable, at a rate of 13 1/4% per
annum, semi-annually in arrears on each March 31 and September 30 (each, an
"Interest Payment Date"), commencing March 31, 2000, to the Book-Entry
Depositary (as hereinafter defined) in the case of the Global Senior Note (as
hereinafter defined) and to holders of Definitive Registered Notes (as
hereinafter defined), if any, on the March 15 or September 15, as the case may
be, immediately preceding such Interest Payment Date. Cash interest will accrue
from the most recent Interest Payment Date to which interest has been paid or
duly provided for or, if no interest has been paid or duly provided for, from
the Cash Interest Date. Cash interest will be computed on the basis of a
360-day year of twelve 30-day months. For additional information concerning
payments on the Initial Senior Notes, see "Description of Book-Entry System --
Payments on the Global Senior Note" and "-- Form of Initial Senior Notes".
In August 1996, certain of the Company's subsidiaries entered into the
Senior Banking Facility which will provide aggregate amounts available for
borrowing, provided certain conditions are met, of up to L.340 million. See
"Description of Company Debt -- Senior Bank Facility". The Company has not
issued, and does not have any current plans to issue, any significant
indebtedness that will be subordinated to the Initial Senior Notes. The Initial
Senior Notes effectively rank junior to any indebtedness of the Company's
subsidiaries to the extent of the assets of such subsidiaries and to any
secured indebtedness of the Company to the extent of the assets securing such
indebtedness. Indebtedness under the Senior Bank Facility will effectively be
senior to the Initial Senior Notes. See "Risk Factors -- Holding Company
Structure; Liens on Assets".
Except as described below under "-- Certain Covenants -- Change of
Control" and "-- Mergers, Consolidations and Certain Sales of Assets", the
Initial Senior Notes Indenture does not contain any provisions that permit the
holders of the Initial Senior Notes to require that the Company repurchase or
redeem the Initial Senior Notes or otherwise protect the holders of Initial
Senior Notes in the event of a takeover, recapitalization or similar
restructuring or in the event of another highly leveraged transaction.
The Initial Senior Notes are listed on the Luxembourg Stock Exchange.
FORM OF INITIAL SENIOR NOTES
The Initial Senior Notes are represented by a global security in bearer
form, without coupons attached (the "Global Senior Note"), which was issued in
a denomination equal to the outstanding principal amount at
87
<PAGE> 89
maturity of Initial Senior Notes represented thereby. The Global Senior Note
was deposited with The Bank of New York, as book-entry depositary (the
"Book-Entry Depositary"), pursuant to the terms of a Deposit Agreement, dated
as of September 28, 1994 between the Company, for the limited purposes set
forth therein, the Book-Entry Depositary and the owners from time to time of
Book-Entry Interests (the "Deposit Agreement"). See "-- Description of
Book-Entry System".
Under the terms of the Deposit Agreement, owners of Book-Entry Interests
will receive Definitive Registered Notes (i) if DTC notifies the Book-Entry
Depositary that it is unwilling or unable to act as depositary or ceases to be
a clearing agency registered under the Securities Exchange Act of 1934, as
amended, and, in either case, a successor depositary is not appointed by the
Global Depositary at the request of the Company within 120 days, (ii) in the
event of an Event of Default under the Initial Senior Notes Indenture upon
request of the owner of a Book-Entry Interest, (iii) at any time if the Company
in its sole discretion determines that the Global Senior Note (in whole but not
in part) should be exchanged for Definitive Registered Notes, (iv) if such
owner of a Book-Entry Interest requests such exchange in writing delivered to
DTC and through DTC to the Book-Entry Depositary or (v) if the Book-Entry
Depositary is at any time unwilling or unable to continue as Book-Entry
Depositary and a successor Book-Entry Depositary is not appointed by the
Company within 120 days. In no event will definitive Initial Senior Notes in
bearer form be issued.
Any Definitive Registered Notes will be issued in registered form in
denominations of $1,000 principal amount at maturity. Any Definitive Registered
Notes will be registered in such name or names as the Book-Entry Depositary
shall instruct the Trustee based on the instructions of DTC. It is expected
that such instructions will be based upon directions received by DTC from its
participants ("Participants") with respect to ownership of Book-Entry
Interests. To the extent permitted by law, the Company, the Trustee and any
paying agent shall be entitled to treat the person in whose name any Definitive
Registered Note is registered, as the absolute owner thereof. While the Global
Senior Note is outstanding, holders of Definitive Registered Notes may exchange
their Definitive Registered Notes for Book-Entry Interests by surrendering
their Definitive Registered Notes to the Book-Entry Depositary. The amount of
the Global Senior Notes (and the Book-Entry Interests) will be increased or
decreased to reflect exchanges or issues of Definitive Registered Notes. The
Book-Entry Depositary will request the Trustee to make the appropriate
adjustments to the Global Senior Note underlying the Book-Entry Interests to
reflect any such issues or adjustments. The Initial Senior Notes Indenture
governing the Initial Senior Notes contains provisions relating to the
maintenance by a registrar of a register reflecting ownership of Definitive
Registered Notes, if any, and other provisions customary for a registered debt
security. Payment of principal and interest on each Definitive Registered Note
will be made to the holder appearing on the register at the close of business
on the record date at his address shown on the register on the record date.
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON THE DEFINITIVE REGISTERED NOTES AS SET FORTH UNDER "TAXATION UNITED
KINGDOM". A HOLDER OF DEFINITIVE REGISTERED NOTES WILL, TO THE EXTENT DESCRIBED
BELOW UNDER "-- PAYMENT OF ADDITIONAL AMOUNTS", BE ENTITLED TO RECEIVE
ADDITIONAL AMOUNTS WITH RESPECT TO SUCH DEFINITIVE REGISTERED NOTES. ADDITIONAL
AMOUNTS WILL NOT BE PAYABLE IF SUCH DEFINITIVE REGISTERED NOTES WERE ISSUED AT
THE REQUEST OF A HOLDER (INCLUDING FOLLOWING AN EVENT OF DEFAULT) AND AT THE
TIME OF THE PAYMENT IN QUESTION DEFINITIVE REGISTERED NOTES HAVE NOT BEEN
ISSUED IN EXCHANGE FOR THE ENTIRE PRINCIPAL AMOUNT AT MATURITY OF NOTES.
However, a U.S. holder of Definitive Registered Notes may be entitled to
receive a refund of withheld amounts from the Inland Revenue in certain
circumstances. See "Taxation -- United Kingdom -- Payments on the Initial
Senior Notes".
Any person receiving Definitive Registered Notes other than at its own
request will not be obligated to pay or otherwise bear the cost of any tax or
governmental charge or any cost or expense of the Book-Entry Depositary,
relating to insurance, postage, transportation or any similar charge, which
will be solely the responsibility of the Company.
Principal of, premium, if any, and interest on any Definitive Registered
Notes will be payable at the corporate trust office or agency of the Trustee in
The City of New York maintained for such purposes. In
88
<PAGE> 90
addition, interest on Definitive Registered Notes may be paid by check mailed
to the person entitled thereto as shown on the register for the Definitive
Registered Notes. No service charge will be made for any registration of
transfer or exchange of any Definitive Registered Notes.
REDEMPTION
OPTIONAL REDEMPTION
The Initial Senior Notes are redeemable, in whole or in part, at any time
on or after the Cash Interest Date, at the option of the Company, upon not less
than 30 nor more than 60 days' notice; provided that the Company may not give a
notice of redemption (i) more than four times in any year or (ii) in respect of
the redemption of less than $5 million in principal amount at maturity of the
Initial Senior Notes. Such redemption will be at the redemption prices
(expressed as percentages of principal amount at maturity) set forth below,
plus accrued and unpaid interest to the redemption date, if redeemed during the
12-month period beginning September 30 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
1999................. 107.125%
2000................. 105.344%
2001................. 103.563%
2002................. 101.781%
2003................. 100.000%
</TABLE>
Notwithstanding the foregoing, in the event that, on or before March 31,
1997, (i) the Company receives proceeds from any particular sale of its Equity
Securities (other than Disqualified Equity) in a Public Offering, or (ii) a
Trade Sale is consummated, then the Company may, at its election, use all or a
portion of such proceeds for the redemption within 75 days of such sale (in the
case of a Public Offering) or within 75 days of the completion of the relevant
Offer to Purchase (in the event of a Trade Sale) and upon not less than 30 nor
more than 60 days' notice by mail, of Initial Senior Notes having an aggregate
principal amount at maturity of up to $71,275,250 (equivalent to 25% of such
principal amount) at a Redemption Price equal to 113.25% of the Accreted Value
of such Initial Senior Notes on the Redemption Date.
PURCHASE OBLIGATION
The Company is not required to make any mandatory redemption or sinking
fund payments in respect of the Initial Senior Notes. However, (i) upon the
occurrence of a Change of Control (as defined below), the Company will be
obligated to make an Offer to Purchase all outstanding Initial Senior Notes at
a price of 101% of the Accreted Value thereof (determined at the date of
purchase), if such purchase is prior to the Cash Interest Date, or 101% of the
principal amount at maturity thereof, plus accrued interest thereon, if any, to
the date of purchase, if such purchase is on or after the Cash Interest Date,
and (ii) upon the occurrence of an Asset Disposition, the Company may be
obligated to make an Offer to Purchase all or a portion of the outstanding
Initial Senior Notes at a price of 100% of the Accreted Value thereof
(determined at the date of purchase), if such purchase is prior to the Cash
Interest Date, or 100% of the principal amount at maturity thereof, plus
accrued and unpaid interest, if any, to the date of purchase, if such purchase
is on or after the Cash Interest Date. See "-- Certain Covenants -- Change of
Control" and "-- Certain Covenants -- Limitation on Certain Asset
Dispositions", respectively.
SELECTION; EFFECT OF REDEMPTION NOTICE
In the case of a partial redemption, selection of the Initial Senior Notes
for redemption will be made pro rata (subject, in the case of Book-Entry
Interests, to DTC procedures). Upon giving of a redemption notice, the
principal amount of Initial Senior Notes called for redemption will cease to
accrete (if such redemption occurs prior to the Cash Interest Date), interest
on Initial Senior Notes called for redemption will cease to accrue (if such
redemption occurs on or after the Cash Interest Date) from and after the date
fixed for redemption (unless
89
<PAGE> 91
the Company defaults in providing the funds for such redemption) and such
Initial Senior Notes will then cease to be outstanding.
OPTIONAL TAX REDEMPTION
The Initial Senior Notes are subject to redemption upon not less than 30
nor more than 60 days' notice by mail, as a whole, but not in part, at the
election of the Company at any time at a redemption price equal to 100% of the
Accreted Value thereof (determined at the date of redemption) if such purchase
is prior to the Cash Interest Date, or 100% of the principal amount at maturity
thereof (together in the case of any such redemption with accrued interest to
the date of redemption if such redemption is on or after the Cash Interest
Date), if (a) the Company is required to issue Definitive Registered Initial
Senior Notes after using all reasonable efforts to avoid having to issue such
Definitive Registered Initial Senior Notes and the Company is or would be so
required in the absence of any applicable tax treaty on the next succeeding
Interest Payment Date to pay Additional Amounts with respect to the Initial
Senior Notes as described under "-- Payment of Additional Amounts" or (b) the
Company has become or would become obligated to pay in the absence of any
applicable tax treaty, on the next date on which any amount would be payable
with respect to the Initial Senior Notes, any Additional Amount as a result of
any change in the laws (or any rules or regulations thereunder) of the United
Kingdom or any political subdivision or taxing authority thereof or therein
(or, in the case of Additional Amounts payable by a successor Person to the
Company, of the jurisdiction in which such successor Person is organized or any
political subdivision or taxing authority thereof or therein) or any change in
any official interpretation or application of such laws or rules or regulations
or any execution of or amendment to any treaty affecting taxation to which the
United Kingdom or such political subdivision or taxing authority (or such other
jurisdiction or political subdivision or taxing authority) is a party, if the
change becomes effective on or after the date of the Initial Senior Notes
Indenture (or, in the case of Additional Amounts payable by a successor Person
to the Company, the date on which such successor Person became such pursuant to
the applicable provisions of the Initial Senior Notes Indenture unless as of
such date the relevant tax authority had publicly announced that such amendment
or change or execution was to occur after such date) and such obligation cannot
be avoided by the use of all commercially reasonable measures available to the
Company; provided, however, that (1) no such notice of redemption may be given
earlier than 90 days prior to the earliest date on which the Company would be
obligated to pay such Additional Amounts were a payment in respect of the
Securities then due, and (2) at the time such notice of redemption is given,
such obligation to pay such Additional Amounts remains in effect.
PAYMENT OF ADDITIONAL AMOUNTS
All payments made by the Company on the Initial Senior Notes will be made
free and clear of and without withholding or deduction for or on account of any
present or future taxes, duties, assessments or governmental charges of
whatever nature unless the withholding or deduction is then required by law. If
any withholding or deduction for or on account of any present or future taxes,
assessments or other governmental charges of the United Kingdom or any
political subdivision or taxing authority thereof or therein ("Taxes") shall at
any time be required in respect of any amounts to be paid by the Company under
the Initial Senior Notes, the Company will pay such additional amounts
("Additional Amounts") as may be necessary so that the net amount received by
each holder (including Additional Amounts) after such withholding or deduction
will not be less than the amount the Holder would have received if such Taxes
had not been withheld or deducted; provided that the foregoing obligation to
pay Additional Amounts does not apply to (a) any Taxes which would not have
been so imposed but for the existence of any present or former connection
between such Holder and the United Kingdom (other than the mere receipt of such
payment or the ownership or holding outside of the United Kingdom of such
Senior Note); (b) any estate, inheritance, gift, sales, excise, transfer,
personal property tax or similar tax, assessment or governmental charge; or (c)
any Taxes payable otherwise than by deduction or withholding from payments of
principal (or premium, if any, on) or interest on such Senior Note; nor will
Additional Amounts be paid (i) if the payment could have been made by or
through another paying agent without such deduction or withholding, (ii) if the
payment could have been made without such deduction or withholding had the
holder of the Senior Note (whether in Global or Definitive Registered form) or,
if different, the beneficiary of the payment complied with a timely request of
the Company, or any other Person through whom payment may be made, addressed or
otherwise provided to such holder or beneficiary to provide
90
<PAGE> 92
information, documents or other evidence concerning the nationality, residence,
identity or connection with the taxing jurisdiction of such holder or
beneficiary which is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing jurisdiction as a precondition to
exemption from all or part of such tax, (iii) with respect to any payment of
principal of (or premium if any, on) or interest on such Senior Note to any
holder who is a fiduciary or partnership or Person other than the sole
beneficial owner of such payment, to the extent such payment would be required
by the laws of the U.K. (or any political subdivision or taxing authority
thereof or therein) to be included in the income for tax purposes of a
beneficiary or settlor with respect to such fiduciary or a member of such
partnership or a beneficial owner who would not have been entitled to the
Additional Amounts had it been the holder of such a Senior Note, or (iv) if the
payment is in respect of a Definitive Registered Note issued at the request of
the owner of a Book-Entry Interest (including following an Event of Default)
and at the time the payment is made Definitive Registered Notes have not been
issued in exchange for the entire principal amount at maturity of the Initial
Senior Notes. The foregoing provisions shall survive any termination or
discharge of the Initial Senior Notes Indenture and shall apply mutatis
mutandis to any withholding or deduction for or on account of any present or
future taxes, assessments or governmental charges of whatever nature of any
jurisdiction in which any successor Person to the Company is organized, or any
political subdivision or taxing authority thereof or therein.
CERTAIN COVENANTS
The Initial Senior Notes Indenture contains, among others, the following
additional covenants:
LIMITATION ON CONSOLIDATED DEBT AND DISQUALIFIED EQUITY
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur any Debt or issue any Disqualified Equity unless, immediately after
giving effect to the Incurrence of such Debt or the issuance of such
Disqualified Equity and the receipt and application of the proceeds thereof,
the Annualized Consolidated Debt to Cash Flow Ratio of the Restricted Group at
the time of the Incurrence of such Debt or the issuance of such Disqualified
Equity, as the case may be, for which quarterly financial statements are
available, calculated on a pro forma basis (as if such Debt had been Incurred
or such Disqualified Equity had been issued at the beginning of such quarter)
would be less than 7.0 to 1.
Notwithstanding the foregoing paragraph, the Company may, and may permit
any Restricted Subsidiary to, Incur or issue the following: (i) Debt
outstanding from time to time under the Senior Bank Facility (up to L.160
million) less any amount permanently repaid thereunder and Debt Incurred to
finance the acquisition and construction of the Company's proposed combined
head office and headend/switch site; (ii) Debt of the Company and/or any
Restricted Subsidiary outstanding on the date of the Initial Senior Notes
Indenture, (iii) Debt or Disqualified Equity to the extent that the proceeds
are used to finance working capital for, or the construction or acquisition of,
property or assets in each case to be used in a Cable Business; (iv) Debt
Incurred or Disqualified Equity issued to finance a Cable Acquisition or
provide working capital for or financing for the construction of property or
assets to be used in the business so acquired; (v) Debt consisting of Interest
Rate Protection Obligations or Currency Hedging Agreements incurred in the
ordinary course of business; (vi) performance bonds or surety bonds or similar
instruments provided in the ordinary course of business; (vii) Debt owed by the
Company to any Wholly Owned Restricted Subsidiary (so long as such Debt is held
by a Wholly Owned Restricted Subsidiary and such Debt is subordinated in right
of payment to the Initial Senior Notes) or Debt owed by or Disqualified Equity
issued by a Restricted Subsidiary to the Company or a Wholly Owned Restricted
Subsidiary of the Company (provided that such Debt or Disqualified Equity is at
all times held by the Company or a Wholly Owned Restricted Subsidiary);
provided, however, that upon either (a) the transfer or other disposition by
such Wholly Owned Restricted Subsidiary or the Company of any such Debt or
Disqualified Equity to a Person other than the Company or another Wholly Owned
Restricted Subsidiary or (b) the issuance, sale, lease, transfer or other
disposition of shares of Equity Securities (including by consolidation or
merger) of such Wholly Owned Restricted Subsidiary to a Person other than the
Company or another such Wholly Owned Restricted Subsidiary, such Debt shall be
deemed to have been Incurred or such Disqualified Equity shall be deemed to
have been issued at the time of such transfer or other disposition; (viii) Debt
incurred or Disqualified Equity issued to renew, extend, refinance or refund
any Debt or Disqualified Equity permitted in Clauses (i) through (iv) above or
the Securities in an amount not to exceed the outstanding principal amount
91
<PAGE> 93
(or, if less, Accreted Value) of the Debt or the aggregate liquidation
preference of the Disqualified Equity so refinanced plus the amount of any
premium required to be paid in connection with such refinancing pursuant to the
terms of the Debt or Disqualified Equity refinanced plus the expenses of the
Company incurred in connection with such refinancing; provided that (a) in the
case of any refinancing or refunding of Debt which is pari passu to the
Securities, the refinancing or refunding Debt is made pari passu to the
Securities or subordinated to the Securities, and, in the case of any
refinancing or refunding of Debt which is subordinated to the Securities or of
Disqualified Equity, the refinancing or refunding Debt is subordinated to the
Securities to the same extent as the Debt being refinanced or refunded or is
Disqualified Equity; and (b) in either case, the refinancing or refunding Debt
or Disqualified Equity by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt or Disqualified Equity is Incurred or
issued, as the case may be, does not have a Weighted Average Life that is lower
than that of the Debt or Disqualified Equity being refinanced or refunded; and
(ix) Debt or Disqualified Equity not otherwise permitted to be Incurred or
issued under Clauses (i) through (viii) above, which, together with any other
outstanding Debt Incurred or Disqualified Equity issued pursuant to this Clause
(ix), has an aggregate principal amount (or liquidation preference) not in
excess of L.10 million at any time outstanding.
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) shall not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities or otherwise) in respect of its Equity Securities or to
the holders thereof in general (including pursuant to a merger or consolidation
of the Company, but excluding any dividends or distributions payable solely in
its Equity Securities (other than Disqualified Equity) or in options, warrants
or other rights to acquire its Equity Securities (other than Disqualified
Equity)), (ii) shall not, and shall not permit any Restricted Subsidiary of the
Company to, directly or indirectly, purchase, redeem or otherwise acquire or
retire for value (a) any Equity Securities of the Company or any Related Person
of the Company or (b) any options, warrants or rights to purchase or acquire
Equity Securities of the Company or any Related Person of the Company (except
options, warrants or rights to purchase or acquire such Equity Securities held
by any current or former officer or director of the Company or ECE Management
in an aggregate amount not exceeding L.5 million), (iii) shall not make, or
permit any Restricted Subsidiary of the Company to make any Investment in, or
Incur an obligation to Guarantee any obligation of, any Affiliate or Related
Person of the Company, other than the Company or a Wholly Owned Restricted
Subsidiary of the Company; (iv) shall not, and shall not permit any Restricted
Subsidiary of the Company to, redeem, defease, repurchase or otherwise retire
or acquire for value prior to any scheduled maturity, repayment or sinking fund
payment, Debt of the Company which explicitly by its terms is subordinate in
right of payment to the Initial Senior Notes (the transactions described in
Clauses (i) through (iv) being referred to herein as "Restricted Payments"),
if: (1) at the time thereof and after giving effect thereto an Event of
Default, or an event that with notice or lapse of time, or both, would
constitute an Event of Default, shall have occurred and be continuing or (2)
upon giving effect to such Restricted Payment, the aggregate of all Restricted
Payments from the date of the Initial Senior Notes Indenture exceeds the sum of
(a) the difference between (x) the cumulative Consolidated Operating Cash Flow
from the first day of the fiscal quarter in which the issue date of the Initial
Senior Notes falls through the last day of the last full fiscal quarter
immediately preceding such Restricted Payment for which quarterly financial
statements are available, and (y) 200% of cumulative Consolidated Interest
Expense from the first day of the fiscal quarter in which the issue date of the
Initial Senior Notes falls through the last day of the last full fiscal quarter
immediately preceding such Restricted Payment for which quarterly financial
statements of the Company are available; and (b) 100% of the aggregate cash net
proceeds after the issue date of the Initial Senior Notes, from the issuance of
Equity Securities (other than Disqualified Equity) of the Company and options,
warrants or other rights on Equity Securities (other than Disqualified Equity)
of the Company (other than to a Restricted Subsidiary) after the issue date of
the Initial Senior Notes. The foregoing provision shall not be violated by
reason of (i) the payment of any dividend within 60 days after declaration
thereof if at the declaration date such payment would have complied with the
foregoing provision; (ii) any refinancing or refunding of any Debt otherwise
permitted under clause (viii) described in the second paragraph under the
caption "Limitation on Consolidated Debt and Disqualified Equity"; (iii)
investments by the Company or any Restricted Subsidiary in an amount not to
exceed in the aggregate L.5 million in a Person which is engaged in a Cable
Business or a business incidental thereto; and (iv) investments in
Non-Restricted Subsidiaries made with
92
<PAGE> 94
the cash proceeds of a substantially concurrent (1) capital contribution to the
Company or (2) issue or sale of Equity Securities (other than Disqualified
Equity) of the Company.
LIMITATION ON LIENS
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur or suffer to exist any Lien upon any of its properties or assets, now
owned or hereafter acquired, to secure any Debt without making or causing such
Restricted Subsidiary to make effective provision for securing the Initial
Senior Notes equally and ratably with such Debt so long as such Debt shall be
so secured or in the event such Debt is subordinate in right of payment to the
Initial Senior Notes, prior to such Debt and to such property and assets for so
long as such Debt shall be so secured. The foregoing restrictions do not apply
to Liens existing at the date of the Initial Senior Notes Indenture or to: (i)
Liens securing only the Initial Senior Notes; (ii) Liens in favor of the
Company or any Wholly Owned Restricted Subsidiary; (iii) Liens to secure the
Senior Bank Facility; (iv) Liens on property of a Person existing at the time
such Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company (and not incurred in anticipation of such merger or
consolidation); (v) Liens on property existing immediately prior to the time of
acquisition thereof (and not in anticipation of the financing of such
acquisition); (vi) Liens to secure Debt Incurred under the provisions described
in Clauses (iii), (iv) or (v) of the second paragraph under the caption "--
Limitation on Consolidated Debt and Disqualified Equity"; (viii) Liens for
taxes or assessments or other governmental charges or levies which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in accordance with generally accepted accounting
principles shall have been made; (viii) Liens to secure obligations under
workmen's compensation laws or similar legislation, including Liens with
respect to judgments which are not currently dischargeable; and (ix) Liens to
secure Debt Incurred to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part, Debt
secured by any Lien referred to in the foregoing Clauses (i) through (viii) so
long as such Lien does not extend to any other property. In addition to the
foregoing, the Company and its Restricted Subsidiaries may incur a Lien to
secure any Debt or enter into a Sale and Leaseback Transaction, without equally
and ratably securing the Initial Senior Notes, if the sum of (i) the amount of
Debt secured by a Lien entered into after the date of the Initial Senior Notes
Indenture and otherwise prohibited by the Initial Senior Notes Indenture and
(ii) the Attributable Value of all Sale and Leaseback Transactions entered into
after the date of the Initial Senior Notes Indenture and otherwise prohibited
by the Initial Senior Notes Indenture does not exceed L.10 million.
ANTI-LAYERING
The Initial Senior Notes Indenture provides that the Company's Restricted
Subsidiaries will not Incur any Debt that is by its terms subordinate or junior
in right of payment to any other Debt of such Restricted Subsidiaries.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, enter into any Sale and Leaseback Transaction unless (i) the
Company or such Restricted Subsidiary were entitled to incur a Lien to secure
Debt in an amount at least equal to the Attributable Value of such Sale and
Leaseback Transaction or (ii) all of the conditions contained in the provisions
described under "Limitation on Certain Asset Dispositions" (including the
provisions concerning the application of Net Available Proceeds) would be
satisfied with respect to such Sale and Leaseback Transaction if all of the
consideration received in such Sale and Leaseback Transaction were treated as
Net Available Proceeds.
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO RESTRICTED GROUP
The Company may not, and may not permit any Restricted Subsidiary to
suffer to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make any
other distributions in respect of its Equity Securities or pay any Debt or
other obligation owed to the Company or any other Restricted Subsidiary of the
Company; (ii) to make loans or advances to the
93
<PAGE> 95
Company or any other Restricted Subsidiary of the Company; or (iii) to make any
investment in, or to transfer any of its property or assets to, the Company or
any Restricted Subsidiary of the Company. Notwithstanding the foregoing, the
Company may, and may permit any Subsidiary to, suffer to exist any such
encumbrance or restriction on the ability of any Subsidiary of the Company if
and to the extent such encumbrance or restriction exists on the date of the
Initial Senior Notes Indenture or is (a) provided for in the Senior Bank
Facility documents; (b) existed prior to the time any Person became a
Subsidiary of the Company and such restriction or encumbrance was not incurred
in anticipation of such Person becoming a Subsidiary of the Company; (c) exists
by reason of a customary merger or acquisition agreement for the purchase or
acquisition of the stock or assets of the Company or any of its Restricted
Subsidiaries by another Person; (d) contained in an operating lease for real
property and is effective only upon the occurrence and during the continuance
of a default in the payment of rent; (e) the result of applicable corporate law
or regulation relating to the payment of dividends or distributions; (f)
pursuant to an agreement pursuant to which Debt meeting the requirements of
Clauses (iii), (iv) or (v) of the second paragraph under the caption "--
Limitation on Consolidated Debt and Disqualified Equity" is incurred; provided,
however, that the provisions contained in such agreement relating to such
encumbrance or restriction are no more restrictive in any material respect than
those contained in the terms of the Senior Bank Facility; or (g) pursuant to an
agreement effecting a renewal, extension, refinancing or refunding of Debt
Incurred pursuant to an agreement referred to in Clause (a) or (b) above;
provided, however, that the provisions contained in such agreement relating to
such encumbrance or restriction are no more restrictive than the provisions
contained in the agreement the subject thereof, as determined in good faith by
the Board of Directors and evidenced by a Board Resolution.
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Except as permitted in the following paragraph, the Company shall not, and
shall not permit any Restricted Subsidiary to, conduct any business or enter
into any transaction with any Affiliate or Related Person of the Company,
unless such transaction is on terms which are in the Company's good faith
judgment at least as favorable as those available in a comparable arm's length
transaction with a Person which is not an Affiliate or Related Person. Any such
transaction (or series of related transactions) in which such Affiliate or
Related Person receives in excess of L.1.0 million in any twelve month period
shall be approved by a majority of the disinterested directors of the Board of
Directors of the Company. Any such transaction involving in excess of L.5
million (or series of related transactions involving in excess of L.5 million),
or as to which there are no disinterested directors, is subject to the further
requirement that the Company obtain an opinion of an internationally recognized
expert with experience in appraising the terms and conditions of the relevant
type of transaction (or series of related transactions) stating that the
transaction or series of related transactions is fair (from a financial point
of view) to the Company or such Restricted Subsidiary.
The above requirements shall not be applicable to (i) any transaction
among the Company and its Wholly Owned Subsidiaries; (ii) any existing
management agreement with ECE Management or any successor or assign; or (iii)
any transaction in which investment banking or other financial advisory
services are provided to the Company or any Subsidiary by Goldman, Sachs & Co.
or any of its Affiliates that is, in the Company's good faith judgment, at
rates competitive with those available from other advisers negotiated at arms
length and approved by disinterested directors.
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Disposition unless (a) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such
Asset Disposition at least equal to the fair market value of the shares or
assets sold or otherwise disposed of; and (b) at least 85% of such
consideration consists of cash or cash equivalents. To the extent the Net
Available Proceeds of any Asset Disposition are not required to be applied to
repay amounts outstanding under the Senior Bank Facility or any Debt of a
Restricted Subsidiary, or are not so applied, the Company or such Restricted
Subsidiary, as the case may be, may apply such Net Available Proceeds within
365 days of the receipt thereof, to an investment in properties and assets that
will be used in a Cable Business (or in Equity Securities of any such Person
that will become a Restricted Subsidiary as a result of such investment to the
extent that such Person owns properties and assets that will be used in a Cable
Business) of the Company or
94
<PAGE> 96
any Restricted Subsidiary ("Replacement Assets"). Notwithstanding the
foregoing, the Company may retain up to L.1.0 million of Net Available Proceeds
from any Asset Disposition for any purpose. Any Net Available Proceeds from any
Asset Disposition that are neither used to repay amounts outstanding under the
Senior Bank Facility or any Debt of a Restricted Subsidiary nor invested in
Replacement Assets within such 365-day period (exclusive of the up to L.1.0
million referred to in the preceding sentence) shall constitute "Excess
Proceeds" subject to the provisions described in the following paragraph.
When the aggregate amount of Excess Proceeds equals or exceeds L.5.0
million the Company shall make within 30 days of the determination thereof an
Offer to Purchase to all holders of the Initial Senior Notes, Initial Senior
Notes with an aggregate principal amount at maturity (or if less, an Accreted
Value) equal to such Excess Proceeds at a price in cash equal to 100% of the
Accreted Value thereof on any purchase date prior to the Cash Interest Date or
100% of the outstanding principal amount at maturity thereof plus accrued and
unpaid interest, if any, to any purchase date on or after the Cash Interest
Date, as applicable. To the extent that the aggregate principal amount at
maturity or if applicable, the Accreted Value of Initial Senior Notes tendered
pursuant to such Offer to Purchase is less than the Excess Proceeds, the
Company may use such deficiency for any purpose. If the aggregate principal
amount at maturity or the Accreted Value, as applicable, of Initial Senior
Notes validly tendered and not withdrawn by holders thereof exceeds the amount
of Initial Senior Notes which can be purchased with the Excess Proceeds,
Initial Senior Notes to be purchased will be selected on a pro rata basis.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset
Disposition without complying with such paragraphs to the extent (i) at least
85% of the consideration for such Asset Disposition constitutes Replacement
Assets (or Equity Securities of any such Person that will become a Restricted
Subsidiary as a result of such transaction to the extent that such Person owns
properties and assets that will be used in a Cable Business) and (ii) such
Asset Disposition is for fair market value; provided that any consideration not
constituting Replacement Assets or Equity Securities as described in Clause (i)
received by the Company or any Restricted Subsidiaries in connection with any
Asset Disposition permitted to be consummated under this paragraph shall
constitute Net Available Proceeds subject to the provisions of the two
preceding paragraphs.
The determination of "fair market value" for purposes of the preceding
paragraph and the third preceding paragraph will be made (a) in the case of
Asset Dispositions in which Net Available Proceeds exceed L.1 million, by the
Board of Directors of the Company and evidenced by a Board Resolution and (b)
in the case of Asset Dispositions in which Net Available Proceeds exceed L.10
million, based upon the opinion of an internationally recognized investment
banking firm.
CHANGE OF CONTROL
Within 60 days following the date of the consummation of a transaction
resulting in a Change of Control, the Company shall commence an Offer to
Purchase all Outstanding Initial Senior Notes at a purchase price equal to 101%
of, on or prior to the Cash Interest Date, their Accreted Value and on and
after the Cash Interest Date their principal amount at maturity plus in such
case accrued but unpaid interest to the date of purchase. The Company will
cause notice of any Change of Control to be mailed to holders of the Initial
Senior Notes not less than 10 days after the date on which the Company first
becomes aware of the consummation of a transaction resulting in a Change of
Control. A "Change of Control" will be deemed to have occurred in the event
that, after the date of the Initial Senior Notes Indenture, either (a) any
Person or any Persons (other than a Permitted Holder) acting together which
would constitute a group (for purposes of Section 13(d) of the Exchange Act, or
any successor provision thereto) (a "Group"), together with any Affiliates or
Related Persons thereof shall beneficially own (as defined in Rule 13d-3 under
the Exchange Act, or any successor provision thereto) at least 45% of the
Equity Securities of the Company entitled to vote generally in the election of
directors of the Company; or (b) any Person or Group (other than a Permitted
Holder), together with any Affiliates or Related Persons thereof, shall succeed
in having a sufficient number of its nominees elected to the Board of Directors
of the Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Company after such election who is
an Affiliate or Related Person of such
95
<PAGE> 97
Group, will constitute a majority of the Board of Directors of the Company or
(c) certain events of bankruptcy, insolvency or receivership affecting the
Company.
Any future credit agreements or other agreements relating to indebtedness
of the Company and its subsidiaries (including the Senior Bank Facility) may
contain provisions restricting the ability of the Company to repurchase Initial
Senior Notes upon a Change of Control. In the event that a Change of Control
occurs when such provisions are in effect, the Company may seek the consent of
the relevant lenders to the repurchase of Initial Senior Notes or could attempt
to repay or refinance such indebtedness, in a manner that would permit the
Company to effect the repurchase of the Initial Senior Notes. In the absence of
such a repayment or refinancing, the Company may be precluded from offering to
repurchase the Initial Senior Notes by the applicable provisions of such other
agreements. The failure of the Company to offer to repurchase the Initial
Senior Notes upon a Change of Control would constitute an Event of Default
under the Initial Senior Notes Indenture. Moreover, there can be no assurance
that the Company will have the financial resources necessary to effect any
repurchase of Initial Senior Notes upon a Change of Control.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company shall not, in a single transaction or through a series of
related transactions, (i) consolidate with or merge into any other Person; (ii)
permit any other Person to consolidate with or merge into the Company; (iii)
directly or indirectly transfer, assign, convey, sell, lease or otherwise
dispose of all or substantially all of its properties and assets as an
entirety; or (iv) permit any of its Subsidiaries to enter into any such
transaction or transactions if such transaction or transactions, in the
aggregate, would result in a sale, assignment, transfer, lease or disposal of
all or substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any other Person or group of affiliated
Person unless: (1) immediately before and after giving effect to such
transaction and treating any Debt and Disqualified Equity which becomes an
obligation of the Company or a Subsidiary of the Company as a result of such
transaction as having been Incurred or issued, as applicable, by the Company or
such Subsidiary at the time of the transaction, no Event of Default or event
that with notice or lapse of time, or both, would constitute an Event of
Default shall have occurred and be continuing; (2) in the event the Company
shall consolidate with or merge into another Person or shall directly or
indirectly transfer, assign, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety, the Person
formed by such consolidation or into which the Company is merged or the Person
which acquires by transfer, assignment, conveyance, sale, lease or other
disposition all or substantially all of the properties and assets of the
Company as an entirety shall be a corporation, partnership or trust, shall be
organized and validly existing under the laws of England and Wales or of the
United States of America, any State thereof or the District of Columbia and
shall expressly assume by an indenture supplemental hereto executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any), interest and
Additional Amounts on all the Initial Senior Notes and the performance of every
covenant of the Initial Senior Notes Indenture on the part of the Company to be
performed or observed; (3) the Company or the successor to the Company will
have an Annualized Consolidated Debt to Cash Flow Ratio at the time of such
transaction (determined on a pro forma basis giving effect to the proposed
transaction) equal to or less than the Annualized Consolidated Debt to Cash
Flow Ratio of the Company without giving effect to the proposed transaction and
a ratio of Consolidated Operating Cash Flow to Consolidated Interest Expense
for the two fiscal quarters next preceding such transaction (determined on a
pro forma basis giving effect to the transaction) equal to or greater than such
ratio without giving effect to such transaction; (4) if, as a result of any
such transaction, property or assets of the Company or any Subsidiary of the
Company would become subject to a Lien prohibited by the provisions of the
Initial Senior Notes Indenture described under "Limitation on Liens" above, and
the Company or the successor entity to the Company shall have secured the
Initial Senior Notes as required by that covenant; (5) such transaction would
not result in the loss of a Material License (which for this purpose will be
determined on a pro forma basis, giving effect to such transaction); and (6)
the Company or the surviving entity shall have delivered to the Trustee an
officers' certificate and an opinion of counsel each stating that such
consolidation, merger, transfer, lease or disposition and the supplemental
indenture comply with the Initial Senior Notes Indenture.
96
<PAGE> 98
EVENTS OF DEFAULT
The following are Events of Default under the Initial Senior Notes
Indenture: (a) failure by the Company to pay principal of (or premium, if any,
on) any Senior Note when due; (b) failure to pay any interest or Additional
Amounts on any Senior Note when due, continued for 30 days; (c) default in the
payment of principal and interest on Initial Senior Notes required to be
purchased pursuant to an Offer to Purchase as described under the captions "--
Certain Covenants -- Change of Control" and "-- Certain Covenants -- Limitation
on Certain Asset Dispositions"; (d) failure to perform or comply with the
provisions described under "-- Certain Covenants -- Mergers, Consolidations,
and Certain Sales of Assets"; (e) failure by the Company to perform any other
covenant under the Initial Senior Notes Indenture or the Initial Senior Notes
continued for 30 days after written notice to the Company by the Trustee or
holders of at least 25% in aggregate principal amount of Outstanding Initial
Senior Notes; (f) default under the terms of any instrument evidencing or
securing Debt by the Company or any Significant Restricted Subsidiary which
results in the acceleration of the payment of principal amount in excess of L.5
million or which shall constitute the failure to pay any portion in excess of
L.5 million of principal or similar amount when due and payable after the
expiration of any applicable grace period; (g) the rendering of a final
judgment or judgments against the Company or any Significant Restricted
Subsidiary in an amount in excess of L.5 million which remains undischarged or
unstayed for a period of 60 days after the date on which the right to appeal
has expired; and (h) certain events of bankruptcy, insolvency or reorganization
affecting the Company or any Significant Restricted Subsidiary.
Subject to the provisions of the Initial Senior Notes Indenture relating
to the duties of the Trustee in case an Event of Default (as defined) shall
occur and be continuing, the Trustee is under no obligation to exercise any of
its rights or powers under the Initial Senior Notes Indenture at the request or
direction of any of the holders, unless such holders shall have offered to the
Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Trustee, the holders of a majority in aggregate
principal amount of the Outstanding Initial Senior Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
If an Event of Default (other than an Event of Default described in Clause
(h)) occurs and is continuing, then either the Trustee or the holders of at
least 25% in aggregate principal amount of the Outstanding Initial Senior Notes
may accelerate the maturity of all Initial Senior Notes; provided, however,
that after such acceleration, but before a judgment or decree based on
acceleration, the holders of 66 2/3% in aggregate principal amount of
Outstanding Initial Senior Notes may, under certain circumstances, rescind and
annul such acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the Initial
Senior Notes Indenture. If an Event of Default specified in Clause (h) above
occurs, the Outstanding Initial Senior Notes will ipso facto become immediately
due and payable without any declaration or other act on the part of the Trustee
or any holder. For information as to waiver of defaults, see "-- Modification
and Waiver".
No holder of any Senior Note shall have any right to institute any
proceeding with respect to the Initial Senior Notes Indenture or for any remedy
thereunder, unless such holder shall have previously given to the Trustee
written notice of a continuing Event of Default and unless also the holders of
at least 25% in aggregate principal amount of the Outstanding Initial Senior
Notes shall have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not have
received from the holders of a majority in aggregate principal amount of the
Outstanding Initial Senior Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days. However, such
limitations do not apply to a suit instituted by a holder of a Senior Note for
enforcement of payment of the principal of and premium, if any, or interest on
such Senior Note on or after the respective due dates (or, in the case of a
redemption, the Redemption Dates or, in the case of an Offer to Purchase, the
Purchase Date) expressed in or established pursuant to the terms of such Senior
Note and Initial Senior Notes Indenture.
The Company is required to furnish to the Trustee annually a statement as
to the performance by them of certain of their obligations under the Initial
Senior Notes Indenture and as to any default in such performance.
DEFEASANCE
97
<PAGE> 99
The Initial Senior Notes Indenture provides that (A) if applicable, the
Company will be discharged from any and all obligations in respect of the
Outstanding Initial Senior Notes other than certain obligations to transfer the
Initial Senior Notes, or (B) if applicable, the Company may omit to comply with
certain restrictive covenants, and certain events will cease to be Events of
Default under the Initial Senior Notes Indenture and the Initial Senior Notes,
in either case (A) or (B), upon irrevocable deposit with the Trustee, in trust,
of money and/or U.S. Government Obligations which will provide money in an
amount sufficient to pay the principal of and premium, if any, and each
installment of interest, if any, on the Outstanding Initial Senior Notes. With
respect to Clause (B), the obligations under the Initial Senior Notes Indenture
other than with respect to certain covenants and Event of Default will remain
in full force and effect. Such trust may only be established if, among other
things (i) with respect to Clause (A), the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or there has been
a change in law, which in the opinion of counsel provides that holders of the
Initial Senior Notes will not recognize gain or loss for U.S. federal income
tax purposes as a result of such deposit, defeasance and discharge and will be
subject to U.S. federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred; or, with respect to Clause (B), the Company has
delivered to the Trustee an opinion of counsel (which may be based on an
Internal Revenue Service ruling) to the effect that the holders of the Initial
Senior Notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of such deposit and defeasance and will be subject to U.S.
federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred;
(ii) no Event of Default or event that with the passing of time or the giving
of notice, or both, shall constitute an Event of Default shall have occurred or
be continuing; (iii) the Company has delivered to the Trustee an opinion of
counsel to the effect that such deposit shall not cause the Trustee or the
trust so created to be subject to the Investment Company Act of 1940; and (iv)
certain other customary conditions precedent are satisfied.
GOVERNING LAW
The Initial Senior Notes Indenture and the Initial Senior Notes are
governed by the laws of the State of New York.
MODIFICATION AND WAIVER
From time to time the Company, when authorized by resolutions of the
Board, and the Trustee, without the consent of the holders of the Initial
Senior Notes, may amend, waive or supplement the Initial Senior Notes Indenture
or the Initial Senior Notes for certain specified purposes, including, among
other things, curing ambiguities, defects or inconsistencies, maintaining the
qualification of the Initial Senior Notes Indenture under the Trust Indenture
Act or making any change that does not adversely affect the rights of any
holder.
Modifications and amendments of the Initial Senior Notes Indenture may be
made by the Company and the Trustee with the consent of the Holders of 66 2/3%
in aggregate principal amount of the Outstanding Initial Senior Notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each Outstanding Senior Note affected thereby, (a)
change the Stated Maturity of the principal of or any installment of interest
or Additional Amounts on, any Senior Note, (b) reduce the principal amount of,
(or the premium) or interest or Additional Amounts on, any Senior Note, (c)
change the place, currency or manner of payment of principal of (or premium) or
interest or Additional Amounts on, any Senior Note, (d) impair the right to
institute suit for the enforcement of any payment on or after the Stated
Maturity thereof (or Redemption Date, in the case of redemption, or Purchase
Date, in the case of an Offer to Purchase) (e) reduce the above-stated
percentage of Outstanding Initial Senior Notes necessary to modify or amend the
Initial Senior Notes Indenture, (f) reduce the percentage of principal amount
of Outstanding Initial Senior Notes necessary for waiver of compliance with
certain provisions of the Initial Senior Notes Indenture or for waiver of
certain defaults, (g) modify certain provisions of the Initial Senior Notes
Indenture relating to the modification of the Initial Senior Notes Indenture or
the waiver of past defaults or covenants, except as otherwise specified or (h)
following the mailing of any Offer to Purchase, modify any Offer to Purchase
for the Initial Senior Notes required as described under the caption "--
Certain Covenants -- Limitation on Certain Asset Dispositions" and "-- Certain
Covenants -- Change of Control" in a manner materially adverse to the holders
thereof.
98
<PAGE> 100
The holders of not less than a majority in aggregate principal amount of
the Outstanding Initial Senior Notes, on behalf of all holders of Initial
Senior Notes, may waive compliance by the Company with certain restrictive
provisions and covenants of the Initial Senior Notes Indenture. Subject to
certain rights of the Trustee, as provided in the Initial Senior Notes
Indenture, the holders of not less than a majority in aggregate principal
amount of the Outstanding Initial Senior Notes, on behalf of all holders of
Initial Senior Notes, may waive any past default under the Initial Senior Notes
Indenture, except a default in the payment of principal, premium or interest or
Additional Amounts or in respect of a covenant or provision that cannot be
modified or amended without the consent of the holder of each Outstanding
Senior Note.
REPORTS
The Company shall deliver to the Trustee, within 15 days after it files
them with the Commission, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribed) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act within the time periods prescribed under such rules and
regulations. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act or otherwise report on an annual and quarterly basis on forms provided for
such annual and quarterly reporting pursuant to rules and regulations
promulgated by the Commission, the Initial Senior Notes Indenture requires the
Company to continue to file with the Commission and provide to the Trustee such
annual and interim reports on Forms 10-K and 10-Q, respectively, as the Company
would be required to file were it subject to such reporting requirements within
the time periods prescribed under such rules and regulations. The Company shall
not be obligated to file any such reports with the Commission if the Commission
does not permit such filings but shall remain obligated to provide such reports
to the Trustee.
THE TRUSTEE
The duties and responsibilities of the Trustee are those provided by the
Trust Indenture Act. Notwithstanding the foregoing, the Initial Senior Notes
Indenture does not require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the Initial Senior Notes Indenture, or in the exercise of any of its
rights or powers, if it has reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk of liability is not
reasonably assured to it.
The Trustee is permitted to engage in other transactions with the Company,
or any Affiliate, provided, however, that if it acquires any conflicting
interest (as defined in the Trust Indenture Act), it must eliminate such
conflict or resign.
NO PERSONAL LIABILITY OF DIRECTORS, 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 Initial Senior Notes, the Initial Senior Notes Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of the Initial Senior Notes by accepting a Senior Note
waives and releases all such liability; provided that such waiver will not
release any person from liability for fraud or criminal acts. The waiver and
release are part of the consideration for issuance of the Initial Senior Notes.
Such waiver and release may not be effective to waive liabilities under English
law or under the U.S. federal securities laws and it is the view of the
Commission that such waiver and release is against public policy.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Initial Senior Notes Indenture. Reference is made to the Initial Senior Notes
Indenture for the full definition of all such terms, as well as any other terms
used herein for which no definition is provided. All accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles, and, except
99
<PAGE> 101
as otherwise herein described, the term "generally accepted accounting
principles" with respect to any computation required or permitted under the
Initial Senior Notes Indenture means accounting principles as are generally
accepted in the United States as consistently applied by the Company at the
date of such computation.
"Accreted Value" means, as of any date of determination prior to the Cash
Interest Date, the sum of (a) the initial offering price of each Senior Note
and (b) the portion of the excess of the principal amount of each Senior Note
over such initial offering price which shall have been amortized by the Company
through such date, such amount to be so amortized on a daily basis and
compounded semiannually on each March 31 and September 30, at the rate of 13
1/4% per annum from the date of issuance of the Initial Senior Notes through
the date of determination computed on the basis of a 360-day year of twelve
30-day months.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Consolidated Debt to Cash Flow Ratio" for any Person means at
any time the ratio of (i) Total Consolidated Debt of such Person as of the end
of the most recent fiscal quarter for which financial statements are available
to (ii) Consolidated Operating Cash Flow of such Person for the two most recent
fiscal quarters multiplied by two.
"Asset Acquisition" means (i) any capital contribution (including without
limitation by means of transfers of cash or other property to others or
payments for property or services for the account or use of others) by the
Company or any Restricted Subsidiary in any other Person, or any acquisition or
purchase of equity interests in any other Person by the Company or any
Restricted Subsidiary, in either case pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the
Company or any Restricted Subsidiary or (ii) any acquisition by the
Company or any Restricted Subsidiary of the assets of any Person which
constitute substantially all of an operating unit or line of business of such
Person or which is otherwise outside of the ordinary course of business.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Company or any of its Restricted Subsidiaries (including by
way of consolidation or merger) resulting in Net Available Proceeds in excess
of L.250,000 of (i) shares or other ownership interest of a Subsidiary of the
Company, (ii) substantially all of the assets of the Company or any Subsidiary
representing a division or line of business, or (iii) other assets or rights
outside of the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable, and at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the initial term thereof as determined in
accordance with generally accepted accounting principles, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capital Lease
Obligation with like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any such lease for
any such period shall be the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges.
In the case of any lease which is terminable by the lessee upon the
payment of a penalty, such net amount shall also include the amount of such
penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Cable Acquisition" means an Asset Acquisition of properties or assets to
be used in a Cable Business or of equity interests in any Person that becomes a
Restricted Subsidiary or, subject to the covenant "-- Certain
100
<PAGE> 102
Covenants -- Limitation on Restricted Payments," a Non-Restricted Subsidiary as
a result of such Asset Acquisition, provided (i) such Person's assets and
properties consist principally of properties or assets that will be used in a
Cable Business; (ii) the Company has the ability to manage or select the
management of, and direct the day-to-day operations of, such Cable Business;
and (iii) such Cable Business, if a cable licensee, has a franchise area any
border of which is located within 50 miles of any border of a franchise area of
the Company's existing cable licenses.
"Cable Business" means any business operating a cable television and/or
telephone and/or telecommunications system or any business reasonably related
thereto, including, without limitation, the production or provision of
programming as well as any business conducted by the Company or any Restricted
Subsidiary on the date on which the Securities are first issued.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property which is required to be classified
and accounted for as a capital lease or a liability on the face of a balance
sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person as charged in arriving
at Consolidated Net Income for such period.
"Consolidated Interest Expense" of any Person means for any period the
interest expense (without deducting interest income) of such Person for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers
acceptances or similar facilities; (iii) fees with respect to interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements; (iv) Preferred Stock dividends (other than in respect of Preferred
Stock held by such Person a Wholly Owned Subsidiary of such Person) declared
and payable in such period in cash; and (v) the portion of any rental
obligation allocable to interest expense under generally accepted accounting
principles.
"Consolidated Net Income" of any Person means for any period the net
income (or loss) of such Person for such period determined on a consolidated
basis in accordance with generally accepted accounting principles; provided
that there shall be excluded therefrom (a) the net income (or loss) of any
Person acquired by such Person in a pooling-of-interests transaction for any
period prior to the date of such transaction, (b) the net income (but not the
net loss) of any Restricted Subsidiary of such Person which is subject to
restrictions which prevent the payment of dividends or the making of
distributions (by loans, advances, intercompany transfers or otherwise) to such
Person to the extent of such restrictions, (c) the net income (or loss) of any
Person that is not a Consolidated Subsidiary of such Person except to the
extent of the amount of dividends or other distributions actually paid to a
member of the Restricted Group by such other Person during such period, (d)
gains or losses on Asset Dispositions and (e) all extraordinary gains and
extraordinary losses.
"Consolidated Operating Cash Flow" of any Person means for any period (a)
the sum of (i) Consolidated Net Income for such period; (ii) Consolidated
Interest Expense for such period; (iii) Consolidated Income Tax Expense for
such period; (iv) the consolidated depreciation and amortization expense
included in the consolidated income statement of such Person for such period;
and (v) other non-cash charges (other than trading and operating items in the
ordinary course of business) deducted from consolidated revenues in determining
Consolidated Net Income for such period (including any foreign currency
translation losses), minus (b) non-cash items (other than trading and operating
items in the ordinary course of business) increasing consolidated revenues in
determining Consolidated Net Income for such period (including any foreign
currency translation gains).
101
<PAGE> 103
"Consolidated Subsidiaries" of any Person means all Subsidiaries and other
equity investees of such Person that would be accounted for on a consolidated
basis in such Person's financial statements in accordance with generally
accepted accounting principles.
"Currency Hedging Agreements" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in currency values to the extent relating to (i) Debt and/or (ii) obligations
to purchase assets, properties or services incurred in the ordinary course of
business and not for speculative purposes; provided that such Currency Hedging
Agreements do not increase the Debt or other obligations of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payments thereunder.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations Incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every Capital Lease Obligation of such Person, (vi) every net
obligation under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person at the time of
determination and (vii) every obligation of the type referred to in Clauses (i)
through (vi) of another Person and all dividends of another Person the payment
of which, in either case, such Person has Guaranteed or is responsible or
liable for, directly or indirectly, as obligor, Guarantor or otherwise;
provided that Trade Obligations are excluded from the definition of Debt.
"Disqualified Equity" of any Person means any Equity Securities of such
Person 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 is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final stated maturity of the Initial
Senior Notes.
"Equity Homes" means the product of (i) the number of homes in a franchise
area, as set forth in the cable television or telecommunications licenses
relating to such franchise area, and (ii) the percentage of the entity holding
such licenses which is owned directly or indirectly by the Company.
"Equity Securities" of any Person means any shares, interests,
participations or other equivalents of corporate stock or other equity or
capital interests of such Person, including, without limitation, partnership
interests.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person guaranteeing any Debt of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Debt, (ii) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or (iii) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
such Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business, and shall not include
guarantees in the nature of, or in respect of, Trade Obligations.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other
obligation (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall
have meanings correlative
102
<PAGE> 104
to the foregoing); provided, however, that a change in generally accepted
accounting principles that results in an obligation of such Person that exists
at such time becoming Debt shall not be deemed an Incurrence of such Debt.
"Interest Rate Protection Obligations" of any Person means any interest
rate swap agreement or other similar interest rate financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates and pursuant to which such Person is obligated or may become obligated to
make payments; provided that where such agreement or arrangement hedges Debt,
it is with respect to a notional principal amount that does not exceed the
principal amount of the Debt to which such Interest Rate Protection Obligations
relate.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to (any other Person by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Equity Securities, bonds, notes, debentures or other securities
or evidence of Debt issued by any other Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Material License" means a direct or indirect ownership interest in a
license to operate a cable television or a cable telephone system held by the
Company or any of its Restricted Subsidiaries which license at the time of
determination covers a number of Equity Homes which equals or exceeds 10% of
the aggregate number of Equity Homes covered by all of the licenses to operate
cable television or cable telephone systems in which the Company or its
Restricted Subsidiaries hold a direct or indirect ownership interest at such
time.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash and readily marketable cash equivalents received (including by way of sale
or discounting of a note, instalment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and
expenses incurred and all federal, state, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Subsidiaries on any Debt which is secured
by a Lien on such assets or on shares of the Person owning such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must be repaid out of the proceeds from such Asset Disposition under the
terms of such Debt or Lien, in order to obtain a necessary consent to such
Asset Disposition or by applicable law, and (iii) all distributions and other
payments made to minority interest holders in Subsidiaries of such Person or
joint ventures as a result of such Asset Disposition.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
none of the Company, nor any of its Restricted Subsidiaries (a) provides credit
support (including any undertaking, agreement or instrument which would
constitute Debt); (b) is directly or indirectly liable; or (c) constitutes the
lender; and (ii) no default with respect to which (including any rights which
the holders thereof may have to take enforcement action against a
Non-Restricted Subsidiary) would permit (upon notice, lapse of time or both)
any holders of any other Debt of the Company or any of its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Non-Restricted Subsidiary" of a Person means a Subsidiary of such Person
that (i) at the time of its designation as a Non-Restricted Subsidiary has not
acquired any assets (unless the acquisition of such assets constitutes a
Restricted Payment permitted by the "-- Certain Covenants -- Limitation on
Restricted Payments" covenant), at any previous time, directly or indirectly
from such Person or any of its Subsidiaries and (ii) has no Debt other than
Debt that is, with respect to such Person, Non-Recourse Debt (unless the extent
to which
103
<PAGE> 105
such Person is the lender for, or is responsible for such Debt, constitutes a
Restricted Payment permitted by the "-- Certain Covenants -- Limitation on
Restricted Payments" covenant); provided, however, that at the time of such
designation, after giving pro forma effect to such designation, the Annualized
Consolidated Debt to Cash Flow Ratio of such Person is equal to or less than
the Annualized Consolidated Debt to Cash Flow Ratio of such Person immediately
preceding such designation; provided, further, that if the Annualized
Consolidated Debt to Cash Flow Ratio of the Company immediately preceding such
designation is 7.0:1.0 or less, the Annualized Consolidated Debt to Cash Flow
Ratio of the Company after giving pro forma effect to such designation may be
up to 0.5:1.0 greater than such ratio immediately preceding such designation.
No Restricted Subsidiary may be redesignated as a Non-Restricted Subsidiary
unless at the time of such redesignation the provisions in clauses (i) and (ii)
in this definition are currently met and the Board of Directors of such Person
has passed a certified resolution, delivered to the Trustee, to such effect.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each holder at his address
appearing in the Security Register on the date of the Offer or provided to the
Trustee by such holder offering to purchase up to the principal amount of
Initial Senior Notes specified in such Offer at the purchase price specified in
such Offer (as determined pursuant to this Initial Senior Notes Indenture).
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which shall
be, subject to any contrary requirements of applicable law, not less than 30
days or more than 60 days after the date of such Offer and a settlement date
(the "Purchase Date") for purchase of Initial Senior Notes within five Business
Days after the Expiration Date. The Company shall notify the Trustee at least
15 Business Days (or such shorter period as is acceptable to the Trustee) prior
to the mailing of the Offer of the Company's obligation to make an Offer to
Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The
Offer shall contain information concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such holders
to make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed with the
Trustee as described under the caption "-- Reports" (which requirements may be
satisfied by delivery of such documents together with the Offer), (ii) a
description of material developments in the Company's business subsequent to
the date of the latest of such financial statements referred to in Clause (i)
(including a description of the events requiring the Company to make the Offer
to Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable law
to be included therein. The Offer shall contain all instructions and materials
necessary to enable such holders to tender Initial Senior Notes pursuant to the
Offer to Purchase. The Offer shall also state:
(1) the Section of the Initial Senior Notes Indenture pursuant to
which the Offer to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Initial Senior
Notes offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such has been
determined pursuant to the Section hereof requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Initial Senior Notes accepted for payment
(as specified pursuant to this Initial Senior Notes Indenture) (the
"Purchase Price");
(5) that the holder may tender all or any portion of the Initial
Senior Notes registered in the name of such holder and that any portion of
a Senior Note tendered must be tendered in an integral multiple of $1,000
principal amount;
104
<PAGE> 106
(6) the place or places where Initial Senior Notes are to be
surrendered for tender pursuant to the Offer to Purchase;
(7) that interest on any Senior Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue
to accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Senior Note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on and
after the Purchase Date;
(9) that each holder electing to tender a Senior Note pursuant to the
Offer to Purchase will be required to surrender such Senior Note at the
place or places specified in the Offer prior to the close of business on
the Expiration Date (such Senior Note, if a Registered Senior Note, being,
if the Company or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the holder thereof or his
attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion of
Initial Senior Notes tendered if the Company (or its Paying Agent)
receives, not later than the close of business on the Expiration Date, a
telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the principal amount of the Senior Note the holder
tendered, the certificate number of the Senior Note the holder tendered
and a statement that such holder is withdrawing all or a portion of his
tender;
(11) that (a) if Initial Senior Notes in an aggregate principal
amount less than or equal to the Purchase Amount are duly tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase
all such Initial Senior Notes and (b) if Initial Senior Notes in an
aggregate principal amount in excess of the Purchase Amount are tendered
and not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase Initial Senior Notes having an aggregate principal amount equal
to the Purchase Amount on a pro rata basis (with such adjustments as may
be deemed appropriate so that only Initial Senior Notes in denominations
of $1,000 or integral multiples thereof shall be purchased); and
(12) that in case of any holder whose Senior Note is purchased only
in part, the Company shall execute, and the Trustee shall authenticate and
deliver to the holder of such Senior Note without service charge, a new
Senior Note or Initial Senior Notes of the same type, of any authorized
denomination as requested by such holder, in an aggregate principal amount
equal to and in exchange for the unpurchased portion of the Senior Note so
tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Holder" means European Cable Capital Partners L.P., a limited
partnership organized under the laws of Delaware, and any of its partners
existing on the date of the Initial Senior Notes Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Public Offering" means a firm commitment underwritten public offering
pursuant to a registration statement filed under the United States Securities
Act of 1933, as amended, or pursuant to listing particulars of the London Stock
Exchange.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Common Stock of such Person or (b) 5%
or more of the Voting Interest of such Person.
"Restricted Group" means the Company together with its Restricted
Subsidiaries.
105
<PAGE> 107
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than a Non-Restricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which
has been or is being sold or transferred by such Person more than 365 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"Significant" means, with respect to any Subsidiary or Restricted
Subsidiary, a Subsidiary or Restricted Subsidiary that qualifies as a
"significant subsidiary" under Rule 1-01 of the Commission's Regulation S-X.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Interest of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Total Consolidated Debt" means, at any date of determination, an amount
equal to the aggregate amount of all Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of determination, determined on a
consolidated basis.
"Trade Buyer" means any Person which is (or a controlled Affiliate of any
Person which is) engaged principally in a cable or telecommunications business;
provided, however, that Trade Buyer shall not include any Subsidiary of the
Company or any Person that is on the date of the Initial Senior Notes Indenture
an Affiliate of the Company.
"Trade Obligation" means (i) obligations to pay the purchase price of
assets or services purchased in the ordinary course of business including,
without limitation, obligations incurred in respect of any documentary letter
of credit or bill of exchange issued in respect of any such purchase; (ii)
obligations in respect of any bill of exchange or promissory note drawn, or
accepted, issued or endorsed in the ordinary course of business, including,
without limitation, indebtedness in respect of any monies raised by way of
sale, discounting or otherwise in respect of any such bill or note; and (iii)
obligations in respect of any Guarantee of any obligation of the type specified
in Clause (i) or (ii) above, except to the extent that such obligation is
treated as indebtedness under generally accepted accounting principles.
"Trade Sale" means a sale by the Company to a Trade Buyer of all or
substantially all of the assets of the Company or the acquisition by a Trade
Buyer of 50% or more of the aggregate Voting Interest in the Company, in each
case in compliance with the requirements described under "-- Certain Covenants
- -- Limitation on Certain Asset Dispositions" and "-- Certain Covenants --
Change of Control."
"Trading Day" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"Voting Interest" of any Person means Equity Securities of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Disqualified Equity, the quotient obtained by dividing
(i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payments of
such Debt or
106
<PAGE> 108
redemption or repurchase payments on such Disqualified Equity and the amount of
such principal payments or redemption or repurchase payments, by (ii) the sum
of all such principal value or redemption or repurchase payments.
"Wholly Owned" means with respect to any Subsidiary or Restricted
Subsidiary of any Person means a Subsidiary (or a Restricted Subsidiary) of
such Person all of the outstanding Equity Securities or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries (or
Restricted Subsidiaries) of such Person or by such Person and one or more
Wholly Owned Subsidiaries (or Restricted Subsidiaries) of such Person.
DESCRIPTION OF BOOK-ENTRY SYSTEM
GENERAL
The Book-Entry Depositary holds the Global Senior Note for the benefit of
DTC and its Participants, as hereinafter described. Pursuant to the terms of
the Deposit Agreement, the Global Senior Note may be transferred only to a
successor of the Book-Entry Depositary. Beneficial interests in the Global
Senior Note are shown on, and transfers thereof are effected only through,
records maintained in book-entry form by DTC (with respect to its Participants'
interests) and its Participants. Such beneficial interests are referred to
herein as "Book-Entry Interests." Ownership of the Book-Entry Interests is
limited to Participants and indirect participants ("Indirect Participants").
Procedures with respect to the ownership of Book-Entry Interests are set forth
below.
Upon receipt of the Global Senior Note, the Book-Entry Depositary issued a
certificateless depositary interest (which represents a 100% interest in the
underlying Global Senior Note) to DTC by recording such interest in the
Book-Entry Depositary's books and records in the name of Cede & Co., as nominee
of DTC. Upon such issuance, DTC credited, on its book-entry registration and
transfer system, the Participants' accounts with the respective interests owned
by such Participants. The accounts to credited were designated by the
Underwriters. Ownership of Book-Entry Interests is shown on, and the transfer
of such interests is effected only through, records maintained by DTC and by
Participants (with respect to interests of Indirect Participants). The laws of
some countries and some states in the United States may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge the Book-Entry Interests.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Senior Note, the Book-Entry Depositary or such nominee, as the case may
be, will be considered the sole holder of such Global Senior Note for all
purposes under the Initial Senior Notes Indenture. Except as set forth above
under "-- Form of Initial Senior Notes," Participants or Indirect Participants
are not be entitled to have Initial Senior Notes or Book-Entry Interests
registered in their names, will not receive or be entitled to receive physical
delivery of Initial Senior Notes or Book-Entry Interests in definitive form and
are not be considered the owners or holders thereof under the Initial Senior
Notes Indenture. Accordingly, each person owning a Book-Entry Interest must
rely on the procedures of the Book-Entry Depositary and DTC and, if such person
is not a Participant in DTC, on the procedures of the Participant in DTC
through which such person owns its interest, to exercise any rights and
remedies of a holder under the Initial Senior Notes Indenture. See "-- Actions
by Owners of Book-Entry Interests" below. If any definitive Initial Senior
Notes are issued to Participants or Indirect Participants, they will be issued
in registered form ("Definitive Registered Notes"), as described under "-- Form
of Initial Senior Notes." Unless and until Book-Entry Interests are exchanged
for Definitive Registered Notes (as described under "-- Form of Initial Senior
Notes" above), the depositary interest held by DTC may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
PAYMENTS ON THE GLOBAL SENIOR NOTE
Payments of any amounts owing in respect of the Global Senior Note will be
made through one or more paying agents appointed under the Initial Senior Notes
Indenture (which initially will include the Trustee) to the Book-Entry
Depositary, as the holder of the Global Senior Note. All such amounts will be
payable in United
107
<PAGE> 109
States dollars. Upon receipt of any such amounts, the Book-Entry Depositary
will pay the amount so received to DTC, which will distribute such payments to
its Participants. Payments of all such amounts will be made without deduction
or withholding for or on account of any present or future taxes, duties,
assessments or governmental charges of whatever nature except as may be
required by law, and if any such deduction or withholding is required to be
made by any law or regulation of the United Kingdom then, to the extent
described under "Payment of Additional Amounts" above, such Additional Amounts
will be paid as may be necessary in order that the net amounts received by any
holder of the Global Senior Note or owner of Book-Entry Interests after such
deduction or withholding will equal the net amounts that such holder or owner
would have otherwise received in respect of the Global Senior Note or
Book-Entry Interest, as the case may be, absent such withholding or deduction.
DTC, upon receipt of any such payment, will immediately credit Participants'
accounts with payments in amounts proportionate to their respective ownership
of Book-Entry Interests, as shown on the records of DTC. The Company expects
that payments by Participants to owners of Book-Entry Interests held through
such Participants will be governed by standing customer instructions and
customary practices, as is now the case with the securities held for the
account of customers in bearer form or registered in "street name" and will be
the responsibility of such Participants.
Because the provisions of the Initial Senior Notes Indenture treat the
holder of the Global Senior Note as the owner of the Initial Senior Notes
represented thereby for the purpose of receiving amounts owing in respect of
the Initial Senior Notes, the Company has no responsibility or liability for
the payment of amounts owing in respect of the depositary interest held by DTC
to owners of Book-Entry Interests representing interests in the Global Senior
Note. Payments by DTC Participants to owners of Book-Entry Interests held
through such Participants are the responsibility of such Participants, as is
now the case with securities held for the accounts of customers registered in
"street name".
None of the Company, the Trustee, the Book-Entry Depositary or any agent
of the Company or the Trustee or the Book-Entry Depositary have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Book-Entry Interests or for maintaining,
supervising or reviewing any records relating to such Book-Entry Interests.
REDEMPTION
In the event the Global Senior Note (or any portion thereof) is redeemed,
the Book-Entry Depositary will redeem, from the amount received by it in
respect of the redemption of the Global Senior Note, an equal amount of the
Book-Entry Interests. The redemption price payable in connection with the
redemption of Book-Entry Interests will be equal to the amount received by the
Book-Entry Depositary in connection with the redemption of the Global Senior
Note (or any portion thereof). The Company understands that under existing DTC
practices, if less than all of the Initial Senior Notes are to be redeemed at
any time, DTC will credit Participants' accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as DTC deems
fair and appropriate; provided that no beneficial interests of less than $1,000
principal amount at maturity may be redeemed in part.
TRANSFERS
All transfers of Book-Entry Interests are recorded in accordance with the
book-entry system maintained by DTC, pursuant to customary procedures
established by DTC and its Participants. Investors may, at their option, obtain
Definitive Registered Notes as set forth under "-- Form of Initial Senior
Notes" above. While the Global Senior Note is outstanding, holders of
Definitive Registered Notes may exchange their Definitive Registered Notes for
Book-Entry Interests by surrendering their Definitive Registered Notes to the
Book-Entry Depositary. The amount of the Book-Entry Interests will be increased
or decreased to reflect such transfers or exchanges. The Book-Entry Depositary
will request the Trustee to make the appropriate adjustments to the Global
Senior Note or exchange the Global Senior Note for a new Global Senior Note in
an appropriate principal amount at maturity to reflect any such transfers or
exchanges.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
108
<PAGE> 110
As soon as practicable after receipt by the Book-Entry Depositary of
notice of any solicitation of consents or request for a waiver or other action
by the holders of Initial Senior Notes or of any Offer to Purchase (as defined
under "-- Certain Definitions" above), the Book-Entry Depositary will mail to
DTC a notice containing (a) such information as is contained in such notice
received by the Book-Entry Depositary, (b) a statement that at the close of
business on a specified record date DTC will be entitled to instruct the
Book-Entry Depositary as to the consent, waiver or other action, if any,
pertaining to the Initial Senior Notes and (c) a statement as to the manner in
which such instructions may be given. In addition, the Book-Entry Depositary
will forward to DTC, or, based upon instructions received from DTC, to owners
of Book-Entry Interests, all materials pertaining to any such solicitation,
request, offer or other action. Upon the written request of DTC, the Book-Entry
Depositary shall endeavor insofar as practicable to take such action regarding
the requested consent, waiver, offer or other action in respect of the Initial
Senior Notes in accordance with any instructions set forth in such request. DTC
may grant proxies or otherwise authorize DTC Participants (or persons owning
Book-Entry Interests through such DTC Participants) to provide such
instructions to the Book-Entry Depositary so that it may exercise any rights of
a holder or take any other actions which a holder is entitled to take under the
Initial Senior Notes Indenture. The Book-Entry Depositary will not exercise any
discretion in the granting of consents or waivers or the taking of any other
action relating to the Initial Senior Notes Indenture.
REPORTS
The Book-Entry Depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to the Company, the
Initial Senior Notes or the Book-Entry Interests.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
by written notice to the Company, the Trustee and DTC, such resignation to
become effective upon the appointment of a successor book-entry depositary, in
which case the Global Senior Note shall be delivered to that successor. If no
such successor has been so appointed within 120 days, the Book-Entry Depositary
may request the Company to issue Definitive Registered Notes as described
above.
CHARGES OF BOOK-ENTRY DEPOSITARY
The Company has agreed to indemnify the Book-Entry Depositary against
certain liabilities incurred by it and pay the charges of the Book-Entry
Depositary as agreed between the Company and the Book-Entry Depositary.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement may be amended by the Company and the Book-Entry
Depositary without notice to or consent of DTC or any owner of Book-Entry
Interest: (a) to cure any ambiguity, defect or inconsistency, provided that
such amendment or supplement does not adversely affect the rights of DTC or any
holder of Book-Entry Interests, (b) to evidence the succession of another
person to the Company (when a similar amendment with respect to the Initial
Senior Notes Indenture is being executed) and the assumption by any such
successor of the covenants of the Company herein, (c) to evidence or provide
for a successor Book-Entry Depositary, (d) to make any amendment, change or
supplement that does not adversely affect DTC or any owner of Book-Entry
Interests, (e) to add to the covenants of the Company or the Book-Entry
Depositary, or (f) to comply with the United States Federal securities laws. No
amendment that adversely affects DTC may be made to the Deposit Agreement
without the consent of DTC. Upon the issuance of Definitive Registered Notes in
exchange for Book-Entry Interests constituting the entire principal amount at
maturity of Initial Senior Notes, the Deposit Agreement will terminate. The
Deposit Agreement may be terminated upon the resignation of the Book-Entry
Depositary if no successor has been appointed within 120 days as set forth
under "-- Resignation of Book-Entry Depositary."
INFORMATION CONCERNING DTC
109
<PAGE> 111
The Company understands as follows with respect to DTC:
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities of its
Participants and to facilitate the clearance and settlement of transactions
among its Participants in such securities through electronic book-entry changes
in accounts of the Participants, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. Access to the DTC book-entry system is also
available to others, such as banks, brokers dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an owner of a
Book-Entry Interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain Persons take physical
delivery of securities in definitive form. Consequently, the ability to
transfer Book-Entry Interests to such Persons may be limited. In addition,
beneficial owners of Book-Entry Interests through the DTC system will receive
distributions attributable to the Global Senior Note only through DTC
Participants.
SETTLEMENT
The Book-Entry Interests trade in DTC's Same-Day Funds Settlement System.
Any secondary market trading activity in the Book-Entry Interests is expected
to accrue through DTC's Participants, and the securities custody accounts of
investors will be credited with their holdings against payment in same-day
funds on the settlement date.
110
<PAGE> 112
DESCRIPTION OF THE NEW SENIOR NOTES
The New Senior Notes have been issued under an Indenture dated as of
December 15, 1995 (the "New Senior Notes Indenture"), between the Company and
The Bank of New York, as trustee (the "Trustee"). A copy of the form of the New
Senior Notes Indenture has been filed as an exhibit to the Registration
Statement (File No. 33-98374) of which this Prospectus is a part. The following
summary of certain provisions of the New Senior Notes Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the New Senior Notes Indenture,
including the definitions of certain terms therein and those terms made a part
of the New Senior Notes Indenture by reference to the Trust Indenture Act, as
in effect on the date of the New Senior Notes Indenture. In this section,
references to the Company are to Diamond Cable Communications PLC. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions." Article and Section references are
to articles and sections of the New Senior Notes Indenture.
GENERAL
The New Senior Notes constitute general unsubordinated obligations of the
Company, limited to $530,955,000 aggregate principal amount at maturity and
will mature on December 15, 2005. The New Senior Notes will accrete at a rate
of 11 3/4% per annum, compounded semiannually, to their aggregate principal
amount by December 15, 2000 (the "Cash Interest Date"). Cash interest will not
be payable on the New Senior Notes prior to the Cash Interest Date. Thereafter,
cash interest on the New Senior Notes will be payable, at a rate of 11 3/4% per
annum, semi-annually in arrears on each June 15 and December 15 (each, an
"Interest Payment Date"), commencing June 15, 2001, to the Book-Entry
Depositary (as hereinafter defined) in the case of the Global Senior Note (as
hereinafter defined) and to holders of Definitive Registered Notes (as
hereinafter defined), if any, on the June 1 or December 1, as the case may be,
immediately preceding such Interest Payment Date. Cash interest will accrue
from the most recent Interest Payment Date to which interest has been paid or
duly provided for or, if no interest has been paid or duly provided for, from
the Cash Interest Date. Cash interest will be computed on the basis of a
360-day year of twelve 30-day months. For additional information concerning
payments on the New Senior Notes, see "--Description of Book-Entry System --
Payments on the Global Senior Note" and "-- Form of New Senior Notes."
The Company has entered into a L.340 million Senior Bank Facility. See
"Description of Company Debt -- Proposed Senior Bank Facility". The Company has
not issued, and does not have any current plans to issue, any significant
indebtedness that will be subordinated to the New Senior Notes. The New Senior
Notes will effectively rank junior to any indebtedness of the Company's
subsidiaries to the extent of the assets of such subsidiaries and to any
secured indebtedness of the Company to the extent of the assets securing such
indebtedness. Indebtedness under the Senior Bank Facility will effectively rank
senior to the New Senior Notes. See "Risk Factors -- Holding Company Structure;
Liens on Assets".
Except as described below under "-- Certain Covenants -- Change of
Control" and "-- Mergers, Consolidations and Certain Sales of Assets", the New
Senior Notes Indenture does not contain any provisions that permit the holders
of the New Senior Notes to require that the Company repurchase or redeem the
New Senior Notes or otherwise protect the holders of New Senior Notes in the
event of a takeover, recapitalization or similar restructuring or in the event
of any other highly leveraged transaction.
The New Senior Notes are listed on the Luxembourg Stock Exchange. There
can be no assurance that any trading market in the New Senior Notes will
develop.
111
<PAGE> 113
FORM OF THE NEW SENIOR NOTES
The New Senior Notes are represented by a global security in bearer form,
without coupons attached (the "Global Senior Note"), which was issued in a
denomination equal to the outstanding principal amount at maturity of New
Senior Notes represented thereby. The Global Senior Note has been deposited
with The Bank of New York, as book-entry depositary (the "Book-Entry
Depositary"), pursuant to the terms of a Deposit Agreement, to be dated as of
December 15, 1995 between the Company, for the limited purposes set forth
therein, the Book-Entry Depositary and the owners from time to time of
Book-Entry Interests (the "Deposit Agreement"). See "-- Description of
Book-Entry System".
Under the terms of the Deposit Agreement, owners of Book-Entry Interests
will receive Definitive Registered Notes (i) if DTC notifies the Book-Entry
Depositary that it is unwilling or unable to act as depositary or ceases to be
a clearing agency registered under the Securities Exchange Act of 1934, as
amended, and, in either case, a successor depositary is not appointed by the
Global Depositary at the request of the Company within 120 days, (ii) in the
event of an Event of Default under the New Senior Notes Indenture upon request
of the owner of a Book-Entry Interest, (iii) at any time if the Company in its
sole discretion determines that the Global Senior Note (in whole but not in
part) should be exchanged for Definitive Registered Notes, (iv) if such owner
of a Book-Entry Interest requests such exchange in writing delivered to DTC and
through DTC to the Book-Entry Depositary or (v) if the Book-Entry Depositary is
at any time unwilling or unable to continue as Book-Entry Depositary and a
successor Book-Entry Depositary is not appointed by the Company within 120
days. In no event will definitive New Senior Notes in bearer form be issued.
Any Definitive Registered Notes will be issued in registered form in
denominations of $1,000 principal amount or multiples thereof at maturity. Any
Definitive Registered Notes will be registered in such name or names as the
Book-Entry Depositary shall instruct the Trustee based on the instructions of
DTC. It is expected that such instructions will be based upon directions
received by DTC from its participants ("Participants") with respect to
ownership of Book-Entry Interests. To the extent permitted by law, the Company,
the Trustee and any paying agent shall be entitled to treat the person in whose
name any Definitive Registered Note is registered, as the absolute owner
thereof. While the Global Senior Note is outstanding, holders of Definitive
Registered Notes may exchange their Definitive Registered Notes for Book-Entry
Interests by surrendering their Definitive Registered Notes to the Book-Entry
Depositary. The amount of the Global Senior Notes (and the Book-Entry
Interests) will be increased or decreased to reflect exchanges or issues of
Definitive Registered Notes. The Book-Entry Depositary will request the Trustee
to make the appropriate adjustments to the Global Senior Note underlying the
Book-Entry Interests to reflect any such issues or adjustments. The New Senior
Notes Indenture contains provisions relating to the maintenance by a registrar
of a register reflecting ownership of Definitive Registered Notes, if any, and
other provisions customary for a registered debt security. Payment of principal
and interest on each Definitive Registered Note will be made to the holder
appearing on the register at the close of business on the record date at his
address shown on the register on the record date.
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON THE DEFINITIVE REGISTERED NOTES AS SET FORTH UNDER "TAXATION
- --UNITED KINGDOM". A HOLDER OF DEFINITIVE REGISTERED NOTES WILL, TO THE EXTENT
DESCRIBED BELOW UNDER "-- PAYMENT OF ADDITIONAL AMOUNTS", BE ENTITLED TO
RECEIVE ADDITIONAL AMOUNTS WITH RESPECT TO SUCH DEFINITIVE REGISTERED NOTES.
ADDITIONAL AMOUNTS WILL NOT BE PAYABLE IF SUCH DEFINITIVE REGISTERED NOTES WERE
ISSUED AT THE REQUEST OF A HOLDER (INCLUDING FOLLOWING AN EVENT OF DEFAULT) AND
AT THE TIME OF THE PAYMENT IN QUESTION DEFINITIVE REGISTERED NOTES HAVE NOT
BEEN ISSUED IN EXCHANGE FOR THE ENTIRE PRINCIPAL AMOUNT AT MATURITY OF NOTES.
However, a U.S. holder of Definitive Registered Notes may be entitled to
receive a refund of withheld amounts from the Inland Revenue in certain
circumstances. See "Taxation -- United Kingdom -- Payments on the New Senior
Notes".
Any person receiving Definitive Registered Notes other than at its own
request will not be obligated to pay or otherwise bear the cost of any tax or
governmental charge or any cost or expense of the Book-Entry
112
<PAGE> 114
Depositary, relating to insurance, postage, transportation or any similar
charge, which will be solely the responsibility of the Company.
Principal of, premium, if any, and interest on any Definitive Registered
Notes will be payable at the corporate trust office or agency of the Trustee in
The City of New York maintained for such purposes and at the specified office
of the Paying Agent in Luxembourg (against surrender of the relevant Definitive
Registered Note, in the case of payments of principal). In addition, interest
on Definitive Registered Notes may be paid by check mailed to the person
entitled thereto as shown on the register for the Definitive Registered Notes.
No service charge will be made for any registration of transfer or exchange of
any Definitive Registered Notes.
The Company has undertaken to procure that while the New Senior Notes are
outstanding and listed on the Luxembourg Stock Exchange, it will maintain a
paying agent and a transfer agent in Luxembourg through which payment of
principal of, or premium or interest on, the New Senior Notes may be made and
through which the registration of transfer of New Senior Notes may be effected.
The initial paying agent and transfer agent appointed by the Company in
Luxembourg is Banque Internationale a Luxembourg S.A., 69 route d'Esch, L-1470
Luxembourg.
REDEMPTION
OPTIONAL REDEMPTION
The New Senior Notes are redeemable, in whole or in part, at any time on
or after the Cash Interest Date, at the option of the Company, upon not less
than 30 nor more than 60 days' notice; provided that the Company may not give a
notice of redemption (i) more than four times in any year or (ii) in respect of
the redemption of less than $5 million in principal amount at maturity of the
New Senior Notes. Such redemption will be at the redemption prices (expressed
as percentages of principal amount at maturity) set forth below, plus accrued
and unpaid interest to the redemption date, if redeemed during the 12-month
period beginning December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR REDEMPTION
PRICE
<S> <C>
2000...................... 104.406%
2001...................... 102.938%
2002...................... 101.469%
2003 and thereafter....... 100.0%
</TABLE>
PURCHASE OBLIGATION
The Company is not required to make any mandatory redemption or sinking
fund payments in respect of the New Senior Notes.
Upon the occurrence of a Change of Control (as defined below), the Company
will be obligated to make an Offer to Purchase all the outstanding New Senior
Notes at a price of 101% of the Accreted Value thereof (determined at the date
of purchase), if such purchase is prior to the Cash Interest Date, or 101% of
the principal amount at maturity thereof, plus accrued interest thereon, if
any, to the date of purchase, if such purchase is on or after the Cash Interest
Date. In addition, upon the occurrence of an Asset Disposition, the Company may
be obligated to make an Offer to Purchase all or a portion of the outstanding
New Senior Notes at a price of 100% of the Accreted Value thereof (determined
at the date of purchase), if such purchase is prior to the Cash Interest Date,
or 100% of the principal amount at maturity thereof, plus accrued and unpaid
interest, if any, to the date of purchase, if such purchase is on or after the
Cash Interest Date. See "-- Certain
113
<PAGE> 115
Covenants -- Change of Control" and "-- Certain Covenants -- Limitation on
Certain Asset Dispositions", respectively.
SELECTION; EFFECT OF REDEMPTION NOTICE
In the case of a partial redemption, selection of the New Senior Notes for
redemption will be made pro rata (subject, in the case of Book-Entry Interests,
to DTC procedures). Upon giving of a redemption notice, the principal amount of
New Senior Notes called for redemption will cease to accrete (if such
redemption occurs prior to the Cash Interest Date), interest on New Senior
Notes called for redemption will cease to accrue (if such redemption occurs on
or after the Cash Interest Date) from and after the date fixed for redemption
(unless the Company defaults in providing the funds for such redemption) and
such New Senior Notes will then cease to be outstanding.
OPTIONAL TAX REDEMPTION
The New Senior Notes will be subject to redemption upon not less than 30
nor more than 60 days' notice by mail, as a whole, but not in part, at the
election of the Company at any time at a redemption price equal to 100% of the
Accreted Value thereof (determined at the date of redemption) if such purchase
is prior to the Cash Interest Date, or 100% of the principal amount at maturity
thereof (together in the case of any such redemption with accrued interest to
the date of redemption if such redemption is on or after the Cash Interest
Date), if (a) the Company is required to issue Definitive Registered Senior
Notes after using all reasonable efforts to avoid having to issue such
Definitive Registered Senior Notes and the Company is or would be so required
in the absence of any applicable tax treaty on the next succeeding Interest
Payment Date to pay Additional Amounts with respect to the New Senior Notes as
described under "-- Payment of Additional Amounts" or (b) the Company has
become or would become obligated to pay in the absence of any applicable tax
treaty, on the next date on which any amount would be payable with respect to
the New Senior Notes, any Additional Amount as a result of any amendment to or
change in the laws (or any rules or regulations thereunder) of the United
Kingdom or any political subdivision or taxing authority thereof or therein
(or, in the case of Additional Amounts payable by a successor Person to the
Company, of the jurisdiction in which such successor Person is organized or any
political subdivision or taxing authority thereof or therein) or any amendment
or change in any official interpretation or application of such laws or rules
or regulations or any execution of or amendment to any treaty affecting
taxation to which the United Kingdom or such political subdivision or taxing
authority (or such other jurisdiction or political subdivision or taxing
authority) is a party, if the amendment or change becomes effective on or after
the date of the New Senior Notes Indenture (or, in the case of Additional
Amounts payable by a successor Person to the Company, the date on which such
successor Person became such pursuant to the applicable provisions of the New
Senior Notes Indenture unless as of such date the relevant tax authority had
publicly announced that such amendment or change or execution was to occur
after such date) and such obligation cannot be avoided by the use of all
commercially reasonable measures available to the Company; provided, however,
that (1) no such notice of redemption may be given earlier than 90 days prior
to the earliest date on which the Company would be obligated to pay such
Additional Amounts were a payment in respect of the Securities then due, and
(2) at the time such notice of redemption is given, such obligation to pay such
Additional Amounts remains in effect.
PAYMENT OF ADDITIONAL AMOUNTS
All payments made by the Company on the New Senior Notes will be made free
and clear of and without withholding or deduction for or on account of any
present or future taxes, duties, assessments or governmental charges of
whatever nature unless the withholding or deduction is then required by law. If
any withholding or deduction for or on account of any present or future taxes,
assessments or other governmental charges of the United Kingdom or any
political subdivision or taxing authority thereof or therein ("Taxes") shall at
any time be required in respect of any amounts to be paid by the Company under
the New Senior Notes, the Company will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount received by each holder
(including Additional Amounts) after such withholding or deduction will not be
less than the amount the Holder would have received if such Taxes had not been
withheld or deducted; provided that
114
<PAGE> 116
the foregoing obligation to pay Additional Amounts does not apply to (a) any
Taxes which would not have been so imposed but for the existence of any present
or former connection between such Holder and the United Kingdom (other than the
mere receipt of such payment or the ownership or holding outside of the United
Kingdom of such New Senior Note); (b) any estate, inheritance, gift, sales,
excise, transfer, personal property tax or similar tax, assessment or
governmental charge; or (c) any Taxes payable otherwise than by deduction or
withholding from payments of principal of (or premium, if any, on) or interest
on such New Senior Note; nor will Additional Amounts be paid (i) if the payment
could have been made by or through another paying agent without such deduction
or withholding, (ii) if the payment could have been made without such deduction
or withholding had the holder of the New Senior Note or, if different, the
beneficiary of the payment complied with a request of the Company made upon
reasonable notice prior to such payment, or any other Person through whom
payment may be made, addressed or otherwise provided to such holder or
beneficiary to provide information, documents or other evidence concerning the
nationality, residence, identity or connection with the taxing jurisdiction of
such holder or beneficiary which is required or imposed by a statute, treaty,
regulation or administrative practice of the taxing jurisdiction as a
precondition to exemption from all or part of such tax, (iii) with respect to
any payment of principal of (or premium if any, on) or interest on such New
Senior Note to any holder who is a fiduciary or partnership or Person other
than the sole beneficial owner of such payment, to the extent such payment
would be required by the laws of the U.K. (or any political subdivision or
taxing authority thereof or therein) to be included in the income for tax
purposes of a beneficiary or settlor with respect to such fiduciary or a member
of such partnership or a beneficial owner who would not have been entitled to
the Additional Amounts had such beneficiary, settlor, member or beneficial
owner been the holder of such a New Senior Note, or (iv) if the payment is in
respect of a Definitive Registered Note issued at the request of a holder of a
Book-Entry Interest (including following an Event of Default) and at the time
the payment is made Definitive Registered Notes have not been issued in
exchange for the entire principal amount at maturity of the New Senior Notes.
The foregoing provisions shall survive any termination or discharge of the New
Senior Notes Indenture and shall apply mutatis mutandis to any withholding or
deduction for or on account of any present or future taxes, assessments or
governmental charges of whatever nature of any jurisdiction in which any
successor Person to the Company is organized, or any political subdivision or
taxing authority thereof or therein. The Company has agreed to use commercially
reasonable efforts to facilitate administrative actions necessary to assist
Holders to obtain any refund of or credit against withholding taxes for which
Additional Amounts are not paid as a result of the proviso in the second
preceding sentence.
CERTAIN COVENANTS
The New Senior Notes Indenture contains, among others, the following
additional covenants:
LIMITATION ON CONSOLIDATED DEBT AND DISQUALIFIED EQUITY
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur any Debt or issue any Disqualified Equity unless, immediately after
giving effect to the Incurrence of such Debt or the issuance of such
Disqualified Equity and the receipt and application of the proceeds thereof,
the Annualized Consolidated Debt to Cash Flow Ratio of the Restricted Group for
the quarter next preceding the Incurrence of such Debt or the issuance of such
Disqualified Equity, as the case may be, for which quarterly financial
statements are available, calculated on a pro forma basis (as if such Debt had
been Incurred or such Disqualified Equity had been issued at the beginning of
such quarter) would be less than 7.0 to 1.
Notwithstanding the foregoing paragraph, the Company may, and may permit
any Restricted Subsidiary to, Incur or issue the following: (i) Debt up to the
maximum amount available under the Proposed Senior Bank Facility; (ii) Debt of
the Company and/or any Restricted Subsidiary outstanding on the date of the New
Senior Notes Indenture; (iii) Debt or Disqualified Equity to the extent that
the proceeds are used to finance working capital, or the construction of, or
the acquisition of, property or assets to be used in a Cable Business; (iv)
Debt Incurred or Disqualified Equity issued to finance a Cable Acquisition or
provide working capital for or financing for the construction of property or
assets to be used in the business so acquired; (v) Debt consisting of Interest
Rate Protection Obligations or Currency Hedging Agreements; (vi) performance
bonds or surety bonds or similar instruments provided in the ordinary course of
business; (vii) Debt owed by the Company to any Wholly Owned Restricted
Subsidiary (so long as such Debt is held by a Wholly Owned Restricted
Subsidiary) or Debt owed
115
<PAGE> 117
by or Disqualified Equity issued by a Restricted Subsidiary to the Company or a
Wholly Owned Restricted Subsidiary of the Company (provided that such Debt or
Disqualified Equity is at all times held by the Company or a Wholly Owned
Restricted Subsidiary); provided, however, that upon either (a) the transfer or
other disposition by such Wholly Owned Restricted Subsidiary or the Company of
any such Debt or Disqualified Equity to a Person other than the Company or
another Wholly Owned Restricted Subsidiary or (b) the issuance, sale, lease,
transfer or other disposition of shares of Equity Securities (including by
consolidation or merger) of such Wholly Owned Restricted Subsidiary to a Person
other than the Company or another such Wholly Owned Restricted Subsidiary, such
Debt shall be deemed to have been Incurred or such Disqualified Equity shall be
deemed to have been issued at the time of such transfer or other disposition;
(viii) Debt Incurred or Disqualified Equity issued to renew, extend, refinance
or refund any Debt or Disqualified Equity permitted in Clauses (i) through (iv)
above, or the New Senior Notes (in the event that the New Senior Notes are
redeemed in part pursuant to the provisions described under "-- Redemption"
above) in an amount not to exceed the outstanding principal amount (or, if
less, Accreted Value) of the Debt or the aggregate liquidation preference of
the Disqualified Equity so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms of the
Debt or Disqualified Equity refinanced, or the amount of any premium reasonably
determined by the Company to be necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase plus the expenses of
the Company Incurred in connection with such refinancing; provided that (a) in
the case of any refinancing or refunding of Debt which is pari passu to the New
Senior Notes, the refinancing or refunding Debt is made pari passu to the New
Senior Notes or subordinated to the New Senior Notes, and, in the case of any
refinancing or refunding of Debt which is subordinated to the New Senior Notes
or of Disqualified Equity, the refinancing or refunding Debt is subordinated to
the New Senior Notes to the same extent as the Debt being refinanced or
refunded or is Disqualified Equity; and (b) in either case, the refinancing or
refunding Debt or Disqualified Equity by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt or Disqualified Equity is
Incurred or issued, does not have a Weighted Average Life that is lower than
that of the Debt or Disqualified Equity being refinanced or refunded; and (ix)
Debt or Disqualified Equity not otherwise permitted to be Incurred or issued
under Clauses (i) through (viii) above, which, together with any other
outstanding Debt Incurred or Disqualified Equity issued pursuant to this Clause
(ix), has an aggregate principal amount (or liquidation preference) not in
excess of L.20 million at any time outstanding.
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) shall not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities or otherwise) in respect of any class of its Equity
Securities or to the holders of any class of its Equity Securities (including
pursuant to a merger or consolidation of the Company, but excluding any
dividends or distributions payable solely in its Equity Securities (other than
Disqualified Equity) or in options, warrants or other rights to acquire its
Equity Securities (other than Disqualified Equity)), (ii) shall not, and shall
not permit any Restricted Subsidiary of the Company to, directly or indirectly,
purchase, redeem or otherwise acquire or retire for value (a) any Equity
Securities of the Company or any Related Person of the Company or (b) any
options, warrants or rights to purchase or acquire Equity Securities of the
Company or any Related Person of the Company (except options, warrants or
rights to purchase or acquire such Equity Securities held by any current or
former officer or director of the Company or ECE Management in an aggregate
amount not exceeding L.5 million), (iii) shall not make, or permit any
Restricted Subsidiary of the Company to make any Investment in, or Incur an
obligation to Guarantee any obligation of, any Affiliate or Related Person of
the Company, other than the Company or a Wholly Owned Restricted Subsidiary of
the Company; and (iv) shall not, and shall not permit any Restricted Subsidiary
to, redeem, defease, repurchase or otherwise retire or acquire for value prior
to any scheduled maturity, repayment or sinking fund payment, Debt of the
Company which explicitly by its terms is subordinate in right of payment to the
New Senior Notes (the transactions described in Clauses (i) through (iv) being
referred to herein as "Restricted Payments"), if: (1) at the time thereof and
after giving effect thereto an Event of Default, or an event that with notice
or lapse of time, or both, would constitute an Event of Default, shall have
occurred and be continuing or (2) upon giving effect to such Restricted
Payment, the aggregate of all Restricted Payments from the date of the New
Senior Notes Indenture exceeds the sum of (a) the difference between (x) the
cumulative Consolidated Operating Cash Flow from the first day of the fiscal
quarter in which the issue date of the New Senior Notes falls through the last
day of the last full fiscal quarter immediately preceding such
116
<PAGE> 118
Restricted Payment for which quarterly financial statements are available, and
(y) 200% of cumulative Consolidated Interest Expense from the first day of the
fiscal quarter in which the issue date of the New Senior Notes falls through
the last day of the last full fiscal quarter immediately preceding such
Restricted Payment for which quarterly financial statements of the Company are
available; and (b) 100% of the aggregate net cash proceeds after the issue date
of the New Senior Notes, from the issuance of Equity Securities (other than
Disqualified Equity and the equity referred to in clause (f) under "-- Events
of Default" below) of the Company and options, warrants or other rights on
Equity Securities (other than Disqualified Equity) of the Company (other than
to a Restricted Subsidiary) after the issue date of the New Senior Notes. The
foregoing provision shall not be violated by reason of (i) the payment of any
dividend within 60 days after declaration thereof if at the declaration date
such payment would have complied with the foregoing provision; (ii) any
refinancing or refunding of any Debt otherwise permitted under clause (viii)
described in the second paragraph under the caption "-- Limitation on
Consolidated Debt and Disqualified Equity"; (iii) investments by the Company or
any Restricted Subsidiary in an amount not to exceed in the aggregate L.10
million in a Person which is engaged in a Cable Business or a business
incidental thereto; and (iv) investments in Non-Restricted Subsidiaries made
with the proceeds of a substantially concurrent (1) capital contribution to the
Company or (2) issue or sale of Equity Securities (other than Disqualified
Equity) of the Company.
LIMITATION ON LIENS
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur or suffer to exist any Lien upon any of its properties or assets, now
owned or hereafter acquired, to secure any Debt without making, or causing such
Restricted Subsidiary to make, effective provision for securing the New Senior
Notes equally and ratably with such Debt so long as such Debt shall be so
secured or in the event such Debt is subordinate in right of payment to the New
Senior Notes, prior to such Debt as to such property and assets for so long as
such Debt shall be so secured. The foregoing restrictions do not apply to Liens
existing at the date of the New Senior Notes Indenture or to: (i) Liens
securing only the New Senior Notes; (ii) Liens in favor of the Company or any
Wholly-Owned Restricted Subsidiary; (iii) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company (and not incurred in
anticipation of such merger or consolidation) which Liens shall not extend to
any other property of the Company or any Restricted Subsidiary; (iv) Liens on
property existing immediately prior to the time of acquisition thereof (and not
in anticipation of the financing of such acquisition); (v) Liens to secure Debt
Incurred under the provisions described in clauses (i), (iii), (iv), (v) or
(ix) of the second paragraph under the caption "-- Limitation on Consolidated
Debt and Disqualified Equity"; (vi) Liens for taxes or assessments or other
governmental charges or levies which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be required in
accordance with generally accepted accounting principles shall have been made;
(vii) Liens to secure obligations under workmen's compensation laws or similar
legislation, including Liens with respect to judgments which are not currently
dischargeable; and (viii) Liens to secure Debt Incurred to extend, renew,
refinance or refund (or successive extensions, renewals, refinancings or
refundings), in whole or in part, Debt secured by any Lien referred to in the
foregoing Clauses (i) through (viii) so long as such Lien does not extend to
any other property. In addition to the foregoing, the Company and its
Restricted Subsidiaries may incur a Lien to secure any Debt or enter into a
Sale and Leaseback Transaction, without equally and ratably securing the New
Senior Notes, if the sum of (i) the amount of Debt secured by a Lien entered
into after the date of the New Senior Notes Indenture and otherwise prohibited
by the New Senior Notes Indenture and (ii) the Attributable Value of all Sale
and Leaseback Transactions entered into after the date of the New Senior Notes
Indenture and otherwise prohibited by the New Senior Notes Indenture does not
exceed 5% of the Company's Consolidated Tangible Assets.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, enter into any Sale and Leaseback Transaction unless (i) the
Company or such Restricted Subsidiary were entitled to incur a Lien to secure
Debt in an amount at least equal to the Attributable Value of such Sale and
Leaseback Transaction and the terms of such transaction have been approved by
the Board of Directors of the Company or (ii) all of the conditions contained
in the provisions described under "-- Limitation on Certain Asset
117
<PAGE> 119
Dispositions" (including the provisions concerning the application of Net
Available Proceeds) would be satisfied with respect to such Sale and Leaseback
Transaction if all of the consideration received in such Sale and Leaseback
Transaction were treated as Net Available Proceeds.
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO RESTRICTED GROUP
The Company may not, and may not permit any Restricted Subsidiary to,
suffer to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make any
other distributions in respect of its Equity Securities or pay any Debt or
other obligation owed to the Company or any other Restricted Subsidiary of the
Company; (ii) to make loans or advances to the Company or any other Restricted
Subsidiary of the Company; or (iii) to transfer any of its property or assets
to, the Company or any Restricted Subsidiary of the Company. Notwithstanding
the foregoing, the Company may, and may permit any Subsidiary to, suffer to
exist any such encumbrance or restriction on the ability of any Subsidiary of
the Company if and to the extent such encumbrance or restriction exists on the
date of the New Senior Notes Indenture or is (a) provided for in the Proposed
Senior Bank Facility documents; (b) existed prior to the time any Person became
a Subsidiary of the Company and such restriction or encumbrance was not
incurred in anticipation of such Person becoming a Subsidiary of the Company;
(c) exists by reason of a customary merger or acquisition agreement for the
purchase or acquisition of the stock or assets of the Company or any of its
Restricted Subsidiaries by another Person; (d) contained in an operating lease
for real property and is effective only upon the occurrence and during the
continuance of a default in the payment of rent; (e) the result of applicable
corporate law or regulation relating to the payment of dividends or
distributions; (f) pursuant to an agreement pursuant to which Debt meeting the
requirements of clauses (iii), (iv), (v) or (ix) of the second paragraph under
the caption "-- Limitation on Consolidated Debt and Disqualified Equity" is
Incurred; provided, however, that the provisions contained in such agreement
relating to such encumbrance or restriction are no more restrictive than those
contained in the terms of the Proposed Senior Bank Facility; or (g) pursuant to
an agreement effecting a renewal, extension, refinancing or refunding of Debt
Incurred pursuant to an agreement referred to in clause (a) or (b) above;
provided, however, that the provisions contained in such agreement relating to
such encumbrance or restriction are no more restrictive than the provisions
contained in the agreement the subject thereof, as determined in good faith by
the Board of Directors and evidenced by a Board Resolution.
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Except as permitted in the following paragraph, the Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction or
conduct any business with any Affiliate or Related Person of the Company,
unless such transaction is effected or such business is conducted on terms
which are in the Company's good faith judgment at least as favorable as those
that could be obtained in a comparable arm's length transaction with a Person
that is not an Affiliate or Related Person. Any such transaction (or series of
related transactions) in which such Affiliate or Related Person receives in
excess of L.1.0 million in any twelve-month period shall be approved as being
in the Company's best interests by a majority of the disinterested directors of
the Board of Directors of the Company. Any such transaction involving in excess
of L.5.0 million (or series of related transactions involving in excess of
L.5.0 million), or as to which there are no disinterested directors, is subject
to the further requirement that the Company obtain an opinion of an
internationally recognized expert with experience in appraising the terms and
conditions of the relevant type of transaction (or series of related
transactions) stating that the transaction or series of related transactions is
fair (from a financial point of view) to the Company or such Restricted
Subsidiary.
The above requirements shall not be applicable to (i) any transaction
among the Company and its Wholly Owned Subsidiaries; (ii) any existing
management agreement with ECE Management or any successor or assign; or (iii)
any transaction in which investment banking or other financial advisory
services are provided to the Company or any Subsidiary by Goldman, Sachs & Co.
or any of its Affiliates that is, in the Company's good faith judgment, on
arm's length terms.
LIMITATION ON CERTAIN ASSET DISPOSITIONS
118
<PAGE> 120
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Disposition unless (a) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such
Asset Disposition at least equal to the fair market value of the shares or
assets sold or otherwise disposed of; and (b) at least 90% of such
consideration consists of cash or Cash Equivalents. To the extent the Net
Available Proceeds of any Asset Disposition are not required to be applied to
repay amounts outstanding under the Proposed Senior Bank Facility or any Debt
of a Restricted Subsidiary, or are not so applied, the Company or such
Restricted Subsidiary, as the case may be, may apply such Net Available
Proceeds within 365 days of the receipt thereof, to an investment in properties
and assets that will be used in a Cable Business (or in Equity Securities of
any such Person that will become a Restricted Subsidiary as a result of such
investment to the extent that such Person owns properties and assets that will
be used in a Cable Business) of the Company or any Restricted Subsidiary
("Replacement Assets"). Notwithstanding the foregoing, the Company may retain
the Net Available Proceeds from any Asset Disposition, the Net Available
Proceeds of which do not exceed L.1.0 million for any purpose. Any Net
Available Proceeds from any Asset Disposition that are neither used to repay
amounts outstanding under the Proposed Senior Bank Facility or any Debt of a
Restricted Subsidiary nor invested in Replacement Assets within such 365-day
period (exclusive of the up to L.1.0 million referred to in the preceding
sentence) shall constitute "Excess Proceeds" subject to the provisions
described in the following paragraph.
When the aggregate amount of Excess Proceeds equals or exceeds L.10.0
million the Company shall make to all holders of the New Senior Notes within 30
days of the determination thereof an Offer to Purchase New Senior Notes with an
aggregate principal amount at maturity (or if less, an Accreted Value) equal to
such Excess Proceeds at a price in cash equal to 100% of the Accreted Value
thereof on any purchase date prior to the Cash Interest Date or 100% of the
outstanding principal amount at maturity thereof plus accrued and unpaid
interest, if any, to any purchase date on or after the Cash Interest Date, as
applicable. To the extent that the aggregate principal amount at maturity or if
applicable, the Accreted Value of New Senior Notes tendered pursuant to such
Offer to Purchase is less than the Excess Proceeds, the Company may use such
deficiency for any purpose. If the aggregate principal amount at maturity or
the Accreted Value, as applicable, of New Senior Notes validly tendered and not
withdrawn by holders thereof exceeds the amount of New Senior Notes which can
be purchased with the Excess Proceeds, New Senior Notes to be purchased will be
selected on a pro rata basis.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset
Disposition without complying with such paragraphs to the extent (i) at least
90% of the consideration for such Asset Disposition constitutes Replacement
Assets (or Equity Securities of any such Person that will become a Restricted
Subsidiary as a result of such transaction to the extent that such Person owns
properties and assets that will be used in a Cable Business) and (ii) such
Asset Disposition is for fair market value; provided that any consideration not
constituting Replacement Assets or Equity Securities as described in Clause (i)
received by the Company or any Restricted Subsidiaries in connection with any
Asset Disposition permitted to be consummated under this paragraph shall
constitute Net Available Proceeds subject to the provisions of the two
preceding paragraphs.
CHANGE OF CONTROL
Within 60 days following the date of the consummation of a transaction
resulting in a Change of Control, the Company shall commence an Offer to
Purchase all Outstanding New Senior Notes at a purchase price equal to 101% of,
prior to the Cash Interest Date, their Accreted Value and on and after the Cash
Interest Date their principal amount at maturity plus in such case accrued but
unpaid interest to the date of purchase. The Company will, not less than 10
days after the date on which the Company first becomes aware of the
consummation of a transaction resulting in a Change of Control, cause notice of
such Change of Control to be mailed to holders of the New Senior Notes. A
"Change of Control" will be deemed to have occurred in the event that, after
the date of the New Senior Notes Indenture, either (a) any Person or any
Persons (other than a Permitted Holder) acting together which would constitute
a group (for purposes of Section 13(d) of the Exchange Act, or any successor
provision thereto) (a "Group"), together with any Affiliates or Related Persons
thereof shall beneficially own (as defined in Rule 13d-3 under the Exchange
Act, or any successor provision thereto) at least 45% of the aggregate voting
power of all Equity Securities of the Company entitled to vote
119
<PAGE> 121
generally in the election of directors of the Company; or (b) any Person or
Group (other than a Permitted Holder), together with any Affiliates or Related
Persons thereof, shall succeed in having a sufficient number of its nominees
elected to the Board of Directors of the Company such that such nominees, when
added to any existing director remaining on the Board of Directors of the
Company after such election who is an Affiliate or Related Person of such
Group, will constitute a majority of the Board of Directors of the Company or
(c) certain events of bankruptcy, insolvency or receivership affecting the
Company.
Any future credit agreements or other agreements relating to indebtedness
of the Company and its subsidiaries (including the Proposed Senior Bank
Facility) may contain provisions restricting the ability of the Company to
repurchase New Senior Notes upon a Change of Control. In the event that a
Change of Control occurs when such provisions are in effect, the Company may
seek the consent of the relevant lenders to the repurchase of New Senior Notes
or could attempt to repay or refinance such indebtedness, in a manner that
would permit the Company to effect the repurchase of the New Senior Notes. In
the absence of such a repayment or refinancing, the Company may be precluded
from offering to repurchase the New Senior Notes by the applicable provisions
of such other agreements. The failure of the Company to offer to repurchase the
New Senior Notes upon a Change of Control would constitute an Event of Default
under the New Senior Notes Indenture. Moreover, there can be no assurance that
the Company will have the financial resources necessary to effect any
repurchase of New Senior Notes upon a Change of Control.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company shall not, in a single transaction or through a series of
related transactions, (i) consolidate with or merge into any other Person; (ii)
permit any other Person to consolidate with or merge into the Company; (iii)
directly or indirectly transfer, assign, convey, sell, lease or otherwise
dispose of all or substantially all of its properties and assets as an
entirety; or (iv) permit any of its Subsidiaries to enter into any such
transaction or transactions if such transaction or transactions, in the
aggregate, would result in a sale, assignment, transfer, lease or disposal of
all or substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any other Person or group of affiliated
Person unless: (1) immediately before and after giving effect to such
transaction and treating any Debt and Disqualified Equity which becomes an
obligation of the Company or a Subsidiary of the Company as a result of such
transaction as having been Incurred or issued, as applicable, by the Company or
such Subsidiary at the time of the transaction, no Event of Default or event
that with notice or lapse of time, or both, would constitute an Event of
Default shall have occurred and be continuing; (2) in the event the Company
shall consolidate with or merge into another Person or shall directly or
indirectly transfer, assign, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety, the Person
formed by such consolidation or into which the Company is merged or the Person
which acquires by transfer, assignment, conveyance, sale, lease or other
disposition all or substantially all of the properties and assets of the
Company as an entirety shall be a corporation, partnership or trust, shall be
organized and validly existing under the laws of England and Wales or of the
United States of America, any State thereof or the District of Columbia and
shall expressly assume by an indenture supplemental to the New Senior Notes
Indenture executed and delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of (and premium, if
any), interest and Additional Amounts, if any, on all the New Senior Notes and
the performance of every covenant of the New Senior Notes Indenture on the part
of the Company to be performed or observed; (3) the Company or the successor to
the Company will have an Annualized Consolidated Debt to Cash Flow Ratio for
the quarter next preceding such transaction for which quarterly financial
statements are available (determined on a pro forma basis giving effect to the
proposed transaction as if it had taken place at the beginning of such quarter)
equal to or less than the Annualized Consolidated Debt to Cash Flow Ratio of
the Company without giving effect to the proposed transaction; provided further
that if the Annualized Consolidated Debt to Cash Flow Ratio of the Company
immediately preceding such transaction is 7.0:1 or less, then the Annualized
Consolidated Debt to Cash Flow Ratio of the Company or its successor after
giving pro forma effect to such transaction may be up to 0.5:1 greater than
such ratio immediately prior to such transaction; (4) if, as a result of any
such transaction, property or assets of the Company or any Subsidiary of the
Company would become subject to a Lien prohibited by the provisions of the New
Senior Notes Indenture described under "Limitation on Liens" above, and the
Company or the successor entity to the Company shall have secured the New
Senior Notes as required by that covenant; (5) such transaction would not
result in the loss of a Material License (which for this
120
<PAGE> 122
purpose will be determined on a pro forma basis, giving effect to such
transaction); and (6) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel each stating that such
consolidation, merger, transfer, lease or disposition and the supplemental
indenture comply with the New Senior Notes Indenture.
EVENTS OF DEFAULT
The following are Events of Default under the New Senior Notes Indenture:
(a) failure by the Company to pay principal of (or premium, if any, on) any New
Senior Note at its Maturity; (b) failure to pay any interest or Additional
Amounts on any New Senior Note when due, continued for 30 days; (c) default in
the payment of principal and interest on New Senior Notes required to be
purchased pursuant to an Offer to Purchase as described under the captions "--
Change of Control" and "-- Limitation on Certain Asset Dispositions"; (d)
failure to perform or comply with the provisions described under "-- Mergers,
Consolidations and Certain Sales of Assets"; (e) failure by the Company to
perform any other covenant under the New Senior Notes Indenture or the New
Senior Notes continued for 30 days after written notice to the Company by the
Trustee or holders of at least 25% in aggregate principal amount of Outstanding
New Senior Notes; (f) failure by the Company to have received after the date of
the New Senior Notes Indenture but prior to June 30, 1996 an aggregate of $100
million or more in gross cash proceeds from the issuance of new equity,
provided however that if the Company has at June 30, 1996 an effective
registration statement under the Securities Act for the issuance and sale of
such equity, no Event of Default shall occur unless the Company does not
receive such proceeds within 20 business days thereafter; (g) default under the
terms of any instrument evidencing or securing Debt by the Company or any
Significant Restricted Subsidiary which results in the acceleration of the
payment of principal amount in excess of L.5 million or which shall constitute
the failure to pay any portion in excess of L.5 million of principal or similar
amount when due and payable after the expiration of any applicable grace
period; (h) the rendering of a final judgment or judgments against the Company
or any Significant Restricted Subsidiary in an amount in excess of L.5 million
which remains undischarged or unstayed for a period of 60 days after the date
on which the right to appeal has expired; and (i) certain events of bankruptcy,
insolvency or reorganization affecting the Company or any Significant
Restricted Subsidiary.
Subject to the provisions of the New Senior Notes Indenture relating to
the duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee is under no obligation to exercise any of its rights or
powers under the New Senior Notes Indenture at the request or direction of any
of the holders, unless such holders shall have offered to the Trustee
reasonable indemnity. Subject to such provisions for the indemnification of the
Trustee, the holders of a majority in aggregate principal amount of the
Outstanding New Senior Notes have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee.
If an Event of Default (other than an Event of Default described in Clause
(i) above) occurs and is continuing, then either the Trustee or the holders of
at least 25% in aggregate principal amount of the Outstanding New Senior Notes
may accelerate the maturity of all New Senior Notes; provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of Outstanding New
Senior Notes may, under certain circumstances, rescind and annul such
acceleration if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in the New Senior
Notes Indenture. If an Event of Default specified in Clause (i) above occurs,
the Outstanding New Senior Notes will ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder. For information as to waiver of defaults, see "-- Modification and
Waiver".
No holder of any New Senior Note shall have any right to institute any
proceeding with respect to the New Senior Notes Indenture or for any remedy
thereunder, unless such holder shall have previously given to the Trustee
written notice of a continuing Event of Default and unless also the holders of
at least 25% in aggregate principal amount of the Outstanding New Senior Notes
shall have made written request, and offered reasonable indemnity, to the
Trustee to institute such proceeding as trustee, and the Trustee shall not have
received from the holders of a majority in aggregate principal amount of the
Outstanding New Senior Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days.
121
<PAGE> 123
However, such limitations do not apply to a suit instituted by a holder of a
New Senior Note for enforcement of payment of the principal of and premium, if
any, or interest on such New Senior Note on or after the respective due dates
(or, in the case of a redemption, the Redemption Dates or, in the case of an
Offer to Purchase, the Purchase Date) expressed in or established pursuant to
the terms of such New Senior Note and New Senior Notes Indenture.
The Company is required to furnish to the Trustee annually a statement as
to the performance by it of certain of its obligations under the New Senior
Notes Indenture and as to any default in such performance.
DEFEASANCE
The New Senior Notes Indenture provides that (A) if applicable, the
Company will be discharged from any and all obligations in respect of the
Outstanding New Senior Notes other than certain obligations to transfer the New
Senior Notes, or (B) if applicable, the Company may omit to comply with certain
restrictive covenants, and certain events will cease to be Events of Default
under the New Senior Notes Indenture and the New Senior Notes, in either case
(A) or (B), upon irrevocable deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations which will provide money in an amount
sufficient to pay the principal of and premium, if any, and each installment of
interest, if any, on the Outstanding New Senior Notes. With respect to Clause
(B), the obligations under the New Senior Notes Indenture other than with
respect to certain covenants and Event of Default will remain in full force and
effect. Such trust may only be established if, among other things (i) with
respect to Clause (A), (1) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or there has been a change
in law, which in the opinion of counsel provides that holders of the New Senior
Notes will not recognize gain or loss for U.S. federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to U.S.
federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit, defeasance and discharge had not
occurred and (2) the Company has delivered to the Trustee an opinion of counsel
to the effect that, under the law in effect at the time of such deposit,
payments made from the defeasance trust would not require the payment of
Additional Amounts if the provisions of the New Senior Notes Indenture
described under "Payment of Additional Amounts" above were applicable to such
payments; or, with respect to Clause (B), the Company has delivered to the
Trustee (1) an opinion of counsel (which may be based on an Internal Revenue
Service ruling) to the effect that the holders of the New Senior Notes will not
recognize gain or loss for U.S. federal income tax purposes as a result of such
deposit and defeasance and will be subject to U.S. federal income tax on the
same amount, in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred and (2) an opinion of
counsel to the effect that, under the law in effect at the time of such
deposit, payments made from the defeasance trust would not require the payment
of Additional Amounts if the provisions of the New Senior Notes Indenture
described under "Payment of Additional Amounts" above were applicable to such
payments; (ii) no Event of Default or event that with the passing of time or
the giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing on the date of such deposit or, insofar as an Event
of Default described in clause (i) under "-- Events of Default," at any time
during the period ending on the 121st day after the date of such deposit; (iii)
the Company has delivered to the Trustee an opinion of counsel to the effect
that such deposit shall not cause the Trustee or the trust so created to be
subject to the Investment Company Act of 1940; and (iv) certain other customary
conditions precedent are satisfied.
GOVERNING LAW
The New Senior Notes Indenture and the New Senior Notes are governed by
the laws of the State of New York.
MODIFICATION AND WAIVER
From time to time the Company, when authorized by resolutions of the Board
of Directors, and the Trustee, without the consent of the holders of the New
Senior Notes, may amend, waive or supplement the New Senior Notes Indenture or
the New Senior Notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, maintaining the
qualification of the New Senior Notes
122
<PAGE> 124
Indenture under the Trust New Senior Notes Indenture Act or making any change
that does not adversely affect the rights of any holder.
Modifications and amendments of the New Senior Notes Indenture may be made
by the Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Outstanding New Senior Notes; provided,
however, that no such modification or amendment may, without the consent of the
holder of each Outstanding New Senior Note affected thereby, (a) change the
Stated Maturity of the principal of or any installment of interest or
Additional Amounts on, any New Senior Note, (b) reduce the principal amount of,
(or the premium) or interest or Additional Amounts on, any New Senior Note, (c)
change the place or currency of payment of principal of (or premium) or
interest or Additional Amounts on, any New Senior Note, (d) impair the right to
institute suit for the enforcement of any payment on or after the Stated
Maturity thereof (or Redemption Date, in the case of redemption, or Purchase
Date, in the case of an Offer to Purchase), (e) reduce the above-stated
percentage of Outstanding New Senior Notes necessary to modify or amend the New
Senior Notes Indenture, (f) reduce the percentage of principal amount of
Outstanding New Senior Notes necessary for waiver of compliance with certain
provisions of the New Senior Notes Indenture or for waiver of certain defaults,
(g) modify certain provisions of the New Senior Notes Indenture relating to the
modification of the New Senior Notes Indenture or the waiver of past defaults
or covenants, except as otherwise specified or (h) following the mailing of any
Offer to Purchase, modify any Offer to Purchase for the New Senior Notes
required as described under the caption "-- Limitation on Certain Asset
Dispositions" and "-- Change of Control" in a manner materially adverse to the
holders thereof.
The holders of not less than a majority in aggregate principal amount of
the Outstanding New Senior Notes, on behalf of all holders of New Senior Notes,
may waive compliance by the Company with certain restrictive provisions and
covenants of the New Senior Notes Indenture. Subject to certain rights of the
Trustee, as provided in the New Senior Notes Indenture, the holders of not less
than a majority in aggregate principal amount of the Outstanding New Senior
Notes, on behalf of all holders of New Senior Notes, may waive any past default
under the New Senior Notes Indenture, except a default in the payment of
principal, premium or interest or in respect of a covenant or provision that
cannot be modified or amended without the consent of the holder of each
Outstanding New Senior Note.
REPORTS
The Company shall deliver to the Trustee, within 15 days after it files
them with the Commission, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribed) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act within the time periods prescribed under such rules and
regulations. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act or otherwise report on an annual and quarterly basis on forms provided for
such annual and quarterly reporting pursuant to rules and regulations
promulgated by the Commission, the New Senior Notes Indenture requires the
Company to continue to file with the Commission and provide to the Trustee such
annual and interim reports on Forms 10-K and 10-Q, respectively, as the Company
would be required to file were it subject to such reporting requirements within
the time periods prescribed under such rules and regulations. The Company shall
not be obligated to file any such reports with the Commission if the Commission
does not permit such filings but shall remain obligated to provide such reports
to the Trustee.
THE TRUSTEE
The duties and responsibilities of the Trustee are those provided by the
Trust Indenture Act. Notwithstanding the foregoing, the New Senior Notes
Indenture does not require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the New Senior Notes Indenture, or in the exercise of any of its rights
or powers, if it has reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk of liability is not reasonably
assured to it.
123
<PAGE> 125
The Trustee is permitted to engage in other transactions with the Company,
or any Affiliate, provided, however, that if it acquires any conflicting
interest (as defined in the Trust Indenture Act), it must eliminate such
conflict or resign.
NO PERSONAL LIABILITY OF DIRECTORS, 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 New Senior Notes, the New Senior Notes Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of the New Senior Notes by accepting a New Senior Note waives and
releases all such liability; provided that such waiver will not release any
person from liability for fraud or criminal acts. The waiver and release are
part of the consideration for issuance of the New Senior Notes. Such waiver and
release may not be effective to waive liabilities under English law or under
the U.S. federal securities laws and it is the view of the Commission that such
waiver and release is against public policy.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms which are
used in the New Senior Notes Indenture. Reference is made to the New Senior
Notes Indenture for the full definition of all such terms, as well as any other
terms used herein for which no definition is provided. All accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles, and, except as otherwise herein
described, the term "generally accepted accounting principles" with respect to
any computation required or permitted under the New Senior Notes Indenture
means accounting principles as are generally accepted in the United States as
consistently applied by the Company at the date of the New Senior Notes
Indenture.
"Accreted Value" means, as of any date of determination prior to the Cash
Interest Date, the sum of (a) the initial offering price of each New Senior
Note and (b) the portion of the excess of the principal amount of each New
Senior Note over such initial offering price which shall have been amortized by
the Company through such date, such amount to be so amortized on a daily basis
and compounded semiannually on each June 15 and December 15, at the rate of 11
3/4% per annum from the date of issuance of the New Senior Notes through the
date of determination computed on the basis of a 360-day year of twelve 30-day
months.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Consolidated Debt to Cash Flow Ratio" for any Person means for
any fiscal quarter the ratio of (i) Total Consolidated Debt of such Person as
of the end of such fiscal quarter to (ii) Consolidated Operating Cash Flow of
such Person for such fiscal quarter multiplied by four.
"Asset Acquisition" means (i) any capital contribution (including without
limitation by means of transfers of cash or other property to others or
payments for property or services for the account or use of others) by the
Company or any Restricted Subsidiary in any other Person (including, for the
avoidance of doubt, a prospective licensee that subsequently acquires a license
to operate a cable television and/or telephone and/or telecommunications
system), or any acquisition or purchase of equity interests in any other Person
by the Company or any Restricted Subsidiary, in either case pursuant to which
such Person shall become a Restricted Subsidiary or shall be merged with or
into the Company or any Restricted Subsidiary or (ii) any acquisition by the
Company or any Restricted Subsidiary of the assets of any Person which
constitute substantially all of an operating unit or line of business of such
Person or which is otherwise outside of the ordinary course of business.
124
<PAGE> 126
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Company or any of its Restricted Subsidiaries (including by
way of consolidation or merger) resulting in Net Available Proceeds in excess
of L.250,000 of (i) shares or other ownership interest of a Subsidiary of the
Company, (ii) substantially all of the assets of the Company or any Subsidiary
representing a division or line of business, or (iii) other assets or rights
outside of the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable, and at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the initial term thereof as determined in
accordance with generally accepted accounting principles, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capital Lease
Obligation with like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any such lease for
any such period shall be the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges. In the case of any lease which is terminable by the lessee
upon the payment of a penalty, such net amount shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Cable Acquisition" means an Asset Acquisition of properties or assets to
be used in a Cable Business or of equity interests in any Person that becomes a
Restricted Subsidiary or, subject to the covenant described under "--Certain
Covenants -- Limitation on Restricted Payments" above, a Non-Restricted
Subsidiary as a result of such Asset Acquisition, provided that such Person's
assets and properties consist principally of properties or assets that will be
used in a Cable Business.
"Cable Business" means any business operating a cable television and/or
telephone and/or telecommunications system or any business reasonably related
thereto, including, without limitation, the production or provision of
programming as well as any business conducted by the Company or any Restricted
Subsidiary on the date on which the New Senior Notes are first issued.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property which is required to be classified
and accounted for as a capital lease or a liability on the face of a balance
sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Cash Equivalent" means, at any time, (i) any evidence of Debt issued or
directly and fully guaranteed or insured by the government of an Approved
Jurisdiction or any agency or instrumentality thereof (provided that the full
faith and credit of the relevant Approved Jurisdiction is pledged in support
thereof); (ii) certificates of deposit or acceptances of any financial
institution that has combined capital and surplus and undivided profits of not
less than $50,000,000 (or the equivalent thereof in another currency) and has a
long term debt rating of at least "AA" by Standard & Poor's Corporation or at
least "Aa3" by Moody's Investor Service or if not rated by either of those
rating agencies the equivalent rating from another Approved Rating Agency;
(iii) commercial paper issued by a corporation organized under the laws of any
Approved Jurisdiction and rated at least A-1 by Standard & Poor's Corporation
or at least P-1 by Moody's Investor Service or if not rated by either of those
rating agencies the equivalent rating from another Approved Rating Agency; (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the government of an
Approved Jurisdiction; and (v) any other investment, instrument or cash
balance, provided, that in each of clauses (i) through (v) above such
instrument shall be considered a Cash Equivalent within the meaning of this
definition only to the extent that such instrument would have been classified
as a "cash equivalent" in accordance with the accounting principles applied to
the Company's audited consolidated balance sheet as of December 31, 1994.
"Approved Jurisdiction" means the United States of America, Canada, the United
Kingdom and any other member nation of the Organization for
125
<PAGE> 127
Economic Cooperation and Development. "Approved Rating Agency" means Standard &
Poor's Corporation, Moody's Investor Service and any other recognized rating
agency that provides or assigns credit rating for debt securities similar to
the New Senior Notes and that shall have been approved by the Trustee upon the
written request of the Company from time to time.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person as charged in arriving
at Consolidated Net Income for such period.
"Consolidated Interest Expense" of any Person means for any period the
interest expense (without deducting interest income) of such Person for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers
acceptances or similar facilities; (iii) fees with respect to interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements; (iv) Preferred Stock dividends (other than in respect of Preferred
Stock held by such Person or a Wholly Owned Subsidiary of such Person) declared
and payable in such period in cash; and (v) the portion of any rental
obligation allocable to interest expense under generally accepted accounting
principles.
"Consolidated Net Income" of any Person means for any period the net
income (or loss) of such Person for such period determined on a consolidated
basis in accordance with generally accepted accounting principles; provided
that there shall be excluded therefrom (a) the net income (or loss) of any
Person acquired by such Person or a subsidiary of such Person in a transaction
accounted for under the pooling-of-interests method for any period prior to the
date of such transaction, (b) the net income (but not the net loss) of any
Restricted Subsidiary of such Person which is subject to restrictions which
prevent the payment of dividends or the making of distributions (by loans,
advances, intercompany transfers or otherwise) to such Person to the extent of
such restrictions, (c) the net income (or loss) of any Person that is not a
Consolidated Subsidiary of such Person except to the extent of the amount of
dividends or other distributions actually paid to a member of the Restricted
Group by such other Person during such period, (d) gains or losses on Asset
Dispositions and (e) all extraordinary gains and extraordinary losses.
"Consolidated Operating Cash Flow" of any Person means for any period (a)
the sum of (i) Consolidated Net Income for such period; (ii) Consolidated
Interest Expense for such period; (iii) Consolidated Income Tax Expense for
such period; (iv) the depreciation and amortization expense included in the
consolidated income statement of such Person for such period; and (v) other
non-cash charges (other than trading and operating items in the ordinary course
of business) deducted from consolidated revenues in determining Consolidated
Net Income for such period (including any foreign currency translation losses),
minus (b) non-cash items (other than trading and operating items in the
ordinary course of business) increasing consolidated revenues in determining
Consolidated Net Income for such period (including any foreign currency
translation gains).
"Consolidated Subsidiaries" of any Person means all Subsidiaries and other
equity investees of such Person that would be accounted for on a consolidated
basis in such Person's financial statements in accordance with generally
accepted accounting principles.
"Consolidated Tangible Assets" of any Person, means the total assets of
such Person and its Restricted Subsidiaries consolidated, as determined in
accordance with generally accepted accounting principles, less (i) the net book
value of all its licenses, patents, patent applications, copyrights,
trademarks, trade names, goodwill, non-compete agreements or organizational
expenses and other like intangibles, (ii) unamortized Debt discount and
expense, (iii) all reserves for depreciation, obsolescence, depletion and
amortization of its properties and (iv) all other proper reserves which in
accordance with generally accepted accounting principles should be provided in
connection with the business conducted by such Person; provided that with
respect to the Company and its Consolidated Subsidiaries, adjustments following
the date of the New Senior Notes Indenture to the accounting books and records
of the Company and its Consolidated Subsidiaries in accordance with Accounting
Principles Board Opinions Nos. 16 and 17 (or successor opinions thereto), or
otherwise resulting from the acquisition of control of the Company by another
Person shall not be given effect to.
126
<PAGE> 128
"Currency Hedging Agreements" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in currency values to the extent relating to (i) Debt and/or (ii) obligations
to purchase assets, properties or services incurred in the ordinary course of
business and not for speculative purposes; provided that such Currency Hedging
Agreements do not increase the Debt or other obligations of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payments thereunder.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations Incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every Capital Lease Obligation of such Person, (vi) every net
obligation under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person at the time of
determination and (vii) every obligation of the type referred to in Clauses (i)
through (vi) of another Person and all dividends of another Person the payment
of which, in either case, such Person has Guaranteed or is responsible or
liable for, directly or indirectly, as obligor, Guarantor or otherwise;
provided that Trade Obligations are excluded from the definition of Debt.
"Disqualified Equity" of any Person means any Equity Security of such
Person 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 is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final stated maturity of the New Senior
Notes.
"Equity Homes" means the product of (i) the number of homes in a franchise
area, as set forth in the cable television or telecommunications licenses
relating to such franchise area, and (ii) the percentage of the entity holding
such licenses which is owned directly or indirectly by the Company.
"Equity Securities" of any Person means any shares, interests,
participations or other equivalents of corporate stock or other equity or
capital interests of such Person, including, without limitation, partnership
interests.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person guaranteeing any Debt of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Debt, (ii) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or (iii) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
such Debt (and "Guaranteed", "Guaranteeing" and "Guarantor" shall have meanings
correlative to the foregoing); provided, however, that the Guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business, and shall not include
guarantees in the nature of, or in respect of, Trade Obligations.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other
obligation (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing); provided, however, that a change
in generally accepted accounting principles that results in an obligation of
such Person that exists at such time becoming Debt shall not be deemed an
Incurrence of such Debt.
127
<PAGE> 129
"Interest Rate Protection Obligation" of any Person means any interest
rate swap agreement or other similar interest rate financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates and pursuant to which such Person is obligated or may become obligated to
make payments; provided that where such agreement or arrangement hedges Debt,
it is with respect to a notional principal amount that does not exceed the
principal amount of the Debt to which such Interest Rate Protection Obligation
relates.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to any other Person (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Equity Securities, bonds, notes, debentures or other securities
or evidence of Debt issued by any other Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Material License" means a direct or indirect ownership interest in a
license to operate a cable television or a cable telephone system held by the
Company or any of its Restricted Subsidiaries which license at the time of
determination covers a number of Equity Homes which equals or exceeds 10% of
the aggregate number of Equity Homes covered by all of the licenses to operate
cable television or cable telephone systems in which the Company or its
Restricted Subsidiaries hold a direct or indirect ownership interest at such
time.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash and readily marketable cash equivalents received (including by way of sale
or discounting of a note, instalment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and
expenses incurred and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Subsidiaries on any
Debt which is secured by a Lien on such assets or on shares of the Person
owning such assets in accordance with the terms of any Lien upon or with
respect to such assets or which must be repaid out of the proceeds from such
Asset Disposition under the terms of such Debt or Lien, in order to obtain a
necessary consent to such Asset Disposition or by applicable law, and (iii) all
distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition provided that minority holders receive distributions and payments
that are in the Company's good faith judgment comparable in kind to that
received by the Company or a Restricted Subsidiary.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
none of the Company, nor any of its Restricted Subsidiaries (a) provides credit
support (including any undertaking, agreement or instrument which would
constitute Debt); (b) is directly or indirectly liable; or (c) constitutes the
lender; and (ii) no default with respect to which (including any rights which
the holders thereof may have to take enforcement action against a
Non-Restricted Subsidiary) would permit (upon notice, lapse of time or both)
any holders of any other Debt of the Company or any of its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Non-Restricted Subsidiary" of a Person means a Subsidiary of such Person
that (i) at the time of its designation as a Non-Restricted Subsidiary has not
acquired any assets (unless the acquisition of such assets constitutes a
Restricted Payment permitted by the "-- Certain Covenants -- Limitation on
Restricted Payments" covenant), at any previous time, directly or indirectly
from such Person or any of its Subsidiaries and (ii) has no Debt other than
Debt that is, with respect to such Person, Non-Recourse Debt (unless the extent
to which such Person is the lender for, or is responsible for such Debt,
constitutes a Restricted Payment permitted by the "-- Certain Covenants --
Limitation on Restricted Payments" covenant); provided, however, that at the
time
128
<PAGE> 130
of such designation, after giving pro forma effect to such designation, the
Annualized Consolidated Debt to Cash Flow Ratio of such Person is equal to or
less than the Annualized Consolidated Debt to Cash Flow Ratio of such Person
immediately preceding such designation; provided, further, that if the
Annualized Consolidated Debt to Cash Flow Ratio of the Company immediately
preceding such designation is 7.0:1 or less, the Annualized Consolidated Debt
to Cash Flow Ratio of the Company after giving pro forma effect to such
designation may be up to 0.5:1 greater than such ratio immediately preceding
such designation. No Restricted Subsidiary may be redesignated as a
Non-Restricted Subsidiary unless at the time of such redesignation the
provisions in clauses (i) and (ii) in this definition are currently met and the
Board of Directors of such Person has passed a certified resolution, delivered
to the Trustee, to such effect.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each holder at his address
appearing in the Security Register on the date of the Offer or provided to the
Trustee by such holder offering to purchase up to the principal amount of New
Senior Notes specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to this New Senior Notes Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration
date (the "Expiration Date") of the Offer to Purchase which shall be, subject
to any contrary requirements of applicable law, not less than 30 days or more
than 60 days after the date of such Offer and a settlement date (the "Purchase
Date") for purchase of New Senior Notes within five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing
of the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain
information concerning the business of the Company and its Subsidiaries which
the Company in good faith believes will enable such holders to make an informed
decision with respect to the Offer to Purchase (which at a minimum will include
(i) the most recent annual and quarterly financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the documents required to be filed with the Trustee as described
under the caption "-- Reports" (which requirements may be satisfied by delivery
of such documents together with the Offer), (ii) a description of material
developments in the Company's business subsequent to the date of the latest of
such financial statements referred to in Clause (i) (including a description of
the events requiring the Company to make the Offer to Purchase), (iii) if
applicable, appropriate pro forma financial information concerning the Offer to
Purchase and the events requiring the Company to make the Offer to Purchase and
(iv) any other information required by applicable law to be included therein.
The Offer shall contain all instructions and materials necessary to enable such
holders to tender New Senior Notes pursuant to the Offer to Purchase. The Offer
shall also state:
(1) the Section of the New Senior Notes Indenture pursuant to which the
Offer to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding New Senior Notes
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than all Outstanding New Senior Notes, the manner by which
such has been determined pursuant to the Section hereof requiring the Offer to
Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of New Senior Notes accepted for payment (as
specified pursuant to the New Senior Notes Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the New Senior Notes
registered in the name of such holder and that any portion of a New Senior Note
tendered must be tendered in an integral multiple of $1,000 principal amount at
maturity;
(6) the place or places where New Senior Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
129
<PAGE> 131
(7) that interest on any New Senior Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each New Senior Note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on and after
the Purchase Date;
(9) that each holder electing to tender a New Senior Note pursuant to the
Offer to Purchase will be required to surrender such New Senior Note at the
place or places specified in the Offer prior to the close of business on the
Expiration Date (such New Senior Note, if a Registered New Senior Note, being,
if the Company or the Trustee so requires, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the holder thereof or his attorney duly authorized in
writing);
(10) that holders will be entitled to withdraw all or any portion of New
Senior Notes tendered if the Company (or its Paying Agent) receives, not later
than the close of business on the Expiration Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the holder, the principal
amount of the New Senior Note the holder tendered, the certificate number of
the New Senior Note the holder tendered and a statement that such holder is
withdrawing all or a portion of his tender;
(11) that (a) if New Senior Notes in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such New
Senior Notes and (b) if New Senior Notes in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn pursuant to the
Offer to Purchase, the Company shall purchase New Senior Notes having an
aggregate principal amount equal to the Purchase Amount on a pro rata basis
(with such adjustments as may be deemed appropriate so that only New Senior
Notes in denominations of $1,000 or integral multiples thereof shall be
purchased); and
(12) that in case of any holder whose New Senior Note is purchased only
in part, the Company shall execute, and the Trustee shall authenticate and
deliver to the holder of such New Senior Note without service charge, a new New
Senior Note or New Senior Notes of the same type, of any authorized
denomination as requested by such holder, in an aggregate principal amount
equal to and in exchange for the unpurchased portion of the New Senior Note so
tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Holder" means European Cable Capital Partners L.P., a limited
partnership organized under the laws of Delaware, and any of its partners
existing on the date of the New Senior Notes Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Common Equity of such Person or (b) 5%
or more of the Voting Interest of such Person.
"Restricted Group" means the Company together with its Restricted
Subsidiaries.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than a Non-Restricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which
has been or is being sold or transferred by such Person more than 365 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or
130
<PAGE> 132
investor or to any Person to whom funds have been or are to be advanced by such
lender or investor on the security of such property or asset. The stated
maturity of such arrangement shall be the date of the last payment of rent or
any other amount due under such arrangement prior to the first date on which
such arrangement may be terminated by the lessee without payment of a penalty.
"Significant" means, with respect to any Subsidiary or Restricted
Subsidiary, a Subsidiary or Restricted Subsidiary that qualifies as a
"significant subsidiary" under Rule 1-01 of the Commission's Regulation S-X.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Interest of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Total Consolidated Debt" means, at any date of determination, an amount
equal to the aggregate amount of all Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of determination, determined on a
consolidated basis.
"Trade Obligation" means (i) obligations to pay the purchase price of
assets or services purchased in the ordinary course of business including,
without limitation, obligations incurred in respect of any documentary letter
of credit or bill of exchange issued in respect of any such purchase; (ii)
obligations in respect of any bill of exchange or promissory note drawn, or
accepted, issued or endorsed in the ordinary course of business, including,
without limitation, indebtedness in respect of any monies raised by way of
sale, discounting or otherwise in respect of any such bill or note; and (iii)
obligations in respect of any Guarantee of any obligation of the type specified
in Clause (i) or (ii) above, except to the extent that such obligation is
treated as indebtedness under generally accepted accounting principles.
"Voting Interest" of any Person means Equity Securities of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Disqualified Equity, the quotient obtained by dividing
(i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payments of
such Debt or redemption or repurchase payments on such Disqualified Equity and
the amount of such principal payments or redemption or repurchase payments, by
(ii) the sum of all such principal value or redemption or repurchase payments.
"Wholly Owned" means with respect to any Subsidiary or Restricted
Subsidiary of any Person means a Subsidiary (or a Restricted Subsidiary) of
such Person all of the outstanding Equity Securities or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries (or
Restricted Subsidiaries) of such Person or by such Person and one or more
Wholly Owned Subsidiaries (or Restricted Subsidiaries) of such Person.
DESCRIPTION OF BOOK-ENTRY SYSTEM
GENERAL
The Book-Entry Depositary holds the Global Senior Note for the benefit of
DTC and its Participants, as hereinafter described. Pursuant to the terms of
the Deposit Agreement, the Global Senior Note may be transferred only to a
successor of the Book-Entry Depositary. Beneficial interests in the Global
Senior Note are be shown on, and transfers thereof are effected only through,
records maintained in book-entry form by DTC (with respect to its Participants'
interests) and its Participants. Such beneficial interests are referred to
herein as "Book-Entry Interests." Ownership of the Book-Entry Interests will be
limited to Participants and indirect
131
<PAGE> 133
participants ("Indirect Participants"), including Euroclear and Cedel.
Procedures with respect to the ownership of Book-Entry Interests are set forth
below.
Upon receipt of the Global Senior Note, the Book-Entry Depositary issued a
certificateless depositary interest (which represents a 100% interest in the
underlying Global Senior Note) to DTC by recording such interest in the
Book-Entry Depositary's books and records in the name of Cede & Co., as nominee
of DTC. Upon such issuance, DTC credited, on its book-entry registration and
transfer system, the Participants' accounts with the respective interests owned
by such Participants. Ownership of Book-Entry Interests is shown on, and the
transfer of such interests will be effected only through, records maintained by
DTC and by Participants (with respect to interests of Indirect Participants,
including Euroclear and Cedel). The laws of some countries and some states in
the United States may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge the Book-Entry
Interests.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Senior Note, the Book-Entry Depositary or such nominee, as the case may
be, will be considered the sole holder of such Global Senior Note for all
purposes under the New Senior Notes Indenture. Except as set forth above under
"-- Form of New Senior Notes," Participants or Indirect Participants are not
entitled to have New Senior Notes or Book-Entry Interests registered in their
names, will not receive or be entitled to receive physical delivery of New
Senior Notes or Book-Entry Interests in definitive form and will not be
considered the owners or holders thereof under the New Senior Notes Indenture.
Accordingly, each person owning a Book-Entry Interest must rely on the
procedures of the Book-Entry Depositary and DTC and, if such person is not a
Participant in DTC, on the procedures of the Participant in DTC (being, in the
case of participants in Euroclear and Cedel, the procedures of Euroclear and
Cedel) through which such person owns its interest, to exercise any rights and
remedies of a holder under the New Senior Notes Indenture. See "-- Actions by
Owners of Book-Entry Interests" below. If any definitive New Senior Notes are
issued to Participants or Indirect Participants, they will be issued in
registered form ("Definitive Registered Notes"), as described under "-- Form of
the New Senior Notes." Unless and until Book-Entry Interests are exchanged for
Definitive Registered Notes (as described under "-- Form of the New Senior
Notes" above), the depositary interest held by DTC may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
PAYMENTS ON THE GLOBAL SENIOR NOTE
Payments of any amounts owing in respect of the Global Senior Note will be
made through one or more paying agents appointed under the New Senior Notes
Indenture (which initially will include the Trustee) to the Book-Entry
Depositary, as the holder of the Global Senior Note. All such amounts will be
payable in United States dollars. Upon receipt of any such amounts, the
Book-Entry Depositary will pay the amount so received to DTC, which will
distribute such payments to its Participants. Payments of all such amounts will
be made without deduction or withholding for or on account of any present or
future taxes, duties, assessments or governmental charges of whatever nature
except as may be required by law, and if any such deduction or withholding is
required to be made by any law or regulation of the United Kingdom then, to the
extent described under "-- Payment of Additional Amounts" above, such
Additional Amounts will be paid as may be necessary in order that the net
amounts received by any holder of the Global Senior Note or owner of Book-Entry
Interests after such deduction or withholding will equal the net amounts that
such holder or owner would have otherwise received in respect of the Global
Senior Note or Book-Entry Interest, as the case may be, absent such withholding
or deduction. DTC, upon receipt of any such payment, will immediately credit
Participants' accounts with payments in amounts proportionate to their
respective ownership of Book-Entry Interests, as shown on the records of DTC.
The Company expects that payments by Participants to owners of Book-Entry
Interests held through such Participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the account of customers in bearer form or registered in "street name"
and will be the responsibility of such Participants. In the event that DTC no
longer immediately credits participants' accounts with payments, the Company
will endeavor to cause payments of interest and principal to be made by wire
transfer to any owners of Book-Entry Interests whose aggregate ownership
exceeds $20 million in principal amount at maturity who so request.
132
<PAGE> 134
Because the provisions of the New Senior Notes Indenture treat the holder
of the Global Senior Note as the owner of the New Senior Notes represented
thereby for the purpose of receiving amounts owing in respect of the New Senior
Notes, the Company has no responsibility or liability for the payment of
amounts owing in respect of the depositary interest held by DTC to owners of
Book-Entry Interests representing interests in the Global Senior Note. Payments
by DTC Participants to owners of Book-Entry Interests held through such
Participants are the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name".
None of the Company, the Trustee, the Book-Entry Depositary or any agent of the
Company or the Trustee or the Book-Entry Depositary have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Book-Entry Interests or for maintaining, supervising or reviewing any
records relating to such Book-Entry Interests.
REDEMPTION
In the event the Global Senior Note (or any portion thereof) is redeemed,
the Book-Entry Depositary will redeem, from the amount received by it in
respect of the redemption of the Global Senior Note, an equal amount of the
Book-Entry Interests. The redemption price payable in connection with the
redemption of Book-Entry Interests will be equal to the amount received by the
Book-Entry Depositary in connection with the redemption of the Global Senior
Note (or any portion thereof). The Company understands that under existing DTC
practices, if less than all of the New Senior Notes are to be redeemed at any
time, DTC will credit Participants' accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as DTC deems
fair and appropriate; provided that no beneficial interests of less than $1,000
principal amount at maturity may be redeemed in part.
TRANSFERS
All transfers of Book-Entry Interests are recorded in accordance with the
book-entry system maintained by DTC, pursuant to customary procedures
established by DTC and its Participants. Investors may, at their option, obtain
Definitive Registered Notes as set forth under "-- Form of the New Senior
Notes". While the Global Senior Note is outstanding, holders of Definitive
Registered Notes may exchange their Definitive Registered Notes for Book-Entry
Interests by surrendering their Definitive Registered Notes to the Book-Entry
Depositary. The amount of the Book-Entry Interests will be increased or
decreased to reflect such transfers or exchanges. The Book-Entry Depositary
will request the Trustee to make the appropriate adjustments to the Global
Senior Note or exchange the Global Senior Note for a new Global Senior Note in
an appropriate principal amount at maturity to reflect any such transfers or
exchanges.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
As soon as practicable after receipt by the Book-Entry Depositary of
notice of any solicitation of consents or request for a waiver or other action
by the holders of New Senior Notes or of any Offer to Purchase (as defined
under "-- Certain Definitions" above), the Book-Entry Depositary will mail to
DTC a notice containing (a) such information as is contained in such notice
received by the Book-Entry Depositary, (b) a statement that at the close of
business on a specified record date DTC will be entitled to instruct the
Book-Entry Depositary as to the consent, waiver or other action, if any,
pertaining to the New Senior Notes and (c) a statement as to the manner in
which such instructions may be given. In addition, the Book-Entry Depositary
will forward to DTC, or, based upon instructions received from DTC, to owners
of Book-Entry Interests, all materials pertaining to any such solicitation,
request, offer or other action. Upon the written request of DTC, the Book-Entry
Depositary shall endeavor insofar as practicable to take such action regarding
the requested consent, waiver, offer or other action in respect of the New
Senior Notes in accordance with any instructions set forth in such request. DTC
may grant proxies or otherwise authorize DTC Participants (or persons owning
Book-Entry Interests through such DTC Participants) to provide such
instructions to the Book-Entry Depositary so that it may exercise any rights of
a holder or take any other actions which a holder is entitled to take under the
New Senior Notes Indenture. The Book-Entry Depositary will not exercise any
discretion in the granting of consents or waivers or the taking of any other
action relating to the New Senior Notes Indenture.
133
<PAGE> 135
REPORTS
The Book-Entry Depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to the Company, the
New Senior Notes or the Book-Entry Interests. All notices regarding the New
Senior Notes will, so long as the rules of the Luxembourg Stock Exchange
require, be published in a daily newspaper of general circulation in
Luxembourg, which is expected to be the Luxemburger Wort.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
by written notice to the Company, the Trustee and DTC, such resignation to
become effective upon the appointment of a successor book-entry depositary, in
which case the Global Senior Note shall be delivered to that successor. If no
such successor has been so appointed within 120 days, the Book-Entry Depositary
may request the Company to issue Definitive Registered Notes as described
above.
CHARGES OF BOOK-ENTRY DEPOSITARY
The Company will agree to indemnify the Book-Entry Depositary against
certain liabilities incurred by it and pay the charges of the Book-Entry
Depositary as agreed between the Company and the Book-Entry Depositary.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement may be amended by the Company and the Book-Entry
Depositary without notice to or consent of DTC or any owner of Book-Entry
Interest: (a) to cure any ambiguity, defect or inconsistency, provided that
such amendment or supplement does not adversely affect the rights of DTC or any
holder of Book-Entry Interests, (b) to evidence the succession of another
person to the Company (when a similar amendment with respect to the New Senior
Notes Indenture is being executed) and the assumption by any such successor of
the covenants of the Company herein, (c) to evidence or provide for a successor
Book-Entry Depositary, (d) to make any amendment, change or supplement that
does not adversely affect DTC or any owner of Book-Entry Interests, (e) to add
to the covenants of the Company or the Book-Entry Depositary, or (f) to comply
with the United States Federal securities laws. No amendment that adversely
affects DTC may be made to the Deposit Agreement without the consent of DTC.
Upon the issuance of Definitive Registered Notes in exchange for Book-Entry
Interests constituting the entire principal amount at maturity of New Senior
Notes, the Deposit Agreement will terminate. The Deposit Agreement may be
terminated upon the resignation of the Book-Entry Depositary if no successor
has been appointed within 120 days as set forth under "-- Resignation of
Book-Entry Depositary."
INFORMATION CONCERNING DTC
The Company understands as follows with respect to DTC:
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC was created to hold securities of its Participants
and to facilitate the clearance and settlement of transactions among its
Participants in such securities through electronic book-entry changes in
accounts of the Participants, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. Access to the DTC book-entry system is also
available to others, such as banks, brokers dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
134
<PAGE> 136
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an owner of a
Book-Entry Interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain Persons take physical
delivery of securities in definitive form. Consequently, the ability to
transfer Book-Entry Interests to such Persons may be limited. In addition,
beneficial owners of Book-Entry Interests through the DTC system will receive
distributions attributable to the Global Senior Note only through DTC
Participants.
SETTLEMENT
The Book-Entry Interests will trade in DTC's Next-Day Funds Settlement
System. Any secondary market trading activity in the Book-Entry Interests is
expected to accrue through DTC's Participants, and the securities custody
accounts of investors will be credited with their holdings against payment in
next-day funds on the settlement date.
CLEARANCE THROUGH CEDEL AND EUROCLEAR
The New Senior Notes have been accepted for clearance by Cedel and
Euroclear under the common code 6217478. The ISIN is US252567AB82.
135
<PAGE> 137
TAXATION
The following summary of certain U.K. and U.S. federal income tax
consequences of the acquisition, ownership and disposition of the Senior Notes
by a "U.S. Holder", as defined below, is the opinion of Sullivan & Cromwell
with respect to U.S. federal income taxes and is based upon the opinion of
Freshfields with respect to U.K. taxes.
The statements regarding U.S. and U.K. tax laws and practices set forth
below, including the statements regarding the U.S./U.K. double taxation
convention relating to income and capital gains (the "Treaty") (i) are based on
the laws as in force and as applied in practice on the date of this Prospectus
and are subject to changes to those laws and practices, and any relevant
judicial decision, subsequent to the date of this Prospectus and (ii) assume
that the Senior Notes will be issued, and transfers thereof and payments
thereon will be made, in accordance with the applicable Indenture and the
Deposit Agreement.
For purposes of the Treaty, and the U.S. Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), U.S. Holders of Book-Entry Interests
will be treated as owners of the Senior Notes underlying such Book-Entry
Interests and, except as noted below, the tax consequences of owning Book-Entry
Interests will be the same as those applicable to ownership of Senior Notes.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Senior Note that is, for U.S. federal income tax purposes: (i) a citizen or
resident of the U.S., (ii) a domestic corporation or (iii) otherwise subject to
U.S. federal income taxation on a net income basis in respect of the Senior
Note.
PROSPECTIVE PURCHASERS OF SENIOR NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE U.S., U.K. OR OTHER TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF SENIOR NOTES, INCLUDING THE EFFECT OF ANY STATE OR
LOCAL TAX LAWS.
UNITED KINGDOM
The following summary describes certain U.K. tax matters with respect to
ownership of the Senior Notes.
PAYMENTS ON THE SENIOR NOTES
The Company will not be required to deduct or withhold on account of U.K.
income tax from payments of principal or, for so long as the Senior Notes are
represented by a Global Senior Note and are listed on the Luxembourg Stock
Exchange or some other stock exchange recognized by the U.K. Inland Revenue,
from payments of interest where:
(a) the payment of interest is made by a paying agent outside the
U.K.; or
(b) the payment of interest is made by or through a person who is in
the U.K. but the person beneficially entitled to the interest is not
resident in the U.K. and beneficially owns the Senior Notes from which the
interest derives and either the person by or through whom the payment is
made has received a declaration in a form prescribed by regulations)
confirming that these requirements are satisfied or the Inland Revenue has
issued a notice to that person stating that they consider them satisfied.
In other cases, and in particular where paid in respect of Definitive
Registered Notes, interest will (subject to what is said below) be paid after
deduction of income tax at the lower rate (for the tax year 1996/7, 20%). A
U.S. Holder of a Senior Note who is entitled to the protection of the Treaty
will normally be eligible to recover in full any U.K. tax withheld from
payments of interest to which such Holder is beneficially entitled by making a
claim under the Treaty on the appropriate form. Alternatively, a claim may be
made by a U.S.
136
<PAGE> 138
Holder in advance of a payment of interest. If the claim is accepted by the
Inland Revenue, they will authorize subsequent payments to that U.S. Holder to
be made without withholding for U.K. tax.
For so long as the Senior Notes are represented by a Global Senior Note
and are listed on a recognized stock exchange, where any person in the United
Kingdom, in the course of a trade or profession:
(i) acts as custodian of a Senior Note in respect of which he receives any
interest or interest is paid at his direction or with his consent, or
(ii) collects or secures payment of or receives interest on a Senior Note
for another person.
(except in any case by means only of clearing a check or arranging for the
clearing of a check) that person is liable to account for United Kingdom income
tax at the lower rate (20 per cent. for the tax year 1996/7) on such interest
and is entitled to deduct an amount in respect thereof unless an exemption from
such liability is applicable including, for example, where the Senior Note and
the interest is beneficially owned by a person not resident in the United
Kingdom and applicable administrative and procedural requirements are
satisfied, including the making of declarations as to status and eligibility.
Except for any income tax deducted as described above (and except in the
case of non-United Kingdom resident trustees of a trust having an ordinarily
resident or resident beneficiary) a US Holder will not be liable to United
Kingdom tax on interest on a Senior Note unless it is chargeable to income tax
or corporation tax on a branch or agency in the United Kingdom through which it
carries on a trade, profession or vocation and in connection with which the
interest is received or to which the Senior Notes are attributable. There are
certain exemptions for interest received by certain specified categories of
agent (such as some brokers and investment managers).
SALE OR DISPOSITION (INCLUDING REDEMPTION)
For U.K. tax purposes, a disposal (including redemption) of a Senior Note
will generally not be subject to U.K. tax unless the holder is either resident
or (if an individual) ordinarily resident for tax purposes in the U.K. or
carries on a trade, profession or vocation in the U.K. through a branch or
agency to which the Senior Note is attributable.
ANNUAL TAX CHARGES
Provisions of the Finance Act 1993 which could impose an annual charge on
corporate holders of Senior Notes by reference to exchange rate fluctuations,
and provisions of the Finance Act 1996 which could apply so as to charge
corporate holders to corporation tax on income on any profits (and give relief
for permitted losses) by reference to accounting periods on either an
authorized accruals or mark to market basis, will not apply to corporate US
Holders without a branch or agency in the U.K.
UNITED KINGDOM STAMP DUTY AND STAMP DUTY RESERVE TAX
No U.K. stamp duty or stamp duty reserve tax is payable on the issue of
the applicable Global Senior Note or on the issue or transfer of a Senior Note
in definitive form or on its redemption. No UK stamp duty will be payable in
respect of any instrument of transfer of Book-Entry Interests, provided that
any instrument relating to such a transfer is not executed in the UK, and
remains at all times outside the UK. An agreement to transfer Senior Notes
should not give rise to stamp duty reserve tax in any event.
UNITED KINGDOM INHERITANCE TAX
Senior Notes represented by the applicable Global Senior Note that are not
treated as situated in the U.K. and are beneficially owned by an individual
domiciled outside the U.K. for U.K. inheritance tax purposes will not be
subject to U.K. inheritance tax. The status of Senior Notes held in the form of
Book-Entry Interests is, however, not free from doubt. If a Senior Note is
subject to U.K. inheritance tax and U.S. federal estate tax,
137
<PAGE> 139
the U.S./U.K. double taxation convention relating to estate and gift taxes may
entitle a U.S. Holder to credit or relief in respect of the U.K. tax.
UNITED STATES
The following summary of the principal U.S. federal income tax
consequences of ownership and disposition of the Senior Notes deals only with
Senior Notes held as capital assets by purchasers who purchase the Senior Notes
in the offering. It does not discuss all of the tax consequences that may be
relevant to a holder in light of its particular circumstances or to special
classes of holders, such as securities dealers, banks, tax-exempt
organizations, life insurance companies, persons that hold Senior Notes that
are part of a straddle or conversion transaction, persons that are not U.S.
Holders, or persons whose functional currency is not the U.S. dollar. The
summary is based on the Code, its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions, all as currently
in effect and all subject to change at any time, perhaps with retroactive
effect.
ORIGINAL ISSUE DISCOUNT
The Senior Notes will be treated as issued with original issue discount
("OID") because the "issue price" of the Senior Notes will be less than their
"stated redemption price at maturity" by more than a de minimis amount. The
"issue price" of the Senior Notes will equal the first price at which a
substantial amount of the Senior Notes is sold to persons other than bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers. The "stated redemption price at
maturity" will equal the sum of all payments provided under the Senior Notes
other than payments of "qualified stated interest." A "qualified stated
interest" payment is generally any one of a series of stated interest payments
that, among other requirements, are unconditionally payable at least annually.
Because the Senior Notes will not pay interest prior to the Cash Interest Date,
none of the interest on the Senior Notes will be "qualified stated interest."
Therefore, all payments made under the Senior Notes will be included in the
"stated redemption price at maturity" and the total OID on a Senior Note will
equal the difference between the sum of all payments provided under the Senior
Note and its issue price.
A U.S. Holder of a Senior Note must include OID in income calculated in
accordance with a constant-yield method before the receipt of cash attributable
to such income. Under the constant-yield method, interest is accrued at a
constant rate based on the Senior Notes' yield to maturity, which is the
discount rate that, when used in computing the present value of all payments to
be made under the Senior Notes, produces an amount equal to their issue price.
The amount of OID includible in income by a U.S. Holder of a Senior Note is the
sum of the daily portions of OID with respect to the Senior Note for each day
during the taxable year or portion of the taxable year on which the U.S. Holder
holds such Senior Note ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Senior Note
may be of any length selected by the U.S. Holder and may vary in length over
the term of the Senior Note as long as (i) no accrual period is longer than one
year and (ii) each scheduled payment of interest or principal on the Senior
Note occurs on either the final or first day of an accrual period. The amount
of OID allocable to an accrual period will equal the product of the Senior
Note's "adjusted issue price" at the beginning of the accrual period and such
Senior Note's yield to maturity (determined on the basis of compounding at the
close of each accrual period and properly adjusted for the length of the
particular accrual period). The amount of OID allocable to an initial short
accrual period may be computed using any reasonable method if all other accrual
periods other than a final short accrual period are of equal length. The amount
of OID allocable to the final accrual period is the difference between the
amount payable at the maturity of the Senior Note and the Senior Note's
adjusted issue price as of the beginning of the final accrual period.
The "adjusted issue price" of a Senior Note at the beginning of any
accrual period will be the issue price of the Senior Note increased by the
amount of accrued OID for each prior accrual period and decreased by the amount
of any payments made on the Senior Note. Because OID will accrue and be
includible in income at least annually and no payments will be made under the
Senior Notes until March 31, 2000, the adjusted issue price will increase until
the Cash Interest Date. The amount of OID includible in income will therefore
increase during
138
<PAGE> 140
each accrual period until the Cash Interest Date. The adjusted issue price
after the Cash Interest Date will decrease (or increase) if payments made
thereafter are greater (or less) than the amounts of OID accrued between
payments, and the OID includible in income will decrease (or increase)
accordingly.
OID accrued with respect to the Senior Notes constitutes income from
sources outside the United States, but generally will be "passive" or, in the
case of certain U.S. Holders, "financial services" income, which is treated
separately from other types of income for purposes of computing the foreign tax
credit allowable to a U.S. Holder.
ACQUISITION PREMIUM
A U.S. Holder that purchases a Senior Note for an amount less than or
equal to the sum of all amounts payable on the Senior Note after the purchase
date but in excess of its "adjusted issue price" (any such excess being
"acquisition premium") is permitted to reduce the daily portions of OID by a
fraction, the numerator of which is the excess of the U.S. Holder's adjusted
basis in the Senior Note immediately after its purchase over the "adjusted
issue price" of the Senior Note, and the denominator of which is the excess of
the sum of all amounts payable on the Senior Note after the purchase date over
the Senior Note's adjusted issue price.
MARKET DISCOUNT
A Senior Note will be treated as purchased at a market discount (a "Market
Discount Note") if the Senior Note's "revised issue price", exceeds the amount
for which the U.S. Holder purchased the Senior Note by at least 1/4 of 1
percent of such Senior Note's "revised issue price" multiplied by the number of
complete years to the Senior Note's maturity. If such excess is not sufficient
to cause the Senior Note to be a Market Discount Note, then such excess
constitutes "de minimis market discount". The Code provides that, for these
purposes, the "revised issue price" of a Senior Note generally equals its issue
price, increased by the amount of any OID that has accrued on the Senior Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Senior Note. Alternatively, a U.S.
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Senior Note. Such an election shall apply to
all debt instruments with market discount acquired by the electing U.S. Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Internal
Revenue Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the U.S. Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Senior Note
with respect to which it is made and may not be revoked. A U.S. Holder of a
Market Discount Note that does not elect to include market discount in income
currently generally will be required to defer deductions for interest on
borrowings allocable to such Senior Note in an amount not exceeding the accrued
market discount on such Senior Note until the maturity or disposition of such
Senior Note.
SALE, EXCHANGE OR RETIREMENT OF THE NEW SENIOR NOTES
Upon the sale, exchange or retirement of a Senior Note, a U.S. Holder will
generally recognize taxable gain or loss equal to the difference between the
amount realized on the sale, exchange or retirement and such Holder's adjusted
tax basis in the Senior Note. A U.S. Holder's adjusted tax basis in a Senior
Note will generally equal the cost of the Senior Note to such Holder, increased
by the amounts of any OID, market discount or de minimis market discount
previously included in income by the Holder with respect to such Senior Note
and reduced by any payments on the Senior Notes received by the Holder.
Except to the extent described above under "-- Market Discount", gain or
loss realized on the sale, exchange or retirement of a Senior Note will be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Note has been held for more than one year. Gain, if any, will generally be
U.S. source gain.
139
<PAGE> 141
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium and interest on a Senior Note and on the proceeds of the
sale of a Senior Note before maturity to, and the accrual of OID with respect
to, a non-corporate U.S. Holder, and "backup withholding" at a rate of 31% will
apply to such payments and to payments of OID if the U.S. Holder fails to
provide an accurate taxpayer identification number or to report all interest
and dividends required to be shown on its federal income tax returns.
The amount of any backup withholding from a payment to a U.S. Holder will
be allowed as a credit against such Holder's U.S. federal income tax liability
and may entitle such Holder to a refund, provided that the required information
is furnished to the Internal Revenue Service.
140
<PAGE> 142
PLAN OF DISTRIBUTION
This Prospectus is to be used by Goldman, Sachs & Co. ("Goldman Sachs") in
connection with offers and sales related to market-making transactions in the
Senior Notes effected from time to time. Goldman Sachs may act as principal or
agent in such transactions, including as agent for the counterparty when acting
as principal or as agent for both counterparties, and may receive compensation
in the form of discounts and commissions, including from both counterparties
when it acts as agent for both. Such sales will be made at prevailing market
prices at the time of sale, at prices related thereto or at negotiated prices.
The Goldman Sachs Affiliates hold an 83.3% interest in ECCP, a Delaware
limited partnership which owns 66.7% of the outstanding ordinary shares of the
Company. In addition, the Goldman Sachs Affiliates directly hold another 4.2%
of the outstanding ordinary shares of the Company. For other information
regarding the involvement of Goldman Sachs and its affiliates in connection
with the Company, see "Risk Factors -- Control of the Group; Potential
Conflicts of Interest", "Company Organization", "Shareholders" and "Certain
Transactions". Goldman Sachs or their affiliates have acted as financial
advisor to the Company from time to time pursuant to an exclusive assignment
and receive separate fees for the provision of such services. Goldman Sachs
International served as advisor to the Company in its acquisition of LCL and is
acting as agent and financial advisor in connection with the Senior Bank
Facility. Richard Friedman, a general partner of Goldman Sachs, Muneer Satter,
an executive director of Goldman Sachs International, and John Thornton, a
general partner of Goldman Sachs and a managing director of Goldman Sachs
International, are Directors of the Company.
The Company has been advised by Goldman Sachs that, subject to applicable
laws and regulations, Goldman Sachs currently intend to make a market in the
Senior Notes. However, they are not obligated to do so and any such
market-making may be interrupted or discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. There can be no assurance that an
active trading market will develop or be sustained. See "Risk Factors --
Trading Market for the Senior Notes".
The Company has agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act of 1933.
Goldman Sachs have informed the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority without
prior written approval of such transactions by the customer.
VALIDITY OF THE SENIOR NOTES
The validity of the Initial Senior Notes and of the New Senior Notes has
been passed upon for the Company by Sullivan & Cromwell, U.S. counsel to the
Company, as to New York law, and Freshfields, English counsel to the Company,
as to English law. In connection therewith, Sullivan & Cromwell Davis Polk &
has relied upon Freshfields with respect to certain matters of English law.
EXPERTS
The consolidated financial statements of Diamond as of December 31, 1994
and 1995 and for each of the years in the three-year period ended December 31,
1995 and LCL Cable as of December 31, 1993 and 1994 and for each of the years
in the three-year period ended December 31, 1994 included in this Prospectus
have been audited by KPMG, independent auditors, as stated in their reports
appearing herein, and have been included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
141
<PAGE> 143
GLOSSARY
BARB: Broadcasters' Audience Research Board.
Basic service: The basic cable television service, usually charged at a
flat monthly rate for a number of channels, without any premium channels which
are paid for individually.
Broadband: A general term used to describe wide bandwidth equipment or
systems which can carry a large proportion of the electromagnetic spectrum. A
broadband communications system can deliver multiple channels and other
services.
Broadcasting Act 1990: The Broadcasting Act 1990, which governs the
licensing and operation of the broadcasting industry (including the provision
of cable television services) in the United Kingdom, excluding broadcasting by
the British Broadcasting Corporation (the "BBC").
Broadcasting Act 1996: The Broadcasting Act 1996, which makes certain
amendments to the Broadcasting Act 1990 and contains new provisions (inter
alia) for the regulation of digital broadcasting in the U.K.
BSkyB: British Sky Broadcasting Group plc, the largest provider of
multichannel programming in the U.K. BSkyB was formed in November 1990 through
the combination of Sky and British Satellite Broadcasting (BSB).
Build out: The process of digging, filling and covering underground
trenches in the streets which pass by the homes and businesses in a franchise,
constructing wiring ducts within the trenches, laying cable in the ducts and
installing and connecting the necessary electronic equipment.
Cable television/CATV: A broadband network employing radio-frequency
transmission over coaxial and/or fiber-optic cable to transmit multiple
channels carrying images, sound and data between a central facility and
individual customer's television sets. CATV networks may allow one-way or
two-way transmission.
Cable operator: An entity which has been granted licenses to build and
operate a system providing both cable television and telephone services.
Cable television license: A local delivery license ("LDL") granted by the
ITC pursuant to its authority under the Broadcasting Act or a prescribed
diffusion service license ("PDSL") issued under the CBA, in each case, for the
purpose of providing cable television services for a specific franchise area.
Cable television service: A service consisting of the sending of
television programs by hard wire to more than one home simultaneously.
CBA: The Cable and Broadcasting Act 1984, which was repealed by the
Broadcasting Act 1990.
Coaxial cable: Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is standard material used in traditional
cable systems. Signals are transmitted through it at different frequencies,
giving greater channel capacity than is possible with twisted pair cable, but
less than is allowed by optical fiber.
Digital compression: The conversion of the standard analog signal into a
digital signal, and the compression of that signal so as to facilitate multiple
channel transmission through a single channel's bandwidth.
Director General: The Director General of Telecommunications, who heads
the Office of Telecommunications ("OFTEL"), and is the principal U.K. regulator
of the telecommunications industry.
142
<PAGE> 144
DTH: Abbreviation for 'Direct-to-Home'. Television programs are
transmitted to individual dwellings, each served by a single satellite dish, as
distinct from a cable or SMATV system.
DTI: The Department of Trade and Industry, the U.K. Government Department
responsible for overseeing telecommunications licenses to operate and use the
physical network over which cable television programs and telecommunications
services may be provided.
Equity Homes: With respect to a given franchise area, the product of the
number of homes in the franchise area and the percentage of the direct or
indirect equity ownership of a company in the license(s) corresponding to the
franchise area.
Headend: A collection of satellite hardware, typically including a dish,
satellite receivers, modulators and amplifiers which collects, processes and
combines signals for distribution within the cable network.
Home: One person living alone or a group of people (who may or may not be
related) living, or staying temporarily, at the same address, with common
housekeeping.
Homes marketed: The number of homes passed for which the initial marketing
phase has been completed.
Homes passed by civils: The number of homes that have ducting buried
outside.
Homes activated: The number of homes that can be connected to the cable
network without further extension of transmission lines, apart from the final
drop to the home.
Interconnection: The point at which two telephone networks operated by
separate entities connect.
ITC: The Independent Television Commission, the body established by the
Broadcasting Act 1990 which oversees and licenses all types of television
broadcasting in the United Kingdom other than by the BBC and the Welsh
Authority.
LDL: A local delivery license granted since January 1, 1991 under the
Broadcasting Act 1990 which allows an operator to deliver television and other
licensed programming services by means of a licensed telecommunications network
including a cable network or microwave distribution system.
Microwave transmission: The transmission of voice or data using microwave
radio frequencies (generally above 1 GHz).
OFTEL: The Office of Telecommunications, the monitoring body established
following the enactment of the Telecommunications Act, headed by the Director
General.
Pay-per-view: An individual television programming service whereby payment
is made for individually selected television programs as opposed to a monthly
subscription for a whole channel or group of channels.
PDSL: A prescribed diffusion service license granted under the CBA prior
to 1991 which allows an operator to provide cable television services by means
of a cable network.
Penetration rate: The measurement of the take-up of services. As of any
date, the penetration rate is calculated by dividing the number of homes
connected to a system on such date by the total number of homes marketed,
expressed as a percentage.
Premium service: Cable programming service available only for additional
subscription over and above the basic service.
143
<PAGE> 145
PTO: A public telephone operator that is a provider of telecommunications
services designated under the Telecommunications Act and subject to certain
obligations such as to interconnect its network with other PTO networks.
Single fiber optic network infrastructure: A network comprising an overlay
of fiber optic cables (for the provision of cable television and
telecommunications services) which are laid simultaneously in the same duct.
SMATV: Satellite Master Antenna Television, a television delivery system
to multiple dwellings units that utilizes one large satellite dish to receive
signals and a small distribution network to distribute signals by cable to
individual homes.
Street Works Act: The New Roads and Street Works Act 1991.
Telecommunications Act: The Telecommunications Act 1984, which governs the
licensing and operation of the telecommunications industry in the U.K.
Telecommunications license: A license granted under the Telecommunications
Act by the DTI which authorizes installation and operation of a
telecommunications network used to provide cable television and cable telephone
services.
Telephone number portability: The ability of a telephone customer to
retain its telephone number when changing telephone service providers.
Video-on-demand: A generic term applied to a range of services where a
customer has direct control over the timing and content of programming
received. The choice exercised over the potential range of programs and
particularly their start time distinguishes video-on-demand services from those
which are broadcast.
AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission
(the "Commission") registration statements on Form S-1 under the Securities Act
(together with all amendments and exhibits thereto, the "Registration
Statements") with respect to the Initial Senior Notes offering and the New
Senior Notes offering. This Prospectus does not contain all of the information
set forth in the Registration Statements, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the applicable Registration Statement.
The Registration Statements and other information filed by the Company with the
Commission are available for inspection and copying at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: Northeast Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Midwest Regional Office, Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also will be available from the Public Reference Branch of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and fulfills its
obligations with respect to such requirements by filing periodic reports with
the Commission. Reference is made to the Company's 1995 Annual Report on Form
10-K which has been filed with the Commission and is available for inspection
and copying as described above.
The Company will furnish the Trustee with annual reports, which will
include a description of operations and annual audited consolidated financial
statements prepared in conformity with U.S. GAAP. The Company will agree to
furnish the Trustee with quarterly reports, which will include unaudited
quarterly consolidated financial information, prepared in conformity with U.S.
GAAP.
144
<PAGE> 146
Such annual reports may be obtained, upon written request, from the
Trustee at its Corporate Trust Office located at 101 Barclay Street, New York,
New York 10286. Such reports and other information may also be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
145
<PAGE> 147
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
DIAMOND CABLE COMMUNICATIONS PLC
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................... F-2
Consolidated Statements of Operations for each of the years in the three year period
ended December 31, 1995.............................................................. F-3
Consolidated Balance sheets at December 31, 1994 and 1995.............................. F-4
Consolidated Statements of Shareholders' Equity for each of the years in the three year
period ended December 31, 1995....................................................... F-5
Consolidated Statements of Cash Flows for each of the years in the three year period
ended December 31, 1995.............................................................. F-6
Notes to the Consolidated Financial Statements......................................... F-7
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Statements of Operations for the six months ended
June 30, 1995 and 1996............................................................... F-21
Unaudited Condensed Consolidated Balance Sheets at December 31, 1995 and
June 30, 1996........................................................................ F-22
Unaudited Condensed Consolidated Statements of Shareholders' Equity for the six months
ended June 30, 1996.................................................................. F-23
Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1995 and 1996............................................................... F-24
Notes to the Unaudited Condensed Consolidated Financial Statements..................... F-25
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
Unaudited Condensed Consolidated Pro Forma Statement of Operations for
the year ended December 31, 1995..................................................... F-28
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Information.......... F-29
LCL CABLE COMMUNICATIONS LIMITED
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report........................................................... F-31
Consolidated Statements of Operations for the years ended December 31, 1992,
1993 and 1994........................................................................ F-32
Consolidated Balance Sheets at December 31, 1993 and 1994.............................. F-33
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1992,
1993 and 1994........................................................................ F-34
Consolidated Statements of Cash Flows for the years ended December 31, 1992,
1993 and 1994........................................................................ F-35
Notes to the Consolidated Financial Statements......................................... F-36
EAST MIDLANDS CABLE GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1994 and 1995.................................................... F-43
Unaudited Condensed Consolidated Balance Sheets at December 31, 1994
and September 30, 1995............................................................... F-44
Unaudited Condensed Consolidated Statements of Shareholders' Equity for the nine
months ended September 30, 1995...................................................... F-45
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1994 and 1995.......................................................... F-46
Notes to the Unaudited Condensed Consolidated Financial Statements..................... F-47
</TABLE>
F-1
<PAGE> 148
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Diamond Cable Communications Plc
We have audited the accompanying consolidated balance sheets of Diamond
Cable Communications Plc and subsidiaries (the "Company") as of December 31,
1994 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1994 and 1995, and the results of their operations and their
cash flows for each of the years in the three year period ended December 31,
1995, in conformity with generally accepted accounting principles in the United
States of America.
KPMG
Chartered Accountants
Registered Auditors
Nottingham, England
March 28, 1996
F-2
<PAGE> 149
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995 1995
--------- --------- ---------- ---------
(IN THOUSANDS) (NOTE 1)
<S> <C> <C> <C> <C>
REVENUE
Business telecommunications.......... L.1,237 L.3,402 L. 5,852 $9,088
Residential telephone................ 1,251 2,545 6,662 10,345
Cable television..................... 719 1,324 3,479 5,403
Other revenues....................... 20 35 -- --
--------- --------- --------- ---------
3,227 7,306 15,993 24,836
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Telephone............................ (1,097) (3,067) (5,454) (8,470)
Programming.......................... (324) (701) (1,844) (2,863)
Selling, general and administrative.. (1,632) (4,562) (13,020) (20,219)
Depreciation and amortization........ (2,520) (4,038) (8,867) (13,770)
--------- --------- --------- ---------
(5,573) (12,368) (29,185) (45,322)
--------- --------- --------- ---------
OPERATING LOSS....................... (2,346) (5,062) (13,192) (20,486)
Unrealized loss on interest rate swap -- -- (868) (1,348)
Interest income...................... -- 1,415 3,887 6,036
Interest expense and amortization of
debt discount and expenses......... (231) (3,836) (17,118) (26,582)
Foreign exchange (losses)/gains, net. (221) (1,196) 925 1,437
Other expenses (note 3).............. -- -- (1,241) (1,927)
--------- --------- --------- ---------
Loss before income taxes............. (2,798) (8,679) (27,607) (42,870)
Income taxes (note 4)................ -- -- -- --
--------- --------- --------- ---------
NET LOSS............................. L.(2,798) L.(8,679) L.(27,607) $(42,870)
========= ========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-3
<PAGE> 150
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
1994 1995 1995
(NOTE 1)
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (note 6).................... L. 41,066 L.93,308 $144,898
Marketable securities (note 5)........................ 53,990 -- --
Trade receivables (net of allowance for doubtful
accounts of L.233 and L.773 at December 31, 1994
and 1995, respectively (note 8)).................... 1,540 3,583 5,564
Other assets.......................................... 2,342 5,358 8,320
Deferred financing costs (less accumulated
amortization of L.70 and L.382 at December 31,
1994 and 1995)...................................... 4,404 12,016 18,660
Property and equipment, net (note 7).................. 35,127 163,721 254,242
Goodwill (less accumulated amortization of L.1,212 at
December 31, 1995) (note 10)........................ -- 95,748 148,687
Franchise costs (less accumulated amortization
of L.52 and L.69 at December 31, 1994 and 1995)..... 137 438 680
--------- --------- ---------
TOTAL ASSETS.......................................... L.138,606 L.374,172 $581,051
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable...................................... L.5,043 L.18,627 $28,926
Other liabilities..................................... 4,403 10,920 16,958
Senior discount notes (note 12)....................... 99,126 307,729 477,870
Capital lease obligations (note 14)................... 3,942 9,263 14,385
Mortgage loan (note 13)............................... -- 2,500 3,882
Shareholders' equity (note 11)
Ordinary shares: 70,000,000 authorized;
31,903,232 shares issued at December 31, 1994,
43,754,175 shares issued at December 31, 1995....... 797 1,094 1,699
Non-voting deferred shares:(1)
6 shares authorized and issued at December 31, 1994
and 1995............................................ -- -- --
Additional paid-in-capital............................ 43,505 70,186 108,992
Unrealized loss on securities......................... -- (330) (512)
Accumulated deficit................................... (18,210) (45,817) (71,149)
--------- --------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ L.138,606 L.374,172 $581,051
========= ========= =========
</TABLE>
- --------------------
(1) On September 4, 1995, the six A shares were automatically
converted into six non-voting deferred shares in accordance with
the Articles of the Company.
See accompanying Notes to the Consolidated Financial Statements
F-4
<PAGE> 151
Diamond CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(1)NON-VOTING
ORDINARY SHARES DEFERRED SHARES ADDITIONAL
-------------------- ------------------ PAID-IN
NUMBER L . NUMBER L. CAPITAL
---------- -------- -------- ------ ---------
(L. IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance
at January 1, 1993......... 2 L. -- -- L. -- L. --
Share split 4:1............. 6 -- -- -- --
Shares issued............... 392 -- -- -- 3,871
Net loss.................... -- -- -- -- --
---------- -------- -------- ------ ---------
BALANCE AT DECEMBER 31, 1993 400 L. -- -- L. -- L. 3,871
========== ======== ======== ====== =========
Balance at January 1, 1994.. 400 L. -- -- L. -- L. 3,871
Shares issued and
capital contributions
(net of expenses)........... 576,462 144 6 -- 33,787
Bonus shares issued......... 2,324,801 581 -- -- (581)
Share split 10:1............ 26,114,967 -- -- -- --
Shares issued and
capital contributions
(net of expenses).......... 2,298,728 57 -- -- 6,443
Bonus shares issued......... 587,874 15 -- -- (15)
Net loss.................... -- -- -- -- --
---------- -------- -------- ------ ---------
BALANCE AT DECEMBER 31, 1994 31,903,232 L 797 6 L. -- L.43,505
========== ======== ======== ====== =========
Balance at
January 1, 1995............ 31,903,232 L 797 6 L. -- L.43,505
Shares issued and
capital contributions
(net of expenses).......... 9,437,428 236 -- -- 26,742
Bonus shares issued......... 2,413,515 61 -- -- (61)
Unrealized loss on
securities................. -- -- -- -- --
Net loss.................... -- -- -- -- --
---------- -------- -------- ------ ---------
BALANCE AT DECEMBER 31, 1995 43,754,175 L. 1,094 6 L. -- L.70,186
========== ======== ======== ====== =========
UNREALIZED TOTAL
LOSS ON ACCUMULATED SHAREHOLDERS'
SECURITIES DEFICIT EQUITY
----------- ----------- -------------
(L. IN THOUSANDS)
<S> <C> <C> <C>
Balance
at January 1, 1993.................. L. -- L. (6,733) L. (6,733)
Share split 4:1...................... -- -- --
Shares issued........................ -- -- 3,871
---------- ---------- ----------
Net loss............................. -- (2,798) (2,798)
BALANCEAT DECEMBER 31, 1993 L. -- L. (9,531) L.(5,660)
========== ========== ==========
Balance at January 1, 1994........... L. -- L. (9,531) L.(5,660)
Shares issued and capital
contributions (net of expenses)...... -- -- 33,931
Bonus shares issued.................. -- -- --
Share split 10:1..................... -- -- --
Shares issued and capital
contributions (net of expenses)...... -- -- 6,500
Bonus shares issued.................. -- -- --
Net loss............................. -- (8,679) (8,679)
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1994......... L. -- L. (18,210) L.26,092
========== ========== ==========
Balance at January 1, 1995........... L. -- L. (18,210) L.26,092
Shares issued and capital
contributions (net of expenses)...... -- -- 26,978
Bonus shares issued.................. -- -- --
Unrealized loss on securities........ (330) -- (330)
Net loss............................. -- (27,607) (27,607)
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995......... L. (330) L.(45,817) L.25,133
========== ========== ==========
</TABLE>
- --------------
(1) On September 4, 1995, the six A shares were automatically converted
into six non-voting deferred shares in accordance with the Articles of
the Company.
See accompanying Notes to the Consolidated Financial Statements
F-5
<PAGE> 152
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1993 1994 1995 1995
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. L.(2,798) L. (8,679) L. (27,607) $(42,871)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization....................... 2,520 4,038 8,867 13,770
Unrealized foreign exchange losses/(gains).......... 221 306 (613) (952)
Loss/(profit) on disposition of assets.............. 2 (11) (11) (17)
Provision for losses on accounts receivable......... 89 121 407 632
Amortization of deferred financing costs............ -- 70 312 484
Accretion of senior note discount................... -- 3,248 14,335 22,261
Accretion of investment income...................... -- (525) 524 814
Profit on disposition of investments................ -- -- (2,733) (4,244)
Change in operating assets and liabilities:
Change in trade receivables......................... (679) (869) (1,577) (2,449)
Change in other assets.............................. (471) (1,479) (2,175) (3,378)
Change in accounts payable.......................... 990 1,960 4,532 7,038
Change in other liabilities......................... 163 2,316 1,626 2,525
-------- --------- --------- --------
Net cash provided by/(used in) operating activities. 37 496 (4,113) (6,387)
-------- --------- --------- --------
Cash flows from investing activities:
Cash invested in property and equipment............. (9,820) (19,061) (102,899) (159,792)
Cash invested in marketable securities.............. -- (53,042) (17,445) (27,090)
Proceeds from disposition of assets................. 17 162 72 112
Proceeds from disposition of investments............ -- -- 73,644 114,361
Cash paid for franchises............................ (134) -- (45) (70)
Payment for purchase of LCL (net of cash acquired).. -- -- (108,844) (169,023)
-------- --------- --------- --------
Net cash used in investing activities............... (9,937) (71,941) (155,517) (241,502)
-------- --------- --------- --------
Cash flows from financing activities:
Proceeds of issue of debt........................... -- 95,117 194,881 302,630
Debt issue costs.................................... -- (4,474) (7,924) (12,305)
New loans........................................... -- -- 94,000 145,973
Repayment of loans.................................. -- -- (94,119) (146,157)
Cash advanced by shareholders....................... 6,442 -- -- --
Cash repaid to shareholders......................... -- (18,713) -- --
Capital element of capital lease obligations........ (613) (878) (841) (1,306)
Issue of shares and capital contributions
(net of expenses)................................... 3,871 40,431 26,978 41,894
Net increase/(decrease) in short-term borrowings.... 59 1,002 (773) (1,200)
-------- --------- --------- --------
Net cash provided by financing activities........... 9,759 112,485 212,202 329,529
-------- --------- --------- --------
Net (decrease)/increase in cash..................... (141) 41,040 52,572 81,640
Cash at beginning of year........................... 167 26 41,066 63,771
Effect of exchange rate changes on cash equivalents. -- -- (330) (513)
-------- --------- --------- --------
Cash at end of year (note 6)........................ L. 26 L. 41,066 L. 93,308 $144,898
======== ========= ========= ========
</TABLE>
The debt issue costs in 1994 have been reclassified as cash flows from
financing activities to comply with the current disclosure requirements.
See accompanying Notes to the Consolidated Financial Statements
F-6
<PAGE> 153
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Diamond Cable Communications Plc (the "Company"), has exclusive licenses
to operate a cable television and telecommunications business through its
subsidiaries focused on certain franchise areas centered around Nottingham,
England.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
All amounts herein are shown in Pounds Sterling ("L.") and for the year
1995 also are presented in U.S. dollars, the latter being unaudited and
presented solely for the convenience of the reader, at the rate of L.1 =
$1.5529, the Noon Buying Rate of the Federal Reserve Bank of New York on June
28, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting - The consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles.
Principles of consolidation - The consolidated financial statements
include the accounts of Diamond Cable Communications Plc and those of all
majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated on consolidation. Until September 1, 1994, the
business of the Company was conducted by Diamond Cable (Nottingham) Limited and
its subsidiary undertakings. On September 1, 1994, the shareholders of Diamond
Cable (Nottingham) Limited transferred all of their ordinary shares of 2.5p
each and A shares of 25p each to the Company in exchange for ordinary shares of
2.5p each and A shares of 25p each in the Company. The transaction was
accounted for at book value. During the year, the Company, through Jewel
Holdings Limited ("Jewel"), acquired the entire share capital of three
undertakings including their subsidiaries, referred to collectively as "LCL".
The transaction has been recorded using the purchase method of accounting.
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". In accordance with the standard the
cable infrastructure is being depreciated over 40 years weighted by factors
influenced by the growth in the number of subscribers.
Revenue recognition - Revenue is recognized as services are delivered.
Initial connection fees are recognized in the period of connection to the
extent that the fee is offset by direct selling costs. The remainder is
recognized over the estimated average period that subscribers are expected to
remain connected to the system. The analysis of total revenues in 1993 has been
reclassified to more appropriately allocate the elimination of notional
revenues relating to promotional installation charges and programming fees.
F-7
<PAGE> 154
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Interest rate swap - Interest rate swaps which do not hedge an on-balance
sheet position are recorded on the balance sheet in other assets or other
liabilities at their market value. Any gains or losses are recognized in the
statement of operations.
Income taxes - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. A valuation allowance is
raised against a deferred tax asset where it is more likely than not that some
portion of the deferred tax asset will not be realized.
Goodwill - Goodwill arising on the acquisition of subsidiaries is
amortized on a straight line basis over twenty years.
The Company periodically considers whether there has been a permanent
impairment to the value of goodwill by evaluating various factors including
current operating results, anticipated future results and cash flows and market
and economic conditions.
Property and equipment - Property and equipment is stated at cost.
Depreciation on equipment other than cable infrastructure is computed on a
straight line basis using estimated useful lives of 5 to 10 years. Motor
vehicles are depreciated on a reducing balance basis over 3 years. Leasehold
improvements are depreciated on a straight line basis over the period of the
lease.
Franchise costs - Costs relating to an unsuccessful application are
charged to operations while costs relating to successful applications are
amortized over the franchise term, generally 23 years.
Cash and cash equivalents - Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
Foreign currencies - The primary economic environment in which the Company
operates is the United Kingdom and hence, its reporting currency is the United
Kingdom Pound Sterling (L.). Transactions in foreign currencies are recorded
using the rate of exchange in effect on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using
the rate of exchange in effect on the balance sheet date and the gains or
losses on translation are included in the statement of operations.
Pension costs - The Company does not have a defined benefit pension plan
but contributes up to specified limits to the third party plan of the
employee's choice. Pension costs of L.25,000, L.40,000 and L.55,000 in 1993,
1994 and 1995 respectively, represent the contributions payable to the selected
plans.
Senior discount notes - The debt discount is amortized to the statement of
operations on a constant yield to maturity basis.
F-8
<PAGE> 155
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred financing costs - Costs incurred relating to the issue of debt
are shown as an asset on the balance sheet and are amortized over the term of
the debt as an adjustment of yield.
Marketable securities - Marketable securities are classified as
available-for-sale and marked to market. Unrealized gains or losses which are
not other-than-temporary are recorded as a separate component of shareholders'
equity. The Company adopted SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" as of January 1, 1994. There was no effect on the
financial statements on adoption.
Advances from shareholders - The advances from shareholders represented
non-interest bearing U.S. dollar and Pound Sterling advances from the Company's
shareholders and have now been repaid.
New accounting standards applicable to the Company - In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets
to be held and used, and for long-lived assets and certain intangibles to be
disposed of. The Company is required to first comply with the requirements of
SFAS No. 121 not later than its 1996 consolidated financial statements. The
Company does not believe that the adoption of SFAS No. 121 will have a material
impact on its financial position and results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". The Company does not intend to
adopt the measurement principles of this accounting standard.
3. OTHER EXPENSES
Other expenses represent costs incurred in an aborted flotation of equity.
4. INCOME TAXES
No provision for taxation has been made due to operating losses incurred
to date. The Company has tax net operating losses carried forward of
approximately L.59 million and approximately L.2 million of capital losses
carried forward at December 31, 1995.
The operating losses have an unlimited carry forward period under United
Kingdom tax law but are limited in their use to the type of business which
generated the loss. Capital losses carried forward are limited to their offset
against future capital gains.
Differences between the tax benefit recognized in the financial statements
and the expected tax benefit at the United Kingdom statutory rate of 33% are
summarized as follows:
F-9
<PAGE> 156
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. INCOME TAXES (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit of net losses at statutory rate L. (923) L. (2,864) L. (9,110)
Non-deductible expenses.................... 51 26 367
Valuation allowance........................ 872 2,838 8,743
----------- ----------- -----------
Net tax benefit............................ L. -- L. -- L. --
=========== =========== ===========
</TABLE>
Deferred tax assets relating to:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Net losses...................................................... L. 8,927 L.20,155
Property and equipment.......................................... -- 3,616
Accretion of discount on debt................................... 1,072 1,584
Unrealized loss on interest rate swap........................... -- 443
Other........................................................... 115 109
--------- --------
Deferred tax asset.............................................. 10,114 25,907
Valuation allowance............................................. (5,552) (20,762)
--------- --------
4,562 5,145
--------- --------
Deferred tax liabilities relating to:
Property and equipment.......................................... (2,954) --
Financing Costs................................................. (1,385) (3,650)
Other........................................................... (223) (1,495)
--------- --------
Deferred tax liability.......................................... (4,562) (5,145)
--------- --------
Deferred tax per balance sheet.................................. -- --
========= ========
</TABLE>
During the year the Company acquired LCL which had tax net operating
losses carried forward of L.17.2 million. The resulting deferred tax asset was
reduced by a 100% valuation allowance in the purchase accounting entries.
Within the deferred tax balance is an asset of L.109,000 with a 100%
valuation allowance in respect of the unrealized loss on securities which is
recognized as a separate component of equity.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable losses, and tax planning strategies in making its assessment
as to the appropriateness of the reported valuation allowance.
F-10
<PAGE> 157
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Zero coupon notes
At cost........................... L. 53,042 L. --
Accretion of interest............. 525 --
Unrealized foreign exchange gain.. 423 --
---------- ------------
L. 53,990 L. --
========== ============
</TABLE>
6. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
(IN THOUSANDS)
<S> <C> <C>
Cash at bank and in hand. L. 2,594 L. 9,965
Short-term securities.... 38,472 83,343
---------- ---------
L. 41,066 L. 93,308
========== =========
</TABLE>
The short-term securities represent short-term deposits placed in a
cash-based unit fund. The deposits are denominated in both U.S. dollars and
pounds sterling.
7. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
LAND AND CABLE OFFICE MOTOR TOTAL
BUILDINGS NETWORK EQUIPMENT VEHICLES
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Acquisition costs
Balance at January 1, 1994.. L. 83 L. 21,061 L. 878 L. 729 L. 22,751
Additions................... 1,851 18,912 458 31 21,252
Dispositions................ -- (9) -- (284) (293)
---------- ---------- -------- ------- ---------
Balance at December 31, 1994 1,934 39,964 1,336 476 43,710
---------- ---------- -------- ------- ---------
Accumulated depreciation
Balance at January 1, 1994.. 8 4,237 217 268 4,730
Charge for year............. 7 3,557 290 141 3,995
Dispositions................ -- -- -- (142) (142)
---------- ---------- -------- ------- ---------
Balance at December 31, 1994 15 7,794 507 267 8,583
---------- ---------- -------- ------- ---------
1994 Net book value......... L. 1,919 L. 32,170 L. 829 L. 209 L.35,127
========== ========== ======== ======= =========
Acquisition costs
Balance at January 1, 1995.. 1,934 39,964 1,336 476 43,710
Additions................... 1,929 130,727 3,365 293 136,314
Dispositions................ -- (31) -- (125) (156)
---------- ---------- -------- ------- ---------
Balance at December 31, 1995 3,863 170,660 4,701 644 179,868
---------- ---------- -------- ------- ---------
</TABLE>
F-11
<PAGE> 158
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
LAND AND CABLE OFFICE MOTOR
BUILDINGS NETWORK EQUIPMENT VEHICLES TOTAL
--------- ---------- --------- -------- ----------
(IN THOUSANDS)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Accumulated depreciation
Balance at January 1, 1995.. 15 7,794 507 267 8,583
Charge for year............. 59 6,509 943 127 7,638
Dispositions................ -- (8) -- (66) (74)
-------- ---------- --------- -------- ----------
Balance at December 31, 1995 74 14,295 1,450 328 16,147
-------- ---------- --------- -------- ----------
1995 Net book value......... L. 3,789 L. 156,365 L. 3,251 L. 316 L. 163,721
======== ========== ========= ======== ==========
</TABLE>
The Company leases certain cable network equipment and motor vehicles
under arrangements accounted for as capital leases. The original cost of assets
held under these arrangements was L.5,292,000 and L.11,919,000 at December 31,
1994 and 1995, respectively. Accumulated depreciation charged against these
assets was L.756,000 and L.2,817,000 at December 31, 1994 and 1995,
respectively. During the year, certain of the assets held under capital lease
arrangements have been purchased by the Company.
Depreciation on assets held under capital lease arrangements charged to
the consolidated statement of operations during the year was L.375,000,
L.490,000 and L.863,000 in 1993, 1994 and 1995, respectively.
8. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS CHARGED
BALANCE AT ARISING ON TO COSTS AND AMOUNTS BALANCE AT
JANUARY 1 ACQUISITION EXPENSES WRITTEN OFF DECEMBER
---------- ----------- ---------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1993
Allowance for doubtful accounts L. 23 L. -- L. 89 L. -- L. 112
====== ====== ====== ===== ======
1994
Allowance for doubtful accounts L. 112 L. -- L. 121 L. -- L. 233
====== ====== ====== ===== ======
1995
Allowance for doubtful accounts L. 233 L. 133 L. 439 L.(32) L. 773
====== ====== ====== ===== ======
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company has declared a bonus to Mr. Davis, Managing Director, in an
amount sufficient to repay his loan from the former majority shareholder, and
to meet any related tax liabilities (together amounting to approximately $1.2
million).
Diamond Cable (Nottingham) Limited entered into a 10-year Management
Agreement with effect from June 1, 1994 (the "Management Agreement") with ECE
Management, a company controlled by Mr. Ralph H. Booth II and Mr. Robert T.
Goad, shareholders in the Company. ECE Management has agreed pursuant to the
Management Agreement to manage and act as agent (under the supervision and
control of Diamond Cable (Nottingham) Limited's board of directors) in
connection with the day-to-day business and affairs of the Company, including
the construction of the Company's cable network, the operation and
administration of Diamond Cable (Nottingham) Limited's business, retaining
consultants and the preparation of operating budgets and business plans. The
contract provides for an annual management fee of $200,000. In addition, the
Company has agreed to reimburse ECE Management for the costs of all expenses
incurred in the performance of its duties.
F-12
<PAGE> 159
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9. RELATED PARTY TRANSACTIONS (continued)
During the year, ECE Management charged a total of L.1,085,000 in
connection with management services provided to the Company and all related
expenses incurred.
ECCP is a Delaware limited partnership of which European Cable Capital
Partners Holding Inc. is the general partner and the Goldman Sachs Affiliates,
Booth English Cable Inc. and Columbia Management Inc. are the limited partners.
Under the partnership agreement governing ECCP, the Goldman Sachs Affiliates
effectively control ECCP and as a result, effectively control 66.7% of the
currently outstanding shares of the Company.
Goldman, Sachs & Co. acted as underwriter in connection with the offerings
of the New Senior Notes in December 1995, and the offerings of the Initial
Senior Notes in September 1994, and received underwriting commissions of
approximately $6.75 million and $4.875 million respectively.
Goldman, Sachs & Co. acted as advisor in connection with the acquisition
of LCL in September 1995 and received an advisory fee for their services of
approximately L.1 million.
Goldman, Sachs & Co. also received a fee of $750,000 for overall financial
advisory services rendered to the Company.
10. ACQUISITION
Effective September 30, 1995, for financial accounting purposes a
subsidiary of the Company acquired East Midlands Cable Group Limited ("EMCG"),
East Midlands Cable Communications Limited ("EMCC") (formerly Fundy Cable
Communications Limited), and East Midlands Cable Holdings Limited ("EMCH"),
referred to collectively as "LCL", which together own a group of three
franchises contiguous to Diamond's existing franchise areas. The consideration
of L.109.1 million in cash was financed by way of existing cash reserves, an
equity issue and a L.61.5 million short term loan. An additional L.30 million
short-term capital expenditure facility was also drawn down to fund
construction.
EMCG and subsidiaries represent the trading activities and substantially
all the assets of LCL. The acquisition was accounted for as a purchase and,
accordingly, the cost of the acquisition was allocated to the net assets
acquired based on their fair values. The excess of the purchase price over the
fair value of the net assets acquired, amounting to L.97 million, is being
amortized over twenty years.
The following represents the allocation of the excess of purchase price
over the estimated fair values of the acquired net assets of LCL. The fair
value of the acquired net assets is not materially different from the
historical net book value, except as noted in the table below.
F-13
<PAGE> 160
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. ACQUISITION (continued)
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Acquired net assets/(liabilities) at book value (September 30, 1995)
EMCG........................................................ L. (5,413)
EMCC........................................................ 55
EMCH........................................................ --
Acquired zero coupon bonds.......................................... 23,296
Less certain fair value adjustments................................. (5,761)
Goodwill............................................................ 96,960
--------------
L.109,137
==============
(in thousands)
Fair value adjustments represent:
- remeasurement of fixed assets.............................. L. (1,667)
- accruals for direct acquisition costs...................... (4,094)
--------------
L. (5,761)
==============
</TABLE>
EMCG's primary business is the provision of cable television and
telecommunications services focused on a regional market centered around
Leicester, England, an area which is contiguous to the Company's existing
franchise areas.
The following unaudited pro forma summary presents information as if the
acquisition had occurred at January 1, 1994 for the year ended December 31,
1994 and at January 1, 1995 for the year ended December 31, 1995. The pro forma
information, which contains adjustments for interest on additional financing
and amortization of goodwill, is provided for information only. It is based on
historical information and does not necessarily reflect the actual results that
would have occurred, nor is it necessarily indicative of future results of
operations of the combined companies.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1995
---------- ----------
(in thousands)
<S> <C> <C>
Total revenues .............................. L. 9,883 L. 21,001
========== ==========
Net loss .................................... L. (41,280) L. (52,566)
========== ==========
</TABLE>
11. SHAREHOLDERS' EQUITY
The authorized and issued share capital of Diamond Cable (Nottingham)
Limited (the "Predecessor Company") during 1992 consisted of two L.1 par value
ordinary shares. On July 3, 1993, the shareholders agreed to a four-for-one
share split such that the issued share capital consisted of eight 25 pence
ordinary shares. In addition on such date the Predecessor Company issued an
additional 392 shares in consideration of a reduction in the amount of advances
from shareholders of L.3.87 million.
F-14
<PAGE> 161
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. SHAREHOLDERS' EQUITY (continued)
On February 18, 1994, a further 1,780 Predecessor Company ordinary shares
of 25 pence each were issued for a total consideration of L.17.59 million. The
proceeds of the issue were used to repay the advance from shareholders.
On May 6, 1994, the authorized share capital of the Predecessor Company was
increased to L.1,000,001 divided into 4,000,000 ordinary shares of 25 pence
each and six 'A' class shares of 25 pence each. The six 'A' shares have now
been converted into non-voting deferred shares in accordance with the Articles
of Association of the Predecessor Company. The deferred shares entitle holders
thereof only to the repayment of the amounts paid up on such shares after
payment in respect of each Ordinary Share of L.100,000. The holders of deferred
shares are not entitled to the payment of any dividend or other distribution.
On May 13, 1994, the Predecessor Company's principal shareholder made a
capital contribution to the Predecessor Company in the amount of $1.3 million
(L.863,000).
On May 17, 1994, the Predecessor Company issued six 'A' shares for cash at
par and, for nil consideration an additional 999 ordinary shares of 25 pence
each to each of its shareholders for each of the 2,180 ordinary shares held at
that time.
On July 6, 1994, the Predecessor Company issued a further 574,682 ordinary
shares of 25 pence each to European Cable Capital Partners LP ("ECCP") for a
consideration of L.15.44 million (net of L.1 million financing fees) which had
been advanced to the Predecessor Company at various dates in May and June 1994
pending formal issue of these ordinary shares. At such date a bonus allotment
of 146,981 ordinary shares of 25 pence each was made to the holders of 'A'
shares in accordance with the rights attaching to the 'A' shares.
On September 1, 1994, the Predecessor Company effected a ten-for-one share
split such that the authorized ordinary shares consisted of 40,000,000 shares
of 2.5 pence each, of which 29,016,630 were outstanding. In addition, on such
date the shareholders exchanged their shares in the Predecessor Company for
29,016,630 ordinary shares of 2.5 pence each and six 'A' shares of 25 pence
each in Diamond Cable Communications Plc (the "Company"), a newly formed public
limited company in proportion to their shareholding in the Predecessor Company.
At September 1, 1994, the authorized share capital of the Company was
70,000,000 ordinary shares and six 'A' shares of 2.5 pence each of which
29,016,630 ordinary shares and six 'A' shares of 25 pence each were
outstanding. The six 'A' shares conferred certain anti-dilution rights and have
now been converted into non-voting deferred shares in accordance with the
Articles of Association.
On October 11, 1994, the Company issued 2,298,728 ordinary shares of 2.5
pence each to a wholly owned subsidiary of Investor Investments AB, a company
incorporated in Sweden, for gross proceeds of L.6.57 million. A total of
587,874 ordinary shares of 2.5 pence each were allotted by way of bonus to the
holders of the 'A' shares in accordance with the terms of such shares.
On February 7, 1995, the Company issued 2,298,728 ordinary shares of 2.5
pence each to Creative Artists Agency Inc. for gross proceeds of L.6.57
million. A further 587,873 ordinary shares
F-15
<PAGE> 162
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11. SHAREHOLDERS' EQUITY (continued)
of 2.5 pence each were allotted by way of a bonus to the holders of the 'A'
shares in accordance with the terms of such shares.
On August 31, 1995, a total of 7,138,700 ordinary shares of 2.5 pence each
of the Company were issued to ECCP, Investor Investments AB, Creative Artists
Agency, Inc. and William McDonald for gross proceeds of approximately L.20.4
million. A further 1,825,642 ordinary shares of 2.5 pence each were allotted on
August 31, 1995 and September 4, 1995 by way of a bonus to the holders of the
'A' shares of 25 pence each, in accordance with the terms of such shares. The
conditions in the Articles relating to the conversion of the 'A' shares of 25
pence each into non-voting deferred shares of 25 pence each were thereby
satisfied and the six 'A' shares of 25 pence each converted automatically into
six non-voting deferred shares of 25 pence each on September 4, 1995.
The deferred shares entitle holders thereof only to the repayment of the
amounts paid up on such shares after payment in respect of each ordinary share
of L.100,000. The holders of deferred shares will not be entitled to the
payment of any ordinary dividend or other distributions.
On August 16, 1995, the Company exchanged all its ordinary shares in
Diamond Cable (Nottingham) Limited for ordinary shares of a newly incorporated
company, Jewel Holdings Limited ("Jewel"). As a result, Diamond Cable
(Nottingham) Limited became a wholly owned subsidiary of Jewel and Jewel became
a wholly owned subsidiary of the Company.
12. DEBT
On September 28, 1994, the Company issued $285,101,000 of 13 1/4% Senior
Discount Notes due September 30, 2004 (the "Initial Senior Notes"), at an issue
price of $526.13 per $1,000 principal. Total proceeds received by the Company
after issuance costs amounted to L.91 million. Interest will not accrue on the
Initial Senior Notes prior to September 30, 1999. Interest on the Initial
Senior Notes will be payable on March 31 and September 30 of each year
commencing March 31, 2000 at a rate of 13 1/4% per annum.
The Initial Senior Notes may be redeemed at the option of the Company, at
any time as a whole but not in part at the accreted value thereof or if such
redemption is to occur on or after September 30, 1999 at 100% of the principal
amount at maturity thereof, plus accrued and unpaid interest, if any, to the
date of redemption in the event of certain tax law changes requiring the
Company to pay additional amounts. In addition, the Initial Senior Notes may be
redeemed in whole or in part at the option of the Company, at any time after
September 30, 1999, at specified redemption prices.
On December 15, 1995, the Company issued $530,955,000 of 11 3/4% Senior
Discount Notes due December 15, 2005 (the "New Senior Notes") at an issue price
of $565.02 per $1,000 principal. Total proceeds received by the Company
amounted to L.187 million after issuance costs of L.8 million. Interest will
not accrue on the New Senior Notes prior to December 15, 2000. Interest on the
New Senior Notes will be payable on June 15 and December 15 of each year,
commencing June 15, 2001 at a rate of 11 3/4% per annum.
F-16
<PAGE> 163
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. DEBT (continued)
The New Senior Notes may be redeemed at the option of the Company, in
whole or in part, at any time on or after December 15, 2000, at specified
redemption prices.
The New Senior Notes may be redeemed at the option of the Company, in
whole, but not in part, at any time at the accreted value thereof or if such
redemption is to occur on or after December 15, 2000, at 100% of the principal
amount plus accrued interest to the date of redemption, in the event of certain
tax law changes requiring the payment of additional amounts.
The Initial Senior Notes and the New Senior Notes are unsecured
indebtedness of the Company and rank junior to any indebtedness of its
subsidiaries to the extent of the assets of such subsidiaries and to any
secured indebtedness of the Company to the extent of the assets securing such
indebtedness.
The Initial Senior Notes and the New Senior Notes are stated net of
unamortized discount of approximately L.70 million ($108.6 million) and L.148
million ($229.3 million), respectively at December 31, 1995. The discount is
being accreted through the statement of operations such that the Company
recognizes a fixed rate of interest, the total accretion for the period being
L.14 million ($22.3 million).
The costs relating to the issue of the Initial Senior Notes and the New
Senior Notes have been deferred and are shown as deferred finance costs in the
balance sheet. These costs are being amortized over the term of the Initial
Senior Notes or New Senior Notes, where appropriate, as an adjustment of yield.
The Senior Notes contain certain covenants generally restricting the
raising of certain types of additional financing, payment of dividends,
creation of liens, sale and leaseback transactions, sale of certain assets and
engaging in certain transactions with Affiliates or Related Persons.
13. MORTGAGE LOAN
The Company entered into a mortgage loan agreement of L.2.5 million to
fund the construction of the Company's headquarters in Nottingham. The mortgage
is repayable over a period of 20 years from July 31, 1995, the date of
drawdown, subject to a capital repayment moratorium which expires in September
1996. Interest is paid monthly at a rate of base +1 1/2%.
14. COMMITMENTS AND CONTINGENCIES
Capital and operating leases
The Company leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expenses under
such arrangements amounted to L.64,000, L.78,000 and L.733,000 in 1993, 1994
and 1995, respectively.
F-17
<PAGE> 164
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14. COMMITMENTS AND CONTINGENCIES (continued)
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1995.
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996..................................................... L.1,842 L. 997
1997..................................................... 2,299 836
1998..................................................... 2,420 452
1999..................................................... 2,191 315
2000..................................................... 1,840 271
2001 and thereafter...................................... 1,091 2,180
Imputed interest......................................... (2,420) --
------- --------
L.9,263 L. 5,051
======= ========
</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 licenses, and
under the milestone requirements of Local Delivery Licenses ("LDL's"), to
construct cable systems passing a predefined number of premises. Should the
Company fail to achieve these milestones, without license modifications, the
Director General could commence proceedings to require compliance. Similarly
the Independent Television Commission ("ITC") may commence proceedings to
require compliance with the build milestones in the LDL's.
If the Company is unable to comply, its license in respect of which
milestones have not been met could be revoked, and awarded to other cable
operators, which could have a material adverse effect on the Company.
Equity Commitment
Under the terms of the New Senior Notes, an event of default will occur if
the Company has not issued new equity for gross cash proceeds of an aggregate
of $100 million or more prior to June 30, 1996. The Company's principal
existing shareholders have agreed to contribute sufficient capital to permit
the Company to satisfy this requirement.
15. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash paid for interest was L.231,000, L.518,000 and L.2,376,000 for the
years ended December 31, 1993, 1994 and 1995.
F-18
<PAGE> 165
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. FINANCIAL INSTRUMENTS
Interest rate swap -- On July 3, 1995, a subsidiary of EMCG entered into a
five-year agreement to swap a floating interest rate calculated at sterling
LIBOR for a fixed rate of 8.79%. The swap has an ultimate nominal value of
L.33.8 million and its nominal value at December 31, 1995 was L.3.039 million.
Following acquisition by Diamond Cable Communications Plc, the interest rate
swap has been retained and has been recorded on the balance sheet in other
liabilities at its market value at December 31, 1995, of L.1.3 million. A loss
equal to the post-acquisition portion of this amount has been recognized in the
consolidated statement of operations. The Directors may decide to terminate the
agreement or they may retain the swap as a hedge against a proposed loan
facility. The net cash outflow in respect of the swap in the last quarter was
L.8,000.
Disclosures about the fair value of financial instruments
CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES, TRADE ACCOUNTS PAYABLE,
ACCRUED EXPENSES AND MARKETABLE SECURITIES -- The carrying amount approximates
fair value because of the short maturity of these instruments.
INTEREST RATE SWAP -- The interest rate swap has been marked to market and
the resulting carrying amount approximates its fair value. The fair value of
the instrument has been calculated based on quotations received from
independent, third party financial institutions and represents discounted
future cash flows based on the industry norm derivatives formula.
SENIOR DISCOUNT NOTES -- The fair value of the senior notes has been
calculated based on quotations from Goldman, Sachs & Co. and are based on
discounting the future cash flows to net present values using appropriate
market interest rates prevailing at the year end. The following table compares
the carrying value with the fair value of the debt.
<TABLE>
<CAPTION>
CARRYING VALUE FAIR VALUE
-------------- ----------
(IN THOUSANDS)
<S> <C> <C>
Initial Senior Notes................... L. 113,559 L. 127,841
New Senior Notes....................... L. 194,170 L. 203,359
---------- ----------
L. 307,729 L. 331,200
========== ==========
</TABLE>
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. No single customer
accounts for 10% or more of consolidated net sales.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Company places its temporary cash investments with
high credit quality financial institutions. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base. At December 31, 1995, the Company had
no significant concentrations of credit risk.
The Company is exposed to market risk on the interest rate swap to the
extent that the variable rate receivable is lower than the fixed rate payable.
F-19
<PAGE> 166
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17. SHARE OPTIONS
On January 5, 1995, options were granted to CGT, a trust in which Mr.
Davis, the Managing Director, and his family are shareholders, over 654,000
shares with an exercise price of L.3.44 per share. Such options may be
exercised at any time up to January 2002.
Options over a total of 728,000 shares were granted to directors, senior
management and certain principals of ECE Management on February 23, 1995 and
July 19, 1995 under the Senior Management Option Scheme with an exercise price
of L.3.44 per share.
On October 24, 1995, options over a total of 490,000 shares were granted to
directors, senior management and certain principals of ECE Management under the
Senior Management Option Scheme with an exercise price of L.4.11 per share.
The options granted under the Senior Management Option Scheme cannot be
exercised until June 30, 1998 (except, in certain circumstances, if the option
holder ceases to be a director or employee of the Group or if there is a change
in control of the Group).
No compensation expense has been recorded for these options as they were
all granted at a price which approximated the market value at the date of
grant.
F-20
<PAGE> 167
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1995 1996 1996
(NOTE 1)
(in thousands)
<S> <C> <C> <C>
REVENUE
Business telecommunications.............. L. 2,400 L. 5,053 $ 7,847
Residential telephone.................... 2,020 7,882 12,240
Cable television......................... 1,084 4,288 6,659
--------- --------- --------
5,504 17,223 26,746
OPERATING COSTS AND EXPENSES
Telephone................................ (2,061) (5,873) (9,120)
Programming.............................. (582) (2,563) (3,980)
Selling, general, and administrative..... (4,010) (10,553) (16,388)
Depreciation and amortization............ (2,852) (9,735) (15,118)
--------- --------- --------
(9,505) (28,724) (44,606)
--------- --------- --------
OPERATING LOSS........................... (4,001) (11,501) (17,860)
Unrealised gain on interest rate swap.... -- 319 495
Interest income.......................... 2,355 1,868 2,901
Interest expense and amortization of debt
discount and expenses.................... (6,534) (20,129) (31,258)
Foreign exchange gains, net.............. 476 141 219
--------- --------- --------
Loss before income taxes................. (7,704) (29,302) (45,503)
Income taxes............................. -- -- --
--------- --------- --------
NET LOSS................................. L. (7,704) L.(29,302) $(45,503)
========= ========= ========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
F-21
<PAGE> 168
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT
DECEMBER 31,
1995 AT JUNE 30,
1996 1996
(note 1)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents..................
Trade receivables (net of allowance
for doubtful accounts of L.773 at
December 31, 1995 and L.1,136 at
June 30, 1996).............................
Other assets...............................
Deferred financing costs (less
accumulated amortization of
L.382 in 1995 and L.840 in 1996).......... L.93,308 L.93,020 $144,451
Property and equipment, net (note 3)....... 3,583 5,652 8,777
Goodwill (less accumulated amortization of 5,358 5,890 9,146
L.1,212 in 1995 and L.3,638 in 1996)...... 12,016 12,444 19,324
Franchise costs (less accumulated 163,721 220,911 343,053
amortization of L.69 in 1995 and 95,748 93,322 144,920
L.86 in 1996)............................. 438 428 665
--------- --------- --------
TOTAL ASSETS............................... L.374,172 L.431,667 $670,336
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable...........................
Other liabilities..........................
Senior discount notes......................
Capital lease obligations.................. L.18,627 L.21,860 $33,946
Mortgage loan.............................. 10,920 11,312 17,566
Shareholders' equity....................... 307,729 326,597 507,172
Ordinary shares (70,000,000 authorized; 9,263 8,753 13,593
43,754,175 issued at December 31, 1995 2500 2,500 3,882
and 59,138,791 issued at June 30, 1996).... 1,094 1,479 2,297
Non-voting deferred shares................. -- -- --
Additional paid-in-capital................. 70,186 134,465 208,811
Unrealized loss on securities.............. (330) (180) (279)
Accumulated deficit........................ (45,817) (75,119) (116,652)
--------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................... L.374,172 L.431,667 $670,336
========= ========= ========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
F-22
<PAGE> 169
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NON-VOTING ADDITIONAL
ORDINARY SHARES DEFERRED SHARES PAID-IN-CAPITAL
(IN THOUSANDS EXCEPT SHARE DATA)
Number Number
---------- --------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996... 43,754,175 L.1,094 6 -- L.70,186
Shares issued and capital
contributions (net of
expenses)................... 15,384,616 385 -- -- 64,279
Unrealized gain on securities
---------- ------- ---- ---- ---------
Net loss.....................
BALANCE AT JUNE 30, 1996..... 59,138,791 L.1,479 6 -- L.134,465
---------- ------- ---- ---- ---------
BALANCE AT APRIL 1, 1996..... 43,754,175 L.1,094 6 -- L.70,186
Shares issued and capital
contributions (net of
expenses)................... 15,384,616 385 -- -- 64,279
Unrealized loss on securities
Net loss.....................
---------- ------- ---- ---- ---------
BALANCE AT JUNE 30, 1996..... 59,138,791 L.1,479 6 -- L.134,465
========== ======= ==== ==== =========
UNREALIZED
GAIN/(LOSS) ACCUMULATED TOTAL SHAREHOLDERS'
ON SECURITIES DEFICIT EQUITY
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1996... L.(330) L.(45,817) L.25,133
Shares issued and capital
contributions (net of
expenses)................... 64,664
Unrealized gain on securities 150 150
Net loss..................... (29,302) (29,302)
---------- ---------- ---------
BALANCE AT JUNE 30, 1996..... L.(180) L.(75,119) L.60,645
---------- ---------- ---------
BALANCE AT APRIL 1, 1996..... L.299 L.(64,793) L.6,786
Shares issued and capital
contributions (net of
expenses)................... 64,664
Unrealized loss on securities (479) (479)
Net loss..................... (10,326) (10,326)
---------- ---------- ---------
BALANCE AT JUNE 30, 1996..... L.(180) L.(75,119) L.60,645
========== ========== =========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
F-23
<PAGE> 170
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------
1995 1996 1996
--------- ---------- --------
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................... L.(7,704) L.(29,302) $(45,503)
Adjustments to reconcile net profit/loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization.............................. 2,852 9,735 15,117
Unrealized foreign exchange gains.......................... (826) (237) (368)
Loss on disposition of assets.............................. -- 11 17
Provision for losses on accounts receivable................ 140 363 564
Accretion of Senior Note discount.......................... 6,392 19,090 29,645
Amortization of deferred financing costs................... 142 458 711
Accretion of investment income............................. (80) -- --
Profit on sale of investments.............................. (1,505) -- --
Change in operating assets and liabilities:
Change in trade receivables............................... (964) (2,432) (3,777)
Change in other assets.................................... (3,533) (532) (826)
Change in accounts payable................................ 559 3,841 5,965
Change in other liabilities............................... 3,381 659 1,024
--------- --------- --------
Net cash provided by/(used in) operating activities.......... (1,146) 1,654 2,569
--------- --------- --------
Cash flows from investing activities:
Cash invested in property and equipment.................... (39,288) (65,119) (101,123)
Cash invested in marketable securities..................... (17,445) -- --
Proceeds from disposition of assets........................ -- 18 28
Proceeds from disposition of securities.................... 42,856 -- --
Cash paid for franchises................................... -- (7) (11)
--------- --------- ---------
Net cash used in investing activities........................ (13,877) (65,108) (101,106)
--------- --------- ---------
Cash flows from financing activities:
Capital element of capital lease repayments................ (494) (510) (792)
Issue of shares and capital contributions (net of expenses) 6,561 64,664 100,416
Net increase in short-term borrowings...................... 503 -- --
Debt financing costs (note 4).............................. -- (1,153) (1,790)
--------- --------- ---------
Net cash provided by financing activities.................... 6,570 63,001 97,834
--------- --------- ---------
Net decrease in cash and cash equivalents.................... (8,453) (453) (703)
Cash and cash equivalents at beginning of period............. 41,066 93,308 144,898
Effect of exchange rate changes on cash and cash equivalents. -- 165 256
--------- --------- ---------
Cash and cash equivalents at end of period................... L.32,613 L.93,020 $144,451
========= ========= =========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
F-24
<PAGE> 171
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Diamond Cable Communications Plc (the "Company") owns and operates cable
television and telecommunications systems through its subsidiaries. The
unaudited consolidated financial statements of the Company and its subsidiaries
(the "Group") have been prepared in accordance with U.S. generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The financial statements are stated in pounds sterling (L.). Merely for
convenience, the financial statements contain translations of certain pound
sterling amounts into U.S. dollars at $1.5529 per L.1.00, the noon buying rate
in the City of New York for cable transfers in pounds sterling as certified for
customs purposes by the Federal Reserve Bank of New York on June 28, 1996.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the periods ended June 30, 1996 and
1995, are unaudited. However, in the opinion of the management, such statements
include all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the results for the periods presented. The
results of operations for any interim period are not necessarily indicative of
the results for the full year. The interim financial statements should be read
in conjunction with the financial information included in the Company's 1995
Annual Report on Form 10-K filed with the SEC.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
LAND AND OFFICE MOTOR
BUILDINGS CABLE NETWORK EQUIPMENT VEHICLES TOTAL
--------- ------------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1996........ L.3,863 L.170,660 L.4,701 L.644 L.179,868
Additions......................... 505 62,546 1,448 12 64,511
Dispositions...................... -- (2) (154) (136) (292)
Reclassification.................. 467 (10) (457) -- --
------- ---------- ------- ----- ---------
Balance at June 30, 1996.......... 4,835 233,194 5,538 520 244,087
------- ---------- ------- ----- ---------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996........ 74 14,295 1,450 328 16,147
Charge for period................. 63 6,518 665 46 7,292
Dispositions...................... -- (1) (154) (108) (263)
Reclassification.................. 90 (50) (40) -- --
------- ---------- ------- ----- ---------
Balance at June 30, 1996.......... 227 20,762 1,921 266 23,176
------- ---------- ------- ----- ---------
JUNE 30, 1996 NET BOOK VALUE...... L.4,608 L.212,432 L.3,617 L.254 L.220,911
------- ---------- ------- ----- ---------
DECEMBER 31, 1995 NET BOOK VALUE.. L.3,789 L.156,365 L.3,251 L.316 L.163,721
======= ========== ======= ===== =========
</TABLE>
The reclassification to land and buildings more appropriately allocates
expenditure on leasehold properties.
F-25
<PAGE> 172
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT FINANCING COSTS
Debt financing costs consist of payments to holders of the Initial Senior
Notes in connection with their consent to certain amendments to the Initial
Senior Notes indenture which were made to conform certain provisions thereof to
provisions of the New Senior Notes indenture.
5. COMMITMENTS AND CONTINGENCIES
The Company is obligated under the terms of its existing licenses, and
under the milestone requirements of its local delivery licenses ("LDLs"), to
construct cable systems passing a predetermined number of premises. Should the
Company fail to achieve these milestones, without license modifications, the
Director General could commence proceedings to require compliance. Similarly,
the Independent Television Commission ("ITC") may commence proceedings to
require compliance with the build milestones in the LDLs. If the Company is
unable to comply, its license in respect of which milestones have not been met
could be revoked, which could have a material adverse effect on the Company.
F-26
<PAGE> 173
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of Diamond Cable
Communications Plc and its subsidiaries (the "Group"), which has been prepared
under U.S. GAAP, reflects (i) the acquisition of LCL, which has been accounted
for under the purchase method of accounting and (ii) the offering of the New
Senior Notes and the application of the proceeds thereof as set forth under
"Use of Proceeds".
The acquisition was structured as follows: Effective September 30, 1995,
for financial accounting purposes Jewel Holdings Limited, a subsidiary of
Diamond Cable Communications Plc, acquired the entire share capital of East
Midlands Cable Holdings Limited ("EMCH"), East Midlands Cable Communications
Limited ("EMCC", formerly Fundy Cable Communications Limited) and the share
capital and outstanding zero coupon subordinated unsecured bonds of East
Midlands Cable Group Limited ("EMCG"). EMCG holds all the issued share capital
of LCL Cable (Holdings) Limited, which in turn holds all the issued share
capital of LCL Cable Communications Limited. These businesses acquired are
collectively referred to as LCL.
The unaudited pro forma statement of operations for the year ended
December 31, 1995 has been prepared as if the acquisition of LCL and the
issuance of the New Senior Notes had taken place on January 1, 1995, and
consolidates the audited consolidated statements of operations of Diamond and
LCL for the year ended December 31, 1995.
THIS UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION IS
PROVIDED FOR INFORMATIONAL PURPOSES AND DOES NOT PURPORT TO REPRESENT WHAT THE
GROUP'S RESULTS OF OPERATIONS AND FINANCIAL POSITION ACTUALLY WOULD HAVE BEEN
IF SUCH TRANSACTIONS IN FACT HAD OCCURRED ON SUCH DATES, OR TO PROJECT THE
GROUP'S RESULTS OF OPERATIONS FOR ANY FUTURE PERIOD.
The purchase accounting adjustments reflected in the accompanying pro
forma combined financial information reflect estimates made by the Group and
assumptions which it believes to be reasonable.
This unaudited pro forma financial information should be read in
conjunction with, and is qualified in its entirety by reference to, the
selected financial data and the historical audited and unaudited consolidated
financial statements and related notes thereto appearing elsewhere in the
Prospectus.
F-27
<PAGE> 174
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
PRO FORMA PRO FORMA
DIAMOND LCL ADJUSTMENTS COMBINED COMBINED(1)
<S> <C> <C> <C> <C> <C>
REVENUE (IN THOUSANDS)
Business telecommunications.......... L. 5,324 L. 1,717 L. -- L. 7,041 $10,934
Residential telephone................ 5,522 3,511 -- 9,033 14,027
Cable television..................... 2,894 2,033 -- 4,927 7,651
--------- --------- --------- --------- ---------
13,740 7,261 -- 21,001 32,612
--------- --------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Telephone............................ (4,409) (1,946) -- (6,355) (9,869)
Programming.......................... (1,662) (1,003) -- (2,665) (4,138)
Selling, general and administrative.. (12,069) (4,345) -- (16,414) (25,489)
Depreciation and amortization........ (6,654) (4,286) (a)(3,638) (14,578) (22,638)
--------- --------- --------- --------- ---------
(24,794) (11,580) (3,638) (40,012) (62,134)
--------- --------- --------- --------- ---------
OPERATING LOSS....................... (11,054) (4,319) (3,638) (19,011) (29,522)
Unrealized loss on interest rate swap -- (868) -- (868) (1,348)
Interest income...................... 3,887 -- -- 3,887 6,036
Interest expense and amortization
of debt discount and expenses........ (17,349) (3,042) (b)(15,867) (36,258) (56,305)
Foreign exchange losses, net......... 925 -- -- 925 1,436
Other expenses....................... (1,241) -- -- (1,241) (1,927)
--------- --------- --------- --------- ---------
Loss before income taxes............. (24,832) (8,229) (19,505) (52,566) (81,630)
Income taxes......................... -- -- -- -- --
--------- --------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY ITEMS (C).. L.(24,832) (L. 8,229) L.(19,505) L.(52,566) $(81,630)
========= ========= ========= ========= =========
</TABLE>
- ---------------
(1) For convenience, the financial statements are translated into U.S.
dollars at $1.5529 per L.1.00, the Noon Buying Rate of the Federal Reserve
of New York on June 28, 1996.
See accompanying Notes to the Unaudited Condensed Consolidated Pro Forma
Financial Information.
F-28
<PAGE> 175
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION
For convenience certain financial information in notes (a) to (e) is
translated into U.S. dollars at $1.5529 per L.1.00, the Noon Buying Rate of the
Federal Reserve Bank of New York on June 28, 1996.
(a) The following represents the allocation of the excess of purchase
price over the estimated fair values of the acquired net assets of LCL. The
fair value of the acquired net assets is not materially different from the
historical net book value, except as noted in the table below.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Acquired net assets/(liabilities) at book value (September 30, 1995)
EMCG.............................................................. L. (5,413)
EMCC.............................................................. 55
EMCH.............................................................. --
Acquired zero coupon bonds.......................................... 23,296
Less certain fair value adjustments(1).............................. (5,794)
Goodwill and intangibles............................................ 96,993
---------
Aggregate purchase consideration.................................... L.109,137
=========
</TABLE>
- ---------------
(1) Fair value adjustments represent:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
- -- remeasurement of fixed assets.................................... L. (1,667)
- -- accruals for direct acquisition costs............................ (4,127)
----------
L. (5,794)
==========
</TABLE>
(2) The adjustment to depreciation and amortization represents amortization
of the excess of purchase price over the estimated fair values of the
acquired net assets of LCL (allocated to intangible assets and goodwill),
over 20 years, being L.4,850,000 per annum, of which L.1,212,000 is
charged in the statement of operations of Diamond.
(b) Increased interest expense is based upon the pro forma consolidated
debt of the Company following the issuance of debt securities at the rate
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
(IN THOUSANDS)
<S> <C> <C>
New Senior Notes due 2005(1)............... L.17,691 $27,473
Amortization of debt issuance costs(2)..... 446 693
Adjustment to interest expense from assumed
retirement of existing indebtedness(3).... (2,270) (3,525)
-------- -------
Total...................................... L.15,867 $24,641
======== =======
</TABLE>
- ---------------
(1) Interest is compounded on a semi-annual basis using a rate of 11.75% per
annum.
F-29
<PAGE> 176
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL INFORMATION
(2) Debt issuance costs and related costs of L.8.8 million are amortized over
10 years which represents the expected life of the related New Senior
Notes on a constant yield to maturity basis.
(3) Represents the elimination of the interest expense associated with the
zero coupon bonds outstanding during the period which were all purchased
by Diamond as part of the acquisition of LCL.
(c) The extraordinary loss of L.1.9 million arising in EMCG from the early
repayment of debt has been excluded from the pro forma statement of operations.
(d) Items which have not been adjusted for in the unaudited condensed pro
forma combined financial information include:
(i) the effects of trading of either Diamond or LCL since
December 31, 1995;
(ii) any costs of integration and rationalization of the two
businesses, as no reliable estimate of the totality of such costs
can currently be made;
(iii) the expected benefits of the enlarged group's organization
and financial management, synergies and elimination of duplicate
efforts;
(iv) the effects of any possible share capital restructuring; and
(v) the subscription by the shareholders to additional equity
under the Equity Commitment.
F-30
<PAGE> 177
INDEPENDENT AUDITORS' REPORT
To the Shareholders
LCL Cable Communications Limited
We have audited the accompanying consolidated balance sheets of LCL Cable
Communications Limited and subsidiaries ("LCL Cable") as of December 31, 1993
and 1994 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of LCL's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LCL Cable
as of December 31, 1993 and 1994 and the results of their operations and their
cash flows for each of the years in the three year period ended December 31,
1994 in conformity with generally accepted accounting principles in the United
States of America.
KPMG
Nottingham, England
February 10, 1995
F-31
<PAGE> 178
LCL CABLE COMMUNICATIONS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992 1993 1994 1994
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUE
Business telecommunications......... L. -- L. 9 L. 431 $670
Residential telephone............... -- 11 768 1,193
Cable television.................... 938 1,225 1,378 2,140
--------- ------- ------- -----
938 1,245 2,577 4,003
--------- ------- ------- -----
OPERATING COSTS AND EXPENSES
Telephone........................... -- (32) (492) (764)
Programming......................... (511) (553) (655) (1,017)
Selling, general and administrative. (1,964) (2,227) (3,079) (4,781)
Depreciation and amortization....... (937) (1,424) (2,055) (3,191)
--------- -------- ------- -------
(3,412) (4,236) (6,281) (9,753)
--------- -------- ------- -------
OPERATING LOSS...................... (2,474) (2,991) (3,704) (5,750)
Interest income..................... 16 9 11 18
Interest expense and amortization of
debt discount...................... (979) (1,456) (2,611) (4,054)
--------- -------- -------- -------
Loss before income taxes............ (3,437) (4,438) (6,304) 9,786
Income taxes (note 3)............... 4 -- -- --
--------- --------- --------- -------
NET LOSS............................ L.(3,433) L.(4,438) L.(6,304) $9,786
========= ========= ========= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
F-32
<PAGE> 179
LCL CABLE COMMUNICATIONS LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31,
1993 1994 1994
(NOTE 1)
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Cash...................................... L. -- L. 4 $6
Trade receivables (net of allowance for
doubtful accounts of L.64 and L.75 at
December 31, 1993 and 1994,
respectively) (note 5).................. 152 413 641
Inventories............................... 8 34 53
Other assets (note 6)..................... 302 565 877
Property and equipment, net (note 4)...... 11,273 21,054 32,695
Franchise costs (less accumulated
amortization of L.142 in 1993 and L.194
in 1994)................................ 632 580 901
-------- -------- -------
TOTAL ASSETS.............................. L.12,367 L.22,650 $35,173
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable.......................... 1,004 2,393 3,716
Other liabilities (note 7)................ 177 655 1,017
Zero coupon bonds (note 8)................ 9,771 16,872 26,201
Capital lease obligations (note 10)....... 1,669 4,545 7,058
Shareholders' equity (note 9)
Voting shares:
1,000,000 shares authorized and issued
at December 31, 1993 and 1994...... 10 10 16
A Shares:
24,570,000 authorized and 5,851,124
issued at December 31, 1993,
24,570,000 authorized and 10,485,035
issued at December 31, 1994......... 2,340 4,194 6,513
B Shares:
305,000 authorized and issued at
December 31, 1993, 325,000
authorized and 308,927 issued
at December 31, 1994............... 122 124 192
C Shares:
100,000 authorized at December 31,
1993 and 1994, nil issued at
December 31, 1993 and 1994.......... -- -- --
Additional paid-in-capital.............. 7,489 10,376 16,112
Accumulated deficit..................... (10,215) (16,519) (25,652)
-------- -------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY L.12,367 L.22,650 $35,173
======== ======== =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-33
<PAGE> 180
LCL CABLE COMMUNICATIONS LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
VOTING SHARES A SHARES B SHARES PAID-IN ACCUMULATED SHAREHOLDERS'
NUMBER L. NUMBER L. NUMBER L. CAPITAL DEFICIT EQUITY
(L. IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1992.... 1,000,000 L.10 2,979,640 L.1,192 305,000 L.122 L. 4,559 L. (2,344) L. 3,539
Shares issued...... -- -- 856,240 342 -- -- 1,542 -- 1,884
Net loss........... -- -- -- -- -- -- -- (3,433) (3,433)
--------- ---- --------- ------- ------- ----- -------- ---------- -------
BALANCE AT
DECEMBER 31, 1992 1,000,000 L.10 3,835,880 L.1,534 305,000 L.122 L. 6,101 L. (5,777) L. 1,990
========= ==== ========= ======= ======= ===== ======== ========== ========
Balance at
January 1, 1993.... 1,000,000 L.10 3,835,880 L.1,534 305,000 L.122 L. 6,101 L. (5,777) L. 1,990
Shares issued...... -- -- 2,015,244 806 -- -- 1,388 -- 2,194
Net loss........... -- -- -- -- -- -- -- (4,438) (4,438)
--------- ---- --------- ------- ------- ----- -------- ---------- -------
BALANCE AT
DECEMBER 31, 1993 1,000,000 L.10 5,851,124 L.2,340 305,000 L.122 L. 7,489 L. (10,215) L. (254)
========= ==== ========= ======= ======= ===== ======== ========== ========
Balance at
January 1, 1994.... 1,000,000 L.10 5,851,124 L.2,340 305,000 L.122 L. 7,489 L. (10,215) L. (254)
Shares issued...... -- -- 4,633,911 1,854 3,927 2 2,887 -- 4,743
Net loss........... -- -- -- -- -- -- -- (6,304) (6,304)
--------- ---- --------- ------- ------- ----- -------- ---------- -------
BALANCE AT
DECEMBER 31, 1994 1,000,000 L.10 10,485,035 L.4,194 308,927 L.124 L.10,376 L. (16,519) L.(1,815)
========= ==== ========= ======= ======= ===== ======== ========== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-34
<PAGE> 181
LCL CABLE COMMUNICATIONS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992 1993 1994 1994
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................... L. (3,433) L.(4,438) L.(6,304) $ (9,789)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............. 937 1,424 2,055 3,191
Loss on disposition of assets............. -- -- 46 71
Provision for losses on accounts
receivable.............................. 12 32 11 17
Accretion of discount on zero coupon bonds 972 1,413 2,358 3,661
Change in operating assets and liabilities:
Change in inventories.................... -- (8) (26) (40)
Change in trade receivables.............. (16) (89) (272) (422)
Change in other assets................... 430 (235) (263) (408)
Change in accounts payable............... (753) 514 373 579
Change in other liabilities.............. (9) 15 362 562
--------- -------- -------- --------
Net cash used in operating activities....... (1,860) (1,372) (1,660) (2,578)
--------- -------- -------- --------
Cash flows from investing activities:
Cash invested in property and equipment... (1,318) (2,915) (7,815) (12,135)
Proceeds from disposition of assets....... -- -- 8 12
--------- -------- -------- --------
Net cash used in investing activities....... (1,318) (2,915) (7,807) (12,123)
--------- -------- -------- --------
Cash flows from financing activities:
Issue of zero coupon bonds................ 1,205 2,064 4,743 7,365
Capital element of capital lease
obligations............................. (53) (68) (131) (203)
Issue of shares (net of expenses)......... 1,884 2,194 4,743 7,365
Repayment of loan......................... (8) (8) (8) (12)
Net increase in short-term borrowings..... -- 55 124 192
--------- -------- -------- --------
Net cash provided by financing activities... 3,028 4,237 9,471 14,707
--------- -------- -------- --------
Net (decrease)/increase in cash............. (150) (50) 4 6
Cash at beginning of year................... 200 50 -- --
--------- -------- -------- --------
Cash at end of year......................... L. 50 L. -- L. 4 $6
========= ======== ======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-35
<PAGE> 182
LCL CABLE COMMUNICATIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE GROUP
LCL Cable Communications Limited and its subsidiaries ("LCL Cable")
operate a cable television and telecommunications business focused on a
regional market centered around Leicester, England.
As of December 31, 1994, approximately 56 percent of the outstanding
voting shares of LCL Cable were held by Saskatchewan Telecommunications Holding
Corporation, an incorporated and registered company in Canada.
All amounts herein are shown in Pounds Sterling ("L.") and for the year
1994 also are presented in U.S. dollars, the latter being unaudited and
presented solely for the convenience of the reader, at the rate of L.1 =
$1.5529, the Noon Buying Rate of the Federal Reserve Bank of New York on June
28, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting -- The consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles.
Principles of consolidation -- The consolidated financial statements
include the accounts of LCL Cable Communications Limited and those of all
majority owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated on consolidation.
Cable system costs and expenses -- LCL Cable 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". In accordance with the standard the
cable infrastructure is being depreciated over 40 years weighted by factors
influenced by the growth in the number of subscribers.
Revenue recognition -- Revenue is recognized as services are delivered.
Initial connection fees are recognized in the period of connection to the
extent that the fee is offset by direct selling costs. The remainder is
recognized over the estimated average period that subscribers are expected to
remain connected to the system.
Income taxes -- Effective January 1, 1992, LCL Cable adopted the
provisions of SFAS No. 109, "Accounting for Income Taxes." The adoption of SFAS
No. 109 did not give rise to any cumulative adjustment in the 1992 consolidated
statement of operations. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered. A valuation allowance is raised
against a deferred tax asset where it is more likely than not that some portion
of the deferred tax asset will not be realized.
Inventories -- Inventory represents telephone equipment purchased for
resale to customers and is recorded at the lower of cost and net realizable
value.
F-36
<PAGE> 183
LCL CABLE COMMUNICATIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Property and equipment -- Property and equipment is stated at cost.
Depreciation on equipment other than cable infrastructure is computed on a
straight line basis using estimated useful lives of 5 to 15 years. Motor
vehicles are depreciated on a reducing balance basis over 3 years.
Franchise costs -- Costs relating to an unsuccessful application are
charged to operations while costs relating to successful operations are
amortized over the franchise term.
Foreign currencies -- The primary economic environment in which LCL Cable
operates is the United Kingdom and hence, its reporting currency is the United
Kingdom Pound Sterling (L.). Transactions in foreign currencies are recorded
using the rate of exchange in effect on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using
the rate of exchange in effect on the balance sheet date and the gains and
losses on translation are included in the statement of operations.
Zero coupon bonds -- The debt discount is amortized to the statement of
operations on a yield to maturity basis.
New accounting standard applicable to LCL Cable -- In March 1995, the
Financial Accounting Standards Board issued SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets
to be held and used, and for long-lived assets and certain intangibles to be
disposed of. LCL Cable is required to first comply with the requirements of
SFAS No. 121 not later than its 1996 consolidated financial statements. LCL
Cable has not yet assessed the impact of SFAS No. 121 on its financial position
and results of operations, or decided when it will be adopted.
3. INCOME TAXES
No provision for taxation has been made due to operating losses carried
forward. LCL Cable has tax net operating losses carried forward of
approximately L.15 million. LCL Cable has recognized a 100% valuation allowance
against such losses.
Differences between the tax benefit recognized in the financial statements
and the tax benefit on operating losses at the United Kingdom statutory rate of
33% are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992 1993 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit of net losses at statutory rate L.(1,133) L.(1,465) L.(2,080)
Non-deductible expenses.................... 10 26 33
Valuation allowance........................ 1,119 1,439 2,047
--------- --------- ---------
Net tax benefit............................ L. (4) L. -- L. --
========= ========= =========
</TABLE>
F-37
<PAGE> 184
LCL CABLE COMMUNICATIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. INCOME TAXES - (Continued)
The operating losses have an unlimited carry forward period under United
Kingdom tax law but are limited in their use to the type of business which
generated the loss. Capital losses carried forward are limited to their offset
against future capital gains.
Details of deferred tax balances follow:
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Net losses................................ L.(3,272) L.(4,515)
Property and equipment.................... 195 (165)
Accretion of discount on zero coupon bonds (169) (544)
Valuation allowance....................... 3,246 5,224
--------- ---------
Net deferred tax balance.................. L. -- L. --
========= =========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable losses, and tax planning strategies in making its assessment
as to the appropriateness of the reported valuation allowance.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
CABLE OFFICE MOTOR
NETWORK EQUIPMENT VEHICLES TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition costs
Balance at January 1, 1993.. L. 8,612 L.575 L.148 L. 9,335
Additions................... 4,290 221 14 4,525
-------- ----- ----- --------
Balance at December 31, 1993 12,902 796 162 13,860
-------- ----- ----- --------
Accumulated depreciation
Balance at January 1, 1993.. 1,015 145 54 1,214
Charge for year............. 1,214 114 45 1,373
-------- ----- ----- --------
Balance at December 31, 1993 2,229 259 99 2,587
-------- ----- ----- --------
1993 Net book value......... L.10,673 L.537 L. 63 L.11,273
======== ===== ===== ========
Acquisition costs
Balance at January 1, 1994.. L.12,902 L.796 L.162 L.13,860
Additions................... 11,378 457 3 11,838
Dispositions................ (51) (2) (9) (62)
-------- ----- ----- --------
Balance at December 31, 1994 24,229 1,251 156 25,636
Accumulated depreciation
Balance at January 1, 1994.. 2,229 259 99 2,587
Charge for year............. 1,784 181 38 2,003
Dispositions................ (1) -- (7) (8)
-------- ----- ----- --------
Balance at December 31, 1994 4,012 440 130 4,582
-------- ----- ----- --------
1994 Net book value......... L.20,217 L.811 L. 26 L.21,054
======== ===== ===== ========
</TABLE>
F-38
<PAGE> 185
LCL CABLE COMMUNICATIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT (continued)
LCL Cable leases certain cable network equipment and motor vehicles under
arrangements accounted for as capital leases. The cost of assets held under
these arrangements was L.1,713,000 and L.4,721,000 at December 31, 1993 and
1994, respectively. Accumulated depreciation charged against these assets was
L.92,000 and L.376,000 at December 31, 1993 and 1994, respectively.
Depreciation on assets held under capital lease arrangements during the
year was L.47,000, L.39,000 and L.284,000 in 1992, 1993 and 1994 respectively.
5. TRADE RECEIVABLES
As part of an agreement to lease certain electronic equipment from
Northern Telecom, LCL Cable entered into an arrangement to assign a portion of
their trade receivable balances to Northern Telecom with full recourse. The
purpose of the assignment was to give Northern Telecom security over those
trade receivables in the event LCL Cable failed to meet its required lease
repayments.
The assignment does not satisfy the criteria of a receivable sold with
recourse since the collectibility of the receivables and related costs of
collection and repossession are not subject to reasonable estimation.
Consequently, assigned receivables of L.105,000 and L.213,000 at December 31,
1993 and 1994 have been included within trade receivables.
The following table shows the allowance recognized in the statement of
operations for doubtful accounts.
<TABLE>
<CAPTION>
ADDITIONS CHARGED
BALANCE AT TO COSTS AND BALANCE AT
JANUARY 1 EXPENSES DECEMBER 31
(IN THOUSANDS)
<S> <C> <C> <C>
1992
Allowance for doubtful accounts L.20 L.12 L.32
==== ==== ====
1993
Allowance for doubtful accounts L.32 L.32 L.64
==== ==== ====
1994
Allowance for doubtful accounts L.64 L.11 L.75
==== ==== ====
</TABLE>
6. OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Amounts due from principal shareholders (see note 11) L. -- L.113
Value added tax refund............................... 206 237
Prepaid expenses and sundry receivables.............. 96 215
------ -----
L.302 L.565
====== =====
</TABLE>
F-39
<PAGE> 186
LCL CABLE COMMUNICATIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
7. OTHER LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
1993 1994
(IN THOUSANDS)
<S> <C> <C>
Amounts due to principal shareholders (see note 11) L. -- L.151
Short-term borrowings.............................. 63 187
Other loans........................................ 8 --
Accrued expenses and other creditors............... 66 244
Taxation and social security....................... 40 73
----- -----
L.177 L.655
===== =====
</TABLE>
Short-term borrowings represent funds drawn under unsecured overdraft
facilities with financial institutions.
8. ZERO COUPON BONDS
LCL Cable issued zero coupon bonds with an effective annual interest rate
of 20% to its shareholders to partially meet its monthly funding requirements.
During the years ended December 31, 1993 and 1994 LCL Cable issued bonds to its
shareholders with a nominal value of L.3,833,000 and L.7,412,000 for
consideration of L.2,064,000 and L.4,743,000, respectively. The bonds issued to
the three principal shareholders represent approximately 99% of the total in
issue at December 31, 1994.
The bonds are due to mature on December 31, 1996. The bonds may be
redeemed at the option of LCL Cable, at any time before maturity, at the
accreted value thereof.
The zero coupon bonds are subordinated unsecured indebtedness of LCL Cable
and rank junior to any indebtedness of its subsidiaries to the extent of the
assets of such subsidiaries and to any secured indebtedness to the extent of
the assets securing such indebtedness.
The zero coupon bonds are stated net of unamortized discount of
approximately L.7,424,000 at December 31, 1994. The discount is being amortized
through the statement of operations such that LCL Cable recognizes a fixed rate
of interest; the amortization for the years ended December 31, 1992, 1993 and
1994 amounted to L.972,000, L.1,413,000 and L.2,358,000, respectively.
9. SHAREHOLDERS' EQUITY
LCL Cable issued 4,633,911 of A ordinary shares of 40p each during the
year with a nominal value of L.1,853,564 for consideration of L.4,739,572. LCL
Cable also issued 3,927 B ordinary shares of 40p each during the year with a
nominal value of L.1,571 for a consideration of L.3,888.
The Voting shares of 1p each have no right to dividends. The A ordinary
and B ordinary shares have equal rights to such dividends being approved by the
holders of the Voting shares. The A ordinary and B ordinary shares have no
right to vote.
F-40
<PAGE> 187
LCL CABLE COMMUNICATIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
LCL Cable leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expenses under
such arrangements amounted to L.75,000, L.47,000 and L.103,000 in 1992, 1993
and 1994 respectively.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1994.
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
(IN THOUSANDS)
<S> <C> <C>
1995........................ L. 482 L. 234
1996........................ 466 219
1997........................ 1,082 120
1998........................ 1,371 52
1999........................ 1,248 52
2000 and thereafter......... 1,550 157
------- -------
6,199 L. 834
=======
Imputed interest............ (1,654)
-------
L.4,545
=======
</TABLE>
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by leases on other assets.
11. RELATED PARTY TRANSACTIONS
The majority of the construction of the cable network infrastructure was
performed in accordance with commercial terms by OC Summers Limited, a wholly
owned subsidiary of one of the principal shareholders, John Laing PLC. During
1992, 1993 and 1994, the company paid L.2,782,000, L.1,105,000 and L.4,613,000,
respectively, for these services.
Two of the principal shareholders, Fundy Cable Limited and Saskatchewan
Telecommunications Holding Corporation (Sasktel) provide management services
for LCL Cable. LCL Cable paid L.364,000, L.169,000 and L.80,000 to Fundy Cable
Limited and L.207,000, L.287,000 and L.273,000 to Sasktel in 1992, 1993 and
1994, respectively, for these services.
12. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash paid for interest was L.8,000, L.42,000 and L.253,000 for the years
ended December 31, 1992, 1993 and 1994. No income taxes were paid by LCL Cable
in 1994 because of its operating losses. In 1992 and 1993 LCL paid L.2,000 and
L.1,000 in income tax.
F-41
<PAGE> 188
LCL CABLE COMMUNICATIONS LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
13. FINANCIAL INSTRUMENTS
Disclosures about the fair value of financial instruments -- Cash, trade
receivables, certain other assets, trade accounts payable and certain other
liabilities -- the carrying amount approximates fair value because of the short
maturity of these instruments. The estimated fair value of the zero coupon
bonds is not materially different from their carrying value -- accreted cost.
Concentration of credit risk -- LCL Cable operates predominantly in one
industry segment, the provision of cable television and telephone services in
certain areas of England. No single customer accounts for 10% or more of
consolidated net sales.
Financial instruments which potentially subject LCL Cable to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the LCL Cable's customer base. At
December 31, 1994, LCL Cable had no significant concentrations of credit risk.
14. SUBSEQUENT EVENTS (UNAUDITED)
On April 26, 1995 the authorized share capital of LCL Cable being
24,570,000 A shares of 40p each, 325,000 B shares of 40p each, 100,000 C shares
of 40p each and 100,000 voting shares of 40p each were consolidated and
redesignated as 25,020,000 ordinary shares of 40p each.
On the same date, the shareholders of LCL Cable exchanged their shares and
their zero coupon bonds in LCL Cable for shares and zero coupon bonds in East
Midlands Cable Group Limited ("EMCG") in proportion to their holding in LCL
Cable. As a result, LCL Cable became a wholly owned subsidiary of EMCG. EMCG
also acquired the share capital of Hinckley Cable Communications Limited for
consideration of L.1.
LCL Cable (Holdings) Limited ("LCLH"), a wholly owned subsidiary of EMCG,
then acquired the share capital and zero coupon bonds of LCL Cable from EMCG in
exchange for shares in LCLH and a loan of L.19.8 million.
On September 27, 1995 and October 4, 1995, the entire share capital and
zero coupon bonds of EMCG were acquired in two stages by Jewel Holdings
Limited, a wholly owned subsidiary of Diamond Cable Communications Plc, a
company registered in England and Wales.
F-42
<PAGE> 189
EAST MIDLANDS CABLE GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1994 1995 1995
(NOTE 1)
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE
Business telecommunications........ L. 237 L. 1,187 $1,843
Residential telephone.............. 330 2,371 3,682
Cable television................... 999 1,448 2,249
-------- --------- --------
1,566 5,006 7,774
-------- --------- --------
OPERATING COSTS AND EXPENSES
Telephone.......................... (271) (1,293) (2,008)
Programming........................ (469) (698) (1,084)
Selling, general and administrative (2,067) (3,276) (5,087)
Depreciation and amortization...... (1,465) (1,925) (2,989)
-------- --------- --------
(4,272) (7,192) (11,168)
-------- --------- --------
OPERATING LOSS..................... (2,706) (2,186) (3,394)
Interest income.................... 8 -- --
Interest expense and amortization
of debt discount and expenses.... (1,802) (3,133) (4,865)
-------- --------- --------
Loss before income taxes........... (4,500) (5,319) (8,259)
Income taxes....................... -- -- --
-------- --------- --------
LOSS BEFORE EXTRAORDINARY LOSS..... (4,500) (5,319) (8,259)
Extraordinary loss (note 4) -- (1,933) (3,002)
-------- --------- --------
NET LOSS........................... L.(4,500) L.(7,252) ($11,261)
======== ========= ========
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
F-43
<PAGE> 190
EAST MIDLANDS CABLE GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
1994 1995 1995
(NOTE 1)
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Cash............................................ L. 4 L. -- $--
Trade receivables (net of allowance for doubtful
accounts of L.75 at December 31, 1994 and
L.153 at September 30, 1995)................... 413 873 1,356
Inventories..................................... 34 27 42
Other assets.................................... 565 718 1,115
Property and equipment, net (note 3)............ 21,054 27,988 43,463
Franchise costs (less accumulated amortization
of L.194 in 1994 and L.232 in 1995)............ 580 563 874
-------- -------- -------
TOTAL ASSETS.................................... L.22,650 L.30,169 $46,850
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................ 2,393 2,422 3,761
Other liabilities............................... 655 1,200 1,863
Zero coupon bonds............................... 16,872 23,296 36,176
Capital lease obligations....................... 4,545 6,045 9,387
Loans from related parties...................... -- 2,619 4,067
Shareholders' equity
Voting shares 1,000,000 shares authorized
and issued at December 31, 1994 and
September 30, 1995............................. 10 10 16
A Shares
24,570,000 authorized and 10,485,035
issued at December 31, 1994 and
24,570,000 authorized and 14,169,709
issued at September 30, 1995................... 4,194 5,668 8,802
B Shares
325,000 authorized and 308,927 issued at
December 31, 1994 and 325,000 authorized
and 316,190 issued at September 30, 1995....... 124 126 196
C Shares
100,000 authorized and nil issued at
December 31, 1994 and September 30, 1995....... -- -- --
Additional paid-in-capital...................... 10,376 12,554 19,495
Accumulated deficit............................. (16,519) (23,771) (36,913)
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... L.22,650 L.30,169 $46,850
======== ======== ========
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
F-44
<PAGE> 191
EAST MIDLANDS CABLE GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
****** WARNING: TABLE EXCEEDS 132 ******
<TABLE>
<CAPTION>
ADDITIONAL PAID-
VOTING SHARES A SHARES B SHARES IN-CAPITAL
NUMBER L. NUMBER L. NUMBER L. L.
(L. IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995......... 1,000,000 L.10 10,485,035 L.4,194 308,927 L.124 L.10,376
Shares issued before share exchange -- -- 1,864,258 746 3,802 1 1,103
Shares issued after share exchange. -- -- 1,820,416 728 3,461 1 1,075
Net loss........................... -- -- -- -- -- -- --
--------- ----- ---------- ------- ------- ----- -------------
BALANCE AT SEPTEMBER 30, 1995...... 1,000,000 L.10 14,169,709 L.5,668 316,190 L.126 L.12,554
========= ==== ========== ======= ======= ===== =============
<CAPTION>
ACCUMULATED TOTAL
DEFICIT SHAREHOLDERS' EQUITY
L. L.
(L. IN THOUSANDS)
<S> <C> <C>
Balance at January 1, 1995......... L.(16,519) L.(1,815)
Shares issued before share exchange -- 1,850
Shares issued after share exchange. -- 1,804
Net loss........................... (7,252) (7,252)
---------- ----------
BALANCE AT SEPTEMBER 30, 1995...... L.(23,771) L.(5,413)
========== ==========
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
F-45
<PAGE> 192
EAST MIDLANDS CABLE GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1994 1995 1995
(IN THOUSANDS) (NOTE 1)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. L.(4,500) L.(7,252) $(11,260)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 1,465 1,925 2,989
Loss on disposition of assets........................ 46 24 37
Provision for losses on accounts receivable.......... 7 78 121
Accretion of zero coupon bonds....................... 1,629 2,770 4,302
Change in operating assets and liabilities:
Change in inventories................................ 8 7 11
Change in trade receivables.......................... (132) (538) (835)
Change in other assets............................... (483) (153) (238)
Change in accounts payable........................... 993 29 45
Change in other liabilities.......................... 173 531 824
--------- -------- --------
Net cash used in operating activities................ (794) (2,579) (4,004)
--------- -------- --------
Cash flows from investing activities:
Cash invested in property and equipment.............. (5,376) (7,220) (11,212)
Proceeds from disposition of assets.................. 8 -- --
Cash paid for franchises............................. -- (21) (33)
--------- -------- --------
Net cash used in investing activities................ (5,368) (7,241) (11,245)
--------- -------- --------
Cash flows from financing activities:
Issue of zero coupon bonds........................... 3,062 3,654 5,674
Capital element of capital lease obligations......... (102) (125) (194)
Issue of shares (net of expenses).................... 3,062 3,654 5,674
Repayment of loan.................................... (8) (6) (9)
Advances from shareholders........................... -- 2,619 4,067
Net increase in short-term borrowings................ 148 20 31
--------- ------- -------
Net cash provided by financing activities............ 6,162 9,816 15,243
--------- ------- -------
Net increase (decrease) in cash...................... -- (4) (6)
Cash at beginning of period.......................... -- 4 6
------------ ------------ -------
Cash at end of period................................ L. -- L. -- $--
============ ============ =======
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
F-46
<PAGE> 193
EAST MIDLANDS CABLE GROUP LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
East Midlands Cable Group Limited ("EMCG") owns and operates cable
television and telecommunications systems through its subsidiary LCL Cable
Communications Limited ("LCL Cable") focused on a regional market centered
around Leicester, England. The unaudited condensed consolidated financial
statements include the financial statements of EMCG and its subsidiaries. Until
April 26, 1995 the business was conducted by LCL Cable and its subsidiaries. On
April 26, 1995 the shareholders of LCL Cable transferred all their ordinary
shares of 40p each to EMCG in exchange for ordinary shares of 40p each in EMCG.
The transaction was accounted for on a predecessor basis.
The unaudited condensed consolidated financial statements of EMCG and its
subsidiaries have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The financial statements are stated in pounds sterling
(L.). Merely for convenience the financial statements contain translations of
certain pound sterling amounts into U.S. dollars at $1.5529 per L.1.00, the
noon buying rate in the City of New York for cable transfers in pounds sterling
as certified for customs purposes by the Federal Reserve Bank of New York on
June 28, 1996.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the periods ended September 30,
1995 and 1994 are unaudited. However, in the opinion of the management, such
statements include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results for the periods
presented. The results of operations for any interim period are not necessarily
indicative of the results for the full year. The interim financial statements
should be read in conjunction with the financial statements for the year ended
December 31, 1994 included elsewhere herein.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
CABLE OFFICE MOTOR
NETWORK EQUIPMENT VEHICLES TOTAL
(IN L. THOUSANDS)
<S> <C> <C> <C> <C>
Acquisition costs
Balance at January 1, 1995....... L.24,229 L.1,251 L.156 L.25,636
Additions........................ 8,281 377 187 8,845
Dispositions..................... (24) (4) -- (28)
Balance at September 30, 1995.... 32,486 1,624 343 34,453
Accumulated depreciation
Balance at January 1, 1995....... 4,012 440 130 4,582
Charge for period................ 1,684 176 27 1,887
Dispositions..................... (2) (2) -- (4)
Balance at September 30, 1995.... 5,694 614 157 6,465
September 30, 1995 net book value L.26,792 L.1,010 L.186 L.27,988
December 31, 1994 net book value. L.20,217 L.811 L.26 L.21,054
</TABLE>
F-47
<PAGE> 194
EAST MIDLANDS CABLE GROUP LIMITED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. EXTRAORDINARY LOSS
On June 30, 1995, a subsidiary of EMCG entered into a floating rate loan
agreement, and incurred L.1.496 million of arrangement costs. These costs were
deferred and were being amortized over the term of the debt as an adjustment to
yield. On September 27, 1995 the amount outstanding under the loan agreement of
L.2.0 million (which represented the amount drawn down to date) was repaid on
EMCG's behalf by Diamond Cable Communications Plc and the carrying value of the
arrangement costs at this date amounting to L.1.457 million was recognized as
an extraordinary loss in the consolidated statement of operations. As a result
of the repayment of the loan, the balance sheet of EMCG at September 30, 1995
reflects an amount owed to Diamond Cable Communications Plc within loans from
related parties.
In addition, on July 3, 1995, this same subsidiary of EMCG entered into a
five year agreement to swap floating rate interest obligations for fixed rate
obligations with the intention that the swap would hedge the loan agreement
entered into on June 30, 1995. The swap has a total nominal value of L.33.8
million and was entered into for a five year term. The interest rate swap has
been retained and has been recorded on the balance sheet in other liabilities
at its fair value of L.476,000 at the date upon which the debt was repaid, and
an extraordinary loss equal to this amount has been recognized in the
consolidated statement of operations.
5. SHAREHOLDERS' EQUITY
On April 26, 1995 the authorized share capital of LCL Cable being
24,570,000 A shares of 40p each, 325,000 B shares of 40p each, 100,000 C shares
of 40p each and 1,000,000 voting shares of 1p each were consolidated and
redesignated as 25,020,000 ordinary shares of 40p each.
On the same date, the shareholders of LCL Cable exchanged their shares and
their zero coupon bonds in LCL Cable for shares and zero coupon bonds in EMCG
in proportion to their holding in LCL Cable. As a result, LCL Cable became a
wholly owned subsidiary of EMCG. EMCG also acquired the share capital of
Hinckley Cable Communications Limited for consideration of L.1.
LCL Cable (Holdings) Limited ("LCLH"), a wholly owned subsidiary of EMCG,
then acquired the share capital and zero coupon bonds of LCL Cable from EMCG in
exchange for shares in LCLH and a loan of L.19.8 million.
On April 26, 1995 the authorized share capital of EMCG was subdivided and
re-designated as 24,570,000 A shares of 40p each, 325,000 B shares of 40p each,
100,000 C shares of 40p each and 1,000,000 voting shares of 1p each.
Effective September 27, 1995 the share capital and zero coupon bonds of
EMCG were acquired by Jewel Holdings Limited, a wholly owned subsidiary of
Diamond Cable Communications Plc, a company registered in England and Wales.
F-48
<PAGE> 195
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 196
========================================= ======================================
========================================= ======================================
<TABLE>
<S> <C>
NO PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST DIAMOND CABLE
NOT BE RELIED UPON AS HAVING BEEN COMMUNICATIONS PLC
AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE 13 1/4% SENIOR DISCOUNT
HEREUNDER SHALL UNDER ANY NOTES DUE SEPTEMBER 30, 2004
CIRCUMSTANCES CREATE AN IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN 11 3/4% SENIOR DISCOUNT
IS CORRECT AS OF ANY DATE SUBSEQUENT NOTES DUE DECEMBER 15, 2005
TO THE DATE HEREOF.
______________
TABLE OF CONTENTS
Page
----
Available Information...............
Service of Process and Enforcement
of Liabilities ...................
Prospectus Summary..................
Risk Factors........................
Exchange Rates......................
Use of Proceeds.....................
Capitalization......................
Selected Financial Data.............
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.....................
Business............................
Certain Regulatory Matters..........
Company Organization................
Shareholders........................
Management..........................
Certain Transactions................
Description of Company Debt.........
Description of Initial Senior Notes.
Description of New Senior Notes.....
Taxation............................
Plan of Distribution................
Validity of Senior Notes............
Experts............................. GOLDMAN, SACHS & CO.
Glossary............................
Index to Consolidated
Financial Statements.............. F-1
</TABLE>
========================================= ======================================
========================================= ======================================
<PAGE> 197
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 165 of the Company's Articles of Association provides:
"Subject to the provisions of the Companies Acts but without prejudice to
any indemnity to which a director may otherwise be entitled, every director or
other officer or auditor of the Company shall be indemnified out of the assets
of the Company against all costs, charges, losses, expenses and liabilities
incurred by him in the execution or discharge of his duties or the exercise of
his powers or otherwise in relation thereto, including (but without limitation)
any liability incurred by him in defending any proceedings, whether civil or
criminal, in which judgment is given in his favour (or the proceedings are
otherwise disposed of without any finding or admission of any material breach
of duty on his part) or in which he is acquitted or in connection with any
application in which relief is granted to him by the court from liability for
negligence, default, breach of duty or breach of trust in relation to the
affairs of the Company."
Section 310 of the Companies Act, 1985, provides:
"(1) This section applies to any provision, whether contained in a
company's articles or in any contract with the company or otherwise, for
exempting any officer of the company or any person (whether an officer or not)
employed by the company as auditor from, or indemnifying him against, any
liability which by virtue of any rule of law would otherwise attach to him in
respect of any negligence, default, breach of duty or breach of trust of which
he may be guilty in relation to the company.
(2) Except as provided by the following subsection, any such provision is
void.
(3) This section does not prevent a company --
(a) from purchasing and maintaining for any such officer or auditor
insurance against any such liability, or
(b) from indemnifying any such officer or auditor against any liability
incurred by him --
(i) in defending any proceedings (whether civil or criminal) in which
judgment is given in his favor or he is acquitted, or
(ii) in connection with any application under Section 144(3) or (4)
(acquisition of shares by innocent nominee) or section 727 (general power to
grant relief in case of honest and reasonable conduct) in which relief is
granted to him by the court."
Section 727 of the Companies Act, 1985, provides:
"(1) If in any proceedings for negligence, default, breach of duty or
breach of trust against an officer of a company or a person employed by a
company as auditor (whether he is or is not an officer of the company) it
appears to the court hearing the case that officer or person is or may be
liable in respect of the negligence, default, breach of duty or breach of
trust, but that he has acted honestly and reasonably, and that having regard to
all the circumstances of the case (including those connected with his
appointment) he ought fairly to be excused for the negligence, default, breach
of duty or breach of trust, that court may relieve him, either wholly or
partly, from his liability on such terms as it thinks fit.
i
<PAGE> 198
(2) If any such officer or person as above-mentioned has reason to
apprehend that any claim will or might be made against him in respect of any
negligence, default, breach of duty or breach of trust, he may apply to the
court for relief; and the court on the application has the same power to
relieve him as under this section it would have had if it had been a court
before which proceedings against that person for negligence, default, breach of
duty or breach of trust had been brought.
(3) Where a case to which subsection (1) applies is being tried by a judge
with a jury, the judge, after hearing the evidence, may, if he is satisfied
that the defendant or defender ought in pursuance of that subsection to be
relieved either in whole or in part from the liability sought to be enforced
against him, withdraw the case in whole or in part from the jury and forthwith
direct judgment to be entered for the defendant or defender on such terms as to
costs or otherwise as the judge may think proper."
To the extent permitted by English law, the Company will indemnify and
hold harmless each director and each officer or representative of the Company
who signs the Registration Statement and the Company's Authorized
Representative from and against certain civil liabilities based on information
supplied to the Company for use herein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The only securities of the Company issued or sold within the past three
years and not registered under the Securities Act were as follows: Two Shares
of 2.5 pence each taken by the subscribers to the Memorandum of Association of
the Company and the 29,016,628 Shares of 2.5 pence each and six A Shares of 25
pence each were issued to the former shareholders of Diamond Cable (Nottingham)
Limited in connection with the reorganization that occurred on September 1,
1994, and 4,597,456 Shares were issued to Investor Investment and CAA and
1,175,747 Shares were allotted by way of a bonus to the holders of the A shares
in accordance with the terms of such shares. On August 31, 1995, a total of
7,138,700 Shares of 2.5 pence each were issued to ECCP, Investor Investments,
CAA and William McDonald for gross proceeds of approximately L.20.4 million. A
further 1,825,642 Shares of 2.5 pence each were allotted on August 31, 1995 and
September 4, 1995 by way of a bonus to the holders of the A shares of 25 pence
each, in accordance with the terms of such Shares. The conditions in the
Articles relating to the conversion of the A shares of 25 pence each into
non-voting deferred shares of 25 pence each were thereby satisfied and the six
A shares of 25 pence each converted automatically into six non-voting deferred
shares of 25 pence each on September 4, 1995. On August 6, 1996, the Company
formally issued 15,384,616 Shares to existing investors who had subscribed and
paid for such Shares prior to June 30, 1996. The Company has issued share
options as described in "Management -- Senior Management Option Scheme" in the
accompanying Prospectus. These Shares and options were issued in transactions
not involving any public offering.
ii
<PAGE> 199
[Insert in 33-98374]
ITEM 16. EXHIBITS.
(A) EXHIBITS
The following is a list of exhibits to this Registration Statement:
*1.1 Form of Underwriting Agreement.
3.1 Memorandum and Articles of Association of Diamond Cable Communications
Plc.
*4.1 Form of Indenture, dated as of December 15, 1995, between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
*4.2 Form of Senior Notes Depositary Agreement, dated as of December 15, 1995,
between Diamond Cable Communications Plc and The Bank of New York, as
Book-Entry Depositary.
*5.1 Opinion of Sullivan & Cromwell as to the legality of the Senior Notes.
*5.2 Opinion of Freshfields as to due authorization and execution of the
Senior Notes
*8.1 Opinion of Sullivan & Cromwell as to certain U.S. federal income tax
matters.
*8.2 Opinion of Freshfields as to certain U.K. tax matters (included in
Exhibit 5.1).
*10.1 Shareholders Agreement, dated as of September 1, 1994 among ECCP,
AmSouth, as trustee for the McDonald Interests, CGT Family Corporation,
GS Capital Partners, L.P., William W. McDonald and Diamond Cable
Communications Plc.
*10.2 Management Agreement, dated July 5, 1994, between ECE Management Company
and Diamond Cable (Nottingham) Limited.
*10.3 Service Agreement, dated May 17, 1994, between Gary L. Davis and Diamond
Cable (Nottingham) Limited.
*10.4 Service Contract, dated March 1, 1994, between Duncan Craig and Diamond
Cable (Nottingham) Limited.
*10.5 Service Contract, dated March 1, 1994, between Stephen Rowles and Diamond
Cable (Nottingham) Limited.
*10.6 Senior Management Option Scheme, adopted on October 29, 1994, filed as an
exhibit to the 1994 Annual Report on Form 10-K, File No. 33-83740, and
incorporated by reference herein.
*10.7 Form of Subscription Agreement among Company and shareholders relating to
equity commitment (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 33-98374; Exhibit No. 10.7).
*10.8 Indenture, dated as of September 29, 1994 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee (incorporated by
reference to the Company's registration statement on Form S-1 (File No.
33-83740; Exhibit No. 4.1)).
*10.9 Senior Notes Depositary Agreement, dated as of September 29, 1994 between
Diamond Cable Communications Plc and The Bank of New York, as Book-Entry
Depositary (incorporated by reference to the Company's registration
statement on Form S-1 (File No. 33-83740; Exhibit No. 4.2)).
10.10 First Supplemental Indenture, dated as of May 31, 1996 between Diamond
Cable Communications Plc and The Bank of New York, as Trustee.
12 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of Registrant (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 33-98374; Exhibit No.
21.1)).
*23.1 Consent of Sullivan & Cromwell (included in Exhibits 5.1 and 8.1).
*23.2 Consent of Freshfields (included in Exhibits 5.2* and 8.2).
23.3 Consent of KPMG.
*25 Statement of Eligibility of Trustee on Form T-1.
- ---------------
* Previously filed.
(b) Financial Statement Schedules
Included within Notes to Consolidated Financial Statements included in the
Prospectus.
<PAGE> 200
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters, at the
closing specified in the Underwriting Agreement, Senior Notes in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 Act and will be governed by the final
adjudication of such issued.
(d) To file, during any period in which offers or sales are being
Made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(e) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(f) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
v
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Diamond Cable Communications Plc, certifies that it has duly caused
this Post-Effective Amendment No.4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in London, England,
on September -, 1996.
DIAMOND CABLE COMMUNICATIONS PLC
By: /s/ Gary L. Davis
---------------------------------
Name: Gary L. Davis
Title: Director and Managing Director
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No.4 to the Registration Statement has been signed by
the following persons in the capacities and on the date indicated above.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
*
- ------------------------------- Director, Chief Executive
Robert T. Goad Officer and Authorized
Representative in the United States
/s/ Gary L. Davis
- ------------------------------- Director and Managing Director
Gary L. Davis
*
- ------------------------------- Director
Richard A. Friedman
*
- ------------------------------- Director
William W. McDonald
*
- ------------------------------- Director
Muneer A. Satter
*
- ------------------------------- Director
John L. Thornton
- ------------------------------- Director
Thomas Nilsson
- ------------------------------- Director
Lord Francis Pym
/s/ Nicholas R. Millard
- ------------------------------- Chief Financial Officer
Nicholas Millard
/s/ J.A. Duncan Craig
- ------------------------------- Chief Accounting Officer
J.A. Duncan Craig
</TABLE>
*By: /s/ Gary L. Davis
--------------------------
Gary L. Davis
Attorney-in-fact
vi
<PAGE> 1
EXHIBIT 3.1
COMPANY NUMBER: 2965241
THE COMPANIES ACT 1985
PUBLIC COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
DIAMOND CABLE COMMUNICATIONS PLC
1. THE NAME OF THE COMPANY IS DIAMOND CABLE COMMUNICATIONS PLC.
2. THE COMPANY IS TO BE A PUBLIC COMPANY.
3. THE REGISTERED OFFICE OF THE COMPANY IS TO BE SITUATED IN ENGLAND.
4. THE OBJECTS FOR WHICH THE COMPANY IS ESTABLISHED ARE:-
(A) TO CARRY ON BUSINESS AS A HOLDING AND INVESTMENT COMPANY AND TO ACQUIRE
AND HOLD SHARES, STOCKS, DEBENTURE STOCKS, BONDS, MORTGAGES, OBLIGATIONS
AND OTHER SECURITIES OF ANY KIND ISSUED OR GUARANTEED BY ANY COMPANY,
CORPORATION, GOVERNMENT, PUBLIC BODY OR AUTHORITY OR UNDERTAKING OF
WHATEVER NATURE AND WHEREVER CONSTITUTED OR CARRYING ON BUSINESS.
(B) TO PURCHASE, TAKE ON LEASE, EXCHANGE, OR OTHERWISE ACQUIRE, BY WAY OF
INVESTMENT LAND, BUILDINGS, HOUSES, EASEMENTS, CONCESSIONS, IN ANY PART OF
THE WORLD AND ANY ESTATE OR INTEREST OR RIGHT THEREIN, INCLUDING FREEHOLD
OR LEASEHOLD GROUND RENTS, REVERSIONS, MORTGAGES, CHARGES AND ANNUITIES;
TO ALTER, IMPROVE, EXTEND, ADD TO, REBUILD, REPLACE, OR REPAIR ANY
BUILDINGS, STRUCTURES OR OTHER PROPERTY OF THE COMPANY; TO SELL, DEMISE,
LET OR GRANT LICENCES IN RESPECT OF THE WHOLE OR ANY PART OF THE PROPERTY
OF THE COMPANY ON SUCH TERMS AS THE COMPANY SHALL DETERMINE, AND TO MANAGE
AND MAINTAIN LAND, BUILDINGS AND OTHER PROPERTY WHETHER BELONGING TO THE
COMPANY, OR NOT AND TO COLLECT RENTS AND INCOME AND TO SUPPLY TENANTS,
OCCUPIERS OR LICENSEES, WHETHER OF THE PROPERTY OF THE COMPANY, OR NOT AND
OTHERS WITH MEALS, REFRESHMENTS, POWER, LIGHT, GAS, HEAT, WATER AND ANY
OTHER SERVICES.
1
<PAGE> 2
(C) TO ACQUIRE AND HOLD SHARES, STOCKS, DEBENTURES, DEBENTURE STOCK, SCRIP,
BONDS, NOTES, SECURITIES AND OBLIGATIONS, ISSUED OR GUARANTEED BY ANY
COMPANY CONSTITUTED OR CARRYING ON BUSINESS IN ANY PART OF THE WORLD, AND
FUNDS, LOANS, SECURITIES OR OBLIGATIONS OF OR ISSUED OR GUARANTEED BY ANY
GOVERNMENT, STATE OR DOMINION, PUBLIC BODY OR AUTHORITY, SUPREME
MUNICIPAL, LOCAL OR OTHERWISE, WHETHER AT HOME OR ABROAD.
(D) TO ACQUIRE ANY SUCH SHARES, STOCKS, DEBENTURES, DEBENTURE STOCK, SCRIP,
BONDS, NOTES, SECURITIES, OBLIGATIONS, FUNDS OR LOANS BY ORIGINAL
SUBSCRIPTION, TENDER, PURCHASE, PARTICIPATION IN SYNDICATES, EXCHANGE OR
OTHERWISE, AND WHETHER OR NOT FULLY PAID UP AND TO SUBSCRIBE FOR THE SAME
EITHER CONDITIONALLY OR OTHERWISE, AND TO GUARANTEE THE SUBSCRIPTION
THEREOF, AND TO EXERCISE AND ENFORCE ALL RIGHTS AND POWERS CONFERRED BY OR
INCIDENT TO THE OWNERSHIP THEREOF, AND TO VARY AND TRANSPOSE FROM TIME TO
TIME AS MAY BE CONSIDERED EXPEDIENT ANY OF THE COMPANY'S INVESTMENTS FOR
THE TIME BEING.
(E) TO CARRY ON ANY OTHER BUSINESS WHATSOEVER WHICH MAY, IN THE OPINION OF THE
DIRECTORS OF THE COMPANY, BE CAPABLE OF BEING CONVENIENTLY OR
ADVANTAGEOUSLY CARRIED ON IN CONNECTION WITH OR AS ANCILLARY TO ANY
BUSINESS OF THE COMPANY OR CALCULATED DIRECTLY OR INDIRECTLY TO ENHANCE
THE VALUE OF OR RENDER PROFITABLE ANY OF THE COMPANY'S PROPERTY OR ASSETS.
(F) TO ACQUIRE AND TAKE OVER THE WHOLE OR ANY PART OF THE BUSINESS, PROPERTY
AND LIABILITIES OF ANY COMPANY OR PERSON CARRYING ON ANY BUSINESS WHICH
THE COMPANY IS AUTHORISED TO CARRY ON, OR POSSESSED OF ANY PROPERTY OR
ASSETS SUITABLE FOR THE PURPOSES OF THE COMPANY.
(G) TO PURCHASE, TAKE ON LEASE OR IN EXCHANGE, HIRE OR OTHERWISE ACQUIRE
PATENTS, LICENCES, RIGHTS OR PRIVILEGES WHICH THE COMPANY MAY THINK
NECESSARY OR CONVENIENT FOR THE PURPOSES OF ITS BUSINESS,.
(H) TO PAY FOR ANY PROPERTY OR ASSETS ACQUIRED BY THE COMPANY EITHER IN CASH
OR FULLY OR PARTLY PAID SHARES OR BY THE ISSUE OF SECURITIES OR
OBLIGATIONS OR PARTLY IN ONE MODE AND PARTLY IN ANOTHER AND GENERALLY ON
SUCH TERMS AS MAY BE DETERMINED.
(I) TO BORROW OR RAISE MONEY OR TO SECURE OR DISCHARGE ANY DEBT OR OBLIGATION
(WHETHER OF THE COMPANY OR OF ANY OTHER PERSON) IN SUCH MANNER AS THE
BOARD OF DIRECTORS MAY THINK FIT AND IN PARTICULAR (BUT WITHOUT PREJUDICE
TO THE GENERALITY OF THE FOREGOING) TO MORTGAGE, CHARGE, PLEDGE OR GIVE
LIENS OR OTHER SECURITY UPON THE WHOLE OR ANY PART OF THE COMPANY'S
UNDERTAKING AND ALL OR ANY OF THE PROPERTY AND ASSETS (PRESENT AND
FUTURE), INCLUDING THE UNCALLED CAPITAL OF THE COMPANY, OR BY THE CREATION
AND ISSUE ON SUCH TERMS AND CONDITIONS AS MAY BE THOUGHT EXPEDIENT OF
DEBENTURES, DEBENTURE STOCK OR OTHER SECURITIES OF ANY DESCRIPTION, AND TO
RECEIVE MONEY ON DEPOSIT AND ADVANCE PAYMENTS WITH OR WITHOUT ALLOWANCE OF
INTEREST THEREON.
2
<PAGE> 3
(J) TO DRAW, MAKE, ACCEPT, ENDORSE, DISCOUNT, NEGOTIATE, EXECUTE AND ISSUE,
AND TO BUY, SELL AND DEAL IN BILLS OF EXCHANGE, BILLS OF LADING, WARRANTS,
DEBENTURES, PROMISSORY NOTES AND OTHER NEGOTIABLE OR TRANSFERABLE
INSTRUMENTS.
(K) TO ADVANCE, LEND OR DEPOSIT MONEY, AND TO GIVE CREDIT OR FINANCIAL
ACCOMMODATION TO ANY PERSON WITH OR WITHOUT TAKING ANY SECURITY THEREFOR
AND UPON SUCH OTHER TERMS AS MAY BE THOUGHT FIT BY THE COMPANY; AND TO
ENTER INTO ANY GUARANTEE, CONTRACT OF INDEMNITY OR SURETYSHIP IN RESPECT
OF THE OBLIGATIONS, ACTS OR OMISSIONS OF ANY THIRD PARTY (INCLUDING
WITHOUT LIMITATION ANY SUBSIDIARY OF THE COMPANY FROM TIME TO TIME) AND IN
PARTICULAR (WITHOUT PREJUDICE TO THE GENERALITY OF THE FOREGOING) TO
GUARANTEE, SUPPORT OR SECURE, WITH OR WITHOUT CONSIDERATION, WHETHER BY
PERSONAL OBLIGATION OR BY MORTGAGING OR CHARGING ALL OR ANY PART OF THE
UNDERTAKING, PROPERTY AND ASSETS (PRESENT AND FUTURE) AND UNCALLED
CAPITAL OF THE COMPANY OR BY BOTH SUCH METHODS OR IN ANY OTHER MANNER, THE
PERFORMANCE OF ANY CONTRACTS, OBLIGATIONS OR COMMITMENTS OF AND THE
REPAYMENT OR PAYMENT OF THE PRINCIPAL AMOUNTS OF AND ANY PREMIUMS,
INTEREST, DIVIDENDS AND OTHER MONEYS PAYABLE ON OR IN RESPECT OF ANY
SECURITIES OR LIABILITIES OF ANY PERSON, INCLUDING (WITHOUT PREJUDICE TO
THE GENERALITY OF THE FOREGOING) ANY COMPANY WHICH IS FOR THE TIME BEING A
SUBSIDIARY OR A MEMBER OF THE COMPANY OR SUBSIDIARY OF A MEMBER OF THE
COMPANY OR OTHERWISE ASSOCIATED WITH THE COMPANY AND WHETHER OR NOT ANY
CONSIDERATION OR ADVANTAGE IS RECEIVED BY THE COMPANY.
(L) TO ESTABLISH AND MAINTAIN OR PROCURE THE ESTABLISHMENT AND MAINTENANCE OF
ANY CONTRIBUTORY OR NON-CONTRIBUTORY PENSION OR SUPERANNUATION FUNDS FOR
THE BENEFIT OF AND TO GIVE OR PROCURE THE GIVING OF DONATIONS, GRATUITIES,
PENSIONS, ALLOWANCES OR EMOLUMENTS TO ANY PERSONS WHO ARE OR WERE AT ANY
TIME IN THE EMPLOYMENT OR SERVICE OF THE COMPANY OR OF ANY COMPANY WHICH IS
A SUBSIDIARY OF THE COMPANY OR IS ALLIED TO OR ASSOCIATED WITH THE COMPANY
OR WITH ANY SUCH SUBSIDIARY, OR WHO ARE OR WERE AT ANY TIME DIRECTORS OR
OFFICERS OF THE COMPANY OR OF ANY SUCH OTHER COMPANY AS AFORESAID, AND THE
WIVES, WIDOWS, FAMILIES AND DEPENDANTS OF ANY SUCH PERSONS, AND ALSO TO
ESTABLISH AND SUBSIDISE OR SUBSCRIBE TO ANY INSTITUTIONS, ASSOCIATIONS,
CLUBS OR FUNDS CALCULATED TO BE FOR THE BENEFIT OF OR TO ADVANCE THE
INTERESTS AND WELL-BEING OF THE COMPANY OR OF ANY SUCH OTHER COMPANY AS
AFORESAID OR OF ANY SUCH PERSONS AS AFORESAID, AND TO MAKE PAYMENTS FOR OR
TOWARDS THE INSURANCE OF ANY SUCH PERSONS AS AFORESAID, AND TO SUBSCRIBE OR
GUARANTEE MONEY FOR ANY CHARITABLE OR BENEVOLENT OBJECTS OR FOR ANY
EXHIBITION OR FOR ANY PUBLIC, GENERAL OR USEFUL OBJECT, AND TO DO ANY OF
THE MATTERS AFORESAID EITHER ALONE OR IN CONJUNCTION WITH ANY SUCH OTHER
COMPANY AS AFORESAID.
(M) TO ENTER INTO ANY PARTNERSHIP OR ARRANGEMENT IN THE NATURE OF A
PARTNERSHIP, CO-OPERATION OR UNION OF INTERESTS WITH ANY PERSON OR COMPANY
ENGAGED OR INTERESTED OR ABOUT TO BECOME ENGAGED OR INTERESTED IN THE
CARRYING ON OR CONDUCT OF ANY BUSINESS WHICH THE COMPANY IS AUTHORISED TO
CARRY ON OR CONDUCT OR FROM WHICH THE COMPANY WOULD OR MIGHT DERIVE ANY
BENEFIT WHETHER DIRECT OR INDIRECT.
3
<PAGE> 4
(N) TO ESTABLISH OR PROMOTE, OR JOIN IN THE ESTABLISHMENT OR PROMOTION OF, ANY
OTHER COMPANY WHOSE OBJECTS SHALL INCLUDE THE TAKING OVER OF ANY OF THE
ASSETS AND LIABILITIES OF THE COMPANY OR THE PROMOTION OF WHICH SHALL BE
CALCULATED TO ADVANCE ITS INTERESTS, AND TO ACQUIRE AND HOLD ANY SHARES,
SECURITIES OR OBLIGATIONS OF ANY SUCH COMPANY.
(O) TO AMALGAMATE WITH ANY OTHER COMPANY.
(P) TO SELL OR DISPOSE OF THE UNDERTAKING, PROPERTY AND ASSETS OF THE COMPAN Y
OR ANY PART THEREOF IN SUCH MANNER AND FOR SUCH CONSIDERATION AS THE
COMPANY MAY THINK FIT, AND IN PARTICULAR FOR SHARES (FULLY OR PARTLY PAID
UP), DEBENTURES, DEBENTURE STOCK, SECURITIES OR OBLIGATIONS OF ANY OTHER
COMPANY, WHETHER PROMOTED BY THE COMPANY FOR THE PURPOSE OR NOT, AND TO
IMPROVE, MANAGE, DEVELOP, EXCHANGE, LEASE, DISPOSE OF, TURN TO ACCOUNT OR
OTHERWISE DEAL WITH ALL OR ANY PART OF THE PROPERTY AND ASSETS OF THE
COMPANY.
(Q) SOLELY OR JOINTLY WITH OTHERS TO UNDERTAKE AND CARRY ON THE OFFICE OR
OFFICES AND DUTIES OF TRUSTEE, CUSTODIAN TRUSTEE, EXECUTOR,
ADMINISTRATOR, LIQUIDATOR, RECEIVER, ATTORNEY OR NOMINEE OF OR FOR ANY
PERSON, COMPANY, CORPORATION, ASSOCIATION, SCHEME, TRUST FUND, OR OTHER
BODY POLITIC OR CORPORATE AND TO UNDERTAKE AND EXECUTE ANY TRUST OR
DISCRETION AND FOR SUCH PURPOSES TO HOLD, DEAL WITH, MANAGE, DIRECT THE
MANAGEMENT OF, BUY, SELL, EXCHANGE OR OTHERWISE DISPOSE OF OR ACQUIRE ANY
RIGHT OR INTEREST IN OR OVER ANY REAL OR PERSONAL PROPERTY OF ANY KIND
WHATSOEVER AND TO UNDERTAKE AND CARRY ON ANY BUSINESS UNDERTAKING OR
TRANSACTION.
(R) TO PAY ALL OR ANY EXPENSES INCURRED IN CONNECTION WITH THE PROMOTION,
FORMATION, AND INCORPORATION OF THE COMPANY, OR TO CONTRACT WITH ANY
PERSON, FIRM OR COMPANY TO PAY THE SAME, AND TO PAY COMMISSIONS TO BROKERS
AND OTHERS FOR UNDERWRITING, PLACING, SELLING OR GUARANTEEING THE
SUBSCRIPTION OF ANY SHARES, DEBENTURES, DEBENTURE STOCK OR SECURITY OF THE
COMPANY.
(S) TO DISTRIBUTE ANY OF THE COMPANY'S PROPERTY OR ASSETS AMONG THE MEMBERS IN
SPECIE.
(T) TO CAUSE THE COMPANY TO BE REGISTERED OR RECOGNISED IN ANY FOREIGN
COUNTRY.
(U) TO DO ALL OR ANY OF THE ABOVE THINGS IN ANY PART OF THE WORLD, AND EITHER
AS PRINCIPAL, AGENT, TRUSTEE, FACTOR OR OTHERWISE, AND EITHER ALONE OR IN
CONJUNCTION WITH OTHERS, AND BY OR THROUGH AGENTS, SUB-CONTRACTORS,
TRUSTEES, FACTORS OR OTHERWISE.
(V) TO DO ALL SUCH OTHER THINGS AS MAY BE CONSIDERED TO BE INCIDENTAL OR
CONDUCIVE TO THE ATTAINMENT OF THE ABOVE OBJECTS, OR ANY OF THEM, AND THE
EXERCISE OF THE POWERS (WHETHER EXPRESS OR IMPLIED) OF THE COMPANY.
AND IT IS HEREBY DECLARED THAT THE WORD COMPANY IN THIS CLAUSE, EXCEPT WHERE
USED IN REFERENCE TO THIS COMPANY, SHALL BE DEEMED TO INCLUDE ANY PARTNERSHIP
OR OTHER BODY OF PERSONS, WHETHER INCORPORATED OR NOT INCORPORATED, AND WHETHER
DOMICILED
4
<PAGE> 5
IN THE UNITED KINGDOM OR ELSEWHERE, AND THAT THE INTENTION IS THAT
EACH OF THE OBJECTS SPECIFIED IN EACH PARAGRAPH OF THIS CLAUSE SHALL, EXCEPT
WHERE OTHERWISE EXPRESSED IN SUCH PARAGRAPH, BE AN INDEPENDENT MAIN OBJECT AND
BE IN NO WAY LIMITED OR RESTRICTED BY REFERENCE TO OR INFERENCE FROM THE TERMS
OF ANY OTHER PARAGRAPH OR THE NAME OF THE COMPANY.
4. THE LIABILITY OF THE MEMBERS IS LIMITED.
5. THE COMPANY'S SHARE CAPITAL IS L.1,750,001.50 DIVIDED INTO 70,000,000
ORDINARY SHARES OF 2.5 PENCE EACH AND SIX A SHARES OF 25 PENCE EACH.
WE, THE SUBSCRIBERS TO THIS MEMORANDUM OF ASSOCIATION, WISH TO BE FORMED INTO A
COMPANY PURSUANT TO THIS MEMORANDUM; AND WE AGREE TO TAKE THE NUMBER OF SHARES
SHOWN OPPOSITE OUR RESPECTIVE NAMES.
<TABLE>
<S> <C>
NAMES, ADDRESSES AND DESCRIPTIONS OF NUMBER OF SHARES TAKEN
SUBSCRIBERS BY EACH SUBSCRIBER
1. LAURIE G. MCFADDEN ONE ORDINARY SHARE OF
65 FLEET STREET 2.5 PENCE
LONDON
EC4Y 1HS
SOLICITOR [SIGNATURE] LAURIE MCFADDEN
2. NICHOLAS JELF ONE ORDINARY SHARE OF
65 FLEET STREET 2.5 PENCE
LONDON
EC4Y 1HS
SOLICITOR [SIGNATURE] NICHOLAS JELF
</TABLE>
DATED THE 31ST DAY OF AUGUST 1994
WITNESS TO THE ABOVE SIGNATURES: [SIGNATURE] MARIA MAUGHAN
MARIA MAUGHAN
65 FLEET STREET
LONDON EC4Y 1HS
5
<PAGE> 6
ARTICLES OF ASSOCIATION
OF
DIAMOND CABLE COMMUNICATIONS PLC
[LOGO] FRESHFIELDS
24 OCTOBER 1995
<PAGE> 7
CONTENTS
PRELIMINARY .................................................. 1
TABLE A .................................................... 1
DEFINITIONS ................................................ 1
CONSTRUCTION ............................................... 3
SHARE CAPITAL ................................................ 4
SHARE CAPITAL .............................................. 4
NON-VOTING DEFERRED SHARES ................................. 4
SHARES WITH SPECIAL RIGHTS ................................. 4
ALLOTMENT .................................................. 4
REDEEMABLE SHARES .......................................... 5
COMMISSIONS ................................................ 5
TRUSTS NOT RECOGNISED ...................................... 5
VARIATION OF RIGHTS .......................................... 5
METHOD OF VARYING RIGHTS ................................... 5
WHEN RIGHTS DEEMED TO BE VARIED ............................ 5
SHARE CERTIFICATES ........................................... 6
MEMBERS' RIGHTS TO CERTIFICATES ............................ 6
REPLACEMENT CERTIFICATES ................................... 6
LIEN ......................................................... 6
COMPANY TO HAVE LIEN ON SHARES ............................. 6
ENFORCEMENT OF LIEN BY SALE ................................ 6
GIVING EFFECT TO SALE ...................................... 7
APPLICATION OF PROCEEDS .................................... 7
CALLS ON SHARES .............................................. 7
POWER TO MAKE CALLS ........................................ 7
TIME WHEN CALL MADE ........................................ 7
LIABILITY OF JOINT HOLDERS ................................. 7
INTEREST PAYABLE ........................................... 7
DEEMED CALLS ............................................... 7
DIFFERENTIATION ON CALLS ................................... 8
PAYMENT OF CALLS IN ADVANCE ................................ 8
FORFEITURE AND SURRENDER ..................................... 8
NOTICE REQUIRING PAYMENT OF CALL ........................... 8
<PAGE> 8
FORFEITURE FOR NON-COMPLIANCE .............................. 8
SALE OF FORFEITED SHARES ................................... 8
LIABILITY FOLLOWING FORFEITURE ............................. 9
SURRENDER .................................................. 9
EXTINCTION OF RIGHTS ....................................... 9
EVIDENCE OF FORFEITURE OR SURRENDER ........................ 9
TRANSFER OF SHARES ........................................... 9
FORM AND EXECUTION OF TRANSFER ............................. 9
TRANSFERS OF PARTLY PAID SHARES ............................ 10
INVALID TRANSFERS .......................................... 10
NOTICE OF REFUSAL TO REGISTER .............................. 10
SUSPENSION OF REGISTRATION ................................. 10
NO FEE PAYABLE ON REGISTRATION ............................. 10
RETENTION OF TRANSFERS ..................................... 10
TRANSMISSION OF SHARES ....................................... 10
TRANSMISSION ............................................... 10
ELECTIONS PERMITTED/REQUIRED ............................... 10
RIGHTS OF PERSONS ENTITLED BY TRANSMISSION ................. 11
ALTERATION OF SHARE CAPITAL .................................. 11
ALTERATIONS BY ORDINARY RESOLUTION ......................... 11
NEW SHARES SUBJECT TO THESE ARTICLES ....................... 12
FRACTIONS ARISING .......................................... 12
POWER TO REDUCE CAPITAL .................................... 12
PURCHASE OF OWN SHARES ....................................... 12
POWER TO PURCHASE OWN SHARES ............................... 12
GENERAL MEETINGS ............................................. 12
TYPES OF GENERAL MEETING ................................... 12
CLASS MEETINGS ............................................. 13
CONVENING GENERAL MEETINGS ................................. 13
NOTICE OF GENERAL MEETINGS ................................... 13
PERIOD OF NOTICE ........................................... 13
CONTENTS OF NOTICE ......................................... 13
GENERAL MEETINGS AT MORE THAN ONE PLACE .................... 14
NOTICE AND CONDITIONS FOR HOLDING GENERAL MEETING IN
MORE THAN ONE PLACE ...................................... 14
CONTROLLING LEVEL OF ATTENDANCE ............................ 14
PLACE OF MEETING ........................................... 14
ADJOURNMENT TO MORE THAN ONE PLACE ......................... 14
ACCIDENTAL OMISSION TO GIVE NOTICE ......................... 14
<PAGE> 9
PROCEEDINGS AT GENERAL MEETINGS .............................. 15
QUORUM ..................................................... 15
IF QUORUM NOT PRESENT ...................................... 15
CHAIRMAN ................................................... 15
DIRECTORS ENTITLED TO SPEAK ................................ 15
ADJOURNMENTS ............................................... 15
AMENDMENTS TO RESOLUTIONS .................................. 16
METHODS OF VOTING .......................................... 16
DECLARATION OF RESULT ...................................... 16
WITHDRAWAL OF DEMAND FOR POLL .............................. 17
CONDUCT OF POLL ............................................ 17
CHAIRMAN'S CASTING VOTE .................................... 17
WHEN POLL TO BE TAKEN ...................................... 17
NOTICE OF POLL ............................................. 17
EFFECTIVENESS OF SPECIAL AND EXTRAORDINARY RESOLUTIONS ..... 17
VOTES OF MEMBERS ............................................. 17
RIGHT TO VOTE .............................................. 17
VOTES OF JOINT HOLDERS ..................................... 17
MEMBER UNDER INCAPACITY .................................... 18
CALLS IN ARREARS ........................................... 18
SECTION 212 OF THE ACT ..................................... 18
WHEN RESTRICTIONS CEASE TO HAVE EFFECT ..................... 19
CANCELLING RESTRICTIONS .................................... 19
LIABILITY NOT TO ARISE FROM SUSPENSION ..................... 19
PROVISIONS SUPPLEMENTARY TO ARTICLE 69 ..................... 20
SECTION 216 OF THE ACT ..................................... 20
SERVICE OF DISPOSAL NOTICE ................................. 20
WHEN DISPOSAL NOTICE NOT COMPLIED WITH ..................... 21
DETERMINATIONS OF THE BOARD ................................ 22
ERRORS IN VOTING ........................................... 22
OBJECTION TO VOTING ........................................ 22
SUPPLEMENTARY PROVISIONS ON VOTING ......................... 22
PROXIES AND CORPORATE REPRESENTATIVES ........................ 22
APPOINTMENT OF PROXY ....................................... 22
FORM OF PROXY .............................................. 22
DELIVERY OF FORM OF PROXY .................................. 23
VALIDITY OF FORM OF PROXY .................................. 23
CORPORATE REPRESENTATIVES .................................. 23
REVOCATION OF AUTHORITY .................................... 24
NUMBER OF DIRECTORS .......................................... 24
LIMITS ON NUMBER OF DIRECTORS .............................. 24
<PAGE> 10
APPOINTMENT AND RETIREMENT OF DIRECTORS ...................... 24
NUMBER OF DIRECTORS TO RETIRE .............................. 24
WHICH DIRECTORS TO RETIRE .................................. 24
WHEN DIRECTOR DEEMED TO BE RE-APPOINTED .................... 24
ELIGIBILITY FOR ELECTION ................................... 25
SEPARATE RESOLUTIONS ON APPOINTMENT ........................ 25
POSITION OF RETIRING DIRECTORS ............................. 25
ADDITIONAL POWERS OF THE COMPANY ........................... 25
APPOINTMENT BY BOARD ....................................... 25
CONFERRING SPECIAL RIGHTS TO APPOINT DIRECTORS ............. 25
AGE LIMIT .................................................. 26
NO SHARE QUALIFICATION ..................................... 26
ALTERNATE DIRECTORS .......................................... 26
POWER TO APPOINT ALTERNATES ................................ 26
ALTERNATES ENTITLED TO RECEIVE NOTICE ...................... 26
ALTERNATES REPRESENTING MORE THAN ONE DIRECTOR ............. 27
EXPENSES AND REMUNERATION OF ALTERNATES .................... 27
TERMINATION OF APPOINTMENT ................................. 27
METHOD OF APPOINTMENT AND REVOCATION ....................... 27
ALTERNATE NOT AN AGENT OF APPOINTOR ........................ 27
POWERS OF THE BOARD .......................................... 27
BUSINESS TO BE MANAGED BY BOARD ............................ 27
DELEGATION OF POWERS OF THE BOARD ............................ 28
COMMITTEES OF THE BOARD .................................... 28
LOCAL BOARDS, ETC. ......................................... 28
DELEGATIONS TO INDIVIDUAL DIRECTORS ........................ 28
AGENTS ..................................................... 29
OFFICES INCLUDING THE TITLE "DIRECTOR" ..................... 29
BORROWING POWERS ............................................. 29
POWER TO BORROW ............................................ 29
DEFINITION OF ADJUSTED CAPITAL AND RESERVES ................ 29
DEFINITION OF BORROWINGS ................................... 30
DEFINITION OF GROUP ........................................ 32
FOREIGN CURRENCY BORROWINGS ................................ 32
CASH SET-OFF ............................................... 33
MISCELLANEOUS EXCLUSIONS ................................... 33
WHERE LOWER AMOUNT DUE ON A DEFAULT ........................ 33
AUDITED BALANCE SHEET ...................................... 34
DETERMINATION OF AUDITORS CONCLUSIVE ....................... 34
PERSONS DEALING WITH THE COMPANY ........................... 34
<PAGE> 11
DISQUALIFICATION AND REMOVAL OF DIRECTORS .................... 35
DISQUALIFICATION AS A DIRECTOR ............................. 35
POWER OF COMPANY TO REMOVE DIRECTOR ........................ 35
REMUNERATION OF NON-EXECUTIVE DIRECTORS ...................... 36
ORDINARY REMUNERATION ...................................... 36
ADDITIONAL REMUNERATION FOR SPECIAL SERVICES ............... 36
DIRECTORS' EXPENSES .......................................... 36
DIRECTORS MAY BE PAID EXPENSES ............................. 36
EXECUTIVE DIRECTORS .......................................... 36
APPOINTMENT TO EXECUTIVE OFFICE ............................ 36
TERMINATION OF APPOINTMENT TO EXECUTIVE OFFICE ............. 37
EMOLUMENTS TO BE DETERMINED BY THE BOARD ................... 37
DIRECTORS' INTERESTS ......................................... 37
DIRECTORS MAY CONTRACT WITH THE COMPANY .................... 37
NOTIFICATION OF INTERESTS .................................. 37
EXERCISE BY COMPANY OF VOTING RIGHTS ....................... 38
GRATUITIES, PENSIONS AND INSURANCE ........................... 38
GRATUITIES AND PENSIONS .................................... 38
INSURANCE .................................................. 38
DIRECTORS NOT LIABLE TO ACCOUNT ............................ 38
SECTION 719 OF THE ACT ..................................... 39
PROCEEDINGS OF DIRECTORS ..................................... 39
CONVENING MEETINGS ......................................... 39
QUORUM ..................................................... 39
POWERS OF DIRECTORS IF NUMBER FALLS BELOW MINIMUM .......... 39
CHAIRMAN AND DEPUTY CHAIRMAN ............................... 39
VALIDITY OF ACTS OF THE BOARD .............................. 40
RESOLUTIONS IN WRITING ..................................... 40
MEETINGS BY TELEPHONE, ETC. ................................ 40
DIRECTORS' POWER TO VOTE ON CONTRACTS IN WHICH THEY
ARE INTERESTED ........................................... 41
EXCLUSION OF DIRECTOR FROM QUORUM .......................... 42
AMENDMENT OF RESTRICTIONS ON VOTING ........................ 42
DIVISION OF PROPOSALS ...................................... 42
DECISION OF CHAIRMAN FINAL AND CONCLUSIVE .................. 43
SECRETARY .................................................... 43
APPOINTMENT AND REMOVAL OF SECRETARY ....................... 43
MINUTES ...................................................... 43
MINUTES REQUIRED TO BE KEPT ................................ 43
<PAGE> 12
THE SEAL ..................................................... 43
AUTHORITY REQUIRED FOR USE OF SEAL ......................... 43
CERTIFICATES FOR SHARES AND DEBENTURES ..................... 43
OFFICIAL SEAL FOR USE ABROAD ............................... 44
EXECUTION OF INSTRUMENT AS A DEED UNDER HAND ............... 44
DELIVERY OF DEEDS .......................................... 44
REGISTERS .................................................... 44
OVERSEAS AND LOCAL REGISTERS ............................... 44
CERTIFIED COPIES ........................................... 44
DIVIDENDS .................................................... 44
DECLARATION OF DIVIDENDS ................................... 44
INTERIM DIVIDENDS .......................................... 45
APPORTIONMENT OF DIVIDENDS ................................. 45
DIVIDENDS IN SPECIE ........................................ 45
SCRIP DIVIDENDS ............................................ 45
PERMITTED DEDUCTIONS ....................................... 47
PROCEDURE FOR PAYMENT ...................................... 47
INTEREST NOT PAYABLE ....................................... 47
FORFEITURE OF UNCLAIMED DIVIDENDS .......................... 48
POWER TO CEASE SENDING DIVIDEND WARRANTS ................... 48
CAPITALISATION OF PROFITS AND RESERVES ....................... 48
POWER TO CAPITALISE ........................................ 48
RECORD DATES ................................................. 49
RECORD DATES FOR DIVIDENDS, ETC. ........................... 49
ACCOUNTS ..................................................... 49
RIGHTS TO INSPECT RECORDS .................................. 49
DELIVERY OF BALANCE SHEETS AND PROFIT AND LOSS ACCOUNTS .... 49
NOTICES ...................................................... 50
WHEN NOTICE REQUIRED TO BE IN WRITING ...................... 50
METHOD OF GIVING NOTICE .................................... 50
DEEMED RECEIPT OF NOTICE ................................... 50
NOTICE TO PERSONS ENTITLED BY TRANSMISSION ................. 50
TRANSFEREES ETC. BOUND BY PRIOR NOTICE ..................... 51
WHEN NOTICES BY POST DEEMED SERVED ......................... 51
NOTICE DURING DISRUPTION OF POSTAL SERVICES ................ 51
DESTRUCTION OF DOCUMENTS ..................................... 51
POWER OF COMPANY TO DESTROY DOCUMENTS ...................... 51
UNTRACED SHAREHOLDERS ........................................ 52
Temporarily altering registered address of an
untraced shareholder .................................... 52
<PAGE> 13
POWER TO DISPOSE OF SHARES OF UNTRACED SHAREHOLDERS ........ 53
TRANSFER ON SALE ........................................... 53
PROCEEDS OF SALE ........................................... 54
WINDING UP ................................................... 54
LIQUIDATOR MAY DISTRIBUTE IN SPECIE ........................ 54
DISPOSAL OF ASSETS BY LIQUIDATOR ........................... 54
INDEMNITY .................................................... 54
INDEMNITY TO DIRECTORS, OFFICERS, ETC. ..................... 54
<PAGE> 14
A PUBLIC COMPANY LIMITED BY SHARES
ARTICLES OF ASSOCIATION
OF
DIAMOND CABLE
COMMUNICATIONS PLC
PRELIMINARY
1. THE REGULATIONS IN TABLE A AS IN FORCE AT THE DATE OF THE INCORPORATION OF
THE COMPANY SHALL NOT APPLY TO THE COMPANY.
2. IN THESE ARTICLES, EXCEPT WHERE THE SUBJECT OR CONTEXT OTHERWISE REQUIRES:
ACT means the Companies Act 1985 including any modification or re-enactment
thereof for the time being in force;
ARTICLES means these articles of association as altered from time to time by
special resolution;
AUDITORS means the auditors for the time being of the Company or, in the case
of joint auditors, any one of them;
BOARD means the directors or any of them acting as the board of directors of
the Company;
CLEAR DAYS means the period excluding the day when a notice is given or deemed
to be given and the day for which it is given or on which it is to take effect;
COMPANIES ACTS means the meaning ascribed thereto by section 744 of the Act and
any enactment passed after those Acts which may, by virtue of that or any other
such enactment, be cited together with those Acts as the "Companies Acts" (with
or without the addition of an indication of the date of any such enactment);
DIRECTOR means a director of the Company;
DIVIDEND means dividend or bonus;
ECCP means European Cable Capital Partners, L.P., a Delaware limited
partnership, and its successors and assigns;
1
<PAGE> 15
HOLDER means in relation to any shares the member whose name is entered in the
register as the holder of such shares;
IPO means the admission of Ordinary Shares to listing, or the giving effect to
trading arrangements in relation to Ordinary Shares, on any recognised
investment exchange, whether or not including a sale of issued Ordinary Shares
or the subscription for new Ordinary Shares in the Company;
ITC means the Independent Television Commission established under the
Broadcasting Act 1990 or its successors under such act or any statutory
modification or re-enactment thereof for the time being in force;
LICENSING AUTHORITY means the ITC and any authority established under the
Telecommunications Act 1984, the Broadcasting Act 1990 or the Wireless
Telegraphy Acts 1949 to 1967 (and any statutory modifications or re-enactments
of the same for the time being in force) which has authority to grant, renew or
extend and which in any way regulates any of the Material Licences and
compliance with the terms thereof;
LONDON STOCK EXCHANGE means The International Stock Exchange of the United
Kingdom and the Republic of Ireland Limited;
MATERIAL LICENCE means any licence or licences under the Cable and
Broadcasting Act 1984, the Telecommunications Act 1984, the Broadcasting Act
1990 or the Wireless Telegraphy Acts 1949 to 1967 (and any statutory
modifications or re-enactments of the same for the time being in force) which
the board in its discretion determines to be material for the purposes of this
provision;
MEMBER means a member of the Company;
MEMORANDUM means the memorandum of association of the Company as amended from
time to time;
OFFICE means the registered office of the Company;
PAID means paid or credited as paid;
PERCENTAGE INTERESTS means the respective proportion of the issued Ordinary
Shares which are held from time to time by the member;
RECOGNISED CLEARING HOUSE and RECOGNISED INVESTMENT EXCHANGE mean any clearing
house or investment exchange (as the case may be) granted recognition under the
Financial Services Act 1986;
REGISTER means the register of members of the Company;
2
<PAGE> 16
SEAL means the common seal of the Company and includes any official seal kept
by the Company by virtue of section 39 or 40 of the Act;
SECRETARY means the secretary of the Company and includes a joint, assistant,
deputy or temporary secretary and any other person appointed to perform the
duties of the secretary;
UNITED KINGDOM means Great Britain and Northern Ireland.
3. References to a document being executed include references to its being
executed under hand or under seal or by any other method.
References to writing include references to any visible substitute for writing
and to anything partly in one form and partly in another form.
Words denoting the singular number include the plural number and vice versa;
words denoting the masculine gender include the feminine gender; and words
denoting persons include corporations.
Save as aforesaid any words or expressions defined in the Act (but excluding
any modification thereof not in force at the date of adoption of these
Articles) shall, if not inconsistent with the subject or context, bear the
same meaning in these Articles.
Subject to the preceding paragraph, references to any provision of any
enactment or of any subordinate legislation (as defined by section 21(1) of the
Interpretation Act 1978) include any modification or re-enactment of that
provision for the time being in force.
Headings are inserted for convenience only and do not affect the construction
of these Articles.
In these Articles, (a) powers of delegation shall not be restrictively
construed but the widest interpretation shall be given thereto; (b) the word
BOARD in the context of the exercise of any power contained in these Articles
includes any committee consisting of one or more directors, any director
holding executive office and any local or divisional board, manager or agent of
the Company to which or, as the case may be, to whom the power in question has
been delegated; (c) no power of delegation shall be limited by the existence
or, except where expressly provided by the terms of delegation, the exercise of
that or any other power of delegation; and (d) except where expressly provided
by the terms of delegation, the delegation of a power shall not exclude the
concurrent exercise of that power by any other body or person who is for the
time being authorised to exercise it under these Articles or under another
delegation of the power.
3
<PAGE> 17
SHARE CAPITAL
4.1 The authorised share capital of the Company on incorporation of the Company
is L.1,750,001.50 divided into 70,000,000 ordinary shares of 2.5 pence each
(ORDINARY SHARES) and six non-voting deferred shares of 25 pence each (the
DEFERRED SHARES).
4.2 The Deferred Shares shall have the following rights and be subject to the
following restrictions:
(a) on a return of capital on a winding-up or otherwise, the Deferred Shares
shall entitle the holders thereof only to the repayment of the amounts paid
up on such shares after payment in respect of each Ordinary Share of
L.100,000;
(b) the Deferred Shares shall not entitle the holders thereof to the payment of
any dividend or other distribution; and
(c) the Deferred Shares shall not entitle the holders thereof to receive notice
of or to attend or vote at any general meeting of the Company.
The Company has the irrevocable authority at any time to appoint any person to
execute on behalf of the holders of Deferred Shares a transfer thereof (and/or
an agreement to transfer the same) to such person as the Company may determine
as custodian thereof and/or to purchase the same without obtaining the sanction
of the holder or holders thereof and pending such transfer and/or purchase to
retain the certificate for Deferred Shares. Subject to the provisions of the
Companies Acts, the Company may at its option at any time after the creation of
any Deferred Shares redeem all of the Deferred Shares then in issue, at an
aggregate price not exceeding 1p for all the Deferred Shares redeemed, at any
time upon giving the registered holders of such shares not less than three day's
previous notice in writing of its intention so to do, fixing a time and place
for the redemption and, at such time and place so fixed, such registered holders
shall be bound to surrender to the Company the certificates for the Deferred
Shares in order that the same may be cancelled and the Company shall pay the
redemption monies to one of such registered holders to be determined by lot.
5. Subject to the provisions of the Companies Acts and without prejudice to any
rights attached to any existing shares or class of shares, any share may be
issued with such rights or restrictions as the Company may by ordinary
resolution determine or, subject to and in default of such determination, as
the board shall determine.
6. Subject to the provisions of the Companies Acts relating to authority,
pre-emption rights or otherwise and of any resolution of the Company in general
meeting passed pursuant thereto, and, in the case of redeemable
4
<PAGE> 18
shares, the provisions of Article 7, all unissued shares for the time being in
the capital of the Company shall be at the disposal of the board, and the board
may (subject as aforesaid) allot (with or without conferring a right of
renunciation), grant options over, or otherwise dispose of them to such persons,
on such terms and conditions, and at such times as it thinks fit.
7. Subject to the provisions of the Companies Acts, and without prejudice to
any rights attached to any existing shares or class of shares, shares may be
issued which are to be redeemed or are to be liable to be redeemed at the
option of the Company or the holder on such terms and in such manner as may be
provided by these Articles.
8. The Company may exercise all powers of paying commissions or brokerage
conferred or permitted by the Companies Acts. Subject to the provisions of the
Companies Acts, any such commission or brokerage may be satisfied by the
payment of cash or by the allotment of fully or partly paid shares or partly in
one way and partly in the other.
9. Except as required by law, no person shall be recognised by the Company as
holding any share upon any trust and (except as otherwise provided by these
Articles or by law) the Company shall not be bound by or recognise any interest
in any share (or in any fractional part of a share) except an absolute right to
the entirety thereof in the holder.
VARIATION OF RIGHTS
10. Subject to the provisions of the Companies Acts, if at any time the capital
of the Company is divided into different classes of shares, the rights attached
to any class may (unless otherwise provided by the terms of issue of the shares
of that class) be varied or abrogated, whether or not the Company is being
wound up, either with the consent in writing of the holders of three-quarters
in nominal value of the issued shares of the class or with the sanction of an
extraordinary resolution passed at a separate general meeting of the holders of
the shares of the class (but not otherwise).
For the purposes of this Article, unless otherwise expressly provided by the
rights attached to any shares or class of shares, those rights shall be deemed
to be varied by the reduction of the capital paid up on those shares otherwise
than by a purchase or redemption by the Company of its own shares and by the
allotment of other shares ranking in priority for payment of a dividend or in
respect of capital or which confer on the holders voting rights more favourable
than those conferred by such first mentioned shares, but shall not otherwise be
deemed to be varied by the creation or issue of other shares ranking pari passu
with, or subsequent to, such first mentioned shares or by the purchase or
redemption by the Company of any of its own shares.
5
<PAGE> 19
SHARE CERTIFICATES
11. Every member, upon becoming the holder of any shares (except a recognised
clearing house or a nominee of a recognised clearing house or of a recognised
investment exchange in respect of whom the Company is not required by law to
complete and have ready for delivery a certificate) shall be entitled, without
payment, to one certificate for all the shares of each class held by him (and,
upon transferring a part of his holding of shares of any class, to a
certificate for the balance of such holding) or several certificates each for
one or more of his shares upon payment for every certificate after the first of
such reasonable sum as the board may from time to time determine. Subject to
Article 134 every certificate shall be sealed with the seal or executed in
accordance with Article 136 and shall specify the number, class and
distinguishing numbers (if any) of the shares to which it relates and the
amount or respective amounts paid up thereon. The Company shall not be bound
to issue more than one certificate for shares held jointly by several persons
and delivery of a certificate to one joint holder shall be a sufficient
delivery to all of them. Shares of different classes may not be included in
the same certificate.
12. If a share certificate is defaced, worn out, lost or destroyed, it may be
renewed on such terms (if any) as to evidence and indemnity (with or without
security) and payment of any exceptional out-of-pocket expenses reasonably
incurred by the Company in investigating evidence and preparing the requisite
form of indemnity as the board may determine but otherwise free of charge, and
(in the case of defacement or wearing out) on delivery up of the old
certificate.
LIEN
13. The Company shall have a first and paramount lien on every share (not being
a fully paid share) for all moneys payable to the Company (whether presently or
not) in respect of that share. The board may at any time (generally or in
particular cases) waive any lien or declare any share to be wholly or in part
exempt from the provisions of this Article. The Company's lien on a share
shall extend to any amount (including dividends) payable in respect of it.
14. The Company may sell, in such manner as the board determines, any share on
which the Company has a lien if a sum in respect of which the lien exists is
presently payable and is not paid within fourteen clear days after notice has
been given to the holder of the share or to the person entitled to it in
consequence of the death or bankruptcy of the holder or otherwise by operation
of law, demanding payment and stating that if the notice is not complied with
the shares may be sold.
6
<PAGE> 20
To give effect to any such sale the board may authorise some person to execute
an instrument of transfer of the shares sold to, or in accordance with the
directions of, the purchaser. The transferee shall not be bound to see to the
application of the purchase money nor shall his title to the shares be affected
by any irregularity in or invalidity of the proceedings in relation to the
sale.
The net proceeds of the sale, after payment of the costs, shall be applied in
or towards payment or satisfaction of so much of the sum in respect of which
the lien exists as is presently payable, and any residue shall (upon surrender
to the Company for cancellation of the certificate for the shares sold and
subject to a like lien for any moneys not presently payable as existed upon the
shares before the sale) be paid to the person entitled to the shares at the
date of the sale.
CALLS ON SHARES
15. Subject to the terms of allotment, the board may from time to time make
calls upon the members in respect of any moneys unpaid on their shares (whether
in respect of nominal value or premium) and each member shall (subject to
receiving at least fourteen clear days' notice specifying when and where
payment is to be made) pay to the Company as required by the notice the amount
called on his shares. A call may be required to be paid by instalments. A
call may be revoked in whole or part and the time fixed for payment of a call
may be postponed in whole or part as the board may determine. A person upon
whom a call is made shall remain liable for calls made upon him notwithstanding
the subsequent transfer of the shares in respect whereof the call was made.
16. A call shall be deemed to have been made at the time when the resolution of
the board authorising the call was passed.
17. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
18. If a call or any instalment of a call remains unpaid in whole or in part
after it has become due and payable the person from whom it is due and payable
shall pay interest on the amount unpaid from the day it became due and payable
until it is paid at the rate fixed by the terms of allotment of the share or in
the notice of the call or, if no rate is fixed, such rate, not exceeding 15 per
cent. per annum or, if higher, the appropriate rate (as defined by the Act), as
may be determined by the board, but the board may waive payment of such
interest wholly or in part.
19. An amount payable in respect of a share on allotment or at any fixed date,
whether in respect of nominal value or premium or as an instalment of a call,
shall be deemed to be a call duly made and notified and payable on the
7
<PAGE> 21
date so fixed or in accordance with the terms of the allotment, and if it is not
paid the provisions of these Articles shall apply as if that amount had become
due and payable by virtue of a call duly made and notified.
20. Subject to the terms of allotment, the board may make arrangements on the
issue of shares for a difference between the allottees and/or holders in the
amounts and times of payment of calls on their shares.
21. The board may, if it thinks fit, receive from any member willing to advance
the same all or any part of the moneys uncalled and unpaid upon any shares held
by him and such payment in advance of calls shall extinguish pro tanto the
liability upon the shares in respect of which it is made, and may pay upon all
or any of the moneys so advanced (until the same would but for such advance
become presently payable) interest at such rate not exceeding (unless the
Company by ordinary resolution may otherwise direct) 15 per cent. per annum
or, if higher, the appropriate rate (as defined in the Act) as may be agreed
upon between the board and such member.
FORFEITURE AND SURRENDER
22. If a call or any instalment of a call remains unpaid in whole or in part
after it has become due and payable, the board may give to the person from whom
it is due not less than fourteen clear days' notice in writing requiring
payment of the amount unpaid together with any interest which may have accrued
and any costs, charges and expenses incurred by the Company by reason of such
non-payment. The notice shall name the place where payment is to be made and
shall state that if the notice is not complied with the shares in respect of
which the call was made will be liable to be forfeited.
23. If any such notice is not complied with, any share in respect of which it
was given may, at any time before the payment required by the notice has been
made, be forfeited by a resolution of the board and the forfeiture shall
include all dividends or other moneys payable in respect of the forfeited
shares and not paid before the forfeiture. When any share has been forfeited,
notice of the forfeiture shall be served upon the person who was before the
forfeiture the holder of the share, and an entry of such notice having been
given and of the forfeiture with the date thereof shall forthwith be made in
the register opposite the entry of the share; but no forfeiture shall be
invalidated by any omission or neglect to give such notice or to make such
entries.
24. Subject to the provisions of the Companies Acts, a forfeited share shall be
deemed to belong to the Company and may be sold, re-allotted or otherwise
disposed of on such terms and in such manner as the board determines, either to
the person who was before the forfeiture the holder or to any other person, and
at any time before sale, re-allotment or other disposal, the forfeiture may be
cancelled on such terms as the board thinks fit.
8
<PAGE> 22
Where for the purposes of its disposal a forfeited share is to be transferred to
any person the board may authorise some person to execute an instrument of
transfer of the share to that person. The Company may receive the consideration
given for the share on its disposal and may register the transferee as holder of
the share.
25. A person any of whose shares have been forfeited shall cease to be a member
in respect of them and shall surrender to the Company for cancellation the
certificate for the shares forfeited but shall remain liable to the Company for
all moneys which at the date of forfeiture were presently payable by him to the
Company in respect of those shares with interest thereon at the rate at which
interest was payable on those moneys before the forfeiture or, if no interest
was so payable, at such rate, not exceeding 15 per cent. per annum or, if
higher, the appropriate rate (as defined in the Act) as the board may
determine, from the date of forfeiture until payment, but the board may waive
payment wholly or in part or enforce payment without any allowance for the
value of the shares at the time of forfeiture or for any consideration received
on their disposal.
26. The board may accept the surrender of any share which it is in a position
to forfeit upon such terms and conditions as may be agreed and, subject to any
such terms and conditions, a surrendered share shall be treated as if it had
been forfeited.
27. The forfeiture of a share shall involve the extinction at the time of
forfeiture of all interest in and all claims and demands against the Company in
respect of the share and all other rights and liabilities incidental to the
share as between the person whose share is forfeited and the Company, except
only such of those rights and liabilities as are by these Articles expressly
saved, or as are by the Companies Acts given or imposed in the case of past
members.
28. A statutory declaration by a director or the secretary that a share has
been duly forfeited or surrendered on a specified date shall be conclusive
evidence of the facts stated in it as against all persons claiming to be
entitled to the share and the declaration shall (subject to the execution of an
instrument of transfer if necessary) constitute a good title to the share and
the person to whom the share is disposed of shall not be bound to see to the
application of the purchase money, if any, nor shall his title to the share be
affected by any irregularity in, or invalidity of, the proceedings with
reference to the forfeiture, surrender, sale, re-allotment or disposal of the
share.
TRANSFER OF SHARES
29. The instrument of transfer of a share may be in any usual form or in any
other form which the board may approve and shall be signed by or on behalf of
the transferor and, unless the share is fully paid, by or on behalf of the
transferee. An instrument of transfer need not be under seal.
9
<PAGE> 23
30. The board may, in its absolute discretion and without giving any reason,
refuse to register the transfer of a share which is not fully paid.
31. The board may also refuse to register the transfer of a share unless the
instrument of transfer:
(a) is lodged, duly stamped, at the office or at such other place as the board
may appoint accompanied by the certificate for the shares to which it
relates and such other evidence as the board may reasonably require to show
the right of the transferor to make the transfer;
(b) is in respect of only one class of shares; and
(c) is in favour of not more than four transferees.
In the case of a transfer by a recognised clearing house or a nominee of a
recognised clearing house or of a recognised investment exchange, the lodgement
of share certificates will only be necessary if and to the extent that
certificates have been issued in respect of the shares in question.
32. If the board refuses to register the transfer, it shall within two months
after the date on which the instrument of transfer was lodged with the Company
send to the transferee notice of the refusal.
33. The registration of transfers of shares or of transfers of any class of
shares may be suspended at such times and for such periods (not exceeding
thirty days in any year) as the board may determine.
34. No fee shall be charged for the registration of any instrument of
transfer or other document relating to or affecting the title to any share.
35. The Company shall be entitled to retain any instrument of transfer which is
registered, but any instrument of transfer which the board refuses to register
shall be returned to the person lodging it when notice of the refusal is given.
TRANSMISSION OF SHARES
36. If a member dies the survivor or survivors where he was a joint holder,
and his personal representatives where he was a sole holder or the only
survivor of joint holders, shall be the only persons recognised by the Company
as having any title to his interest; but nothing herein contained shall release
the estate of a deceased member (whether a sole or joint holder) from any
liability in respect of any share held by him.
37. A person becoming entitled to a share in consequence of the death or
bankruptcy of a member or otherwise by operation of law may, upon such evidence
being produced as the board may properly require as to his
10
<PAGE> 24
entitlement, elect either to become the holder of the share or to have some
person nominated by him registered as the transferee. If he elects to become
the holder he shall give notice to the Company to that effect. If he elects to
have another person registered, he shall execute an instrument of transfer of
the share to that person. All the provisions of these Articles relating to the
transfer of shares shall apply to any such notice or instrument of transfer as
if it were an instrument of transfer executed by the member and the death or
bankruptcy of the member or other event giving rise to the transmission had not
occurred.
The board may at any time give notice requiring any such person to elect either
to be registered himself or to transfer the share and if the notice is not
complied with within sixty days the board may thereafter withhold payment of
all dividends or other moneys payable in respect of the share until the
requirements of the notice have been complied with.
38. A person becoming entitled to a share in consequence of the death or
bankruptcy of a member or otherwise by operation of law shall, upon such
evidence being produced as the board may properly require as to his entitlement
and subject to the requirements of Article 37, have the same rights in relation
to the share as he would have had if he were the holder of the share, and may
give a discharge for all dividends and other moneys payable in respect of the
share, but he shall not, before being registered as the holder of the share, be
entitled in respect of it to receive notice of or to attend or vote at any
meeting of the Company or to receive notice of or to attend or vote at any
separate meeting of the holders of any class of shares in the Company.
ALTERATION OF SHARE CAPITAL
39. The Company may by ordinary resolution:
(a) increase its share capital by such sum to be divided into shares of such
amount as the resolution prescribes;
(b) consolidate and divide all or any of its share capital into shares of larger
amount than its existing shares;
(c) subject to the provisions of the Companies Acts, sub-divide its shares, or
any of them, into shares of smaller amount than is fixed by the Memorandum
and the resolution may determine that, as between the shares resulting from
the sub-division, any of them may have any preference or advantage as
compared with the others; and
(d) cancel shares which, at the date of the passing of the resolution, have not
been taken or agreed to be taken by any person and diminish the amount of
its share capital by the amount of the shares so cancelled.
11
<PAGE> 25
40. All new shares shall be subject to the provisions of these Articles with
reference to payment of calls, lien, forfeiture, transfer, transmission and
otherwise, and, unless otherwise provided by these Articles, by the resolution
creating the new shares or by the conditions of issue, the new shares shall be
unclassified shares.
41. Whenever as a result of a consolidation or sub-division of shares any
fractions arise, the board may settle the matter in any manner it deems fit and
in particular may sell shares representing fractions to which any members would
otherwise become entitled to any person (including, subject to the provisions
of the Companies Acts, the Company) and distribute the net proceeds of sale in
due proportion among those members, and the board may authorise some person to
execute an instrument of transfer of the shares to, or in accordance with the
directions of, the purchaser. The transferee shall not be bound to see to the
application of the purchase moneys nor shall his title to the shares be
affected by any irregularity in or invalidity of the proceedings in relation to
the sale.
42. Subject to the provisions of the Companies Acts, the Company may by
special resolution reduce its share capital, any capital redemption reserve and
any share premium account in any way.
PURCHASE OF OWN SHARES
43. Subject to and in accordance with the provisions of the Companies Acts and
without prejudice to any relevant special rights attached to any class of
shares, the Company may purchase any of its own shares of any class (including
redeemable shares) at any price (whether at par or above or below par), and so
that any shares to be so purchased may be selected in any manner whatsoever.
Every contract for the purchase of, or under which the Company may become
entitled or obliged to purchase, shares in the Company shall be authorised by
such resolution of the Company as may be required by the Companies Acts.
Neither the Company nor the board shall be required to select the shares to be
purchased rateably, or in any other particular manner, as between the holders
of shares of the same class or as between them and the holders of shares of any
other class or in accordance with the rights as to dividends or capital
conferred by any class of shares.
GENERAL MEETINGS
44. All general meetings of the Company other than annual general meetings
shall be called extraordinary general meetings. The board shall convene and
the Company shall hold general meetings as annual general meetings in
accordance with the requirements of the Act.
12
<PAGE> 26
45. All provisions of these Articles relating to general meetings of the
Company shall, mutatis mutandis, apply to every separate general meeting of the
holders of any class of shares in the capital of the Company, except that:
(a) the necessary quorum shall be two persons holding or representing by proxy
at least one-third in nominal value of the issued shares of the class or, at
any adjourned meeting of such holders, one holder present in person or by
proxy, whatever the amount of his holding, who shall be deemed to constitute
a meeting;
(b) any holder of shares of the class present in person or by proxy may demand a
poll; and
(c) each holder of shares of the class shall, on a poll, have one vote in
respect of every share of the class held by him.
46. Subject to the provisions of Article 44, the board may call general
meetings whenever and at such times and places as it shall determine and, on
the requisition of members pursuant to the provisions of the Companies Acts,
shall forthwith proceed to convene an extraordinary general meeting in
accordance with the requirements of the Companies Acts. If there are not
within the United Kingdom sufficient directors to call a general meeting, any
director of the Company may call a general meeting.
NOTICE OF GENERAL MEETINGS
47. An annual general meeting and an extraordinary general meeting called for
the passing of a special resolution or a resolution appointing a person as a
director shall be called by at least twenty-one clear days' notice. All other
extraordinary general meetings shall be called by at least fourteen clear days'
notice.
Subject to the provisions of these Articles and to any restrictions imposed on
any shares, the notice shall be given to all the members, to each of the
directors and to the auditors for the time being of the Company.
48. The notice shall specify the time and place of the meeting and, in the
case of special business, the general nature of such business. All business
shall be deemed special that is transacted at an extraordinary general meeting
and also all business that is transacted at an annual general meeting with the
exception of:
(a) the declaration of dividends;
(b) the consideration and adoption of the accounts and balance sheet and the
reports of the directors and auditors and other documents required to be
annexed to the accounts;
13
<PAGE> 27
(c) the appointment and re-appointment of directors;
(d) the appointment of auditors where special notice of the resolution for such
appointment is not required by the Companies Acts; and
(e) the fixing of, or the determining of the method of fixing, the remuneration
of the directors and/or auditors.
The notice shall, in the case of an annual general meeting, specify the meeting
as such, and, in the case of a meeting to pass a special or extraordinary
resolution, specify the intention to propose the resolution as a special or
extraordinary resolution, as the case may be.
49. The provisions of this Article shall apply if any general meeting is
convened at or adjourned to more than one place.
The notice of the meeting or adjourned meeting shall specify the place at which
the chairman of the meeting shall preside (the SPECIFIED PLACE) and the
directors shall make arrangements for simultaneous attendance and participation
at other places (whether adjoining the Specified Place or in a different and
separate place or places altogether or otherwise) by members, provided that
persons attending at any particular place shall be able to see and hear and be
seen and heard (whether by audio visual links or otherwise) by persons
attending at the other places at which the meeting is convened.
The directors may from time to time make such arrangements for the purpose of
controlling the level of attendance at any such place (whether involving the
issue of tickets or the imposition of some means of selection or otherwise) as
they shall in their absolute discretion consider appropriate, and may from time
to time vary any such arrangements or make new arrangements in place of them,
provided that a member who is not entitled to attend, in person or by proxy, at
any particular place shall be entitled so to attend at one of the other places;
and the entitlement of any member so to attend the meeting or adjourned meeting
at such place shall be subject to any such arrangements as may be for the time
being in force and by the notice of meeting or adjourned meeting stated to
apply to the meeting.
For the purposes of all other provisions of these Articles any such meeting
shall be treated as being held at the Specified Place.
If a meeting is adjourned to more than one place, notice of the adjourned
meeting shall be given notwithstanding any other provision of these Articles.
50. The accidental omission to give notice of a meeting, or to send a form of
proxy with a notice where required by these Articles, to any person entitled to
receive the same, or the non-receipt of a notice of meeting or form of proxy by
any such person, shall not invalidate the proceedings at that meeting.
14
<PAGE> 28
PROCEEDINGS AT GENERAL MEETINGS
51. No business shall be transacted at any general meeting unless a quorum is
present, but the absence of a quorum shall not preclude the choice or
appointment of a chairman, which shall not be treated as part of the business
of the meeting. Save as otherwise provided by these Articles, two persons
present in person or by proxy and entitled to vote upon the business to be
transacted shall be a quorum.
52. If such a quorum is not present within five minutes (or such longer time
not exceeding thirty minutes as the chairman of the meeting may decide to wait)
from the time appointed for the meeting, or if during a meeting such a quorum
ceases to be present, the meeting, if convened on the requisition of members,
shall be dissolved, and in any other case shall stand adjourned to such time
and place as the chairman of the meeting may determine. If at the adjourned
meeting a quorum is not present within fifteen minutes after the time appointed
for holding the meeting, the meeting shall be dissolved.
53. The chairman, if any, of the board or, in his absence, any deputy chairman
of the Company or, in his absence, some other director nominated by the board,
shall preside as chairman of the meeting, but if neither the chairman, deputy
chairman nor such other director (if any) is present within five minutes after
the time appointed for holding the meeting or is not willing to act as
chairman, the directors present shall elect one of their number to be chairman.
If there is only one director present and willing to act, he shall be chairman.
If no director is willing to act as chairman, or if no director is present
within five minutes after the time appointed for holding the meeting, the
members present and entitled to vote shall choose one of their number to be
chairman.
54. A director shall, notwithstanding that he is not a member, be entitled to
attend and speak at any general meeting and at any separate meeting of the
holders of any class of shares in the Company.
55. The chairman may, with the consent of a meeting at which a quorum is
present (and shall if so directed by the meeting), adjourn the meeting from
time to time and from place to place, but no business shall be transacted at an
adjourned meeting other than business which might properly have been transacted
at the meeting had the adjournment not taken place. In addition, the chairman
may adjourn the meeting to another time and place without such consent if it
appears to him that it is likely to be impracticable to hold or continue that
meeting because of the number of members wishing to attend who are not present.
When a meeting is adjourned for thirty days or more or for an indefinite
period, at least seven clear days' notice shall be given specifying the time
and place of the adjourned meeting and the general nature of the business to be
transacted. Otherwise it shall not be necessary to
15
<PAGE> 29
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
56. If an amendment shall be proposed to any resolution under consideration
but shall in good faith be ruled out of order by the chairman of the meeting,
the proceedings on the substantive resolution shall not be invalidated by any
error in such ruling. With the consent of the chairman of the meeting, an
amendment may be withdrawn by its proposer before it is voted upon. In the
case of a resolution duly proposed as a special or extraordinary resolution, no
amendment thereto (other than a mere clerical amendment to correct a patent
error) may in any event be considered or voted upon. Except with the consent
of the Chairman, no amendment to a resolution under consideration may be
proposed unless, at least forty-eight hours prior to the time appointed for
holding the meeting or adjourned meeting at which the resolution is to be
proposed, notice in writing of the terms of the amendment and intention to move
the same has been lodged at the office.
57. A resolution put to the vote of a general meeting shall be decided on a
show of hands unless, before or on the declaration of the result of a vote on
the show of hands or on the withdrawal of any other demand for a poll, a poll
is duly demanded. Subject to the provisions of the Companies Acts, a poll may
be demanded by:
(a) the chairman of the meeting; or
(b) at least three members present in person or by proxy having the right to
vote at the meeting; or
(c) any member or members present in person or by proxy representing not less
than one-tenth of the total voting rights of all the members having the
right to vote at the meeting; or
(d) any member or members present in person or by proxy holding shares
conferring a right to vote at the meeting being shares on which an aggregate
sum has been paid up equal to not less than one-tenth of the total sum paid
up on all the shares conferring that right,
and a demand by a person as proxy for a member shall be the same as a demand by
the member.
58. Unless a poll is duly demanded a declaration by the chairman that a
resolution has been carried or carried unanimously, or by a particular
majority, or lost, or not carried by a particular majority and an entry to that
effect in the minutes of the meeting shall be conclusive evidence of the fact
without proof of the number or proportion of the votes recorded in favour of or
against the resolution.
16
<PAGE> 30
59. The demand for a poll may, before the poll is taken, be withdrawn but only
with the consent of the chairman and a demand so withdrawn shall not be taken
to have invalidated the result of a show of hands declared before the demand
was made. If the demand for a poll is withdrawn, the chairman or any other
member entitled may demand a poll.
60. A poll shall be taken as the chairman directs and he may appoint
scrutineers (who need not be members) and fix a time and place for declaring
the result of the poll. The result of the poll shall be deemed to be the
resolution of the meeting at which the poll was demanded.
61. In the case of an equality of votes, whether on a show of hands or on a
poll, the chairman shall be entitled to a casting vote in addition to any other
vote he may have.
62. A poll demanded on the election of a chairman or on a question of
adjournment shall be taken forthwith. A poll demanded on any other question
shall be taken either forthwith or at such time and place as the chairman
directs not being more than thirty days after the poll is demanded. The demand
for a poll shall not prevent the continuance of a meeting for the transaction
of any business other than the question on which the poll was demanded. If a
poll is demanded before the declaration of the result of a show of hands and
the demand is duly withdrawn, the meeting shall continue as if the demand had
not been made.
63. No notice need be given of a poll not taken forthwith if the time and
place at which it is to be taken are announced at the meeting at which it is
demanded. In any other case at least seven clear days' notice shall be given
specifying the time and place at which the poll is to be taken.
64. Where for any purpose an ordinary resolution of the Company is required, a
special or extraordinary resolution shall also be effective and where for any
purpose an extraordinary resolution is required a special resolution shall also
be effective.
VOTES OF MEMBERS
65. Subject to any rights or restrictions attached to any shares, on a show of
hands every member who is present in person shall have one vote and on a poll
every member present in person or by proxy shall have one vote for every share
of which he is the holder.
66. In the case of joint holders of a share the vote of the senior who tenders
a vote, whether in person or by proxy, shall be accepted to the exclusion of
the votes of the other joint holders and for this purpose seniority shall be
determined by the order in which the names of the holders stand in the
register.
17
<PAGE> 31
67. A member in respect of whom an order has been made by any court or
official having jurisdiction (whether in the United Kingdom or elsewhere) in
matters concerning mental disorder may vote, whether on a show of hands or on a
poll, by his receiver, curator bonis or other person authorised in that behalf
appointed by that court or official, and any such receiver, curator bonis or
other person may, on a poll, vote by proxy. Evidence to the satisfaction of the
board of the authority of the person claiming to exercise the right to vote
shall be deposited at the office, or at such other place as is specified in
accordance with these Articles for the deposit of instruments of proxy, not
less than 48 hours before the time appointed for holding the meeting or
adjourned meeting at which the right to vote is to be exercised and in default
the right to vote shall not be exercisable.
68. No member shall be entitled to vote at any general meeting or at any
separate meeting of the holders of any class of shares in the Company, either
in person or by proxy, in respect of any share held by him unless all moneys
presently payable by him in respect of that share have been paid.
69. If at any time the board is satisfied that any member, or any other person
appearing to be interested in shares held by such member, has been duly served
with a notice under section 212 of the Act (a SECTION 212 NOTICE) and is in
default for the prescribed period in supplying to the Company the information
thereby required, or, in purported compliance with such a notice, has made a
statement which is false or inadequate in a material particular, then the board
may, in its absolute discretion at any time thereafter by notice (a DIRECTION
NOTICE) to such member direct that:
(a) in respect of the shares in relation to which the default occurred (the
DEFAULT SHARES) the member shall not be entitled to attend or vote either
personally or by proxy at any general meeting or at any separate meeting of
the holders of any class of shares in the Company; (b) where the default
shares represent at least 1/4 per cent. of the class of shares concerned,
then the direction notice may additionally direct that:
(i) except in a liquidation of the Company, no payment shall be made of any
sums due from the Company on the default shares, whether in respect of
capital or dividend or otherwise and no election shall be made to
receive ordinary shares instead of dividends in cash, and the Company
shall not meet any liability to pay interest on any such payment when
it is finally paid to the member;
(ii) no other distribution shall be made on the default shares;
18
<PAGE> 32
(iii) shares issued in right of shares, any right attaching to which is for
the time being suspended pursuant to this article shall, on issue,
become subject to the same suspension of rights as the shares in right
of which they are issued. For this purpose, shares which the Company
offers or procures to be offered to shareholders pro rata (or pro rata
ignoring fractional entitlements and shares not offered to certain
members by reason of legal or practical problems associated with
offering shares outside the United Kingdom) shall be treated as shares
issued in right of other shares;
(iv) no transfer of any of the shares held by such member shall be
registered unless:
(A) the member is not himself in default as regards supplying the
information requested and the transfer when presented for
registration is accompanied by a certificate by the member in
such form as the board may in its absolute discretion require to
the effect that after due and careful enquiry the member is
satisfied that no person in default as regards supplying such
information is interested in any of the shares the subject of
the transfer; or
(B) the transfer is an approved transfer.
The Company shall send to each other person appearing to be interested in the
shares the subject of any direction notice a copy of the notice, but the
failure or omission by the Company to do so shall not invalidate such notice.
Any direction notice shall cease to have effect:
(1) in relation to any shares which are transferred by such member by means of
an approved transfer; or
(2) when the board is satisfied that such member and any other person appearing
to be interested in shares held by such member, has given to the Company the
information required by the relevant section 212 notice.
The board may at any time give notice cancelling a direction notice.
The suspension or continued suspension of any right attaching to any share in
accordance with this Article shall not give rise to any liability on, or claim
or action against, the Company, the board or any officer of the Company, except
in the case of bad faith by the Company, board or officer, as the case may be.
19
<PAGE> 33
70. For the purposes of Article 69:
(a) a person shall be treated as appearing to be interested in any shares if the
member holding such shares has given to the Company a notification under the
said section 212 which either (i) names such person as being so interested
or (ii) fails to establish the identities of all those interested in the
shares and (after taking into account the said notification and any other
relevant section 212 notification) the Company knows or has reasonable cause
to believe that the person in question is or may be interested in the
shares;
(b) the prescribed period is 14 days from the date of service of the relevant
section 212 notice;
(c) a transfer of shares is an approved transfer if but only if:
(i) it is a transfer of shares to an offeror by way or in pursuance of
acceptance of an offer made to all the holders (or all the holders
other than the person making the offer and his nominees) of the
shares in the Company to acquire those shares or a specified
proportion of them, or to all the holders (or all the holders other
than the person making the offer and his nominees) of a particular
class of those shares to acquire the shares of that class or a
specified proportion of them; or
(ii) the board is satisfied that the transfer is made pursuant to a sale
of the whole of the beneficial ownership of the shares the subject
of the transfer to a party unconnected with the member and with
other persons appearing to be interested in such shares; or
(iii) the transfer results from a sale made through a recognised
investment exchange or any other stock exchange outside the United
Kingdom on which the Company's shares are normally traded.
Nothing contained in Article 69 shall limit the power of the Company under
section 216 of the Act.
71.1 If at any time, following such consultation if any as the board thinks fit
with the ITC or any other relevant Licensing Authority, the board determines
that an interest of any person (JEOPARDISING PERSON) in shares of the Company
is or may be prejudicial to the continued holding of a Material Licence by the
Company or any subsidiary undertaking of the Company, or to the grant, renewal
or extension of any Material Licence for which application is or is intended to
be made by the Company or by any such
20
<PAGE> 34
other undertaking, the board may serve a written notice (a DISPOSAL NOTICE) on
the jeopardising person and/or on member holding such shares:
(a) stating the determination of the board setting out in general terms the
grounds for such determination;
(b) requiring a disposal to be made by the jeopardising person and/or member
within 21 days from the date of the disposal notice (or such other period as
the board determines) of such number of the shares in the Company as the
Board may determine and in which the jeopardising person and/or the member
is interested; and
(c) stating the period (if any and not being longer than 30 days from the date
of service of the disposal notice) for which the board determines that the
member holding shares which are the subject of the disposal notice shall not
be entitled to receive notice of, or to attend or vote at any general
meeting of the Company or at any separate class meeting in respect of those
shares.
71.2 If a disposal notice is not complied with or not complied with to the
satisfaction of the board and has not been withdrawn, the board shall so far as
it is able effect a disposal of the shares which are the subject of the
disposal notice, using its reasonable endeavours to obtain the best price
reasonably obtainable in all the circumstances, and shall give written notice
of such disposal to those persons on whom the disposal notice was served. A
required disposal shall be completed as soon after the expiration of the period
specified in the disposal notice for the required disposal as may in the
opinion of the board be practicable and consistent with obtaining the best
price reasonably obtainable and in any event within 30 days of such period
having expired, provided:
(a) that a required disposal shall be suspended during any period when dealings
by directors in the Company's shares are not permitted either by law or by
regulations of the London Stock Exchange or any other recognised investment
exchange outside the United Kingdom on which the Company's shares are
normally traded but shall be completed within 30 days after expiry of the
period of such suspension; and
(b) that neither the Company nor any of the directors nor any agent shall be
liable to any holder or any person having an interest in any share or to any
other person for failing to obtain the best price reasonably obtainable in
respect of any required disposal so long as the board acts in good faith
within the period specified above.
For the purpose of effecting any required disposal, the board may authorise
some person in writing to execute any necessary transfer on behalf of any
21
<PAGE> 35
holder and may issue a new certificate to the purchaser. The net proceeds of
such disposal shall be received by the Company (on trust for the holder(s))
whose receipt shall be a good discharge for the purchase money and shall be
paid (without any interest being payable thereon) to the former holder(s) upon
surrender by such holder(s) of the certificate(s) in respect of the shares
sold.
71.3 Any determination of the board under the provisions of this Article shall
be final and conclusive as against any person interested in any shares but
without prejudice to the power of the board subsequently to vary or revoke such
determination. When there is more than one jeopardising person, the Board
shall not be required to determine the number of shares which is to be the
subject of any particular disposal notice and such number is pro rata to the
holdings of each jeopardising person.
72. If any votes are counted which ought not to have been counted, or might
have been rejected, or if any votes are not counted which ought to have been
counted, the error shall not vitiate the result of the voting unless it is
pointed out at the same meeting, or at any adjournment thereof, and it is in
the opinion of the Chairman of the meeting of sufficient magnitude to vitiate
the result of the voting.
73. No objection shall be raised to the qualification of any voter except at
the meeting or adjourned meeting or poll at which the vote objected to is
tendered, and every vote not disallowed at such meeting shall be valid and
every vote not counted which ought to have been counted shall be disregarded.
Any objection made in due time shall be referred to the chairman whose decision
shall be final and conclusive.
74. On a poll votes may be given either personally or by proxy. A member
entitled to more than one vote need not, if he votes, use all his votes or cast
all the votes he uses in the same way.
PROXIES AND CORPORATE REPRESENTATIVES
75. An instrument appointing a proxy shall be in writing under the hand of the
appointor or his attorney or, if the appointor is a corporation, either under
its common seal or the hand of a duly authorised officer, attorney or other
person authorised to sign it.
76. Instruments of proxy shall be in any usual form or in any other form which
the board may approve (which shall include provision for two-way voting) and
the board may, if it thinks fit, but subject to the provisions of the Act, at
the Company's expense send out with the notice of any meeting forms of
instrument of proxy for use at the meeting. Delivery of an instrument
appointing a proxy shall not preclude a member from attending
22
<PAGE> 36
and voting in person at the meeting or poll concerned. A member may appoint
more than one proxy to attend on the same occasion.
77. The instrument appointing a proxy and any power of attorney or other
written authority under which it is executed or an office or notarially
certified copy or a copy certified in accordance with the Powers of Attorney
Act 1971 of such power or written authority shall:
(a) be deposited by personal delivery, post or facsimile transmission at the
office or at such other place within the United Kingdom as is specified in
the notice convening the meeting or in any instrument of proxy sent out by
the Company in relation to the meeting not less than 48 hours before the
time appointed for holding the meeting or adjourned meeting at which the
person named in the instrument proposes to vote; or
(b) in the case of a poll taken more than 48 hours after it is demanded, be
deposited as aforesaid after the poll has been demanded and not less than 24
hours before the time appointed for the taking of the poll; or
(c) where the poll is not taken forthwith but is taken not more than 48 hours
after it was demanded, be delivered at the meeting at which the poll was
demanded to the chairman or to the secretary or to any director;
and an instrument of proxy which is not deposited or delivered in a manner so
permitted shall be invalid. No instrument of proxy shall be valid after the
expiration of twelve months from the date stated in it as the date of its
execution. When two or more valid instruments of proxy are delivered in
respect of the same share for use at the same meeting, the one which was
executed last shall be treated as replacing and revoking the others as regards
that share; if the Company is unable to determine which was executed last, none
of them shall be treated as valid in respect of that share.
78. The instrument of proxy shall be deemed to confer authority to vote on any
amendment of a resolution put to the meeting for which it is given as the proxy
thinks fit. The instrument of proxy shall, unless the contrary is stated
therein, be valid as well for any adjournment of the meeting as for the meeting
to which it relates.
79. Any corporation or corporation sole which is a member of the Company may
(in the case of a corporation, by resolution of its directors or other
governing body or by authority to be given under seal or under the hand of an
officer duly authorised by it) authorise such person as it thinks fit to act as
its representative at any meeting of the Company or at any separate meeting of
the holders of any class of shares. A person so authorised shall be entitled
to exercise the same power on behalf of the grantor of the authority
23
<PAGE> 37
as the grantor could exercise if it were an individual member of the Company and
the grantor shall for the purposes of these Articles be deemed to be present in
person at any such meeting if a person so authorised is present at it.
80. A vote given or poll demanded by proxy or by the duly authorised
representative of a corporation shall be valid notwithstanding the previous
determination of the authority of the person voting or demanding a poll unless
notice of the determination was received by the Company at the office or at
such other place at which the instrument of proxy was duly deposited at least
48 hours before the commencement of the meeting or adjourned meeting at which
the vote is given or the poll demanded or (in the case of a poll taken
otherwise than on the same day as the meeting or adjourned meeting) the time
appointed for taking the poll.
NUMBER OF DIRECTORS
81. Unless otherwise determined by ordinary resolution, the number of directors
(other than alternate directors) shall be not less than two but shall not be
subject to any limit.
APPOINTMENT AND RETIREMENT OF DIRECTORS
82. At every annual general meeting after an IPO, one-third of the directors
who are subject to retirement by rotation or, if their number is not three or a
multiple of three, the number nearest to one-third shall retire from office;
but, if there is only one director who is subject to retirement by rotation, he
shall retire.
83. Subject to the provisions of the Companies Acts and these Articles, the
directors to retire by rotation shall be those who have been longest in office
since their last appointment or re-appointment, but as between persons who
became or were last re-appointed directors on the same day those to retire
shall (unless they otherwise agree among themselves) be determined by lot. The
directors to retire on each occasion (both as to number and identity) shall be
determined by the composition of the board at the date of the notice convening
the annual general meeting and no director shall be required to retire or be
relieved from retiring or be retired by reason of any change in the number or
identity of the directors after the date of the notice but before the close of
the meeting.
84. If the Company, at the meeting at which a director retires by rotation or
otherwise, does not fill the vacancy, the retiring director shall, if willing
to act, be deemed to have been re-appointed unless at the meeting it is
resolved not to fill the vacancy or unless a resolution for the re-appointment
of the director is put to the meeting and lost.
24
<PAGE> 38
85. No person other than a director retiring by rotation shall be appointed a
director at any general meeting unless:
(a) he is recommended by the board; or
(b) not less than six nor more than thirty-five clear days before the date
appointed for the meeting, notice executed by a member qualified to vote at
the meeting (not being the person to be proposed) has been given to the
Company of the intention to propose that person for appointment stating the
particulars which would, if he were so appointed, be required to be included
in the Company's register of directors, together with notice executed by
that person of his willingness to be appointed.
86. Except as otherwise authorised by the Companies Acts, the appointment of
any person proposed as a director shall be effected by a separate resolution.
87. A director who retires at an annual general meeting may, if willing to
act, be re-appointed. If he is not re-appointed, he shall retain office until
the meeting appoints someone in his place, or if it does not do so, until the
end of the meeting.
88. Subject as aforesaid, the Company may by ordinary resolution appoint a
person who is willing to act to be a director either to fill a vacancy or as an
additional director and may also determine the rotation in which any additional
directors are to retire. The appointment of a person to fill a vacancy or as
an additional director shall take effect from the end of the meeting.
89. The board may appoint a person who is willing to act to be a director,
either to fill a vacancy or as an additional director in either case whether or
not for a fixed term, provided that the appointment does not cause the number
of directors to exceed the number, if any, fixed by or in accordance with these
Articles as the maximum number of directors. Irrespective of the terms of his
appointment, a director so appointed after an IPO shall hold office only until
the next following annual general meeting and shall not be taken into account
in determining the directors who are to retire by rotation at the meeting. If
not re-appointed at such annual general meeting, he shall vacate office at the
conclusion thereof.
90. By an ordinary resolution or the written approval of the holders of a
majority of the issued Ordinary Shares, the Company may, prior to an IPO,
confer on any person or class of persons the right by notice in writing to
appoint one or more persons as a director of the Company, to remove from office
any director so appointed and to appoint another in his place. Any such
appointment or removal shall take effect, subject to any contrary
25
<PAGE> 39
intention expressed in the notice, when the notice effecting the same is
delivered to the office or to a meeting of the Board. The right so conferred
may be subject to such additional terms as the Company may in the same manner
determine at the time of the grant of the right (or later with the agreement of
the person to whom the right is granted) including (without limitation) as to
any expansion or restriction of the power of such a director to vote at meetings
of the board and as to whether such a director is subject to retirement by
rotation in accordance with articles 82 to 84 or disqualification pursuant to
article 107(b) or (h) (removal by the other directors). No right to appoint a
director may be granted on or after an IPO and any right shall terminate on an
IPO. Any directors appointed pursuant to a right conferred under this article
90 shall not be disqualified from office as a director merely on account of the
termination of the right pursuant to which he was appointed.
91. No person shall be disqualified from being appointed or re-appointed a
director, and no director shall be required to vacate that office, by reason
only of the fact that he has attained the age of seventy years or any other age
nor shall it be necessary by reason of his age to give special notice under the
Companies Acts of any resolution. Where the board convenes any general meeting
of the Company at which (to the knowledge of the board) a director will be
proposed for appointment or re-appointment who at the date for which the
meeting is convened will have attained the age of seventy years or more, the
board shall give notice of his age in years in the notice convening the meeting
or in any document accompanying the notice, but the accidental omission to do
so shall not invalidate any proceedings, or any appointment or re-appointment
of that director, at that meeting.
92. A director shall not be required to hold any shares of the Company by way
of qualification.
ALTERNATE DIRECTORS
93. Any director (other than an alternate director or a director holding
executive office in the Company or any of its subsidiary undertakings) may
appoint any other director, or any other person approved by resolution of the
board and willing to act, to be an alternate director and may remove from
office an alternate director so appointed by him.
94. An alternate director shall be entitled to receive notice of all meetings
of the board and of all meetings of committees of the board of which his
appointor is a member, to attend and vote at any such meeting at which his
appointor is not personally present, and generally to perform all the functions
of his appointor (except as regards power to appoint an alternate) as a
director in his absence.
26
<PAGE> 40
95. A director or any other person may act as alternate director to represent
more than one director, and an alternate director shall be entitled at meetings
of the board or any committee of the board to one vote for every director whom
he represents (and who is not present) in addition to his own vote (if any) as
a director, but he shall count as only one for the purpose of determining
whether a quorum is present.
96. An alternate director may be repaid by the Company such expenses as might
properly have been repaid to him if he had been a director but shall not in
respect of his services as an alternate director be entitled to receive any
remuneration from the Company except such part (if any) of the remuneration
otherwise payable to his appointor as such appointor may by notice in writing
to the Company from time to time direct. An alternate director shall be
entitled to be indemnified by the Company to the same extent as if he were a
director.
97. An alternate director shall cease to be an alternate director:
(a) if his appointor ceases to be a director; but, if a director retires by
rotation or otherwise but is re-appointed or deemed to have been
re-appointed at the meeting at which he retires, any appointment of an
alternate director made by him which was in force immediately prior to his
retirement shall continue after his re-appointment;
(b) on the happening of any event which, if he were a director, would cause him
to vacate his office as director; or
(c) if he resigns his office by notice to the Company.
98. Any appointment or removal of an alternate director shall be by notice to
the Company signed by the director making or revoking the appointment and shall
take effect in accordance with the terms of the notice (subject to any approval
required by Article 93) upon receipt of such notice at the office.
99. Save as otherwise expressly provided in these Articles, an alternate
director shall be deemed for all purposes to be a director and, accordingly,
except where the context otherwise requires, references to a director shall be
deemed to include a reference to an alternate director. An alternate director
shall alone be responsible for his own acts and defaults and he shall not be
deemed to be the agent of the director appointing him.
POWERS OF THE BOARD
100. Subject to the provisions of the Companies Acts, the Memorandum and these
Articles and to any directions given by special resolution, the business of the
Company shall be managed by the board which may pay all expenses incurred in
forming and registering the Company and may exercise all the powers of the
Company, including the power to dispose of all or any
27
<PAGE> 41
part of the undertaking of the Company. No alteration of the Memorandum or
Articles and no such direction shall invalidate any prior act of the board which
would have been valid if that alteration had not been made or that direction had
not been given. The powers given by this Article shall not be limited by any
special power given to the board by these Articles and a meeting of the board at
which a quorum is present may exercise all powers exercisable by the board.
DELEGATION OF POWERS OF THE BOARD
101. The board may delegate any of its powers to any committee consisting of
one or more directors and, if thought fit, one or more other persons provided
that those members of a committee who are not directors shall not exceed in
number those members who are directors and that no resolution of a committee
shall be effective unless, when it is passed the members present who are not
directors do not exceed in number those members present who are directors. Any
such delegation shall, in the absence of express provision to the contrary in
the terms of delegation, be deemed to include authority to sub-delegate to one
or more directors (whether or not acting as a committee) or to any employee or
agent of the Company all or any of the powers delegated and may be made subject
to such conditions as the board may specify, and may be revoked or altered.
Subject to any conditions imposed by the board, the proceedings of a committee
with two or more members shall be governed by these Articles regulating the
proceedings of directors so far as they are capable of applying.
102. The board may establish local or divisional boards or agencies for
managing any of the affairs of the Company, either in the United Kingdom or
elsewhere, and may appoint any persons to be members of the local or divisional
boards, or any managers or agents, and may fix their remuneration. The board
may delegate to any local or divisional board, manager or agent any of the
powers, authorities and discretions vested in or exercisable by the board, with
power to sub-delegate to one or more directors (whether or not acting as a
committee) or to any employee or agent of the Company, and may authorise the
members of any local or divisional board, or any of them, to fill any vacancies
and to act notwithstanding vacancies. Any appointment or delegation made
pursuant to this Article may be made upon such terms and subject to such
conditions as the board may decide and the board may remove any person so
appointed and may revoke or vary the delegation but no person dealing in good
faith and without notice of the revocation or variation shall be affected by
it.
103. The board may entrust to and confer upon any director any of its powers,
authorities and discretions, with power to sub-delegate to one or more
directors (whether or not acting as a committee) or to any employee or agent of
the Company upon such terms and subject to such conditions as the board may
decide and may revoke or vary the delegation but no person
28
<PAGE> 42
dealing in good faith and without notice of the revocation or variation shall be
affected by it.
104. The board may, by power of attorney or otherwise, appoint any person or
persons to be the agent or agents of the Company for such purposes, with such
powers, authorities and discretions (not exceeding those vested in the board)
and on such conditions as the board determines, including authority for the
agent or agents to delegate all or any of his or their powers, authorities and
discretions, and may revoke or vary such delegation.
105. The board may appoint any person to any office or employment having a
designation or title including the word "director" or attach to any existing
office or employment with the Company such a designation or title and may
terminate any such appointment or the use of any such designation or title.
The inclusion of the word "director" in the designation or title of any such
office or employment shall not imply that the holder is a director of the
Company, nor shall the holder thereby be empowered in any respect to act as, or
be deemed to be, a director of the Company for any of the purposes of these
Articles.
BORROWING POWERS
106.1 The board may exercise all the powers of the Company to borrow money and
to mortgage or charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and, subject to the
Companies Acts, to issue debentures and other securities, whether outright or
as collateral security for any debt, liability or obligation of the Company or
of any third party.
106.2 After an IPO, the board shall restrict the borrowings of the Company and
exercise all voting and other rights or powers of control exercisable by the
Company in relation to its subsidiaries (if any) so as to secure (but as
regards subsidiaries only in so far as by the exercise of the rights or powers
of control the board can secure) that the aggregate principal amount from time
to time outstanding of all borrowings by the group (exclusive of borrowings
owing by one member of the group to another member of the group) shall not at
any time without the previous sanction of an ordinary resolution of the Company
exceed an amount equal to the higher of L.400 million and three times the
adjusted capital and reserves.
106.3 For the purposes of this Article 106:
ADJUSTED CAPITAL AND RESERVES means the aggregate from time to time of:
(a) the amount paid up on the issued share capital of the Company; and
29
<PAGE> 43
(b) the credit balance on profit and loss account and the amounts standing to
the credit of the reserves including, without limitation, any share premium
account, revaluation reserve and capital redemption reserve
all as shown by the then latest audited balance sheet but after
(1) deducting from the aggregate any debit balance on profit and loss account
subsisting at the date of that audited balance sheet except to the extent
that a deduction has already been made on that account;
(2) making such adjustments as may be appropriate to reflect any variation in
the amount of the paid up share capital or any such reserves since the date
of the audited balance sheet and so that for this purpose:
(A) if any issue or proposed issue of shares by the Company for cash
has been underwritten then such shares shall be deemed to have been
issued and the amount (including any premium) of the subscription
moneys payable in respect thereof (not being moneys payable later
than six months after the date of allotment) shall to the extent so
underwritten be deemed to have been paid up on the date when the
issue of such shares was underwritten (or, if such underwriting was
conditional, on the date when it became unconditional); and
(B) share capital (including any premium) shall be deemed to have been
paid up as soon as it has been unconditionally agreed to be
subscribed or taken up (within six months of such agreement) by any
person;
(3) making all such adjustments, if the calculation is required for the purposes
of or in connection with a transaction under or in connection with which any
body corporate is to become or cease to be a subsidiary, as would be
appropriate if such transaction had been carried into effect; and
(4) making all such adjustments as would be appropriate to reflect an
accounting policy of amortising goodwill arising on acquisitions of
companies and businesses remaining within the group rather than a policy of
eliminating such goodwill from the accounts immediately on acquisition
against reserves (AMORTISING GOODWILL meaning eliminating goodwill from the
accounts by amortisation through the profit and loss account in arriving at
profit or loss on ordinary activities on a systematic basis over the useful
economic life of such goodwill which shall not exceed 40 years);
BORROWINGS include not only borrowings but also the following except in so far
as otherwise taken into account:
30
<PAGE> 44
(a) the nominal amount of any issued share capital and the principal amount of
any debentures or borrowed moneys, the beneficial interest in which is not
for the time being owned by a member of the group, of any person and the
payment or repayment of which is the subject of a guarantee or indemnity by
a member of the group,
(b) the outstanding amount raised by acceptances by any bank or accepting house
under any acceptance credit opened on behalf of and in favour of any member
of the group,
(c) the principal amount of any debenture (whether secured or unsecured) of a
member of the group owned otherwise than by a member of the group,
(d) any fixed or minimum premium payable on final repayment of any borrowing or
deemed borrowing;
but do not include:
(1) borrowings incurred by any member of the group for the purpose of repaying
within six months of the borrowing the whole or any part of any borrowings
of that or any other member of the group for the time being outstanding,
pending their application for that purpose within that period, or
(2) borrowings incurred by any member of the group for the purpose of financing
any contract in respect of which any part of the price receivable under the
contract by that or any other member of the group is guaranteed or insured
by the Export Credits Guarantee Department or by any other governmental
department, institution, organisation or other government sponsored agency
fulfilling a similar function or carrying on a similar business in any part
of the world, up to an amount equal to that part of the price receivable
under the contract which is so guaranteed or insured;
(3) borrowings incurred by a partly owned subsidiary to the extent of the
proportion thereof equal to the proportion of the issued equity share
capital of the partly owned subsidiary which is not attributable to the
Company or any subsidiary of the Company;
(4) any moneys borrowed which are for the time being deposited with any
governmental authority or body in any part of the world in connection with
import deposits or any similar governmental scheme to the extent that the
member of the group making such deposit retains its interest therein;
(5) moneys borrowed equal to the amount of borrowing of a Company which becomes
a member of the group after the date hereof and
31
<PAGE> 45
which are outstanding at the date when such Company becomes such a member
shall for the period of twelve months from the date of such event be deemed
not to be moneys borrowed for the purposes of the limit contained in this
Article 106 provided always that moneys borrowed by the group (including
moneys otherwise excluded pursuant to this sub-paragraph) shall not exceed
an amount equal to four times the adjusted capital and reserves;
EXCEPTED FOREIGN CURRENCY BORROWINGS means moneys borrowed denominated or
repayable in a currency other than sterling which have the benefit of an
Exchange Cover Scheme;
EXCHANGE COVER SCHEME means any exchange cover scheme, forward currency
contract, currency option, back to back loan, swap or other arrangement taken
out or entered into to reduce the risks associated with fluctuations in
exchange rates;
GROUP means the Company and its subsidiaries (if any).
106.4 When the aggregate principal amount of borrowings required to be taken
into account on any particular date is being ascertained, any particular
borrowing denominated or repayable in a currency other than sterling shall be
translated for the purposes of calculating the sterling equivalent:
(a) with the exception of Excepted Foreign Currency Borrowings, at the lower of:
(i) the middle market rate at approximately 11 a.m. in London on the
business day preceding the relevant day, as supplied by such person
or calculated on such basis as the auditors may determine or
approve; and
(ii) the rate of exchange on the last business day six months before
that date, calculated on such basis as the auditors may determine
or approve; and
(b) in the case of any Excepted Foreign Currency Borrowings, at the rate of
exchange which would be applicable to such moneys borrowed on their
repayment to the extent that such rate of exchange is fixed under any
Exchange Cover Scheme in connection with such moneys borrowed, unless the
auditors determine that it is not practicable to determine the rate of
exchange applicable at the time of repayment of any such moneys borrowed,
when they shall be translated into sterling on such other basis as the
auditors may determine reasonably reflects the effect of the Exchange Cover
Scheme or, if no such basis is determined, in accordance with the provisions
of paragraph (a) above.
32
<PAGE> 46
106.5 For the purposes of calculating the limit of borrowings under this
Article 106 there shall be credited (subject, in the case of any item held or
deposited by a partly owned subsidiary, to the exclusion of a proportion
thereof equal to the proportion of the issued equity share capital of the
partly owned subsidiary which is not attributable to the Company or any
subsidiary of the Company) against the amount of any moneys borrowed the
aggregate of:
(a) cash in hand of the group;
(b) cash deposits and the balance on each current account of the group with
banks and building societies in the United Kingdom and/or elsewhere if the
remittance of the cash to the United Kingdom is not prohibited by any law,
regulation, treaty or official directive; however, if the remittance of such
cash is prohibited it shall nonetheless be deducted from amounts borrowed
but only to the extent that it may be set-off against or act as security for
any borrowings or amounts included in paragraphs (a) to (d) in the
definition of "borrowings" above;
(c) any cash securing the repayment by the group of any amount borrowed by the
group deposited or otherwise placed with the trustee or similar entity in
respect of the relevant borrowing (except to the extent that such cash
represents the proceeds of a borrowing not included pursuant to paragraph
(e) of the definition of "borrowings" above);
(d) the realisable value of any certificates of deposit or similar instruments
or other freely negotiable and marketable securities held by the group; and
(e) the discount arising on issue of any debenture, bond, notice, loan stock or
other security to the extent that such discount has not been charged to the
profit and loss account or any reserve of the group.
106.6 No amount shall be taken into account more than once in any calculation
of moneys borrowed and the following shall not be included as moneys borrowed:
(a) pre-payments made to the Company or its subsidiaries;
(b) payments made to the Company or its subsidiaries by way of deposit or
security in respect of goods or services;
106.7 Where under the terms of any borrowing the amount of money that would be
required to discharge the principal amount of the borrowing in full if it fell
to be repaid by reason of an event of default on the date as at which the
calculation is being made is less than the amount that would otherwise be
33
<PAGE> 47
taken into account in respect of that borrowing, the amount of that borrowing to
be taken into account shall be the smaller amount.
106.8 For the purposes of this Article 106, AUDITED BALANCE SHEET means the
audited balance sheet of the Company prepared for the purposes of the Companies
Acts or, if an audited consolidated balance sheet dealing with the state of
affairs of the Company and all its subsidiaries to be dealt with in group
accounts has been prepared for the same financial year, that audited
consolidated balance sheet, in which event all references to reserves and
profit and loss account shall be deemed to be references to consolidated
reserves and consolidated profit and loss account respectively and any amounts
attributable to outside interests in subsidiaries shall be excluded. Such
audited consolidated balance sheet may, if the directors so decide, also
include by way of consolidation (on such basis and in such manner as the
auditors may approve in accordance with generally accepted accounting
principles applicable in the United Kingdom) any item properly to be brought
into account in accordance with such principles, including, without limiting
the generality of the foregoing, any Company not a subsidiary of the Company.
Save as otherwise provided in this Article 106, the latest audited balance
sheet of the Company or the group, as the case may be, prepared on any
generally accepted accounting principles applicable in the United Kingdom shall
be definitive for the purposes of establishing the amount of adjusted capital
and reserves. The Company may from time to time change the accounting
convention on which the audited balance sheet is based provided that any new
convention adopted complies with the requirements of the Companies Acts: if the
Company should prepare its main audited balance sheet on the basis of one
convention, but a supplementary audited balance sheet on the basis of another,
the main audited balance sheet shall be taken as the audited balance sheet.
106.9 The determination of the auditors as to the amount of the adjusted
capital and reserves or the amount of any borrowings or to the effect that the
limit imposed by this Article 106 has not been or will not be exceeded at any
particular time or times shall be conclusive evidence of the amount or of that
fact. Nevertheless, the directors may act in reliance on a bona fide estimate
of the amount of the adjusted capital and reserves at any time and if in
consequence the limit hereinbefore contained is inadvertently exceeded an
amount of borrowed moneys equal to the excess may be disregarded until the
expiration of six months after the date on which by reason of a determination
of the auditors or otherwise the directors became aware that such a situation
has or may have arisen.
106.10 Notwithstanding the foregoing no lender or other person dealing with the
Company shall be concerned to see or inquire whether the limit imposed by this
Article 106 is observed and no borrowing incurred or security given in excess
of that limit shall be invalid or ineffectual except in the case of express
34
<PAGE> 48
notice to the lender or the recipient of the security at the time when the
borrowing was incurred or security given that the limit had been or was thereby
exceeded.
DISQUALIFICATION AND REMOVAL OF DIRECTORS
107. The office of a director shall be vacated if:
(a) he resigns his office by notice to the Company or, having been appointed for
a fixed term, the term expires or his office as a director is vacated
pursuant to Article 89; or
(b) he shall for more than six consecutive months have been absent without
permission of the board from meetings of the board held during that period
and his alternate director (if any) shall not during such period have
attended in his stead and the board resolves that his office be vacated; or
(c) by notice in writing delivered to the office or tendered at a meeting of the
board, his resignation is requested by all of the other directors;
(d) he becomes of unsound mind or a patient for any purpose of any statute
relating to mental health and the board resolves that his office is vacated;
(e) he becomes bankrupt or compounds with his creditors generally; or
(f) he is prohibited by law from being a director; or
(g) he ceases to be a director by virtue of the Companies Acts or is removed
from office pursuant to these Articles; or
(h) he is requested to resign in writing by not less than three quarters of the
other directors. In calculating the number of directors who are required to
make such a request to the director, (i) there shall be excluded any
alternate director appointed by him acting in his capacity as such; and (ii)
a director and any alternate director appointed by him and acting in his
capacity as such shall constitute a single director for this purpose, so
that the signature of either shall be sufficient.
108. The Company may, in accordance with and subject to the provisions of the
Companies Acts, by ordinary resolution of which special notice has been given
remove any director from office (notwithstanding any provision of these
Articles or of any agreement between the Company and such director, but without
prejudice to any claim he may have for damages for breach of any such
agreement) and, by ordinary resolution, appoint another person in place of a
director so removed from office and any person so appointed shall be treated
for the purpose of determining the time at which
35
<PAGE> 49
he or any other director is to retire by rotation as if he had become a director
on the day on which the director in whose place he is appointed was last elected
a director. In default of such appointment the vacancy arising upon the removal
of a director from office may be filled as a casual vacancy.
REMUNERATION OF NON-EXECUTIVE DIRECTORS
109. The ordinary remuneration of the directors who do not hold executive
office for their services (excluding amounts payable under any other provision
of these Articles) shall not exceed in aggregate L.300,000 per annum or such
higher amount as the Company may from time to time by ordinary resolution
determine. Subject thereto, each such director shall be paid a fee (which
shall be deemed to accrue from day to day) at such rate as may from time to
time be determined by the board.
110. Any director who does not hold executive office and who serves on any
committee of the directors, by the request of the board goes or resides abroad
for any purpose of the Company or otherwise performs special services which in
the opinion of the directors are outside the scope of the ordinary duties of a
director, may (without prejudice to the provisions of Article 109) be paid such
extra remuneration by way of salary, commission or otherwise as the board may
determine.
DIRECTORS' EXPENSES
111. The directors may be paid all travelling, hotel, and other expenses
properly incurred by them in connection with their attendance at meetings of
the board or committees of the board or general meetings or separate meetings
of the holders of any class of shares or of debentures of the Company or
otherwise in connection with the discharge of their duties.
EXECUTIVE DIRECTORS
112. Subject to the provisions of the Companies Acts, the board may appoint one
or more of its body to be the holder of any executive office (except that of
auditor) under the Company and may enter into an agreement or arrangement with
any director for his employment by the Company or for the provision by him of
any services outside the scope of the ordinary duties of a director. Any such
appointment, agreement or arrangement may be made upon such terms, including
terms as to remuneration, as the board determines, and any remuneration which
is so determined may be in addition to or in lieu of any ordinary remuneration
as a director. The board may revoke or vary any such appointment but without
prejudice to any rights or claims which the person whose appointment is revoked
or varied may have against the Company by reason thereof.
36
<PAGE> 50
113. Any appointment of a director to an executive office shall terminate if he
ceases to be a director but without prejudice to any rights or claims which he
may have against the Company by reason of such cesser. A director appointed to
an executive office shall not ipso facto cease to be a director if his
appointment to such executive office terminates.
114. The emoluments of any director holding executive office for his services
as such shall be determined by the board, and may be of any description, and
(without limiting the generality of the foregoing) may include admission to or
continuance of membership of any scheme (including any share acquisition
scheme) or fund instituted or established or financed or contributed to by the
Company for the provision of pensions, life assurance or other benefits for
employees or their dependants, or the payment of a pension or other benefits to
him or his dependants on or after retirement or death, apart from membership of
any such scheme or fund.
DIRECTORS' INTERESTS
115. Subject to the provisions of the Companies Acts, and provided that he has
disclosed to the board the nature and extent of any material interest of his, a
director notwithstanding his office:
(a) may be a party to, or otherwise interested in, any transaction or
arrangement with the Company or in which the Company is otherwise
interested;
(b) may act by himself or his firm in a professional capacity for the Company
(otherwise than as auditor) and he or his firm shall be entitled to
remuneration for professional services as if he were not a director;
(c) may be a director or other officer of, or employed by, or a party to any
transaction or arrangement with, or otherwise interested in, any body
corporate promoted by the Company or in which the Company is otherwise
interested; and
(d) shall not, by reason of his office, be accountable to the Company for any
benefit which he derives from any such office or employment or from any such
transaction or arrangement or from any interest in any such body corporate
and no such transaction or arrangement shall be liable to be avoided on the
ground of any such interest or benefit.
For the purposes of this Article:
(1) a general notice given to the board that a director is to be regarded as
having an interest of the nature and extent specified in the notice in any
transaction or arrangement in which a specified person or class of persons
is interested shall be deemed to be a disclosure that the
37
<PAGE> 51
director has an interest in any such transaction of the nature and extent so
specified; and
(2) an interest of which a director has no knowledge and of which it is
unreasonable to expect him to have knowledge shall not be treated as an
interest of his.
116. The board may exercise the voting power conferred by the shares in any
body corporate held or owned by the Company in such manner in all respects as
it thinks fit (including the exercise thereof in favour of any resolution
appointing its members or any of them directors of such body corporate, or
voting or providing for the payment of remuneration to the directors of such
body corporate).
GRATUITIES, PENSIONS AND INSURANCE
117. The board may (by establishment of or maintenance of schemes or otherwise)
provide benefits, whether by the payment of gratuities or pensions or by
insurance or otherwise, for any past or present director or employee of the
Company or any of its subsidiaries or any body corporate associated with, or
any business acquired by, any of them, and for any member of his family
(including a spouse and a former spouse) or any person who is or was dependent
on him, and may (as well before as after he ceases to hold such office or
employment) contribute to any fund and pay premiums for the purchase or
provision of any such benefit.
Without prejudice to the provisions of Article 165, the board shall have the
power to purchase and maintain insurance for or for the benefit of any persons
who are or were at any time directors, officers or employees of the Company, or
of any other company which is its holding company or in which the Company or
such holding company has any interest whether direct or indirect or which is in
any way allied to or associated with the Company, or of any subsidiary
undertaking of the Company or any such other company, or who are or were at any
time trustees of any pension fund in which employees of the Company or any such
other company or subsidiary undertaking are interested, including (without
prejudice to the generality of the foregoing) insurance against any liability
incurred by such persons in respect of any act or omission in the actual or
purported execution or discharge of their duties or in the exercise or
purported exercise of their powers or otherwise in relation to their duties,
powers or offices in relation to the Company or any such other company,
subsidiary undertaking or pension fund.
No director or former director shall be accountable to the Company or the
members for any benefit provided pursuant to this Article and the receipt of
any such benefit shall not disqualify any person from being or becoming a
director of the Company.
38
<PAGE> 52
118. Pursuant to section 719 of the Act, the board is hereby authorised to make
such provision as may seem appropriate for the benefit of any persons employed
or formerly employed by the Company or any of its subsidiaries in connection
with the cessation or the transfer of the whole or part of the undertaking of
the Company or any subsidiary. Any such provision shall be made by a
resolution of the board in accordance with the said section.
PROCEEDINGS OF DIRECTORS
119. Subject to the provisions of these Articles, the board may regulate its
proceedings as it thinks fit. A director may, and the secretary at the request
of a director shall, call a meeting of the board. Notice of a board meeting
shall be deemed to be properly given to a director if it is given to him
personally or by word of mouth or sent in writing to him at his last known
address or any other address given by him to the Company for this purpose. A
director absent or intending to be absent from the United Kingdom may request
the board that notices of board meetings shall during his absence be sent in
writing to him at an address given by him to the Company for this purpose, but
such notices need not be given any earlier than notices given to directors not
so absent and, if no such request is made to the board, it shall not be
necessary to give notice of a board meeting to any director who is for the time
being absent from the United Kingdom. No account is to be taken of directors
absent from the United Kingdom when considering the adequacy of the period of
notice of the meeting. Questions arising at a meeting shall be decided by a
majority of votes. In the case of an equality of votes, the chairman shall
have a second or casting vote. Any director may waive notice of a meeting and
any such waiver may be retrospective.
120. The quorum for the transaction of the business of the board may be fixed
by the board and unless so fixed at any other number shall be two, at least one
of whom shall, after the first appointment of directors pursuant to rights
conferred pursuant to Article 90 and prior to an IPO, have been appointed by
ECCP. A person who holds office only as an alternate director shall, if his
appointor is not present, be counted in the quorum. Any director who ceases to
be a director at a board meeting may continue to be present and to act as a
director and be counted in the quorum until the termination of the board
meeting if no director objects and if otherwise a quorum of the directors would
not be present.
121. The continuing directors or a sole continuing director may act
notwithstanding any vacancies in their number, but, if the number of directors
is less than the number fixed as the quorum, the continuing directors or
director may act only for the purpose of filling vacancies or of calling a
general meeting.
122. The board may appoint one of their number to be the chairman, and one of
their number to be the deputy chairman, of the board and may at any
39
<PAGE> 53
time remove either of them from such office. Unless he is unwilling to do so,
the director appointed as chairman, or in his stead the director appointed as
deputy chairman, shall preside at every meeting of the board at which he is
present. If there is no director holding either of those offices, or if neither
the chairman nor the deputy chairman is willing to preside or neither of them is
present within five minutes after the time appointed for the meeting, the
directors present may appoint one of their number to be chairman of the meeting.
123. All acts done by a meeting of the board, or of a committee of the board,
or by a person acting as a director or alternate director, shall,
notwithstanding that it be afterwards discovered that there was a defect in the
appointment of any director or any member of the committee or alternate
director or that any of them were disqualified from holding office, or had
vacated office, or were not entitled to vote, be as valid as if every such
person had been duly appointed and was qualified and had continued to be a
director or, as the case may be, an alternate director and had been entitled to
vote.
124. A resolution in writing signed by all the directors entitled to receive
notice of a meeting of the board or of a committee of the board (not being less
than the number of directors required to form a quorum of the board) shall be
as valid and effectual as if it had been passed at a meeting of the board or
(as the case may be) a committee of the board duly convened and held and for
this purpose:
(a) a resolution may consist of several documents to the same effect each signed
by one or more directors;
(b) a resolution signed by an alternate director need not also be signed by his
appointor; and
(c) a resolution signed by a director who has appointed an alternate director
need not also be signed by the alternate director in that capacity.
125. Without prejudice to the first sentence of Article 119, a meeting of the
board or of a committee of the board may consist of a conference between
directors who are not all in one place, but of whom each is able (directly or
by telephonic communication) to speak to each of the others, and to be heard by
each of the others simultaneously. A director taking part in such a conference
shall be deemed to be present in person at the meeting and shall be entitled to
vote or be counted in a quorum accordingly. Such a meeting shall be deemed to
take place where the largest group of those participating in the conference is
assembled, or, if there is no such group, where the chairman of the meeting
then is. The word MEETING in these Articles shall be construed accordingly.
40
<PAGE> 54
126. Save as otherwise provided by these Articles, a director shall not vote at
a meeting of the board or a committee of the board on any resolution of the
board concerning a matter in which he has an interest (other than by virtue of
his interests in shares or debentures or other securities of or otherwise in or
through the Company) which is material unless his interest arises only because
the case falls within one or more of the following paragraphs:
(a) the resolution relates to the giving to him of a guarantee, security or
indemnity in respect of money lent by him to, or an obligation incurred by
him at the request of or for the benefit of, the Company or any of its
subsidiaries;
(b) the resolution relates to the giving to a third party of a guarantee,
security or indemnity in respect of an obligation of the Company or any of
its subsidiaries for which the director has assumed responsibility (in whole
or part and whether alone or jointly with others) under a guarantee or
indemnity or by the giving of security;
(c) his interest arises in relation to the subscription or purchase by him of
shares, debentures or other securities of the Company pursuant to an offer
or invitation to members or debenture holders of the Company, or any class
of them, or to the public or any section of the public;
(d) his interest arises by virtue of his being, or intending to become, a
participant in the underwriting or sub-underwriting of an offer of any
shares, debentures or other securities of or by the Company or any of its
subsidiaries for subscription, purchase or exchange;
(e) the resolution relates to a proposal concerning any other body corporate in
which he is interested, directly or indirectly, and whether as an officer,
shareholder, creditor or otherwise howsoever, provided that he is not the
holder of or beneficially interested in one per cent. or more of any class
of the equity share capital of such body corporate (or any other body
corporate through which his interest is derived) or of the voting rights
available to members of the relevant body corporate (any such interest being
deemed for the purpose of this Article to be a material interest in all
circumstances);
(f) the resolution relates in any way to a retirement benefits scheme which has
been approved, or is conditional upon approval, by the Board of Inland
Revenue for taxation purposes;
(g) the resolution relates to any contract or arrangement for the benefit of
employees of the Company or of any of its subsidiaries and does not provide
in respect of any director as such any privilege or advantage
41
<PAGE> 55
not accorded to the employees to whom the contract or arrangement relates;
and
(h) any proposal concerning any insurance which the Company is empowered to
purchase or maintain for or for the benefit of any directors of the Company
or for persons who include directors of the Company provided that for the
purposes of this paragraph insurance shall mean only insurance against
liability incurred by a director in respect of any such act or omission by
him as is referred to in Article 117 or any other insurance which the
Company is empowered to purchase or maintain for or for the benefit of any
groups of persons consisting of or including directors of the Company.
For the purpose of determining whether a proposal concerns a body corporate in
which a director is interested, there shall be disregarded any shares held by a
director as bare or custodian trustee and in which he has no beneficial
interest, any shares comprised in a trust in which the director's interest is
in reversion or remainder if and so long as some other person is entitled to
receive the income thereof, and any shares comprised in an authorised unit
trust in which the director is only interested as a unit holder. For the
purposes of this Article, an interest of a person who is, for any purpose of
the Companies Acts (excluding any statutory modification thereof not in force
when this Article becomes binding on the Company), connected with a director
shall be treated as an interest of the director and, in relation to an
alternate director, an interest of his appointor shall be treated as an
interest of the alternate director without prejudice to any interest which the
alternate director has otherwise.
127. A director shall not be counted in the quorum present at a meeting in
relation to a resolution on which he is not entitled to vote.
128. The Company may by ordinary resolution suspend or relax to any extent,
either generally or in respect of any particular matter, any provision of these
Articles prohibiting a director from voting at a meeting of the board or of a
committee of the board, or ratify any transaction not duly authorised by reason
of a contravention of any such provision.
129. Where proposals are under consideration concerning the appointment
(including fixing or varying the terms of appointment) of two or more directors
to offices or employments with the Company or any body corporate in which the
Company is interested, the proposals may be divided and considered in relation
to each director separately and in such cases each of the directors concerned
(if not debarred from voting under the proviso to paragraph (e) of Article 126)
shall be entitled to vote and be counted in the quorum in respect of each
resolution except that concerning his own appointment.
42
<PAGE> 56
130. If a question arises at a meeting of the board or of a committee of the
board as to the entitlement of a director to vote or be counted in a quorum,
the question may, before the conclusion of the meeting, be referred to the
chairman of the meeting and his ruling in relation to any director other than
himself shall be final and conclusive except in a case where the nature or
extent of the interests of the director concerned have not been fairly
disclosed. If any such question arises in respect of the chairman of the
meeting, it shall be decided by resolution of the board (on which the chairman
shall not vote) and such resolution will be final and conclusive except in a
case where the nature and extent of the interests of the chairman have not been
fairly disclosed.
SECRETARY
131. Subject to the provisions of the Companies Acts, the secretary shall be
appointed by the board for such term, at such remuneration and upon such
conditions as it may think fit; and any secretary so appointed may be removed
by the board, but without prejudice to any claim for damages for breach of any
contract of service between him and the Company.
MINUTES
132. The board shall cause minutes to be made in books kept for the purpose:
(a) of all appointments of officers made by the board; and
(b) of all proceedings at meetings of the Company, of the holders of any class
of shares in the Company, of the board, and of committees of the board,
including the names of the directors present at each such meeting.
Any such minutes, if purporting to be signed by the chairman of the meeting to
which they relate or of the meeting at which they are read, shall be sufficient
evidence without any further proof of the facts therein stated.
THE SEAL
133. The seal shall only be used by the authority of a resolution of the board
or of a committee of the board. The board may determine who shall sign any
instrument to which the seal is affixed and unless otherwise so determined it
shall be signed by at least one director and the secretary or by at least two
directors.
134. The board may by resolution determine either generally or in any
particular case that any certificates for shares or debentures or representing
any other form of security to which the seal is affixed may have signatures
affixed
43
<PAGE> 57
to them by some mechanical means, or printed thereon or that such
certificates need not bear any signature.
135. The Company may exercise the powers conferred by section 39 of the Act
with regard to having an official seal for use abroad.
136. Where the Act so permits, any instrument signed, with the authority of a
resolution of the board or of a committee of the board, by one director and the
secretary or by two directors and expressed to be executed by the Company as a
deed shall have the same effect as if executed under the seal, provided that no
instrument which makes it clear on its face that it is intended by the persons
making it to have effect as a deed shall be signed without the authority of the
board.
137. A document which is executed by the Company as a deed shall not be deemed
to be delivered by the Company solely as a result of its having been executed
by the Company.
REGISTERS
138. Subject to the provisions of the Companies Acts, the Company may keep an
overseas or local or other register in any place, and the board may make, amend
and revoke any such regulations as it may think fit respecting the keeping of
the register.
139. Any director or the secretary or any person appointed by the board for the
purpose shall have power to authenticate any documents affecting the
constitution of the Company and any resolutions passed by the Company or the
holders of any class of shares of the Company or the board or any committee of
the board, and any books, records, documents and accounts relating to the
business of the Company, and to certify copies thereof or extracts therefrom as
true copies or extracts. A document purporting to be a copy of a resolution,
or the minutes of or an extract from the minutes of a meeting of the Company or
the holders of any class of shares of the Company or of the board or any
committee of the board that is certified as aforesaid shall be conclusive
evidence in favour of all persons dealing with the Company upon the faith
thereof that such resolution has been duly passed or, as the case may be, that
such minutes or extract is a true and accurate record of proceedings at a duly
constituted meeting.
DIVIDENDS
140. Subject to the provisions of the Companies Acts, the Company may by
ordinary resolution declare dividends in accordance with the respective rights
of the members, but no dividend shall exceed the amount recommended by the
board.
44
<PAGE> 58
141. Subject to the provisions of the Companies Acts, the board may pay interim
dividends if it appears to the board that they are justified by the profits of
the Company available for distribution. If the share capital is divided into
different classes, the board may declare and pay interim dividends on shares
which confer deferred or non-preferred rights with regard to dividend as well
as on shares which confer preferential rights with regard to dividend, but no
interim dividend shall be declared or paid on shares carrying deferred or
non-preferred rights if, at the time of declaration or payment, any
preferential dividend is in arrear. The board may also declare and pay at
intervals sett led by it any dividend payable at a fixed rate if it appears to
the board that the profits available for distribution justify the payment.
Provided the board acts in good faith it shall not incur any liability to the
holders of shares conferring preferred rights for any loss they may suffer by
the declaration or lawful payment of an interim dividend on any shares having
deferred or non-preferred rights.
142. Except as otherwise provided by the rights attached to shares, all
dividends shall be declared and paid according to the amounts paid up on the
shares on which the dividend is paid; but no amount paid on a share in advance
of the date on which a call is payable shall be treated for the purposes of
this Article as paid on the share. All dividends shall be apportioned and paid
proportionately to the amounts paid up on the shares during any portion or
portions of the period in respect of which the dividend is paid; but, if any
share is issued on terms providing that it shall rank for dividend as from a
particular date, that share shall rank for dividend accordingly.
143. A general meeting declaring a dividend may, upon the recommendation of
the board, by ordinary resolution direct that it shall be satisfied wholly or
partly by the distribution of assets, and in particular of paid up shares or
debentures of any other body corporate. Where any difficulty arises in regard
to the distribution, the board may settle the same as it thinks fit and, in
particular, may fix the value for distribution of any assets and may determine
that cash shall be paid to any member upon the footing of the value so fixed in
order to adjust the rights of members and may vest any assets in trustees.
144. The board may, if authorised by an ordinary resolution of the Company,
offer the holders of ordinary shares the right to elect to receive ordinary
shares, credited as fully paid, instead of cash in respect of any dividend or
any part of any dividend specified by the ordinary resolution. The following
provisions shall apply:
(a) such ordinary resolution may specify a particular dividend, or may specify
all or any dividends declared or to be declared or paid within a specified
period, but such period may not end later than the beginning of the fifth
annual general meeting following the date of the passing of such ordinary
resolution;
45
<PAGE> 59
(b) the entitlement of each ordinary shareholder to new ordinary shares shall be
such that the product of the relevant value of each new ordinary share and
the number of new ordinary shares to which he is entitled shall be as nearly
as practicable equal to the total cash amount that the shareholder would
have received by way of dividend provided always that in calculating the
said entitlement the board may at its discretion adjust the figure obtained
by dividing the relevant value by the amount of the cash dividend payable on
such ordinary shares up or down so as to procure that the entitlement of
each ordinary shareholder to new ordinary shares may be represented by a
simple numerical ratio. For this purpose RELEVANT VALUE shall be calculated
by reference to the arithmetic average of the middle market quotations for
the Company's ordinary shares on the London Stock Exchange as derived from
the Daily Official List, on the day on which the ordinary shares are first
quoted "ex" the relevant dividend and the four immediately following dealing
days, or in such other manner as may be determined by, or in accordance
with, the ordinary resolution;
(c) the board, after determining the basis of allotment, shall notify the
holders of ordinary shares in writing of the right of election offered to
them, and shall send with or following such notification forms of election
and shall specify the procedure to be followed and the place at which, and
the latest time by which, duly completed forms of election must be lodged in
order to be effective;
(d) the board may exclude from any offer any ordinary shareholders where the
board believes that the making of the offer to them would or might involve
the contravention of the laws of any territory or that for any other reason
the offer should not be made to them;
(e) the dividend (or that part of the dividend in respect of which a right of
election has been offered) shall not be payable in cash on ordinary shares
in respect of which an election has been made (the ELECTED ORDINARY SHARES)
and instead additional ordinary shares shall be allotted to the holders of
the Elected Ordinary Shares on the basis of an allotment calculated as
aforesaid. For such purposes the board shall capitalise, out of any amount
for the time being standing to the credit of any reserve or fund (including
the profit and loss account and share premium account) or otherwise
available for distribution as the board may determine, such sums as shall be
required to pay up in full the additional ordinary shares to be allotted on
that basis and apply it in paying up in full the appropriate number of
unissued ordinary shares for allotment and distribution to the holders of
the Elected Ordinary Shares on that basis;
(f) the additional ordinary shares when allotted shall rank pari passu in all
respects with the fully-paid ordinary shares then in issue, save that they
46
<PAGE> 60
will not be entitled to participate in the dividend then being declared or
paid;
(g) the board may undertake and do such acts and things as it may consider
necessary or expedient for the purpose of giving effect to the provisions of
this article including (without limiting the foregoing) making such
provisions as it may think fit in relation to any fraction of an ordinary
share which may or would arise pursuant to the application of paragraph (b)
of this Article 144 (including provisions whereby fractional entitlements
are disregarded and the benefit thereof accrues to the Company rather than
to the members concerned) and/or provisions whereby any fractional
entitlements of shareholders are accrued or retained and accumulated on
behalf of such shareholders and such accruals or retentions are applied in
the allotment by way of bonus or cash subscription on behalf of such
shareholders and/or cash payments are made to such shareholders in respect
of their fractional entitlements.
145. The board may deduct from any dividend or other moneys payable to any
member in respect of a share any moneys presently payable by him to the Company
in respect of that share.
146. Any dividend or other moneys payable in respect of a share may be paid by
cheque or warrant sent by post to the registered address of the holder or
person entitled or, if two or more persons are the holders of the share or are
jointly entitled to it by reason of the death or bankruptcy of the holder or
otherwise by operation of law, to the registered address of that one of those
persons who is first named in the register or to such person and to such
address as the person or persons entitled may in writing direct. Every such
cheque or warrant shall be made payable to the person or persons entitled or to
such other person as the person or persons entitled may in writing direct and
shall be sent at the risk of the person entitled, and payment of the cheque
shall be a good discharge to the Company. Any joint holder or other person
jointly entitled to a share as aforesaid may give receipts for any dividend or
other moneys payable in respect of the share. Any such dividend or other money
may also be paid by any other method (including direct debit, bank or other
funds transfer system and dividend warrant) which the board considers
appropriate, and to or through such person as the holder or joint holders may
in writing direct. The Company shall have no responsibility for any sums lost
or delayed in the course of any such transfer, or where it has acted on any
such directions.
147. No dividend or other moneys payable in respect of a share shall bear
interest against the Company unless otherwise provided by the rights attached
to the share.
47
<PAGE> 61
148. Any dividend which has remained unclaimed for twelve years from the date
when it became due for payment shall, if the board so resolves, be forfeited
and cease to remain owing by the Company. The payment by the board of any
unclaimed dividend or other moneys payable in respect of a share into a
separate account shall not constitute the Company a trustee thereof.
149. The Company shall be entitled to cease sending dividend warrants and
cheques by post or otherwise to a member if such instruments have been returned
undelivered to, or left uncashed by, that member on at least two consecutive
occasions or if, following one such occasion, reasonable enquiries have failed
to establish any new address of the registered holder. The entitlement
conferred on the Company by this Article in respect of any member shall cease
if such member claims a dividend or cashes a dividend warrant or cheque.
CAPITALISATION OF PROFITS AND RESERVES
150. The board may with the authority of an ordinary resolution of the Company:
(a) subject as hereinafter provided, resolve to capitalise any undistributed
profits of the Company not required for paying any preferential dividend
(whether or not they are available for distribution) or any sum standing to
the credit of any reserve or other fund, including the Company's share
premium account and capital redemption reserve, if any;
(b) appropriate the sum resolved to be capitalised to the members or any class
of members on the record date specified in the relevant resolution who would
have been entitled to it if it were distributed by way of dividend and in
the same proportions and apply such sum on their behalf either in or towards
paying up the amounts, if any, for the time being unpaid on any shares held
by them respectively, or in paying up in full unissued shares, debentures or
other obligations of the Company of a nominal amount equal to that sum, and
allot the shares, debentures or other obligations credited as fully paid to
those members, or as they may direct, in those proportions, or partly in one
way and partly in the other; but the share premium account, the capital
redemption reserve, and any profits which are not available for distribution
may, for the purposes of this Article, only be applied in paying up unissued
shares to be allotted to members credited as fully paid;
(c) make such provision by authorising the sale and transfer to any person of
fractions to which any members would become entitled or resolve that the
distribution be made as nearly as practicable in the correct
48
<PAGE> 62
proportion but not exactly so or may ignore fractions altogether or resolve
that cash payments be made to any members in order to adjust the rights of
all parties or otherwise as (in each case) the board determines where shares
or debentures become, or would otherwise become, distributable under this
Article in fractions;
(d) authorise any person to enter on behalf of all the members concerned into an
agreement with the Company providing for either:
(i) the allotment to such members respectively, credited as fully paid,
of any shares, debentures or other obligations to which they are
entitled upon such capitalisation; or
(ii) the payment up by the Company on behalf of such members (by the
application thereto of their respective proportions of the profits
resolved to be capitalised) of the amounts, or any part of the
amounts, remaining unpaid on their existing shares,
and any agreement made under such authority shall be binding on all such
members; and
(e) generally do all acts and things required to give effect to such resolution
as aforesaid.
RECORD DATES
151. Notwithstanding any other provision of these Articles, the Company or the
board may fix any date as the record date for any dividend, distribution,
allotment or issue, and such record date may be on or at any time before or
after any date on which the dividend, distribution, allotment or issue is
declared, paid or made.
ACCOUNTS
152. No member shall (as such) have any right of inspecting any accounting
records or other book or document of the Company except as conferred by statute
or authorised by the board or by ordinary resolution of the Company or order of
a court of competent jurisdiction.
153. A copy of every balance sheet and profit and loss account (including any
documents required by law to be annexed thereto) which is to be laid before the
Company in general meeting and of the directors' and auditors' reports shall,
at least twenty-one days previously to the meeting, be delivered or sent by
post to every member and to every debenture holder of the Company of whose
address the Company is aware, and to every other person who is entitled to
receive notice of meetings from the Company under the provisions of the
Companies Acts or of these Articles or, in the case of joint holders of any
share or debenture, to one of the joint holders, provided that
49
<PAGE> 63
the requirements of this Article shall be deemed satisfied in relation to any
member by sending to such member, where permitted by the Companies Acts and
instead of such copies, a summary financial statement derived from the Company's
annual accounts and the report of the directors and prepared in the form and
containing the information prescribed by the Companies Acts and any regulations
made thereunder.
NOTICES
154. Any notice to be given to or by any person pursuant to these Articles
shall be in writing except that a notice calling a meeting of the board need
not be in writing.
155. The Company may serve or deliver any notice or other document on or to a
member either personally or by sending it by post in a prepaid envelope
addressed to the member at his registered address or by leaving it at that
address. In the case of joint holders of a share, all notices or other
documents shall be served on or delivered to the joint holder whose name stands
first in the register in respect of the joint holding and any notice or other
document so served or delivered shall be deemed for all purposes sufficient
service on or delivery to all the joint holders. A member whose registered
address is not within the United Kingdom and who gives to the Company an
address within the United Kingdom at which notices may be given to him shall be
entitled to have notices given to him at that address, but otherwise:
(a) no such members shall be entitled to receive any notice from the Company;
and
(b) without prejudice to the generality of the foregoing, any notice of a
general meeting of the Company which is in fact given or purports to be
given to such members shall be ignored for the purpose of determining the
validity of the proceedings at such general meeting.
A member present, either in person or by proxy, at any meeting of the Company
or of the holders of any class of shares in the Company shall be deemed to have
received notice of the meeting and, where requisite, of the purposes for which
it was called.
156. A notice or other document may be served or delivered by the Company on or
to the persons entitled by transmission to a share, whether in consequence of
the death or bankruptcy of a member or otherwise by sending or delivering it,
in any manner authorised by these Articles for the service or delivery of a
notice or other document on or to a member, addressed to them by name, or by
the title of representatives of the deceased, or trustee of the bankrupt or by
any like description at the address, if any, within the United Kingdom supplied
for that purpose by the persons
50
<PAGE> 64
claiming to be so entitled. Until such an address has been supplied, a notice
or other document may be served or delivered in any manner in which it might
have been served or delivered if the death or bankruptcy or other event giving
rise to the transmission had not occurred.
157. Every person who becomes entitled to a share shall be bound by any notice
in respect of that share which, before his name is entered in the register, has
been duly given to a person from whom he derives his title, provided that no
person who becomes entitled by transmission to a share shall be bound by any
direction notice issued under Article 69 to a person from whom he derives his
title.
158. Proof that an envelope containing a notice was properly addressed, prepaid
and posted shall be conclusive evidence that the notice was given. A notice
sent by post shall be deemed to be given:
(a) if sent by first class post from an address in the United Kingdom or another
country to another address in the United Kingdom or, as the case may be,
that other country, on the day following that on which the envelope
containing it was posted;
(b) if sent by airmail from an address in the United Kingdom to an address
outside the United Kingdom, on the day following that on which the envelope
containing it was posted; and
(c) in any other case, on the second day following that on which the envelope
containing it was posted.
159. If at any time the Company is unable effectively to convene a general
meeting by notices sent through the post in the United Kingdom as a result of
the suspension or curtailment of postal services, notice of such general
meeting may be sufficiently given by advertisement in the United Kingdom. Any
notice given by advertisement for the purpose of this Article shall be
advertised on the same date in at least two daily newspapers having a national
circulation and such notice shall be deemed to have been served on all persons
who are entitled to have notice of meetings served on them at noon on the day
when the advertisement appears. In any such case the Company shall send
confirmatory copies of the notice by post if at least seven days prior to the
meeting the posting of notices to addresses throughout the United Kingdom again
becomes practicable.
DESTRUCTION OF DOCUMENTS
160. The Company shall be entitled to destroy all instruments of transfer of
shares which have been registered, and all other documents on the basis of
which any entry is made in the register, at any time after the expiration of
six years from the date of registration thereof and all dividend mandates or
51
<PAGE> 65
variations or cancellations thereof and notifications of change of address at
any time after the expiration of two years from the date of recording thereof
and all share certificates which have been cancelled at any time after the
expiration of one year from the date of the cancellation thereof and all paid
dividend warrants and cheques at any time after the expiration of one year from
the date of actual payment thereof and all instruments of proxy which have been
used for the purpose of a poll at any time after the expiration of one year
from the date of such use and all instruments of proxy which have not been used
for the purpose of a poll at any time after one month from the end of the
meeting to which the instrument of proxy relates and at which no poll was
demanded. It shall conclusively be presumed in favour of the Company that
every entry in the register purporting to have been made on the basis of an
instrument of transfer or other document so destroyed was duly and properly
made, that every instrument of transfer so destroyed was a valid and effective
instrument duly and properly registered, that every share certificate so
destroyed was a valid and effective certificate duly and properly cancelled and
that every other document hereinbefore mentioned so destroyed was a valid and
effective document in accordance with the recorded particulars thereof in the
books or records of the Company, provided always that:
(a) the provisions aforesaid shall apply only to the destruction of a document
in good faith and without notice of any claim (regardless of the parties
thereto) to which the document might be relevant;
(b) nothing herein contained shall be construed as imposing upon the Company any
liability in respect of the destruction of any such document earlier than as
aforesaid or in any other circumstances which would not attach to the
Company in the absence of this Article; and
(c) references herein to the destruction of any document include references to
the disposal thereof in any manner.
UNTRACED SHAREHOLDERS
161. If three consecutive notices or communications with a shareholder are
returned undelivered to the Company or returned to the Company in circumstances
where the Company may reasonably assume that notices and communications sent to
the registered address will not be received by the shareholder, the address
given in the register of members may be deleted and replaced by that of the
office or, if the register of members is not held at the office, at the address
where the register of members is held. Where a shareholder's registered
address is the office or the address where the register of members is held,
notices and communications sent to such address will be available for
collection by the shareholder until such date as a general meeting takes place
or the notice or communication can no longer be acted upon, after which they
may be destroyed. Upon receipt of the shareholder's new
52
<PAGE> 66
address the register of members shall be amended accordingly and thereafter all
notices to and communications with the shareholder shall be sent to that new
address subject to the provisions of these Articles.
162. The Company shall be entitled to sell, at the best price reasonably
obtainable, the shares of a member or the shares to which a person is entitled
by virtue of transmission on death, bankruptcy, or otherwise by operation of
law if and provided that:
(a) during the period of twelve years prior to the date of the publication of
the advertisements referred to in paragraph (b) below (or, if published on
different dates, the first thereof) at least three dividends in respect of
the shares in question have been declared and all dividend warrants and
cheques which have been sent in the manner authorised by these Articles in
respect of the shares in question have remained uncashed;
(b) the Company shall as soon as practicable after expiry of the said period of
twelve years have inserted advertisements both in a national daily newspaper
and in a newspaper circulating in the area of the last known address of such
member or other person giving notice of its intention to sell the shares;
(c) during the said period of twelve years and the period of three months
following the publication of the said advertisements the Company shall have
received no indication either of the whereabouts or of the existence of such
member or person; and
(d) if the shares are listed on the London Stock Exchange, notice shall have
been given to the Quotations Department of the London Stock Exchange of the
Company's intention to make such sale prior to the publication of
advertisements.
If during any twelve year period referred to in paragraph (a) above, further
shares have been issued in right of those held at the beginning of such period
or of any previously issued during such period and all the other requirements
of this Article (other than the requirement that they be in issue for twelve
years) have been satisfied in regard to the further shares, the Company may
also sell the further shares.
To give effect to any such sale, the board may authorise some person to execute
an instrument of transfer of the shares sold to, or in accordance with the
directions of, the purchaser and an instrument of transfer executed by that
person shall be as effective as if it had been executed by the holder of, or
person entitled by transmission to, the shares. The transferee shall not be
bound to see to the application of the purchase money, nor shall his title to
53
<PAGE> 67
the shares be affected by any irregularity in, or invalidity of, the
proceedings in reference to the sale.
The net proceeds of sale shall belong to the Company which shall be obliged to
account to the former member or other person previously entitled as aforesaid
for an amount equal to such proceeds and shall enter the name of such former
member or other person in the books of the Company as a creditor for such
amount. No trust shall be created in respect of the debt, no interest shall be
payable in respect of the same and the Company shall not be required to account
for any money earned on the net proceeds, which may be employed in the business
of the Company or invested in such investments as the board from time to time
thinks fit.
WINDING UP
163. If the Company is wound up, the liquidator may, with the sanction of an
extraordinary resolution of the Company and any other sanction required by the
Insolvency Act 1986, divide among the members in specie the whole or any part
of the assets of the Company and may, for that purpose, value any assets and
determine how the division shall be carried out as between the members or
different classes of members. The liquidator may, with the like sanction, vest
the whole or any part of the assets in trustees upon such trusts for the
benefit of the members as he with the like sanction determines, but no member
shall be compelled to accept any assets upon which there is a liability.
164. The power of sale of a liquidator shall include a power to sell wholly or
partially for shares or debentures or other obligations of another body
corporate, either then already constituted or about to be constituted for the
purpose of carrying out the sale.
INDEMNITY
165. Subject to the provisions of the Companies Acts but without prejudice to
any indemnity to which a director may otherwise be entitled, every director or
other officer or auditor of the Company shall be indemnified out of the assets
of the Company against all costs, charges, losses, expenses and liabilities
incurred by him in the execution or discharge of his duties or the exercise of
his powers or otherwise in relation thereto, including (but without limitation)
any liability incurred by him in defending any proceedings, whether civil or
criminal, in which judgment is given in his favour (or the proceedings are
otherwise disposed of without any finding or admission of any material breach
of duty on his part) or in which he is acquitted or in connection with any
application in which relief is granted to him by the court from liability for
negligence, default, breach of duty or breach of trust in relation to the
affairs of the Company.
54
<PAGE> 1
EXHIBIT 4.3 or EXHIBIT 10.10
DIAMOND CABLE COMMUNICATIONS PLC
Company
TO
THE BANK OF NEW YORK
Trustee
-----------
FIRST SUPPLEMENTAL INDENTURE
Dated as of May 31, 1996
-----------
$285,101,000
13 1/4% Senior Discount Notes due September 30, 2004
SUPPLEMENTING INDENTURE DATED AS OF
SEPTEMBER 28, 1994
viii
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of May 31, 1996 between Diamond Cable
Communications Plc, a public limited company registered in England with
registered number 2965241, (herein called the "Company"), having its registered
office at Diamond Plaza, Daleside Road, Nottingham NG7 6JN England, and The
Bank of New York, a New York banking corporation, as Trustee (herein called the
"Trustee").
RECITALS OF THE COMPANY
The Company has heretofore executed and delivered to the Trustee a certain
indenture, dated as of September 28, 1994 (hereinafter called the "Indenture"),
pursuant to which the Company has issued its 13 1/4% Senior Discount Notes due
September 30, 2004 (the "Securities"). All terms used in this First
Supplemental Indenture which are defined in the Indenture shall have the
meanings assigned to them in the Indenture.
Section 902 of the Indenture permits the Company and the Trustee, with the
consent of the Holders of 66 2/3% in principal amount of the Outstanding
Securities, to enter into a supplemental indenture in order to modify the
provisions of the Indenture as contemplated herein.
The Company has requested the Trustee to join in the execution and
delivery of this First Supplemental Indenture for the purpose of amending the
Indenture as set forth herein in order to modify certain covenants of the
Company with respect to the Securities issued under the Indenture. The Holders
of 66 2/3% in principal amount of the Outstanding Securities have given their
written consent to the modification effected hereby.
The Company has furnished the Trustee with (i) an Opinion of Counsel
stating that the execution of this First Supplemental Indenture is authorized
or permitted by the Indenture and (ii) an Officers' Certificate of the Company
stating that all conditions precedent provided for in the Indenture with
respect to this First Supplemental Indenture have been complied with.
All things necessary to make this First Supplemental Indenture a valid
agreement of the Company and the Trustee and a valid amendment of and
supplement to the Indenture have been done.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders of the
Securities, as follows:
1
<PAGE> 3
ARTICLE ONE
This Article amends Section 1008, "Limitation on Consolidated Debt and
Disqualified Equity" so that it is consistent with the similar covenant in the
Indenture, dated December 15, 1995 between the Company and the Trustee, under
which the Company issued $530,955,000 in aggregate principal amount at maturity
of its 11 3/4% Senior Discount Notes due December 15, 2002.
SECTION 101. A new subclause (iii) is added to the second paragraph of Section
1008 to read as follows:
"(iii) Debt or Disqualified Equity to the extent that the proceeds
are used to finance working capital for, or the construction or the
acquisition of, property or assets in each case to be used in, a Cable
Business;"
SECTION 102. Subclauses (iii) through (viii) of Section 1008 are hereby
renumbered and become subclauses (iv) through (ix).
SECTION 103. Renumbered subclauses (viii) and (ix) of Section 1008 are hereby
modified to conform cross references, as follows:
"(viii) Debt incurred or Disqualified Equity issued to
renew, extend, refinance or refund any Debt or Disqualified Equity
permitted in Clauses (i) through (iv) above or the Securities in
an amount not to exceed the outstanding principal amount (or, if
less, Accreted Value) of the Debt or the aggregate liquidation
preference of the Disqualified Equity so refinanced plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of the Debt or Disqualified
Equity refinanced plus the expenses of the Company incurred in
connection with such refinancing; provided that
(a) in the case of any refinancing or refunding of Debt which is
pari passu to the Securities, the refinancing or refunding Debt is
made pari passu to the Securities or subordinated to the Securities,
and, in the case of any refinancing or refunding of Debt which is
subordinated to the Securities or of Disqualified Equity, the
refinancing or refunding Debt is subordinated to the Securities to
the same extent as the Debt being refinanced or refunded or is
Disqualified Equity; and
(b) in either case, the refinancing or refunding Debt or
Disqualified Equity by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt or
Disqualified Equity is Incurred or issued, as the case may
be, does not have a Weighted Average Life that is lower than
that of the Debt or Disqualified Equity being refinanced or
refunded; and
(ix) Debt or Disqualified Equity not otherwise permitted
to be Incurred or issued under Clauses (i) through (viii) above,
which, together with any other outstanding Debt Incurred or
Disqualified Equity issued pursuant to this Clause (ix), has an
aggregate principal amount (or liquidation preference) not in
excess of L.10 million at any time outstanding."
2
<PAGE> 4
ARTICLE TWO
Clause (2)(b)(ii) of Section 1009 is amended to reflect a new cross
reference consequential to the renumbering described in Article One, as
follows:
"(ii) any refinancing or refunding of any Debt
otherwise permitted under clause (viii) of Section 1008;"
ARTICLE THREE
This Article amends Section 1011 "Limitation on Liens" and Section 1010
"Limitations concerning Distributions by and Transfers to Restricted Group" so
that new subclause (iii) of Section 1008 is entitled to the same exceptions as
are applied to renumbered subclauses (iv) and (v) of Section 1008.
SECTION 301. Clause (f) of the second paragraph of Section 1010 is amended to
add a reference to new subclause (iii) of Section 1008 and reflect renumbering,
as follows:
"(f) pursuant to an agreement pursuant to which Debt meeting
the requirements of clauses (iii), (iv) or (v) of the second
paragraph of Section 1008 is Incurred provided, however, that the
provisions contained in such agreement relating to such
encumbrance or restriction are no more restrictive in any material
respect than those contained in the terms of the Senior Bank
Facility; or"
SECTION 302. Subclause (a)(vi) of Section 1011 is amended to add a reference
to new subclause (iii) of Section 1008 and reflect renumbering, as follows:
"(vi) Liens to secure Debt Incurred under the provisions described
in clauses (iii), (iv) or (v) of the second paragraph of Section 1008;"
ARTICLE FOUR
As amended and modified by this First Supplemental Indenture, the
Indenture is in all respects ratified and confirmed and the Indenture and this
First Supplemental Indenture shall be read, taken and construed as one and the
same instrument.
ARTICLE FIVE
SECTION 501. The Trustee assumes no duties, responsibilities or
liabilities other than as set forth in the Indenture and this First
Supplemental Indenture, and this First Supplemental Indenture is executed and
accepted by the Trustee subject to all the terms and conditions of the
acceptance of the trust under the Indenture, as fully as if said terms and
conditions were herein set forth at length.
SECTION 502. In case any provision in this Supplemental Indenture shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
3
<PAGE> 5
SECTION 503. This Supplemental Indenture shall be governed by and
construed in accordance with the internal laws of the State of New York,
without regard to conflicts of laws provisions thereof.
____________________
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute one
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, as of the day and year first above
written.
DIAMOND CABLE COMMUNICATIONS PLC
By: ____________________________
Name:
Title:
By: ____________________________
Name:
Title:
THE BANK OF NEW YORK,
As Trustee
By: ____________________________
Name:
Attest:
_____________________________________
4
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED
JUNE 30,
1993 1994 1995 1996
<S> <C> <C> <C> <C>
US GAAP
EARNINGS:
Profit and loss before taxes................. L.(2,798) L.(8,679) L.(27,607) L.(26,302)
FIXED CHARGES:
Interest element of capital lease charges.... 227 352 515 404
Rental expense deemed to be representative of
interest factor(1)........................... 21 26 244 175
Other interest expense....................... 4 166 1,956 177
Amortisation of debt discount and expense.... -- 3,318 14,647 19,548
-------- -------- --------- ---------
252 3,862 17,362 20,304
-------- -------- --------- ---------
Loss before income taxes and fixed charges... (2,546) (4,817) (10,245) (8,998)
Fixed charges................................ (252) (3,862) (17,362) (20,304)
-------- -------- -------- ---------
Deficiency of earnings to fixed charges...... (2,798) (8,679) (27,607) (29,302)
======== ======== ======== =========
Ratio of earnings to fixed charges(2)........ n/a n/a n/a n/a
</TABLE>
- -----------------
(1) For the purposes of the calculation of the deficiency/ratio of earnings
to fixed charges the portion of rental expenses deemed to be
representative of the interest factor is 1/3 of the rental expense.
(2) The ratio of earnings to fixed charges is computed by aggregating:
(a) income from continuing operations before taxes on income;
(b) fixed charges;
and dividing the total by fixed charges.
5
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders
Diamond Cable Communications Plc:
We consent to the use of our reports with respect to Diamond Cable
Communications Plc and LCL Cable Communications Limited included herein and to
the references to our firm under the headings "Experts" and "Selected Financial
Data" in the Prospectus.
KPMG
Nottingham, England
September 10, 1996
6
