<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DIAMOND CABLE COMMUNICATIONS PLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
4841 NONE
ENGLAND (Primary Standard Industrial (I.R.S Employer
(Jurisdiction of incorporation) Classification Code Number) Identification Number)
DIAMOND PLAZA
DALESIDE ROAD CT CORPORATION SYSTEM
NOTTINGHAM NG2 3GG 1633 BROADWAY
ENGLAND NEW YORK, NY 10019
011-44-115-912-2217 (212) 664-1666
(Address and telephone number of (Name, address and telephone number
Registrant's principal executive offices) of agent for service)
</TABLE>
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COPIES TO:
SCOTT D. MILLER, ESQ.
SULLIVAN & CROMWELL
9A IRONMONGER LANE
LONDON EC2V 8EY ENGLAND
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and therein compliance with
General Instruction G, check the following box.
[ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price aggregate offering Amount of
registered registered(1) per unit(2) price(2) registration fee(3)
<S> <C> <C> <C> <C>
10 3/4% Senior
Discount Notes due
February 15, 2007
(4) $420,500,000 54.99% $231,232,950 $70,071
</TABLE>
(1) The amount of the Senior Notes to be registered includes an indeterminate
amount of Senior Notes that may be offered and sold from time to time by
broker-dealers affiliated with the Registrant in market-making
transactions.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933
(3) Calculated pursuant to Rule 457(f).
(4) The Senior Notes will be represented by Book-Entry Interests as provided by
the Deposit Agreement filed as an exhibit hereto.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
===============================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement relates to the registration of $420,500,000
aggregate principal amount at maturity of 10 3/4% Senior Discount Notes due
February 15, 2007 (the "Senior Notes"), which are being issued by Diamond Cable
Communications Plc (the "Company"). The complete Prospectus contained herein
relates to the exchange offer in which Senior Notes are being offered by the
Company in exchange for its outstanding Senior Discount Notes due February 15,
2007. A post-effective amendment on Form S-1 to this registration statement on
Form S-4 will be filed which will include a Prospectus relating to the sale of
the Senior Notes by Goldman, Sachs & Co. in market-making transactions.
Following the first such market-making transaction in the Senior Notes, the
Company will file the market-making prospectus pursuant to Rule 424 under the
Securities Act of 1933, as amended.
<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 April 15, 1997
OFFER FOR ALL OUTSTANDING
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007
IN EXCHANGE FOR
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007
OF DIAMOND CABLE COMMUNICATIONS PLC
Diamond Cable Communication Plc (the "Company") hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (which together constitute the "Exchange
Offer"), to exchange $1,000 principal amount at maturity of its registered 10
3/4% Senior Discount Notes due February 15, 2007 (the "Senior Notes"), for each
$1,000 principal amount at maturity of its unregistered 10 3/4% Senior Discount
Notes due February 15, 2007 (the "Old Notes"), of which an aggregate principal
amount at maturity of $420,500,000 is outstanding. The form and terms of the
Senior Notes are identical to the form and terms of the Old Notes except that
the Senior Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and will not bear any legends restricting their
transfer nor include certain provisions for an increase in the interest rate on
the Old Notes related to certain defaults under the Indenture governing the Old
Notes. The Senior Notes will be issued pursuant to, and entitled to the benefits
of, the Indenture governing the Old Notes. The Exchange Offer is being made in
order to satisfy contractual undertakings made by the Company. See "The Exchange
Offer" and "Description of the Senior Notes". The Old Notes and the Senior Notes
are sometimes referred to collectively herein as the "Notes."
Interest will not accrue on the Senior Notes prior to February 15, 2002.
Interest on the Senior Notes will be payable on February 15 and August 15 of
each year, commencing August 15, 2002 at a rate of 10 3/4% per annum. See
"Description of the Senior Notes". The Senior Notes will be redeemable, in
whole or in part, at the option of the Company at any time on or after February
15, 2002, at the redemption prices set forth herein plus accrued and unpaid
interest, if any, to the date of redemption. The Senior Notes will also be
redeemable in whole, but not in part, at the option of the Company at any time
at 100% of the principal amount at maturity (or, prior to February 15, 2002 at
100% of Accreted Value) plus accrued and unpaid interest, if any, to the date of
redemption in the event of certain tax law changes requiring the payment of
additional amounts as described herein. See "Description of the Senior Notes --
Redemption". Upon the occurrence of a Change of Control, the Company is
required to offer to repurchase all outstanding Senior Notes at 101% of
principal amount at maturity (or, prior to February 15, 2002, at 101% Accreted
Value on the date of repurchase), plus accrued and unpaid interest, if any, to
the date of repurchase. See "Description of Senior Notes -- Certain Covenants
- -- Change of Control". There can be no assurance that the Company would have
the financial resources necessary or otherwise be able to repurchase the Senior
Notes under such circumstances.
The Senior Notes will be unsecured senior indebtedness of the Company. In
February 1997, certain of the Company's subsidiaries entered into an amended
senior bank lending facility which will permit, subject to certain conditions
and covenants, borrowing of up to L.175 million. Indebtedness under the senior
bank lending facility will be 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. 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. At
December 31, 1996, the Group had approximately L.325 million of indebtedness
outstanding, including approximately L.117 million and L.197 million in
accreted value of the 1994 Notes and the 1995 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 Senior Notes
will rank pari passu with the 1994 Notes and the 1995 Notes.
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1997,
unless extended (as so extended, the "Expiration Date"). Tenders of Old Notes
may be withdrawn at any time prior to the Expiration Date. The Exchange Offer
is subject to certain customary conditions. See "The Exchange Offer".
Each broker-dealer that receives Senior Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of those Senior Notes. The letter of transmittal
accompanying this Prospectus (the "Letter of Transmittal") states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Senior Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 90 days after
the date hereof, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution".
The Senior Notes will be issued as a global security in bearer form, which
will be deposited with The Bank of New York, as Book-Entry Depositary. Except
as described herein, the Senior Notes will not be available in definitive form.
Book-Entry Interests in the Senior Notes will be shown on, and transfers
thereof will be effected only through, records maintained by The Depository
Trust Company and its participants. See "Description of the Senior Notes --
Form of Senior Notes"; and "-- Description of Book-Entry System".
No public market existed for the Old Notes before the Exchange Offer. The
Company currently does not intend to list the Senior Notes on any securities
exchange (other than the Luxembourg Stock Exchange) or to seek approval for
quotation through any automated quotation system, and no active public market
for the Senior Notes is currently anticipated. The Company will pay all
expenses incident to the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE SENIOR NOTES.
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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.
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The date of this Prospectus is ____________ , 1997.
<PAGE> 4
THE EXCHANGE OFFER DESCRIBED IN THIS PROSPECTUS (THE "PROSPECTUS") IS NOT
DIRECTED TO, NOR WILL THE COMPANY ACCEPT ANY TENDER FOR EXCHANGE FROM, ANY
PERSON IN ANY JURISDICTION IN WHICH PARTICIPATION IN SUCH EXCHANGE OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
PURSUANT HERETO SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE ISSUER OR THAT THE INFORMATION SET FORTH HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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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").
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.
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The Old Notes are listed on, and application has been made to list the
Senior Notes 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.
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 $1.7123 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 December 31, 1996. The Noon Buying Rate on April 11, 1997
was $1.6245 per L.1.00. See "Exchange Rates" for information regarding the Noon
Buying Rate for the past five fiscal years.
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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> 5
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 its fifteen contiguous
franchise areas, comprising approximately 1.2 million homes and an estimated
60,600 businesses. As of December 31, 1996, the Group's cable television and
telecommunications network had passed by civils construction approximately
453,500 homes and an estimated 23,900 businesses, of which portions of the
network passing approximately 347,200 homes and an estimated 17,900 businesses
had been activated. As of that date, the Group had approximately 104,500
residential telephone lines, 59,200 cable television subscribers and 18,900
business telephone lines. Through that date, L.317 million had been invested
(at original cost) in the construction of the network and related systems. For
the years ended December 31, 1994, 1995 and 1996, the Group had total revenues
of approximately L.7.3 million, L.16.0 million and L.37.6 million, and net
losses of L.8.7 million, L.27.6 million and L.35.8 million, 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, call barring and Internet
access, (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. 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
hold an 83.3% interest. The remaining partnership interests in ECCP are held by
affiliates of Robert T. Goad and Ralph H. Booth II.
5
<PAGE> 6
<PAGE> 7
<PAGE> 8
CERTAIN OPERATING DATA
The following table sets forth certain data concerning the Group's
franchises at and for the years ended December 31, 1994, 1995 and 1996. The
combined operating data at and for the year ended December 31, 1995 reflects
the acquisition of LCL on a pro-forma basis as if it had been completed at the
beginning of 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996
------- ------------------------------------ -------
Diamond LCL Combined
------- ------- --------
<S> <C> <C> <C> <C> <C>
Homes passed by civils construction(1) 55,919 222,335 58,976 281,311 453,496
Homes activated(2) 32,033 105,951 51,955 157,906 347,246
Homes marketed(3) 31,330 77,657 48,950 126,607 252,601
CABLE TELEVISION
Basic service subscribers 8,936 20,261 10,488 30,749 59,242
Penetration rate of homes marketed(4) 28.5% 26.1% 21.4% 24.3% 23.5%
Average monthly revenue per subscriber(5) L.14.71 L.16.80 L.18.89 L.17.62 L.18.03
Churn(6) 28.5% 35.5% 31.0% 33.8% 40.9%
RESIDENTIAL TELEPHONE
Residential lines connected 14,150 36,122 16,576 52,698 104,460
Penetration rate of homes marketed(4) 45.2% 46.5% 33.9% 41.6% 41.4%
Average monthly revenue per line(7)(8) L.18.83 L.18.68 L.22.19 L.19.88 L.18.40
Pro-forma average monthly revenue per
line(8) L.18.83 L.18.11 L.21.35 L.19.22 L.18.64
Churn(6) 13.8% 13.9% 17.2% 15.0% 20.6%
BUSINESS TELECOMMUNICATIONS
Business customers accounts 979 1,627 772 2,399 3,935
Business lines connected 3,928 7,036 2,843 9,879 18,932
Private circuits(9) 70 151 10 161 226
Average lines per business account(10) 4.0 4.3 3.7 4.1 4.8
Average monthly revenue per line(8)(11) L.88.68 L.74.60 L.59.60 L.70.23 L.50.17
Pro-forma average monthly revenue per
line(8) L.88.68 L.72.02 L.56.88 L.67.70 L.51.25
</TABLE>
(1) Homes passed by civils construction is the number of homes that have had
ducting buried outside.
(2) 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.
(3) Homes marketed is the number of homes activated for which the initial
marketing phase has been completed.
(4) 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.
(5) 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.
(6) 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).
(7) 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.
(8) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the
year to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995
but recorded in full against revenues in 1996. The rebates were calculated
in accordance with recently revised interconnect agreements with BT that
were made effective retroactively from April 1995. The pro-forma average
monthly revenue per line (for both residential telephone and business
telecommunications revenues) gives effect to the revised interconnect
agreements as if they had been in effect from April 1995 and allocates to
each period the portion of the rebates that relates to such period.
6
<PAGE> 9
(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) 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.
7
<PAGE> 10
THE SENIOR NOTES
The form and terms of the Senior Notes are the same as the form and terms
of the Old Notes except that the Senior Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
nor include certain provisions for an increase in the interest rate on the Old
Notes related to certain defaults under the Indenture governing the Old Notes.
The Senior Notes will be entitled to the benefits of the Indenture pursuant to
which the Old Notes were issued. The Old Notes and the Senior Notes are
sometimes referred to collectively herein as the "Notes." See "Description of
the Senior Notes".
NOTES OFFERED $420,500,000 principal amount at maturity of 10 3/4% Senior
Discount Notes due February 15, 2007 (the "Senior Notes").
ISSUE PRICE $594.48 per $1,000 principal amount at maturity of Senior
Notes.
MATURITY DATE February 15, 2007.
USE OF PROCEEDS The Company will not receive any proceeds from the Exchange
Offer.
YIELD AND
INTEREST 10 3/4% per annum (computed on a semi-annual bond equivalent
basis) calculated from February 27, 1997. Cash
interest will not be payable on the Senior Notes prior to
February 15, 2002 (the "Cash Interest Date").
Thereafter, cash interest on the Senior Notes will be
payable, at a rate of 10 3/4% per annum, semi-annually on
each February 15 and August 15, commencing August 15, 2002.
For U.S. federal income tax purposes, purchasers of
the 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 Senior Notes will 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 Senior Notes.
The 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 (as defined herein) will be effectively senior
to the 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 other than Jewel.
The Senior Notes will rank pari passu with the 1994 Notes and
the 1995 Notes. See "Risk Factors -- Holding Company
Structure; Liens on Assets".
OPTIONAL
REDEMPTION The Senior Notes will be redeemable, in whole or in
part, at the option of the Company at any time on or after
February 15, 2002 at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the date of
redemption. See "Description of the Senior Notes -- Redemption
-- Optional Redemption".
TAX REDEMPTION In the event of certain changes affecting
withholding taxes applicable to certain payments on the
Senior Notes, the Senior Notes will be 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 Senior Notes
-- Redemption -- Optional Tax Redemption".
CHANGE OF CONTROL Upon a Change of Control, each holder of the Senior Notes
will have the right to require the Company to repurchase
such holder's 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. There can be no assurance
that the Company would have the financial resources
necessary or otherwise be able to repurchase the Senior
Notes upon a Change of Control. See "Description of the
Senior Notes -- Certain Covenants -- Change of Control"
and "Risk Factors -- Holding Company Structure; Liens on
Assets".
ORIGINAL ISSUE
DISCOUNT The Senior Notes are being 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 Senior Notes prior to the Cash Interest
Date, original issue discount (i.e., the difference between
the principal and interest payable on the Senior Notes and
their issue price) will accrete from the issue date of the
Senior Notes and will be included as ordinary income
(including for periods ending prior to the Cash Interest Date)
for U.S. federal income
8
<PAGE> 11
tax purposes in advance of receipt of the cash
payments to which the income is attributable. See
"Taxation -- United States -- Original Issue Discount".
CERTAIN COVENANTS The 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
Senior Notes Indenture will limit 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 Senior Notes
from developments that may adversely affect the Company's
ability to meet its obligations on the Senior Notes. See
"Description of the Senior Notes".
FORM OF NOTES The Senior Notes will be issued initially as two
global securities in bearer form without coupons, which
will be held by The Bank of New York, as Book-Entry
Depositary. Book-Entry Interests in the Global Senior
Notes 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 Senior Notes",
Participants or Indirect Participants are not entitled to
receive physical delivery of Senior Notes in definitive form
or to have Senior Notes issued and registered in their names
and are not considered the owners or holders thereof under
the 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 Senior Notes
-- Description of Book-Entry System -- Settlement".
For additional information regarding the Senior Notes and definitions of
certain capitalized terms used above, see "Description of the Senior Notes" and
"Taxation -- United States".
9
<PAGE> 12
THE EXCHANGE OFFER
The Exchange Offer applies to $420.5 million aggregate principal amount at
maturity of the Old Notes.
The Exchange Offer $1,000 principal amount at maturity of Senior Notes in
exchange for each $1,000 principal amount at maturity of
Old Notes. As of the date hereof, Old Notes representing
$420,500,000 aggregate principal amount at maturity are
outstanding. The terms of the Senior Notes and the Old
Notes are substantially the same.
Based on an interpretation by the Commission's staff set
forth in interpretive letters issued to third parties
unrelated to the Company, the Company believes that Senior
Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise
transferred by any person receiving the Senior Notes,
whether or not that person is the holder (other than any
such holder or such other person that is an "affiliate" of
the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act,
provided that (i) the Senior Notes are acquired in the
ordinary course of business of that holder or such other
person, (ii) neither the holder nor such other person is
engaging in or intends to engage in a distribution of the
Senior Notes, and (iii) neither the holder nor such other
person has an arrangement or understanding with any person
to participate in the distribution of the Senior Notes.
See "The Exchange Offer - Purpose and Effect." Each
broker-dealer that receives Senior Notes for its own
account in exchange for Old Notes, where those Old Notes
were acquired by the broker-dealer as a result of its
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection
with any resale of those Senior Notes. See "Plan of
Distribution."
Registration Rights
Agreement The Old Notes were sold by the Company on February 27, 1997
in a private placement. In connection with the sale, the
Company entered into an Exchange and Registration Rights
Agreement with the purchasers (the "Registration Rights
Agreement") under which the Company agreed to effect the
Exchange Offer. See "The Exchange Offer - Purpose and
Effect."
Expiration Date The Exchange Offer will expire at 5:00 p.m., New York City
time, _________ , 1997, or such later date and time to
which it is extended.
Withdrawal The tender of Old Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Old Notes not accepted
for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer.
Conditions to the
Exchange Offer The Exchange Offer is subject to certain
customary conditions, certain of which may be waived by the
Company. See "The Exchange Offer - Conditions."
10
<PAGE> 13
Procedures for
Tendering Old Notes Each holder of Old Notes wishing to accept the Exchange
Offer must complete, sign and date the Letter of
Transmittal, or a copy thereof, in accordance with the
instructions contained herein and therein, and mail or
otherwise deliver the Letter of Transmittal, or the copy,
together with the Old Notes and any other required
documentation, to the Exchange Agent at the address set
forth herein. Persons holding Old Notes through the
Depository Trust Company ("DTC") and wishing to accept the
Exchange Offer must do so pursuant to the DTC's Automated
Tender Offer Program, by which each tendering Participant
will agree to be bound by the Letter of Transmittal. By
executing or agreeing to be bound by the Letter of
Transmittal, each holder will represent to the Company
that, among other things, (i) the Senior Notes acquired
pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such
Senior Notes, whether or not such person is the holder of
the Old Notes, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a
distribution of such Senior Notes, (iii) neither the holder
nor any such other person has an arrangement or
understanding with any person to participate in the
distribution of such Senior Notes, and (iv) neither the
holder nor any such other person is an "affiliate", as
defined under Rule 405 promulgated under the Securities
Act, of the Company. Pursuant to the Registration Rights
Agreement, the Company is required to file a registration
statement for a continuous offering pursuant to Rule 415
under the Securities Act in respect of the Old Notes if
existing Commission interpretations are changed such that
the Senior Notes received by holders in the Exchange Offer
are not or would not be, upon receipt, transferable by each
such holder (other than an affiliate of the Company)
without restriction under the Securities Act. See "The
Exchange Offer - Purpose and Effect."
Acceptance of Old
Notes and Delivery
of Senior Notes The Company will accept for exchange any and all Old Notes
which are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration Date. The
Senior Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date. See "The
Exchange Offer - Terms of the Exchange Offer."
Exchange Agent The Bank of New York is serving as Exchange Agent in
connection with the Exchange Offer.
Federal Income Tax
Considerations The exchange pursuant to the Exchange Offer will not be a
taxable event for U.S. federal income tax purposes. See
"Taxation - United States".
Effect of Not
Tendering Old Notes that are not tendered or that are tendered but
not accepted will, following the completion of the Exchange
Offer, continue to be subject to the existing restrictions
upon transfer thereof. The Company will have no further
obligation to provide for the registration under the
Securities Act of such Old Notes and such Old Notes will
not be entitled to any Special Interest resulting from a
Registration Default (as such terms are defined in the
Indenture, dated as of February 27, 1997, between the
Company and the Bank of New York, as trustee (the
"Indenture")).
11
<PAGE> 14
SUMMARY FINANCIAL DATA
The summary consolidated financial data for the Group at and for the years
ended December 31, 1994, 1995 and 1996 set forth below should be read in
conjunction with, and are qualified in their entirety by reference to,
"Selected Financial 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>
Year Ended December 31,
------------------------------------------------------------------------
1992 1993 1994 1995(1) 1996 1996(2)
-------- -------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications L. 178 L. 1,237 L. 3,402 L. 5,852 L. 9,763 $ 16,717
Residential telephone 153 1,251 2,545 6,662 17,723 30,347
Cable television 458 719 1,324 3,479 10,091 17,279
Other revenues 11 20 35 -- -- --
--------- --------- ---------- ---------- ---------- ----------
Total revenues 800 3,227 7,306 15,993 37,577 64,343
Operating costs and expenses:
Telephone (140) (1,097) (3,067) (5,454) (9,776) (16,739)
Programming (184) (324) (701) (1,844) (6,041) (10,344)
Selling, general and
administrative (917) (1,632) (4,562) (13,020) (22,391) (38,340)
Depreciation and amortization (1,530) (2,520) (4,038) (8,867) (21,380) (36,609)
--------- --------- ---------- ---------- ---------- ----------
Total operating costs and expenses (2,771) (5,573) (12,368) (29,185) (59,588) (102,032)
--------- --------- ---------- ---------- ---------- ----------
Operating loss (1,971) (2,346) (5,062) (13,192) (22,011) (37,689)
Interest income -- -- 1,415 3,887 3,441 5,892
Interest expense, and amortization
of debt discount and expenses (53) (231) (3,836) (17,118) (40,334) (69,064)
Foreign exchange gains/(losses)
net (1,314) (221) (1,196) 925 31,018 53,112
Unrealized losses on derivative
financial instruments -- -- -- (868) (7,944) (13,603)
Other expenses -- -- -- (1,241) -- --
--------- --------- ---------- ---------- ---------- ----------
Net loss L.(3,338) L.(2,798) L. (8,679) L.(27,607) L.(35,830) $ (61,352)
========= ========= ========== ========== ========== ==========
BALANCE SHEET DATA:
Property and equipment, net L. 8,678 L.18,021 L. 35,127 L.163,721 L.277,301 $ 474,822
Total assets 9,487 19,882 138,606 374,172 416,819 713,719
Total debt (3) 13,779 21,889 103,068 319,492 325,041 556,567
Shareholders' equity (4) (6,733) (5,660) 26,092 25,133 54,100 92,636
OTHER DATA:
EBITDA (5) L. (441) L. 174 L. (1,024) L. (6,434) L.(8,575) $ (14,683)
Deficiency of earnings to fixed
charges (6) (3,338) (2,798) (8,679) (27,607) (35,830) (61,352)
Capital expenditures 7,799 11,880 21,252 136,314 130,140 222,839
</TABLE>
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of
$1.7123 = L.1.00, the Noon Buying Rate on December 31, 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 consisted of the 1994 Notes and capital lease obligations. Total
debt at December 31, 1995 and 1996 consisted of the 1994 Notes, the
Company's 11 3/4% Senior Discount Notes due December 15, 2005 (the "1995
Notes"), capital lease obligations and the mortgage loan.
(4) The Company raised additional equity financing of L.40.4 million, L.27.0
million and L.64.6 million in the years ended December 31, 1994, 1995 and
1996, 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
12
<PAGE> 15
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.
13
<PAGE> 16
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 further development and construction of the Group's cable television
and telecommunications network will require substantial capital investment.
Through December 31, 1996, approximately L.317 million has been invested at
original cost in the construction of the Group's network and systems. As of that
date, civils construction of the network had passed approximately 477,000
premises (homes and businesses), and that portion of the network that had been
activated included approximately 365,000 premises. Under the Group's milestone
requirements, the Company is obligated to activate a network passing an
aggregate of 1,021,894 premises in its franchise areas, although the Company
expects that when completed, its activated network will include approximately
1.2 million premises. The Company currently estimates that the additional
capital expenditures required for the Group to substantially complete the
network (including estimated subscriber connection expenses) will be
approximately L.570 million (of which L.520 million relates to capital
expenditures occurring from December 31, 1996 through January 1, 2001), although
these amounts could vary significantly depending on the number of customers
actually connected to the network, the availability of construction resources
and a number of other factors described below. See "Business -- Milestones".
In order to help fund these capital requirements, in August 1996, certain
of the Company's subsidiaries entered into a senior bank lending agreement that
permitted borrowing up to an aggregate amount of L.340 million. In February
1997, the senior bank facility was amended (as amended, the "Senior Bank
Facility") to reduce the aggregate amount available for borrowing to L.220
million or less and to revise certain covenants and borrowing conditions.
Because the proceeds to the Company from the offering of the Old Notes exceeded
$175 million, the Company has, under the terms of the Senior Bank Facility,
negotiated certain further amendments to the Senior Bank Facility, including
among other things a reduction in the amount available for borrowing under the
facility to L.175 million. DCL will be able to draw on the Senior Bank Facility
if certain conditions are met, including conditions related to the operating
cash flow of, equity contributions to and certain financial ratios of Jewel and
its subsidiaries (together, the "Borrower Group") which are not currently met.
See "Description of Company Debt -- Senior Bank Facility". Indebtedness under
the Senior Bank Facility will be incurred by DCL, guaranteed by the Borrower
Group and secured by a lien on the assets of the Borrower Group and a pledge of
the issued shares of the Borrower Group other than Jewel but including DCL and
LCL. To date, no funds have been drawn under the facility.
Based on the estimated additional required investment, the Company believes
that its cash resources (including the net proceeds from the offering of the Old
Notes), a proposed equity injection of L.25 million and cash flows from
operations will be sufficient to complete the construction planned through the
first quarter of 1998, at which time the Group estimates that approximately
61.4% of the aggregate final milestones will have been constructed and
activated. Thereafter, the Company expects to be able to utilize amounts
available under the Senior Bank Facility. If such amounts are not available or
are insufficient, the Group would be required to obtain further debt or equity
financing.
However, the Group may not be able to borrow sufficient funds under the
Senior Bank Facility to meet its remaining funding requirements. In particular,
even after the initial conditions to borrowing have been met, the amount of
funds that may be borrowed will be limited to a specified multiple of the
Borrower Group's reported annualized cash flow (as defined in the Senior Bank
Facility). This reported annualized cash flow will depend on a number of
variables, including penetration of cable television and premium channels,
penetration of business telecommunications and residential telephone, average
revenues in each of these areas, churn, expenses such as programming costs and
interconnect charges, network construction and development expenditures and
financing costs. Adverse developments in any of these or other areas could
adversely affect the Borrower Group's reported annualized cash flow and reduce
amounts available under the Senior Bank Facility.
To the extent that (i) the Group is unable to utilize fully the Senior
Bank Facility, (ii) the amounts required to complete the Group's planned build
out exceed its estimates or (iii) the Borrower Group's reported annualized cash
flow (as defined in the Senior Bank Facility) 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 debt instruments, which limit the incurrence of additional debt by the
Group, or that any such debt or other financing will be available on acceptable
commercial terms or at all. See "-- Potential Adverse Consequences of Financial
Leverage", "-- Holding Company Structure; Liens on Assets" and "Business --
Franchise Areas".
The foregoing information with regard to expected completion times, future
capital expenditures and the sufficiency of funding is forward looking in
nature. Due to factors identified in the preceding two paragraphs and below,
actual results may differ materially from the expected results. There can be no
assurance that (i) 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; (ii) the Group will be able to generate
sufficient cash from operations to meet any unfunded portion of its capital
requirements when required; (iii) the cost of constructing and activating the
network will not increase significantly; (iv) the Group will not acquire
additional franchise areas, which would require additional capital
expenditures; or (v) the Group will not incur losses from foreign currency
transactions or its exposure to foreign currency exchange rate
14
<PAGE> 17
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 the proceeds from the issuance of its three series of Senior Discount
Notes, as well as equity investments. 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".
ABILITY TO MANAGE NETWORK DEVELOPMENT AND EXPANSION
The Company has undertaken a rapid acceleration in the build out of its
existing franchise areas. During 1996 and 1995, over 172,000 and 173,000 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 1994. The Company intends to continue the rapid growth and
development of network construction and activation in an effort 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 in light of the demand for cable
construction services as the industry seeks to meet milestone requirements. 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 has from time to time experienced
(and may in the future experience) shortages or price increases for critical
components such as fiber optic cable, ducting and cabinets.
The number of homes passed 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
recently 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 has
placed significant strains on the operational resources and financial controls
of the Group. These strains have in certain cases affected the level of
customer service provided by the Company, and the time periods required between
activation, the commencement of marketing and the installation of services. 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 implement an improved subscriber management system or
that the Group will not continue to 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 relatively limited
history in the U.K. The Group's future profitability depends in large measure
on continued acceptance of the Group as an attractive provider of telephone
services and in-home entertainment.
The Group has to date experienced significant annual cable television
subscriber churn. The Group's cable television subscriber churn during 1996 was
40.9%. 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".
SIGNIFICANT COMPETITION
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 continue
to intensify in each of these business areas.
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 currently 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
15
<PAGE> 18
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. On October 22, 1996 it was
announced that Mercury would be merged with three U.K. regional cable
companies, NYNEX CableComms Group plc, Bell Cablemedia plc and Videotron
Holdings plc, to create a new group to be known as Cable & Wireless
Communications. While the effects of the merger cannot be predicted, the
Company does not currently anticipate that the merger will have a material
effect on Mercury's competitive position in the Group's franchise areas. The
Company, however, 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, and
international service providers, such as the AT&T group, will continue to
intensify. 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 regularly reviews its
prices, generally resulting in price reductions. The Group has generally
reacted to previous BT price reductions by reducing its rates in order to
maintain its competitive price advantage. 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.
In addition to BT and Mercury, the Group competes in the telephone
business with mobile telecommunications operators, international service
providers and other service providers, and competition is expected to intensify
in the future. For example, Ionica, a company with a license to offer
telecommunications services using radio technology, installed in 1996 a
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 direct-to-home
("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). See
"Business -- Competition -- Cable Television".
A number of recent developments are expected to increase competition in
the provision of multichannel television in the U.K. First, in addition to the
four existing terrestrial channels, an additional commercial terrestrial
channel (Channel 5) commenced broadcasting on March 30, 1997. Second, it has
been reported that BSkyB (as defined below) intends to introduce a digital DTH
satellite service, offering the possibility of over 200 television channels, by
the end of 1997. Third, licenses are anticipated to be awarded in spring 1997
for six frequency ranges capable of providing a total of 30 or so new digital
terrestrial television channels which may broadcast to between 60% and 90% of
the U.K. population. BSkyB, together with two of the U.K.'s largest independent
terrestrial television companies, Carlton Communications plc and Granada Group
plc, have applied, in competition with another applicant, for three of these
frequency ranges to operate digital terrestrial television services commencing
in 1998. According to BSkyB, this service would offer 15 television channels
that would be accessible through a television set-top decoder box without the
need for cable or satellite dish installation. While the effect of these
developments cannot yet be determined and may not be known for some time,
increases in the number of competing television service providers, in
particular providers with programming, financial and other resources greater
than those of the Group, or in the number of channels or the attractiveness of
the programming offered by digital terrestrial or DTH satellite services could
have an adverse effect upon the Group's ability to compete effectively. See
"Business -- Competition -- Cable Television" and "Certain Regulatory Matters
- -- Future Developments -- Digital Broadcasting". Further, the Group may face
competition in the future from programming provided by video-on-demand services
and from other services provided using new technologies. See "Certain
Regulatory Matters -- Cable Telecommunications -- Restrictions on National
PTOs".
POTENTIAL ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
The Group is highly leveraged. At December 31, 1996, the Group had
approximately L.317 million aggregate amount of long-term indebtedness
outstanding. On February 27, 1997 the Company issued $420.5 million in
principal amount at maturity of the Old Notes. As the Group draws down amounts
available under the Senior Bank Facility, the amount of debt outstanding will
increase further. The indentures governing the three series of senior discount
notes
16
<PAGE> 19
permit the Group to incur substantial additional indebtedness to fund the build
out and operation 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 may further 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 the 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; (iv) increasing the Group's exposure to
increases in interest rates given that certain of the Group's future borrowings
may be (and some monies drawn down under the Senior Bank Facility will be) at
variable rates of interest; and (v) increasing the Group's exposure to changes
in currency exchange rates given that a significant portion of the Group's
current borrowings are denominated in U.S. dollars. 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 creditors of 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 depend 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 make funds available therefor. 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 under which the three outstanding
series of Senior Notes have been issued limit, but do not prohibit, the
incurrence of additional indebtedness by the Company's subsidiaries. Such
subsidiaries are expected to incur substantial additional indebtedness in the
future, particularly in connection with the build out of the Group's network
infrastructure. See "-- Requirement for Additional Funds; Senior Bank
Facility".
A substantial portion of the Group's existing and future indebtedness
(other than the 1994 Notes, the 1995 Notes and the Senior Notes) will be
secured by liens over the assets of certain of the Company's subsidiaries and
the shares in the Borrower Group (other than 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.
17
<PAGE> 20
HISTORICAL OPERATING LOSSES
The Group had incurred aggregate operating and net losses, from
commencement of operations through December 31, 1996 of approximately L.60.8
million and L.105.5 million, respectively, which includes on a pro forma basis
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 for
the next several years 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 subject to significant regulation and supervision by various
regulatory bodies. See "Certain Regulatory Matters". 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 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 public telephone operators ("PTOs") can convey broadcast
entertainment services over their existing national networks or a change in
policy allowing more than 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 has been
called for May 1, 1997. See "Certain Regulatory Matters -- Cable
Telecommunications -- 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 DTH
satellite service that provides programming, including programming that is also
offered by the Group, to approximately 3.5 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 1995, 1996 and 1997, BSkyB implemented
significant increases in the per subscriber price for its important movie and
sports premium channels. In February 1997, BSkyB, pursuant to a new rate card,
introduced a separate charge to the Group for a third premium sports channel,
which it currently provides to its DTH sports subscribers at no additional
charge. The Group has decided to pass on the separate charge for this service
to subscribers to the other BSkyB sports services unless the subscriber takes
three BSkyB premium channels. The Group does not have 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. 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. See "Business -- Cable Television -- Programming".
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. 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".
18
<PAGE> 21
REQUIREMENT TO MEET BUILD MILESTONES
The Group is obliged by the milestones in its telecommunications licenses
and its LDLs to construct and activate a network to pass an aggregate of
1,021,894 premises within prescribed time periods. At December 31, 1996, the
portion of the Group's network that had been activated was approximately
365,000 premises (homes and businesses). At December 31, 1995, the Group was
obligated to meet milestones specified in telecommunications licenses for 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 the
Office of Telecommunications ("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. Based on OFTEL's method
of calculating premises passed, the Group failed to meet its year-end 1995
milestones for six of its eight telecommunications licenses. The Company has
renegotiated its milestone obligations with OFTEL, and at December 31, 1996,
the Group met all of its revised milestone obligations. See "Business --
Milestones" and "Certain Regulatory Matters -- Cable Telecommunications --
Network Construction and Service Obligations". In four of the seven franchise
areas in which the Group has been granted LDLs by the Independent Television
Commission (the "ITC"), the Group was originally required under the LDLs to
meet its first milestone obligations by year-end 1996. However, the Department
of Trade and Industry ("DTI") has not granted telecommunications licenses,
which are required before construction can commence, and the ITC formally
modified the Group's licenses to remove year-end 1996 milestones and otherwise
defer the annual milestones for those LDLs by 12 months. DCL has applied to the
DTI for a national telecommunications license, which it expects to be granted
shortly. Delays in obtaining the license may adversely affect the ability of
the Group to meet LDL milestones for 1997. Failure of the Group to meet the
construction milestones under its telecommunications licenses could result in
the commencement by the Director General of Telecommunications (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 could also result in the ITC imposing a fine or
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 sufficient capacity to accommodate
anticipated business demands and technological changes, as well as to permit
new services, including digital television and advanced interactive
telecommunications services, which the Company may choose 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. 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; FOREIGN CURRENCY TRANSACTIONS
A substantial portion of the Group's outstanding indebtedness, including
the 1994 Notes, the 1995 Notes and the 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. While the Company's policy has been not to enter into hedging
contracts in respect of its foreign currency denominated assets and
liabilities, it has entered into a foreign currency forward purchase contract.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Exchange." The Company may from time to time in the
future enter into similar foreign currency contracts based on its assessment of
market conditions. In addition, foreign currency translation gains and losses
arising upon translation of the U.S. dollar denominated indebtedness under the
1994 Notes, the 1995 Notes and the Notes are reported as part of the
profit or loss of the Group. 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 Company's and the Group's ability to satisfy
their obligations, including obligations under outstanding debt instruments, as
they become due. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Foreign Exchange".
Furthermore, the Senior Bank Facility restricts the amount of funds that
the Borrower Group can transfer to the Company in order for the Company to
service its debt obligations, including those under the Senior Notes. See "--
Holding Company Structure; Liens on Assets". This amount is set in pounds
sterling. Therefore, a weakening of the pound sterling against the dollar would
reduce the dollar-equivalent amount of funds that could be transferred to the
Company to service its obligations under the Senior Notes as well as the 1994
Notes and 1995 Notes.
CONTROL OF THE GROUP; POTENTIAL CONFLICTS OF INTEREST
ECCP owns 66.7% of the outstanding shares of the Company. Certain
investment funds managed by Goldman, Sachs & Co. or its affiliates (the
"Goldman Sachs Affiliates") have an 83.3% interest in ECCP and directly own
another
19
<PAGE> 22
4.2% of the Company's outstanding shares. As a result, ECCP (and indirectly,
the Goldman Sachs Affiliates) 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 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 Senior Notes must rely
on the covenants described under "Description of Senior Notes -- Certain
Covenants" to protect their interests and there can be no assurance that those
covenants will protect the holders of the Senior Notes from the risks described
above.
LIMITED INSURANCE COVERAGE
The Group obtains insurance of a type and in 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 are being 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).
ABSENCE OF A PUBLIC MARKET FOR THE SENIOR NOTES; POSSIBLE VOLATILITY OF SENIOR
NOTE PRICE
The Senior Notes are new securities for which there is currently no market.
The Old Notes were originally issued in a private placement and did not trade in
the public securities markets. Although Goldman, Sachs & Co. have informed the
Company that they currently intend to make a market in the Senior Notes after
the Exchange Offer, 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 development or liquidity of any market for
the Senior Notes. Book-Entry Interests representing the Senior Notes will not be
listed on any securities exchange. If a market for the Senior Notes were to
develop, the Senior Notes could trade at prices that may depend upon many
factors, including prevailing interest rates, the Company's operating results
and the markets for similar securities. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Senior Notes.
There can be no assurance that, if a market for the Senior Notes were to
develop, such a market would not be subject to similar disruptions. Moreover,
because Goldman, Sachs & Co. are affiliated with the Company, following the
Exchange Offer 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".
20
<PAGE> 23
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>
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 1.57 1.71 1.49 1.71
1997 (through April 11, 1997) 1.64 1.70 1.59 1.62
</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 April 11, 1997 was $1.6245 = 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".
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Group
as of December 31, 1996 (giving effect to the issuance of the Senior Notes on a
pro forma basis). This table should be read in conjunction with "Selected
Financial Data", the Group's Audited Consolidated Financial Statements and
related Notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
---------------------
(in thousands)
<S> <C> <C>
Long-term debt (2): L. $
Mortgage 2,477 4,241
1994 Notes 117,062 200,445
1995 Notes 197,356 337,933
Senior Notes 145,990 249,979
Total long-term debt 462,885 792,598
Shareholders' equity 54,100 92,636
Total capitalization 516,985 885,234
</TABLE>
(1) Based on the Noon Buying Rate in effect on December 31, 1996 of L.1.00 =
$1.7123.
(2) 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.175 million.
21
<PAGE> 24
SELECTED FINANCIAL DATA
The selected data set forth below have been excerpted or derived from the
audited financial statements of the Group, which as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
are included elsewhere herein and have been audited by KPMG, independent
auditors. 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 the
related Notes thereto, which are included elsewhere in this Prospectus.
<TABLE>
Year Ended December 31,
------------------------------------------------------------------
1992 1993 1994 1995(1) 1996 1996(2)
--------- -------- -------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications L. 178 L. 1,237 L. 3,402 L. 5,852 L. 9,763 $ 16,717
Residential telephone 153 1,251 2,545 6,662 17,723 30,347
Cable television 458 719 1,324 3,479 10,091 17,279
Other revenues 11 20 35 -- -- --
--------- --------- ---------- ---------- ---------- ---------
Total revenues 800 3,227 7,306 15,993 37,577 64,343
Operating costs and expenses:
Telephone (140) (1,097) (3,067) (5,454) (9,776) (16,739)
Programming (184) (324) (701) (1,844) (6,041) (10,344)
Selling, general and
administrative (917) (1,632) (4,562) (13,020) (22,391) (38,340)
Depreciation and amortization (1,530) (2,520) (4,038) (8,867) (21,380) (36,609)
--------- --------- ---------- ---------- ---------- ---------
Total operating costs and expenses (2,771) (5,573) (12,368) (29,185) (59,588) (102,032)
--------- --------- ---------- ---------- ---------- ---------
Operating loss (1,971) (2,346) (5,062) (13,192) (22,011) (37,689)
Interest income -- -- 1,415 3,887 3,441 5,892
Interest expense, and amortization
of debt discount and expenses (53) (231) (3,836) (17,118) (40,334) (69,064)
Foreign exchange gains/(losses)
net (1,314) (221) (1,196) 925 31,018 53,112
Unrealized losses on derivative
financial instruments -- -- -- (868) (7,944) (13,603)
Other expenses -- -- -- (1,241) -- --
--------- --------- ---------- ---------- ---------- ---------
Net loss L.(3,338) L.(2,798) L. (8,679) L.(27,607) L.(35,830) $(61,352)
========= ========= ========== ========== ========== =========
BALANCE SHEET DATA:
Property and equipment, net L. 8,678 L.18,021 L. 35,127 L.163,721 L.277,301 $474,822
Total assets 9,487 19,882 138,606 374,172 416,819 713,719
Total debt (3) 13,779 21,889 103,068 319,492 325,041 556,567
Shareholders' equity (4) (6,733) (5,660) 26,092 25,133 54,100 92,636
OTHER DATA:
EBITDA (5) L. (441) L. 174 L. (1,024) L. (6,434) L. (8,575) $(14,683)
Deficiency of earnings to fixed
charges (6) (3,338) (2,798) (8,679) (27,607) (35,830) (61,352)
Capital expenditures 7,799 11,880 21,252 136,314 130,140 222,839
</TABLE>
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of
$1.7123 = L.1.00, the Noon Buying Rate on December 31, 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 consisted of the 1994 Notes and capital lease obligations. Total
debt at December 31, 1995 and 1996 consisted of the 1994 Notes, the
1995 Notes, capital lease obligations and the mortgage loan.
(4) The Company raised additional equity financing of L.40.4 million, L.27.0
million and L.64.6 million in the years ended December 31, 1994, 1995 and
1996, 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
22
<PAGE> 25
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.
23
<PAGE> 26
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 the Group 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 December 31, 1996, approximately L.317 million had been invested
(at original cost) in the construction of the Group's network and related
systems. As of December 31, 1996, approximately 477,000 of the premises (homes
and businesses) in the Group's franchise areas had been passed by civils
construction, of which 365,000 premises had been activated, representing
approximately 36% of the premises required to be activated under the Group's
aggregate final milestone obligations.
The development and the installation of the network in the Group's
franchise areas requires significant additional capital expenditure. These
expenditures, together with the associated operating expenses, will continue to
result in significant cash requirements, and during the build out period the
Company expects to continue to incur operating losses.
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, construction costs and financing 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
"Certain Regulatory Matters".
One important measure of the success of the Group's operating and
marketing strategy is the churn rate, which is a measure of the incidence of
service terminations among customers using a given service. Service may be
terminated either by the customer or by the Group (generally when the customer
is delinquent in payment). For cable television subscribers, the Group's
experience to date has been that the likelihood of churn for a given customer
is highest in the period shortly after the customer commences subscription for
the service. In addition, cable television churn is subject to seasonal
pressures 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.71.9
million, L.155.5 million, and L.128.2 million, in 1994, 1995 and 1996,
respectively. In 1995, the Company received net sale proceeds of L.56.2 million
from marketable securities and invested net cash of L.108.8 million in the LCL
Acquisition. Net cash provided by financing activities was L.112.4 million and
L.212.2 million in 1994 and 1995, respectively, and was L.54.4 million in 1996,
of which L.64.6 million was provided by the issue of equity referred to below
and L.9.1 million was used for debt financing costs. The Group's investing
activities (other than temporary investments of the proceeds from equity and
debt financings and the LCL acquisition) consisted almost exclusively of the
ongoing construction of the network (L.19.1 million in 1994, L.102.9 million in
1995 and L.128.2 million in 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 1995 Notes in December of 1995. In 1994, the Group
generated positive cash flows from operating activities of L.496,000, and in
1995 and 1996 generated negative cash flows from operating activities of L.4.1
million and L.1.3 million, respectively. The Group's cash and funding
requirements historically have been met principally through the issuance of
senior discount notes in September 1994 and December 1995 (the "1994 Notes" and
"1995 Notes", respectively), equity capital, advances from its shareholders,
and from bank and lease financing. In February 1997, the Company issued a new
series of senior discount notes (the "1997 Notes"), raising net proceeds of
approximately $240 million. See "Description of Company Debt -- Description of
Senior Discount Notes".
The further development and construction of the Group's cable television
and telecommunications network will require substantial capital investment. The
Group is obligated by the milestones in its telecommunications licenses and the
new LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. See "Business -- Milestones".
The Company expects that the Group's residential cable network will extend
approximately 14,300 kilometers (plus 920 kilometers to interconnect the
residential build) and pass approximately 1.2 million homes once completed. The
network will be substantially completed by the end of 2001. The Company
currently estimates that the additional capital expenditures required for the
Group to substantially complete the network (including estimated subscriber
connection expenses) will be approximately L.570 million (of which L.520
million relates to capital expenditures occurring from December 31, 1996
through January 1, 2001), although these amounts could vary significantly.
24
<PAGE> 27
The Company believes that available cash reserves (including the proceeds
from the Old Notes offering), the proposed equity injection of L.25 million and
cash flows from operations will be sufficient to complete the planned
construction through the first quarter of 1998, at which time the Group
estimates that approximately 61.4% of the aggregate final milestones will have
been constructed and activated. Thereafter, the Company expects that the Group
will be able to utilize amounts under the Senior Bank Facility. If such amounts
are not available or are insufficient, the Group would be required to obtain
further debt or equity financing.
DCL will be able to draw on the Senior Bank Facility if certain conditions
are met, including conditions related to the operating cash flow of, equity
contributions to and certain financial ratios of Jewel and its subsidiaries
(together, the "Borrower Group") which are not currently met. See "Description
of Company Debt -- Senior Bank Facility". Indebtedness under the Senior Bank
Facility will be incurred by DCL, guaranteed by the Borrower Group and secured
by a lien on the assets of the Borrower Group and a pledge of the issued shares
of the Borrower Group other than Jewel but including DCL and LCL.
However, the Group may not be able to borrow sufficient funds under the
Senior Bank Facility to meet its remaining funding requirements. In particular,
even after the initial conditions to borrowing have been met the amount of funds
that may be borrowed will be limited to a specified multiple of the Borrower
Group's reported annualized cash flow (as defined in the Senior Bank Facility).
This reported annualized cash flow will depend on a number of variables,
including penetration of cable television and premium channels, penetration of
business telecommunications and residential telephone, average revenues in each
of these areas, churn, and expenses such as programming costs and interconnect
charges, network construction and development expenditures and financing costs.
Adverse developments in any of these or other areas could adversely affect the
Borrower Group's reported annualized cash flow and reduce amounts available
under the Senior Bank Facility.
To the extent that (i) the Group is unable to utilize fully the Senior
Bank Facility, (ii) the amounts required to complete the Group's planned build
out exceed its estimates or (iii) the Borrower Group's reported annualized cash
flow (as defined in the Senior Bank Facility) 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 debt instruments, which limit the incurrence of additional debt by the
Group, or that any such debt or other financing will be available on acceptable
commercial terms or at all.
The foregoing information with regard to expected completion times, future
capital expenditures and the sufficiency of funding is forward looking in
nature. Due to factors identified in the preceding two paragraphs and below,
actual results may differ materially from the expected results. There can be no
assurance that (i) 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; (ii) the Group will be able to generate
sufficient cash from operations to meet any unfunded portion of its capital
requirements when required; (iii) the cost of constructing and activating the
network will not increase significantly; (iv) the Group will not acquire
additional franchise areas, which would require additional capital
expenditures; or (v) the Group will not incur losses from foreign currency
transactions or its exposure to foreign currency exchange rate fluctuations.
See "Description of Company Debt -- Senior Bank Facility".
To date, the Group has funded its capital expenditure needs primarily
through the proceeds from the issuance of the 1994 Notes, 1995 Notes and Old
Notes as well as equity investments. 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 "Certain Regulatory Matters -- Cable
Telecommunications".
The Group's revenues are denominated in pounds sterling, while its
obligations to pay interest and principal on the 1994 Notes, 1995 Notes and
Senior Notes are denominated in U.S. dollars. Therefore, the Company and the
Group are subject to currency exchange risks that may adversely affect their
ability to meet their obligations, including obligations under outstanding debt
instruments, as they become due.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1996
The Group experienced significant increases in its subscribers, revenues
and expenses during the three years ended December 31, 1996. In general, such
increases were attributable to the Group's continued network construction and
marketing of new homes and businesses and the acquisition of LCL. During the
three-year period from December 31, 1993 to December 31, 1996 homes passed by
civils construction increased by 424,797 homes (1480%), homes activated
increased by 323,506 homes (1360%) and homes marketed increased by 229,637
homes (1000%). The number of homes that had been passed by civils construction
at December 31, 1996 exceeded homes activated by 106,250 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 fast pace
of civils construction coupled with the lead time between civils construction
and activation.
REVENUE
The Group's total revenues were L.7.3 million in 1994, L.16.0 million in
1995 and L.37.5 million in 1996. This growth is attributable to increases in
revenues in all three of the Group's primary lines of business and additional
revenues of L.2.25 million and L.10.9 million attributable to the inclusion of
LCL's results for the last quarter of 1995 and full year 1996, respectively.
25
<PAGE> 28
As a result of entering into revised interconnect agreements with BT which
will apply retroactively, the Company will receive outgoing interconnect charge
rebates relating to all periods prior to December 31, 1996 and must pay
incoming termination rebates relating to the period from April 1, 1995 to
December 31, 1996. The rebates that will be given to BT relating to the
incoming termination element amount to an estimated L.1,351,000 based on draft
final rates for the twelve month period from April 1, 1995 and interim rates
for the nine month period from April 1, 1996. This amount has been provided by
reducing residential telephone and business telecommunications revenues in 1996
by L.776,000 and L.575,000 respectively. The total amount of rebates to be
received by the Company will be determined by the parties once BT has furnished
to the Company a proposed calculation and supporting data and OFTEL has
determined the final rates applicable. The Company has estimated that the
amount of the rebate due to the Company from BT will exceed the amount of the
rebates to be provided by the Company to BT. Pending final determination of
rebates, the Company has recognized a reduction in interconnect charges in the
same period during which the related reduction in revenues is being recognized.
Accordingly, a reduction in telephone expenses of L.1,351,000 has been recorded
in 1996.
The analysis of revenue and average revenue per line is provided below on
the basis of revenues as reported as well as on a pro-forma basis adjusting for
the incoming termination rebates in the appropriate periods as if the revised
interconnect agreements and the draft final and interim rates had been in
effect since April 1995.
Business Telecommunications. Business telecommunications revenue was L.3.4
million in 1994, L.5.9 million in 1995 and L.9.8 million in 1996. Adjusting for
rebates on the pro-forma basis described above, revenues were L.5.7 million and
L.10.0 million for 1995 and 1996, respectively, representing an increase of 76%.
The growth in reported revenues is due primarily to an increase in the number of
Diamond's business lines installed from 3,928 at December 31, 1994 to 7,036 at
December 31, 1995 and 14,737 at December 31, 1996, and the inclusion of L.0.5
million and L.2.2 million of revenue attributable to LCL in the last quarter of
1995 and the full year 1996, respectively. There were 4,195 business lines for
the LCL operation at December 31, 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 for Diamond decreased from L.88.68 in 1994 to L.74.60
in 1995 (L.72.02 on a pro-forma basis) and L.49.81 (L.51.03 on a pro-forma
basis) in 1996. This decline continued the trend over the past several quarters
and 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 6,011 Centrex
lines at December 31, 1996 compared to 1,393 Centrex lines at December 31,
1995), (ii) a reduction in certain tariffs in response to price reductions by
the competition, particularly BT, Diamond's principal competitor for business
telecommunications services, and (iii) 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.
Residential Telephone. Residential telephone revenues were L.2.5 million
in 1994, L.6.7 million (pro-forma L.6.4 million) in 1995 and L.17.7 million
(pro-forma L.18.0 million) in 1996. The growth in residential telephone revenue
resulted from an increase in the number of Diamond's residential telephone
lines from 14,150 at December 31, 1994 to 36,122 at December 31, 1995 and
76,979 at December 31, 1996, and the inclusion of L.1.1 million and L.5.5
million of residential telephone revenue for the LCL operation for the last
quarter of 1995 and the full year 1996, respectively. There were 27,481
residential telephone lines for the LCL operation at December 31, 1996. Monthly
revenue per line for Diamond was L.18.83 in 1994, L.18.68 in 1995 and L.17.59
in 1996. On a pro-forma basis, Diamond's average monthly revenues per line
decreased slightly from L.18.11 in 1995 to L.17.84 in 1996. The Group's churn
rate (annualized) was 20.6% for 1996 as compared to pro forma, combined 15.0%
for 1995. The increase in churn in 1996 is attributable in part to a tightening
of the disconnect policy for certain customers and certain ongoing efforts by
BT aimed at regaining former customers.
Cable Television. Cable television revenues increased from L.1.3 million
in 1994 to L.3.5 million in 1995 and L.10.1 million in 1996. 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 8,936
at December 31, 1994 to 42,419 at December 31, 1996, (ii) an increase in the
average monthly revenue per subscriber from L.14.71 for 1994 to L.16.80 for
1995 and L.17.70 for 1996, and (iii) the inclusion of cable television revenue
of L.0.6 million and L.3.1 million for the LCL operation for the last quarter
of 1995 and the full year 1996, respectively. The increase in average revenue
per subscriber is primarily due to increases in cable television pricing.
The Group's churn rate was 40.9% for 1996 as compared to a pro forma
combined churn rate of 33.8% in 1995. The Company believes that the increase in
churn was due in part to the Group's announcement of increases in premium
subscription rates which led certain longer-term customers who had previously
benefitted from grandfathered rates, to disconnect service, as well as to the
application of a stricter disconnect policy relating to nonpayment implemented
in June 1996 in the LCL areas, which resulted in an increase in customer
disconnections, particularly in the third quarter of 1996. With the aim of
reducing churn among new subscribers, the Group has begun to require payment of
an installation fee in connection with the subscription for new residential
services and is evaluating other means to reduce its churn in the future.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges payable
to BT and Mercury, increased from L.3.1 million in 1994 to L.5.5 million in
1995 and L.9.8 million in 1996. On a pro-forma basis reflecting the apportioned
reduction in interconnect charges resulting from the revised interconnect
agreements in the appropriate periods to which they relate, telephone expenses
would have been L.5.0 million and L.10.2 million during 1995 and 1996,
respectively.
26
<PAGE> 29
These increases reflect 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 52% in
1994 to 44% in 1995 and 36% in 1996 due in part to reduced interconnect charges
paid to other operators. Taking into account on a pro-forma basis the
rebate-related adjustments to both revenues and expenses during the appropriate
periods, telephone expenses as a percentage of combined business
telecommunications and residential telephone revenues would have been 42% and
37% for 1995 and 1996, respectively.
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.0.7 million in 1994 to L.1.8 million in 1995 and
L.6.0 million in 1996. As a percentage of cable television revenues, these
direct costs were 53% in 1994, 53% in 1995 and 60% for 1996. The percentage
increase in 1996 compared to 1995 stemmed from an increase in rates charged by
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
rates charged to existing subscribers by Diamond. Significant price increases
made by BSkyB, the largest supplier of programming to the Group, took effect on
January 1, 1996. As from October 1996, the Company increased its prices for
premium programming, and it increased the price of its basic subscriber package
in November 1996. The Company also introduced two lower-priced basic subscriber
packages during November 1996 available to subscribers in two of the Company's
franchise areas only.
Selling, general and administrative expenses increased by 185% from 1994
to 1995 and by 72% from 1995 to 1996. The increases were due to a combination
of increased sales commissions and higher administration costs associated with
the expansion of the Group's business and the inclusion of expenses related to
LCL during the last quarter of 1995 and the full year 1996. In February 1997,
the Group began employing residential salespeople directly and paying them on
the basis of a salary plus sales commissions.
Depreciation and amortization expenses increased by 120% from 1994 to 1995
and by 141% from 1995 to 1996. This increase was attributable to the increasing
size of the Company's network as well as the LCL acquisition.
INTEREST INCOME/EXPENSES
Interest expense was L.3.8 million, L.17.1 million and L.40.3 million for
1994, 1995 and 1996, respectively. The 1996 increase is due primarily to the
accretion of the discount on the 1994 Notes and 1995 Notes of L.38.2 million
during 1996 (compared to L.14.3 million during 1995 and L.3.2 million in 1994),
as well as other interest expense of L.1.2 million in 1996. In addition,
amortization of debt financing costs was L.0.9 million in 1996 (compared to
L.0.3 million in 1995 and L.0.1 million in 1994 ). Interest received was L.3.4
million in 1996, through temporary investment of the proceeds of the 1995
Notes.
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, 1994, the Company recognized an unrealized foreign
exchange loss of L.0.7 million on the translation of its dollar-denominated
indebtedness, a realized loss of L.0.9 million relating to the conversion of
dollars to pound sterling, offset by an unrealized gain of L.0.4 million on the
translation of dollar-denominated securities. 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.0.6 million, an
unrealized loss on its short-term securities of L.0.3 million and a net
realized foreign exchange gain of L.0.3 million relating to its operations and
the sale of dollar denominated available-for-sale securities. In the year ended
December 31, 1996, the Group recognized an unrealized foreign exchange gain on
the translation of its liability on the 1994 Notes and the 1995 Notes of L.31.5
million, an unrealized gain on its short-term securities of L.0.1 million and a
net realized foreign exchange loss of L.0.4 million relating to its operations.
LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
Losses on derivative financial instruments include an unrealized loss of
L.0.9 million in 1995, and an unrealized profit of L.0.2 million in 1996 on the
mark-to-market valuation of an interest rate swap commitment.
The Company entered into a foreign exchange forward contract on November
1, 1996 for settlement on May 6, 1997 to sell L.200 million at a rate of
$1.6289 to L.1. On January 31, 1997 an offsetting agreement was entered into at
a rate of $1.6014 to L.1. The offsetting contracts were settled on February 6,
1997 with a payment of approximately L.3.4 million to the Company. Because of
changes in prevailing rates, the Company recorded for the year ended December
31, 1996, an unrealized loss of approximately L.8.1 million on the pounds
sterling sell forward contract which partially offset the gain that was
recorded on the translation of the U.S. dollar denominated obligations on the
1994 Notes and 1995 Notes during the same period. During the first quarter of
1997, the Company has recorded a gain of approximately L.11.5 million on the
two offsetting forward contracts, reflecting the reversal of the L.8.1 million
loss referred to above and the approximately L.3.4 million cash payment on
settlement of the contracts. Gain or loss on the translation of other foreign
currency denominated obligations for that period will depend upon the
prevailing rates at the end of the first quarter. The Company may from time to
time in the future enter into similar foreign currency contracts based on its
assessment of
27
<PAGE> 30
foreign currency market conditions and their effect on the Group's operations
and financial condition. 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 Company and the Group's ability to satisfy their
obligations, including obligations under outstanding debt instruments, as they
become due.
NET LOSS
As a result of the foregoing factors, the Group had net losses of L.8.7
million, L.27.6 million and L.35.8 million in 1994, 1995 and 1996,
respectively.
28
<PAGE> 31
BUSINESS
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, call barring and Internet
access, (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".
CERTAIN OPERATING DATA
The following table sets forth certain data concerning the Group's
franchises at and for the years ended December 31, 1994, 1995 and 1996. The
combined operating data at and for the year ended December 31, 1995 reflects
the acquisition of LCL on a pro-forma basis as if it had been completed at the
beginning of 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
1994 1995 1996
------- -------------------------------------- -------
Diamond LCL Combined
------- ------- --------
<S> <C> <C> <C> <C> <C>
Homes passed by civils construction(1) 55,919 222,335 58,976 281,311 453,496
Homes activated(2) 32,033 105,951 51,955 157,906 347,246
Homes marketed(3) 31,330 77,657 48,950 126,607 252,601
CABLE TELEVISION
Basic service subscribers 8,936 20,261 10,488 30,749 59,242
Penetration rate of homes marketed(4) 28.5% 26.1% 21.4% 24.3% 23.5%
Average monthly revenue per subscriber(5) L.14.71 L.16.80 L.18.89 L.17.62 L.18.03
Churn(6) 28.5% 35.5% 31.0% 33.8% 40.9%
RESIDENTIAL TELEPHONE
Residential lines connected 14,150 36,122 16,576 52,698 104,460
Penetration rate of homes marketed(4) 45.2% 46.5% 33.9% 41.6% 41.4%
Average monthly revenue per line(7)(8) L.18.83 L.18.68 L.22.19 L.19.88 L.18.40
Pro-forma average monthly revenue per
line(8) L.18.83 L.18.11 L.21.35 L.19.22 L.18.64
Churn(6) 13.8% 13.9% 17.2% 15.0% 20.6%
BUSINESS TELECOMMUNICATIONS
Business customers accounts 979 1,627 772 2,399 3,935
Business lines connected 3,928 7,036 2,843 9,879 18,932
Private circuits(9) 70 151 10 161 226
Average lines per business account(10) 4.0 4.3 3.7 4.1 4.8
Average monthly revenue per line(8)(11) L.88.68 L.74.60 L.59.60 L.70.23 L.50.17
Pro-forma average monthly revenue per
line(8) L.88.68 L.72.02 L.56.88 L.67.70 L.51.25
</TABLE>
(1) Homes passed by civils construction is the number of homes that have had
ducting buried outside.
(2) 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.
(3) Homes marketed is the number of homes activated for which the initial
marketing phase has been completed.
(4) 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.
(5) 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.
(6) 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).
29
<PAGE> 32
(7) 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.
(8) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the
year to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995
but recorded in full against revenues in 1996. The rebates were calculated
in accordance with recently revised interconnect agreements with BT that
were made effective retroactively from April 1995. The pro-forma average
monthly revenue per line (for both residential telephone and business
telecommunications revenues) gives effect to the revised interconnect
agreements as if they had been in effect from April 1995 and allocates to
each period the portion of the rebates that relates to such period.
(9) 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) 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.
INDUSTRY OVERVIEW
Following the initial granting of licenses in 1984, development of the
cable television and telecommunications industry in the U.K. proceeded slowly.
This occurred for a number of reasons, including high construction costs (due
in large part to the fact that cable networks in the U.K. generally must be
buried underground), limitations on the cable companies' ability to offer
telephone services, the lack of access to attractive programming and the lack
of access to 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. 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. 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.
See "Certain Regulatory Matters -- Cable Telecommunications -- Duopoly Review"
and "Certain Regulatory Matters -- Cable Telecommunications -- Interconnect
Arrangements".
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 -- Cable Telecommunications --
Restrictions on National PTOs".
Further, the extensive use of fiber optics and digital switches, the use of
synchronous digital hierarchy ("SDH") and other advanced technologies, have
enabled cable operators to offer advanced telecommunications services. In
addition, the availability of programming has improved substantially since the
1980s. 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 plc and the announcement on October
22, 1996 that NYNEX CableComms Group plc, Videotron Holdings Plc, Mercury and
Bell Cablemedia plc intend to merge.
30
<PAGE> 33
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. 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. 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 3,935 business telecommunications customer
accounts at December 31, 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, Lincoln City
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, Nottingham Trent University, Leicester
University, Lincoln University, BBC Radio Nottingham, Radio Trent, the
Nottingham Building Society, Vision Express Group, Knoll Pharmaceuticals,
Pedigree Pet Foods and the Northcliff Newspaper Group (four regional newspapers
including Nottingham's Evening Post and the 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. At December 31,
1996, the Group provided 18,932 business lines to its 3,935 business accounts
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 the Group's 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 focusing 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, the Group provides services
similar to those offered to residential customers including call
waiting, call forward and alarm calls. Additionally, billing data on high
density 3.5" floppy disks is 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
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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 has recently commenced other telecommunications services such as
Internet access, which it is making available to business and residential
customers, as well as voice mail which it has begun test marketing and expects
to make available during the second quarter of 1997. In addition, the Group is
currently conducting trials on 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 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 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 the Group historically have 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 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 "-- Competition -- Business Telecommunications" and "Certain
Regulatory Matters -- Cable Telecommunications -- Number Portability".
RESIDENTIAL TELEPHONE
The Group had residential telephone line penetration of 41.4% of homes
marketed at December 31, 1996. The Company believes the Group is achieving
these residential telephone penetration rates due to (i) Diamond's
well-recognized brand name and (ii) the Group's competitive rates (including
free voice calls between the Group's residential customers in the same local
and adjacent calling areas during off peak evening and weekend hours). In the
residential telephone area, the Group generally competes on the following
basis:
Reliability. The Group's fiber-optic network infrastructure provides
reliable, high-quality transmission across a modern network. In addition, the
Company believes that the Group'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 Voice Calls. The Group allows free voice calls
between the Group's residential customers and by the Group's residential
customers to the Group's business customers located within the same local and
adjacent calling areas during off-peak 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
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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 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.
The Group recently launched an Internet access service, Diamond Cable
Online, in its operating area. This service, available to both Diamond
telephone subscribers and others, is the result of an alliance with Cable
Online Ltd., a subsidiary of International CableTel Ltd., and provides users
with access to the Internet and World Wide Web. The Group expects to offer
expanded Internet services, including ISDN and leased line connections, during
the second quarter of 1997. The Group is also test marketing voice mail
services which it intends to make available to residential telephone customers
during the second quarter of 1997.
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
has carried pay-per-view events. The Company also offers a digital music
service providing 30 channels of continuous music.
The Company believes that the availability of a wide variety of quality
programming is one of the most important factors 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>
Programming Description
<S> <C>
NEWS AND INFORMATION
CNN International 24-hour international news service
European Business News(1) European business news service
Parliamentary Channel Live coverage of the U.K. Parliament
Sky News(2) 24-hour U.K. news service
The Weather Channel 24-hour weather information
Channel Guide Summary of programming schedule
Preview Channel Sampling of all cable channels
Diamond Vision/Cable 7 Local programming
Bloomberg Information TV(3) News and financial information service
GENERAL INTEREST
BBC1 U.K. terrestrial television
BBC2 U.K. terrestrial television
ITV U.K. terrestrial television
Channel 4 U.K. terrestrial television
Bravo(1) Classic movies and television series
NBC Super Channel U.S. and world news and entertainment
QVC -- The Shopping Channel(4) Home shopping
Sky One(2) Drama, films and serials
Sky 2(2)(5) Drama, films and serials
Discovery Channel(6) Science and education programming
The Challenge Channel(7) Game show programming
The Learning Channel(6) Education and documentary programming
The History Channel(4) History programming
Travel Channel(3) Travel programming
TNT(8) Movies and other entertainment
U.K. Gold Classic U.K. television programming
</TABLE>
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<PAGE> 36
<TABLE>
Programming Description
<S> <C>
Live TV 24 hour U.K. entertainment and news
Sky Soap(2)(4) Repeats of soap dramas
The Sci-Fi Channel Science fiction programming
Sky Travel(2)(4) Travel programming
Vision(9) Religious programming
Christian Channel(4) Religious programming
Carlton Select(10) Classic U.K. Television programming
Carlton Food Network(10) Food programming
Granada Plus(11) Classic U.K. Television programming
Granada Men and Motors(11) Male oriented programming
Granada Talk Talk shows
Granada Good Life Health, shopping and gardening programming
MOVIES
Sky Movies(2)(12) 24-hour feature movies
Sky Movies Gold(2)(12) Classic movies
Playboy TV(12) Adult entertainment
The Movie Channel(2)(12) 24-hour feature movies
HVC(12)(13) Cult thriller movies
The Adult Channel(12)(13) Adult entertainment
CHILDREN
The Disney Channel(2)(12) Children's entertainment
Cartoon Network(8) Children's cartoons
TCC(7) Children's entertainment
Nickelodeon(5) Children's entertainment
MUSIC
VH-1 Music videos
CMT Europe Country music videos
MTV Europe Music videos
Performance(9) Classical music and opera
The Box Music videos selected by customer requests
Landscape(9) Classical music accompanying scenic videos
MCM Euromusique Music Videos
SPORTS
Eurosport International sporting events
Sky Sports(2)(12) U.K. and international sports
Sky Sports2(2)(12) U.K. and international sports
Sky Sports3(2)(12) U.K. and international sports
INTERNATIONAL
Zee TV(12) Asian sub-continent related programming
Asia NET Asian programming
Namaste(14) Asian programming
ATM(14) Asian programming
SAT 1 German language programming
TV5 French language programming
CNE Chinese news and entertainment
</TABLE>
(1) European Business News and Bravo share a single channel.
(2) Programming acquired from BSkyB and governed by the BSkyB rate card.
(3) The Travel Channel and Bloomberg share a single channel.
(4) Sky Soap, Sky Travel, QVC, the History Channel and the Christian Channel
share a single channel.
(5) Sky 2 and Nickelodeon share a single channel.
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<PAGE> 37
(6) The Discovery Channel and the Learning Channel share a single channel.
(7) The Challenge Channel and TCC share a single channel.
(8) TNT and Cartoon Network share a single channel.
(9) Landscape, Performance and Vision share a single channel.
(10) Carlton Select and Carlton Food Network share a single channel.
(11) Granada Plus and Granada Men and Motors share a single channel.
(12) These services are offered for an additional charge or upon subscribing
to other services requiring an additional charge.
(13) HVC and the Adult Channel share a single channel.
(14) ATM and Namaste share a single channel.
The Company believes that an important factor influencing a consumer's
decision to subscribe for and retain cable services is the consumer's ability
to choose and pay for only those channels the consumer desires. The Group has
been constrained in its ability to offer a range of channel packages due to
requirements imposed by programming suppliers to provide certain channels to
all subscribers if provided to any. The Group has recently negotiated with
certain suppliers reductions in these requirements which will allow the Group
greater flexibility in designing the packages of channels it can offer
consumers in certain franchise areas.
The Group currently charges L.13.99 per month (after a L.1 direct debit
discount) for its basic cable television service (49 or 50 channels, depending
on the franchise area, and one converter box that provides cable service to one
television) and offers additional premium pay services. In two of its franchise
areas, Nottingham and Mansfield the Company has introduced a "Connect Pack", an
entry-level package of 13 channels of television plus telephone line rental for
L.12.98 (L.5.99 for cable television and L.6.99 for telephone line rental).
This package, which does not include access to premium channels, is aimed at
the Group's large base of telephone-only subscribers as well as first time
subscribers to multichannel television. In these franchise areas, the Group
also offers its Variety Pack, which consists of 29 channels and is offered for
L.9.99 per month (after a L.1 per month direct debit discount). This package
provides subscribers access to premium channels without having to purchase a
full basic package. The Company also believes that these programming packages
will encourage existing subscribers to remain as cable television customers by
providing a less costly alternative to a full programming package. Generally,
there is no charge to the subscriber for service or repair of the cable
television network or customer premises equipment.
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 PROGRAMMING
BSkyB currently provides the Group with 12 channels on a non-exclusive
basis and also offers this programming (together with additional programming)
directly to its DTH satellite customers, in competition with the 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. In addition,
BSkyB distributes 18 other programming channels on behalf of other providers
(including some providers partly owned by BSkyB).
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 the Group to
BSkyB during the year ended December 31, 1996 was L.3.6 million.
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 must acquire a package including two premium movie channels in
order to obtain the Disney Channel from BSkyB. The ITC has not yet reported a
decision.
The prices that BSkyB charges the Group have been governed by rate cards
established by BSkyB from time to time. The two most recent rate cards were
approved by the Director General of Fair Trading("DGFT") following inquiries by
the Office of Fair Trading ("OFT"). Under its rate cards, BSkyB implemented
significant price increases. BskyB submitted a revised rate card to the OFT in
July 1996, which has been approved and which was operative as of February 16,
1997.
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<PAGE> 38
In addition, under the new rate card, BSkyB has introduced a separate
charge to the Group for a third sports channel, which it currently provides to
its DTH sports subscribers at no additional charge. The Group has decided to
pass on this separate charge for this service to subscribers to the other BSkyB
sports services unless the subscriber takes three BskyB premium channels.
During 1995 and 1996, the OFT conducted reviews of BSkyB's position in the
pay TV market. Following its review in 1996 of BSkyB's supply of programming to
pay TV (including to cable operators) and access to encryption and subscriber
management services, 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 undertakings and accepted modifications to those it had previously
given in March 1995. BSkyB agreed not to require carriage of basic channels in
excess of 80% of homes; to unbundle channels, with the exception that two BSkyB
channels could be linked with specified other BSkyB 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 maintain separate accounts for its DTH business, with
actual or notional charges not less than offered to cable operators; and to
revise the structure of the cable rate card.
The DGFT has announced that the informal undertakings given by BSkyB would
be reviewed by the end of 1998 or earlier if appropriate. The DGFT has also
concluded that BSkyB should offer cable operators reasonable contractual
security in terms of length of contract and that the OFT would regard a
demonstrable and unreasonable unwillingness to do so as an abuse of BSkyB's
market power.
The OFT has also reviewed agreements between BSkyB and subsidiaries of
NYNEX CableComms Group PLC and TeleWest Communications plc, which among other
things permitted the licensing of BSkyB's programming at rates not provided by
the rate card. These agreements originally included undertakings by the two
cable companies not to compete with BSkyB with respect to film or sport
programming. Following a suspension of these provisions, the DGFT announced in
July 1996, that the agreements had been amended to address the concerns
expressed by the DGFT.
On February 6, 1996, the DGFT announced that he was referring an agreement
between the Premier League, BSkyB and the BBC, by which the Premier League
sells the exclusive television rights for Premier League football matches, to
the Restrictive Practices Court (the "Court") because the agreement contained
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 and the review has not yet been completed.
The OFT is currently considering whether a number of other arrangements
for televising soccer and other sporting events contain significantly
anticompetitive 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.
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.
The Company also currently expects to introduce a more extensive 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
whether 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 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.
Digital technology allows operators to provide more channels, through
digital compression, and higher quality pictures and sound. The Group believes
that its network leaves it well placed to provide digital television services
if in the Company's view providing these services in its franchise areas
becomes commercially attractive. However, the Group has no immediate plans to
introduce digital television services.
The Group currently receives negligible revenues from advertising, and
does not expect to receive any significant advertising revenues until its
subscriber base has expanded significantly. The Company believes that there may
be
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<PAGE> 39
potential for meaningful advertising revenues in the future due to the
relatively limited alternative outlets for local advertising in the Group's
franchise areas.
SALES AND MARKETING
Cable television and residential telephone services are marketed to the
residential customer on an integrated basis. Until February 1997, the
residential sales teams were comprised of approximately 150 residential
specialists employed by independent sub-contracting companies supervised by the
Company and paid on a commission basis. Since February 1997, DCL has begun to
employ residential salespeople directly. These employees are now paid on the
basis of a salary plus commissions.
During construction of the Group's network, a customer relations 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. This approach
is designed to inform potential customers of construction status, to minimize
inconvenience during construction and to foster a loyal customer base.
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 regarding the introduction of
number portability in the U.K. See "Certain Regulatory Matters -- Cable
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, including the AT&T
group, entering the business telecommunications market will continue to
intensify.
Energis has nearly completed construction of a national network along
existing electrical power pylons and has 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 indirect service from ACC and other, smaller, long
distance operators, and the emergence of International Simple Reseller
companies have increased competition in the long distance and international
telecommunications markets. It is also possible that utilities, such as rail or
water companies, will seek to use their existing infrastructures to construct
telecommunications networks that will compete with the Group's
telecommunications business.
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, there can be no assurance
that BT will not be given greater pricing flexibility in the future.
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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 to be in effect until 2001. See "Certain Regulatory
Matters -- Cable Telecommunications -- Price Regulation". These current
controls impose significant downward pricing pressure on charges in the U.K.
telephone service market. As a result, BT has implemented significant price
reductions 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, the Group has generally reduced
certain of its rates following BT's price reductions in an effort to maintain
its price competitiveness versus BT. OFTEL's proposals for revised price
controls until 2001 indicate 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 reductions on the financial performance of
the Group 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 has also 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 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. BT has also implemented extensive marketing campaigns to
win back customers from cable operators.
The introduction of international facilities licensing in 1996 has
increased competition for international traffic, and the Group's telephone
subscribers can obtain access to these alternative international service
providers.
In both the business telecommunications and residential telephone areas,
the Group faces additional competition from (or may in the future compete with)
Mercury and mobile telecommunications 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 ITC's practice 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 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 the penetration of cable and DTH satellite services
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, an additional
commercial terrestrial channel (Channel 5) commenced broadcasting March 30,
1997.
The Company believes that its primary competitive advantages over existing
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 30 or more new terrestrial
channels serving between 60% and 90% of the U.K. population. Forty percent of
the channels will be reserved for digital broadcasting by the existing
terrestrial broadcasters. In January 1997, BSkyB, Carlton Communications and
Granada Group announced they had formed a joint venture and applied (in
competition with another applicant) to the ITC for three frequency ranges to
provide 15 digital terrestrial television channels, which will broadcast
programming that may include BSkyB programming currently available only through
DTH satellite or cable television as well as programming from the BBC. Digital
terrestrial television would broadcast from land-based transmitters and could
be received by consumers with conventional aerials. A digital decoder box would
be needed to view the new channels, which would have digital
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picture and sound quality. The introduction of digital terrestrial, as well as
digital satellite, television will provide additional competition for the
Group. See "Certain Regulatory Matters -- Future Developments -- Digital
Broadcasting".
The Group believes that its network has been designed such that the Group
would be well placed to provide digital television services if providing these
services in its franchise areas were to become commercially attractive.
However, the Group has no immediate plans to introduce digital television
services.
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
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 the number of
DTH satellite subscribers has increased from 500,000 in 1989 to approximately
3.5 million at December 31, 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.
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. There can be no assurance that BSkyB will continue to
provide programming to the Group on acceptable 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
(normally starting from approximately L.150 for the purchase of a satellite
dish and related equipment, including typical installation charges of
approximately L.50, 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. BSkyB has announced its intention to introduce a digital DTH satellite
service (offering the possibility of over 200 television channels) by the end
of 1997. The Company believes that DTH satellite services may become more
competitive with cable service if digital compression technology is
successfully introduced 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 no SMATV systems licensed to
provide service to more than 1,000 homes 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.
FRANCHISE AREAS
The Group has been granted cable television licenses to provide cable
television services in fifteen franchise areas that form a contiguous cluster
of approximately 1,229,900 equity homes. The Group has been granted
telecommunications licenses in eight of its fifteen franchises. In addition,
DCL has applied for a national telecommunications license which will enable the
provision of business and residential telecommunications in the Group's seven
remaining franchises and elsewhere in the U.K. The table below sets forth the
number of homes in the individual franchises areas according to CACI
Information Services (for the franchises governed by telecommunications
licenses and the Burton-upon-Trent and Hinckley LDLs) and the ITC (for the
other LDLs).
39
<PAGE> 42
<TABLE>
OWNERSHIP Equity Homes
--------- ------------
<S> <C> <C>
TELECOMMUNICATIONS LICENSES
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
Leicester and Loughborough 100 % 203,000
LDLS(1)
Burton-upon-Trent 100 % 94,000
Hinckley 100 % 45,000
Ravenshead 100 % 2,900
Bassetlaw 100 % 41,000
Lincolnshire and South Humberside 100 % 174,000
Chesterfield 100 % 107,000
Vale of Belvoir 100 % 9,000
---------
Total 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. It is
expected that these franchises will be covered by the national
telecommunications license.
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 franchise areas are contiguous to the original Diamond franchises.
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
advantages, including the ability to (a) achieve significant cost benefits in
designing, constructing and managing a single network infrastructure and
providing telecommunications services 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 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 further
descriptions of the Group's 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 effectively 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.
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 bid 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 December 31, 1996, approximately 477,000 of the premises in the
Group's franchise areas had been passed by civils construction and a portion of
the network passing approximately 365,000 premises had been activated. The
40
<PAGE> 43
number of premises activated represents 36% of the Group's aggregate milestone
requirements. Construction has now commenced in eight 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 1996 and 1995 over 172,000 and 173,000 homes
respectively were passed by civils construction 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 and activation 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 civils construction substantially
exceeded homes activated and homes marketed at December 31, 1996. At that date,
approximately 23% of the network passed by civils construction had not been
activated (as measured by homes activated as a percentage of homes passed by
civils construction). At that date, approximately 27% of the homes activated by
the Group's network had not yet been marketed. The Company expects to
accelerate the release of homes for marketing as more homes are activated and
as the percentage of homes activated but not marketed is reduced. This 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. Since 1994, the Group has primarily used outside contractors,
but believes that maintaining some in-house construction capability enables it
to reduce the costs of construction and to manage its build out better. In
particular, the in-house construction team provides a benchmark against which
to measure fees from outside contractors and provides a reliable construction
team for building out particularly difficult areas. Approximately 16% of the
network constructed during 1996 was constructed using the Group's in-house
team.
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".
For a discussion of the Company's plans to fund construction see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
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 Diamond 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 European Cable Capital Partners, L.P. ("ECCP") of a
majority stake in Diamond 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 1994 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, 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
license.
The Group has renegotiated its eight telecommunications license milestone
obligations with OFTEL. In five franchise areas where the final milestone has
not yet fallen due, the Director General of OFTEL has formally modified the
interim but not the final milestone obligations under the licenses to provide
new quarterly milestones which the Group had met as at December 31, 1996. In
the other three franchise areas, OFTEL did not make any formal modification to
the existing licenses, and the final milestones in these three franchise areas
have now been met.
In four of the seven franchise areas covered by LDLs, the Group was
originally required to meet its first milestone obligations by the end of 1996.
However, due to delays by the DTI in the granting of telecommunications
licenses
41
<PAGE> 44
covering these franchises, which are required before construction can commence,
the ITC has formally modified the Group's licenses to remove milestones that
fell due at year-end 1996 and otherwise shift the annual milestones for those
licenses back by 12 months. DCL has applied to the DTI for a national
telecommunications license which it expects to be granted shortly. Delays in
obtaining this license may adversely affect the Group's ability to meet LDL
milestones for 1997.
The following table sets forth the milestones that are incorporated into
the Group's telecommunications licenses and 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.
<TABLE>
<CAPTION>
After
Group Franchise Areas 1994 1995 1996 1997 1998 1999 2000 2000
- ----------------------------- ------- ------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS LICENSE
MILESTONES(1)
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
Leicester and Loughborough 40,620 53,620 76,000 100,000 149,000 200,670 200,670 200,670
LDL MILESTONES
Ravenshead -- -- -- 2,500 2,500 2,500 2,500 2,500
Bassetlaw -- -- -- 1,000 10,000 19,000 28,000 32,800
Lincolnshire and South Humberside -- -- -- 5,000 25,000 45,000 70,000 144,000
Chesterfield -- -- -- 8,000 28,000 60,000 80,000 89,000
Vale of Belvoir -- -- -- 1,000 2,000 3,000 4,545 4,545
Burton-upon-Trent -- -- -- 10,000 29,000 45,000 66,000 77,675
Hinckley -- -- -- 8,000 16,000 23,000 31,204 31,204
------- ------- ------- ------- ------- ------- ------- ---------
Aggregate Cumulative Totals 115,620 251,120 340,500 529,000 701,000 837,670 922,419 1,021,894
======= ======= ======= ======= ======= ======= ======= =========
Aggregate Annual Totals 115,620 135,500 89,380 188,500 172,000 136,670 84,749
</TABLE>
(1) Although reflected above on an annual basis, the Group's
telecommunications license milestones are measured on a quarterly basis.
The table below sets forth by franchise and date the number of premises
activated.
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30, September 30, December 31,
1995 1995 1996 1996 1996 1996
------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nottingham 57,697 79,866 98,504 110,548 123,910 139,286
Mansfield 11,686 11,686 20,863 32,755 40,474 46,916
Newark-on-Trent 5,634 7,420 7,420 8,392 12,707 13,509
Grantham 0 0 0 3,503 11,515 14,894
Melton Mowbray 0 0 0 0 9,819 10,045
Lincoln 0 5,177 5,177 12,459 16,887 20,131
Grimsby and Cleethorpes 7,806 8,057 13,386 21,604 30,699 37,130
Leicester and Loughborough 51,409 57,366 61,007 67,766 77,017 83,280
------- ------- ------- ------- ------- -------
Cumulative Total 134,232 169,572 206,357 257,027 323,028 365,191
======= ======= ======= ======= ======= =======
</TABLE>
The Group is potentially subject to enforcement orders from the Director
General for failure to meet its telecommunications license 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 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.
42
<PAGE> 45
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.
The Group 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.
Five switches are currently in operation in Nottingham, which is presently
interconnected with three other switches, Mansfield, Lincoln and Grimsby.
Leicester is presently interconnected with 2Mb circuits to Nottingham. Two
switches in Leicester are in service, with a third recently commissioned. The
Company expects that an additional four switches will be commissioned during
the build out.
In addition to the existing switches, 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 and set top
converters. The Network's downstream upper frequency capability is 750 MHz.
From the headends, fiber is deployed to each node for feeder distribution and
from the node, coaxial cable is installed to the distribution points. 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 Group has begun the deployment of 750
MHz Scientific Atlanta set top converters, with capacity for 75 channels, as of
February 1997.
The telephone switches are GPT System X and Nortel DMS-100 platforms. The
telecommunications network near the switch is fed directly by copper. Outside
the copper service area, the telecommunications network uses Nortel 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 switch, 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
43
<PAGE> 46
equipment. The calls are then routed, if possible, to their final destination
via the lowest cost routing, be it BT, Mercury, Energis, Global One 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 contain multiple fiber and coaxial cables
within 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 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 greater 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.
The existing Diamond and LCL networks will be integrated in phases. The
initial objective has been to physically connect the two networks 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
Nortel switch in Leicester, mainly for telephone purposes. This interconnect
will also enable Nottingham to monitor the Leicester cable television headend
and transfer data of route forwarding 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
switch for the LCL franchise areas.
Once the two networks physically have been joined and the interfacing is
complete, maintenance and monitoring of call traffic will be possible, followed
by integration of the wholesale and then the retail billing processes.
EMPLOYEES
As of December 31, 1996, the Group had 706 employees, including 581
employees in operations and 125 employees in civils construction. With effect
from February 1997, DCL has begun to directly employ residential salespeople,
which will increase the number of its employees. Previously salespeople had
been employed by independent companies engaged by the Group on a subcontracting
basis. The Group has not entered into any collective bargaining agreement with
employees and the Company currently believes that the Group's 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
At December 31, 1996, the Group leased or rented 20 properties for
administrative and sales office, hub, switch and head - end sites, warehouses
and equipment sites. At that date, the Group leased an aggregate of
approximately 173,000 square feet of real property, of which approximately
103,700 square feet consisted of external equipment and warehouse storage space.
The Group owns its 44,000 square foot head office and headend/switch site in
Nottingham, which was constructed in 1995 at a cost of approximately L. 3
million. The Group also owns a switch site property of 4,688 square feet located
at Shepshed.
44
<PAGE> 47
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 U.K. 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 "-- Cable Telecommunications --
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".
CABLE TELEVISION LICENSES
General. As of December 31, 1996, cable television licenses had been
granted for franchise areas covering approximately 16.5 million out of
approximately 22 million total homes in the U.K. 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.
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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 15-year terms. The Group also holds
seven LDLs, four of which were granted on September 1, 1995 and three of which
were granted on September 13, 1996, all for 15-year terms.
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.
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. 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
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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, including the areas for which it
has been granted 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) Limited 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 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 "Business -- Competition -- Business
Telecommunications" and "Business -- 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.
On July 18, 1996, the Director General issued a statement (following
public consultation) setting out OFTEL's proposals for the introduction into
BT's license of a new condition, which would prohibit any abuse of its dominant
position and any agreement or concerted practice between BT and other entities
restricting or distorting competition in the telecommunications market. The
proposed condition formed part of a package with revised price controls
proposed for BT and came into effect on December 31, 1996. BT challenged the
introduction into its license of the fair trading condition, and on December
20, 1996, the High Court entered judgment against BT.
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 "--
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 may be
varied by the ITC. See "Business -- Construction" and "Business -- Milestones".
The Company understands that all milestones from now on will be contained
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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 legal permission 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 will be for a 23-year term.
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, 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. 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 applied for and received
modified telecommunications licenses to enable the Group to provide wired
telecommunications services in its own right.
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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 other PTO's telecommunications networks 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. Since the Duopoly Review, cable
operators with contiguous franchises have been able to connect their networks
without regard to whether they are under common ownership without using the
services of BT or Mercury.
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 franchises
which are not adjacent to one another. Once DCL has obtained a national
telecommunications license it will be able to link non-contiguous franchises
without the need to apply to the DTI.
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, Energis and Global One. 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, the Energis Agreements may be terminated by
either party on six months' notice and the Global One agreement may be
terminated by either party upon one month's notice after an initial term of one
year. If the Group is unable to negotiate acceptable pricing terms with BT,
Mercury, Energis or Global One 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.
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. A draft determination was
published by OFTEL in February 1997. Final charges may involve a readjustment
of charges made under the interim determination where appropriate. At the end
of 1996, OFTEL completed another consultation process and published interim
charges for the period from April 1, 1996 to March 31, 1997. As a result of
these revised charges, the Group will receive outgoing interconnect charge
rebates, and must pay incoming termination rebates for periods from April 1,
1995. The Company has estimated that the rebate due to the Group will exceed
the rebates to be paid by the Group. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations for
the Three Years Ended December 31, 1996 -- Revenue".
On March 20, 1996, the Director General published a consultation paper in
which OFTEL proposed basing interconnection charges on forward looking
incremental costs. It is proposed that this would take effect from August 1997,
subject to a network price cap. This would impose a Retail Price Index ("RPI")
minus X cap on interconnect prices. Within that cap it is proposed that OFTEL
would impose floors and ceilings for interconnection services, 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 minus X. Charges for those services which are expected to become
competitive during the next price 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 or 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 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 in early 1997. The current proposals are
subject to public consultation, which ended on February 13, 1997. OFTEL has said
it will publish a further informal consultative document in March 1997 and its
final proposals with license modifications for formal consultation in May 1997.
If BT agrees to them, these modifications to BT's license will become
effective on August 1, 1997. If BT were to fail to agree, there may 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 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.
OFTEL's latest proposals for control of BT's retail prices have been
incorporated in BT's license. The retail price controls will continue until
2001 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. The current RPI
minus 7.5% price cap will be replaced with effect from August 1997 with a cap
of RPI minus 4.5% on the narrower basket of services described above. Safeguard
caps of RPI plus 0% will be imposed on certain services. See "Business --
Competition -- Residential Telephone".
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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
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. The EC is currently consulting on
proposals to introduce carrier pre-selection in the long term. 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. BT's telecommunications license has been
modified accordingly, and the telecommunications licenses of the other national
PTOs are expected to be modified later in 1997, following consultation.
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 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
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television services in the same area. BT currently owns and operates one
broadband cable franchise in the U.K., in Westminster, central London and was
the highest bidder for the Milton Keynes franchise, which has yet to be
awarded. 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.
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. A large number of international
facilities licenses have been granted.
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.
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 their telecommunications networks 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. Should the Labour
Party be elected to Government it may review the restrictions on national PTOs,
and in a speech by the Labour Party leader on October 3, 1995, it was proposed
that a Labour government might increase BT's regulatory freedom. A general
election has been called for May 1997.
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 will 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. The ITC announced on October 31, 1996 that it would accept
applications for licenses to provide terrestrial digital television services.
On January 31, 1997, the deadline for applications, the ITC had received two
competing applications for three of the multiplexes. One of the applicants is a
joint venture by BSkyB, Carlton Communications plc and Granada Group plc. The
ITC has indicated it will award the licenses in Spring 1997, following a six
week public consultation period.
In addition, on August 23, 1996 regulations came into force to implement
in the U.K. the European Advanced Television Services Directive. The
regulations apply in relation to conditional access to digital television
services broadcast to viewers in the EEC, irrespective of the means of
transmission, and therefore apply whether digital television services are
transmitted by cable, satellite or terrestrial means. The regulations provide
that licenses for industrial
51
<PAGE> 54
property rights for manufacturers of consumer equipment must be granted on
fair, reasonable and non-discriminatory terms.
On January 7, 1997 regulations came into force which provide that those
operators who do not only self-provide conditional access services to digital
television services will have to provide such services to all broadcasters who
require such services on a fair, reasonable and non-discriminatory basis.
The DTI has also published a class license for the provision of
conditional access services under the Telecommunications Act authorizing the
running of certain conditional access systems. Conditions in the class license
impose a requirement that technical conditional access services to digital
television services are offered on a fair, reasonable and non-discriminatory
basis enabling broadcasters to gain access to viewers through any base of
decoders which can receive their signal. In addition, conditional access
operators are required to cooperate with cable operators so that cable
operators are able to transcontrol and rebroadcast television services using
their own conditional access system without incurring unnecessary or
unreasonable expense. The class license also contains fair trading provisions.
In December 1996 OFTEL published a consultation paper and draft guidelines
on the regulation of conditional access services for digital television. The
initial consultation period expired on January 24, 1997. Final guidelines have
not yet been published.
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 more than 20% owned 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.
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.
52
<PAGE> 55
COMPANY ORGANIZATION
The Company owns all of the share capital of Jewel, which in turn owns
100% of the share capital of DCL and (directly or indirectly) the companies
comprising LCL. DCL was incorporated in 1989. Following a reorganization in
1996, DCL provides, among other things, telecommunications and cable television
services to all of the Group's 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, Leicester and
Loughborough, Melton Mowbray, Mansfield, Lincoln, Grimsby and Cleethorpes,
Grantham and Newark-on-Trent and LDLs for Lincolnshire and South Humberside,
Chesterfield, Vale of Belvoir, Ravenshead, Bassetlaw, Burton-upon-Trent and
Hinckley.
DCL also holds a Telecommunications Act License for Nottingham. DCL has
applied for a National Telecommunications Act License in all other areas
excluding those presently covered by the PDSLs, where Telecommunications Act
Licenses are already currently held by other Diamond subsidiaries, namely,
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.
DCL was founded by the late Allan J. McDonald and by Gary L. Davis, the
Company's former 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 DCL's capital.
In May 1994, the McDonald Interests sold a 79.6% stake in DCL to ECCP,
which 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, the Company's Chief Executive Officer, and Ralph H. Booth II. Messrs.
Goad and Booth are founders and principals in ECE Management International,
which provides 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 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 1994 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. On August 6, 1996 CAA
transferred its interest in the Company to DCI Partners ("DCI"), a California
general partnership in which Michael S. Ovitz is the principal general partner
and Robert Goldman and Robert Kavener are the other general partners. See
"Shareholders". These shareholders have subscribed for a total of approximately
L.25.1 million in equity capital in the Company (including their participation
in the June 1996 subscription for additional equity).
53
<PAGE> 56
SHAREHOLDERS
The following table sets forth, as of February 1, 1997, 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 39,447,443 66.7%
AmSouthBank of Alabama, as Trustee (3)
1901 Sixth Avenue North, Third Floor,
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)
2 The Courtyard, Beesthorpe Hall,
Caunton, Newark NG23 6AT 689,000 1.2%
All directors and executive officers of the Company as a group(7) 3,680,099 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 "Management -- Executive Compensation". Except as specified
with regard to Mr. Davis, the number of Shares outstanding does not
include 1,872,000 Shares issuable upon the exercise of options which have
been granted.
(2) A Delaware limited partnership in which various investment funds managed
by Goldman, Sachs & Co. or its affiliates hold an aggregate 83.3%
interest. 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 the outstanding Shares, and, as a result, the Goldman
Sachs Affiliates effectively control 70.9% of the currently 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.
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.
(4) Booth English Cable, Inc. indirectly maintains an interest in Shares
through the 9.1% interest maintained by Booth English Cable, Inc. in ECCP
and directly maintains a 0.9% interest in Shares held by Booth English
Cable, Inc.
(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 35,000 Shares held by CGT
and 654,000 Shares issuable pursuant to options granted to CGT. See
"Management -- Executive Compensation".
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<PAGE> 57
(7) Includes the interests held by Mr. Goad and Mr. Davis, but does not include
2,187,556 Shares of the John L. McDonald Grantor Trust of which John L.
McDonald is the beneficiary.
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.
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 grants ECCP the right to appoint up to four
directors, one of whom may exercise voting control at meetings of the
directors, and the McDonald Interests the right to appoint one director. Mr.
Davis is 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. 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 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) 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, (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 (vii) the winding up of the Company or any equity
repayment by the Company.
As to other provisions see "Certain Transactions -- Shareholders
Agreement".
RELATIONSHIP AGREEMENTS
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 (an "IPO"), 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 the Shares.
Pursuant to the Relationship Agreements, ECCP has agreed to procure (so
far as it is legally able) that the Company will not, prior to an IPO, 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.
For a discussion of certain provisions of the Relationship Agreements, see
"Certain Transactions -- Relationship Agreements".
55
<PAGE> 58
MANAGEMENT
Certain information concerning the directors and senior management of the
Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Lord Francis Pym 75 Director and
Non-Executive Chairman
Robert T. Goad 42 Director, Chief
Executive Officer
Gary L.Davis 52 Director
Richard A. Friedman 39 Director
John L. McDonald 22 Director
Thomas Nilsson 48 Director
Muneer A. Satter 36 Director
John L. Thornton 43 Director
Nicholas R. Millard 46 Chief Financial Officer
J.A. Duncan Craig 41 Chief Accounting Officer
</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 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 International, LLC ("ECE
Management International") and has been President of Columbia Management since
1984.
Mr. Davis has been a Director and, until March 12, 1997, was 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 of the Cable
Communications Association.
Mr. Friedman has been a Director since May 1994. Mr. Friedman is a
managing director of Goldman, Sachs & Co. and head of that firm's Principal
Investment Area. Mr. Friedman joined Goldman Sachs 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 Partnership Committee, Risk Committee, Investment Committee and Real
Estate Principal Investment Committee. Mr. Friedman is Chairman of AMF Group,
Inc. and on the Advisory Committees or Boards of Directors of Globe
Manufacturing Co., Marcus Cable Company, L.P., and Polo Ralph Lauren
Enterprises, L.P.
Mr. McDonald has been a Director since October 1996. He is the McDonald
Interests' appointee under 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 (the "Shareholders Agreement")
and holds a number of other directorships in connection with other McDonald
investments.
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 a Board Member of
European Acquisition Capital, TV4 AB, WM Data, Svenska Dagbladet, Compagnie
Immobel de Belgique, STORA Finance, Tufton Oceanic Investments Ltd., Industri
Kapital Limited and Memex I&C AB.
Mr. Satter has been a Director since May 1994. Mr. Satter is a managing
director of Goldman Sachs International and co-head of that firm's European
Principal Investment Area. Mr. Satter joined Goldman Sachs in 1988. Mr. Satter
is also on the Advisory Committee or Board of Directors of Bran + Luebbe GmbH
and Empe Holdings GmbH.
56
<PAGE> 59
Mr. Thornton has been a Director since May 1994. Mr. Thornton is a
managing director of Goldman, Sachs & Co. Mr. Thornton joined Goldman Sachs in
1980, is a member of the Executive Committee of The Goldman Sachs Group, L.P.,
and is responsible for Goldman, Sachs & Co.'s business in Asia. Mr. Thornton is
also chairman of Laura Ashley plc and a director of Ford Motor Company, British
Sky Broadcasting Group plc and Pacific Century Group.
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 August 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.
Certain information concerning certain other key employees of the Company
is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Mark L. Harris 42 Technical Services Director
John W. McAuley 49 Marketing Director
Susan L. Milner 40 Customer Services Director
Stephen D. Rowles 43 Executive Director
Peter C. Savage 38 Human Resources and
Administration Director
Katherine B. Wolfsohn 35 Legal Director
</TABLE>
Mr. Harris joined the Company in August 1994 as Technical Services
Director. Prior to joining the Company, Mr. Harris held various senior
management positions in the United States at Communications Services Inc.,
Tele-Communications Inc., Vista Cable Vision and Intercontinental Cable
Services. Mr. Harris is a member of the National Society of Professional
Engineers (U.S.) with over 20 years experience in communications engineering
management.
Mr. McAuley joined the Company in August 1995 as Marketing Director. Prior
to joining the Company, Mr. McAuley had six years experience at IBM where he
held various marketing management positions. Mr. McAuley has previous
experience in Cadware Incorporated, a PC software development company where he
held the post of Vice President of Marketing, Hudson Technologies, a PC
software publisher where he held a similar position and at Philip Morris where
he held a number of senior management/director level appointments in the
marketing field over a 12-year period.
Ms. Milner joined the Company in November 1992 and became Customer
Services Manager in 1993 and Customer Services Director in 1996. Ms. Milner had
six years experience with BT where she held positions in telephone operations.
Mr. Rowles joined the Company in January 1992 as Telecommunications
Director and became Executive Director in 1997. 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.
Mr. Savage joined the Company in June 1993 as Human Resources Director.
Prior to joining the Company Mr. Savage held positions in British Coal as
Personnel Manager for the Southern Region and as Deputy to the Head
of Employment Policy Branch. Mr. Savage is a member of the Institute of
Personnel and Development.
Ms. Wolfsohn joined the Company in November 1996 as Legal Director. Prior
to joining the Company, Ms. Wolfsohn was Legal Director and Company Secretary
at Bell Cablemedia plc for two years. Ms. Wolfsohn had seven years previous
experience in the corporate department of Linklaters & Paines in London and
qualified as a solicitor in Melbourne, Australia in 1986.
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 Capital
Partners ("DCI") dated October 12, 1994 and June 21, 1996 respectively (the
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<PAGE> 60
"Relationship Agreements"), 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 Mr. Nilsson is the Investor Investments
appointee. DCI has not yet made an appointment. Prior to obtaining a listing
of or making trading arrangements in respect of the Company's ordinary shares
of 2.5 pence each ("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 entered into a 10-year management agreement with effect from June 1,
1994 (the "Management Agreement") with ECE Management Company ("ECE
Management"), a company controlled by Ralph H. Booth II and Robert T. Goad. As
of April 4, 1996, ECE Management assigned its rights and obligations under the
Management Agreement to ECE Management International, also controlled by Ralph
H Booth II and Robert T. Goad. As of July 1, 1996 DCL assigned its rights and
obligations under the Management Agreement to the Company. Pursuant to the
Management Agreement, ECE Management International will manage and act as agent
(under the supervision and control of the Company's board of directors) in
connection with the strategic activities of the Company, including preparation
of strategic business plans and capital budgets, identification of investment
opportunities and strategic issues relating to the construction of the
Company's cable network, the operation and administration of the Company's
business and the retention of consultants. The Management Agreement provides
for an annual management fee of $200,000 and reimbursement of ECE Management
International's expenses. Under a separate agreement between, among others, the
Company and DCL, the Company is entitled to recharge to DCL fees and expenses
incurred under the Management Agreement up to a maximum amount agreed with the
lenders under the Senior Bank Facility.
Principals and affiliates of ECE Management International 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
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 and interests
in radio stations in several 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 retained the remaining 30%. This
has subsequently been exchanged for a direct interest in ICTL.
In addition to Mr. Goad and Mr. Booth, the management team at ECE
Management International includes Gary Cox and Mark S. Simonian. Gary Cox is a
principal in ECE Management International with primary responsibility for the
Group's network design construction and operation and its technology. 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. Mr. Simonian oversees
the Group's operations and is involved in its finances and corporate
development. 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 pound
sterling 3.44 per Share and pound sterling 4.11 per Share, respectively.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Group during
the years ended December 31, 1994, 1995 and 1996 for Gary L. Davis (the
Managing Director of the Group during these years); during the years ended
December 31, 1995 and 1996 for Nicholas R. Millard and during the year ended
December 31, 1996 for J.A. Duncan Craig. No other executive officer of the
Group received compensation in excess of $100,000 for 1994, 1995 or 1996. See
"-- Employment Agreements and Other Arrangements" below for a description of
certain other transactions involving Mr. Davis. In addition, the following
table sets forth the compensation by the Group during the years ended December
31, 1994, 1995 and 1996 for Stephen D. Rowles and for Mark Harris for the years
ended December 31, 1995 and 1996, who, while not executive officers of the
Group, would have been among the most highly compensated executive officers
during 1995 and 1996 had they been such.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-------------------------------------------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS (#)
- --------------------------- ------ ---------- ---------- --------------- ---------------------
<S> <C> <C> <C> <C> <C>
Gary L. Davis, 1996 $256,845 $111,300 $37,715 --
Managing Director(3) 1995 $233,025 $ 77,675 $31,547 --
1994 $164,691 $ 39,162 $49,297 872,000
Nicholas R. Millard, 1996 $162,669 $ 95,889 $36,076 --
Chief Financial Officer 1995 $ 69,908 $ 34,954 $16,223 60,000
J.A. Duncan Craig, 1996 $ 77,054 $ 15,411 $15,776 --
Chief Accounting Officer
Stephen D. Rowles, 1996 $153,900 $ 17,230 $17,760 --
Executive Director 1995 $ 76,620 $ 46,605 $14,281 --
1994 $ 98,341 $ 29,764 $11,027 60,000
Mark Harris, 1996 $145,544 $ 85,615 $35,912 --
Technical Director 1995 $125,663 $ 40,391 $23,025 30,000
</TABLE>
(1) Payments made in 1994, 1995 and 1996 in pounds sterling are presented
in U.S. dollars based on an exchange rate of $1.5665 to pound sterling
1.00, $1.5535 to pound sterling 1.00 and $1.7123 to pound sterling 1.00,
the Noon Buying Rates on December 30, 1994, December 29, 1995 and December
31, 1996, respectively.
(2) Mr. Davis' "Other Annual Compensation" for 1996 includes $15,410 for house
rental, $15,962 for the lease of a car, $1,087 for health insurance and
$5,256 for other living expenses, for 1995 includes $18,642 for house
rental, $8,543 for the lease of a car, $926 for health insurance and $3,436
other living expenses and for 1994 includes $17,073 for house rental,
$8,489 for the lease of a car, $847 for health insurance and $10,538 for
other living expenses. The remaining $12,350 of this amount represents a
loan to Mr. Davis from McDonald Management Inc. ("MMI"). See "-- Employment
Agreements and Other Arrangements". Mr. Millard's "Other Annual
Compensation" for 1996 includes $13,356 for home rental, $11,972 for the
provision of a car, $908 for health insurance, $9,246 in pension
contributions and $594 for other living expenses, and for 1995 includes
$6,059 for home rental, $6,181 for the provision of a car, $343 for health
insurance, $3,495 in pension contributions and $145 for other living
expenses. Mr. Craig's "Other Annual Compensation" for 1996 includes $10,430
for the provision of a car, $809 for health insurance and $4,537 in pension
contributions. Mr. Rowles' "Other Annual Compensation" for 1996 includes
$10,606 for the provision of a car, $647 for health insurance, $343 for
other living expenses and $6,164 in pension contributions, for 1995
includes $9,427 for the provision of a car, $660 for health insurance and
$4,194 in pension contributions, and for 1994 includes $6,192 for the
provision of a car, $605 for health insurance and $4,230 in pension
contributions. Mr. Harris' "Other Annual Compensation" for 1996 includes
$20,385 for the provision of two cars, $4,101 for school fees, $810 for
health insurance, $10,274 for home rental and $342 for other living
expenses and for 1995 includes $19,747 for the provision of two cars,
$2,455 for school fees and $823 for health insurance.
(3) Mr. Davis retired from his day-to-day responsibilities as Managing
Director of the Company effective March 12, 1997 but remains a Director.
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 pound sterling 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
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<PAGE> 62
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 pound sterling 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 pound sterling 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 pound
sterling 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.
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 pound sterling 300,000 per year (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
1995 and 1996 was pound sterling 250,307 and pound sterling 267,026,
respectively (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 traveling, 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 provided that Mr. Davis would 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 provided that in carrying out his duties, Mr. Davis would act
under the direction of DCL's board of directors. The Service Agreement provided
that Mr. Davis' initial salary was pound sterling 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.
From 1990 through May 1994, Mr. Davis received advances totaling
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
to Mr. Davis remains outstanding.
The Group has entered into a service contract which commenced as of July
1, 1995 with Mr. Millard, which can be terminated by Mr. Millard on six months
notice and by the Company on 24 months notice, and a service contract with Mr.
Rowles for a minimum period of 39 months commencing April 1, 1996.
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 1996, Mr. Goad and Mr. Davis were the only officers and employees of the
Company who participated in deliberations of the Board of Directors concerning
executive officer compensation.
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CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENT
Pursuant to the Management Agreement, ECE Management International has
agreed to manage and act as agent (under the supervision and control of the
Company's board of directors) in connection with the strategic activities of the
Company, including preparation of strategic business plans and capital budgets,
identification of investment opportunities and strategic issues relating to the
construction of Diamond's cable network, the operation and administration of
Diamond's business and the retention of consultants. The contract provides for
an annual management fee of $200,000 per year. In addition, the Company has
agreed to reimburse ECE Management International for expenses incurred in the
performance of its duties, and to indemnify ECE Management International from
any liability incurred in connection with the performance of its duties, except
in the case of ECE Management International's willful misconduct, gross
negligence or bad faith. See "Management -- Management Agreement". ECE
Management International 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 and
1996, the Group recorded expenses of pound sterling 1,085,000 and pound sterling
1,610,000, respectively, as amounts paid or payable to ECE Management and/or ECE
Management International in connection with management services provided to the
Company and all related expenses incurred. The Management Agreement will
terminate if Mr. Goad dies or ceases to perform services under the agreement for
more than 3 months. In addition, the Company may terminate the Management
Agreement (after consultation with ECE Management International) if Diamond
materially underperforms compared to ECE Management International's business
plan, provided such underperformance is not caused by events which are beyond
ECE Management International'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 (or any of its
affiliates) 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.
OTHER RELATIONSHIPS
Goldman, Sachs & Co. acted as purchaser in connection with the 1997 Notes
offering and received underwriting commissions of approximately $6,750,000.
Goldman, Sachs & Co. acted as underwriter in connection with the 1995 Notes
offering and received underwriting commissions of approximately $6,750,000. In
connection with the offering of the 1994 Notes, Goldman, Sachs & Co. received
underwriting commissions of approximately $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 acted as agent and financial advisor in connection with the
negotiation of Senior Bank Facility for which it has charged fees of
approximately pound sterling 400,000 in 1996. In 1995, Goldman, Sachs & Co.
charged a fee of $750,000 for financial advisory services that Goldman, Sachs &
Co. rendered to the Company. Goldman, Sachs & Co. was the counterparty to
foreign exchange contracts entered into by
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<PAGE> 64
the Company in 1996 and 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Foreign Exchange".
John Thornton, who is a managing director of Goldman Sachs International
and a Director of the Company, is also a director of BSkyB, a principal
supplier of programming to the Group and a principal competitor of the Group.
See "Business -- Cable Television" and "Business -- Competition -- Cable
Television".
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.
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<PAGE> 65
DESCRIPTION OF COMPANY DEBT
SENIOR BANK FACILITY
In August 1996 certain of Company's subsidiaries entered into a pound
sterling 340 million senior bank loan and guarantee facility. Contemporaneously
with the offering of the Old Notes, the Senior Bank Facility was amended to
reduce the aggregate amount available for borrowing to pound sterling 220
million and to revise certain covenants and borrowing conditions. Because the
proceeds to the Company from the offering of the Old Notes exceeded $175
million, the Company has, under the terms of the Senior Bank Facility,
negotiated certain further amendments to the Senior Bank Facility, including
among other things a reduction in the amount available for borrowing under the
facility to pound sterling 175 million. To date, no funds have been drawn under
the facility.
Indebtedness under the Senior Bank Facility will be incurred by DCL,
guaranteed by certain of the Company's other subsidiaries and secured by a lien
on the assets of the Borrower Group and a pledge of the issued shares of
certain of the Company's subsidiaries other than Jewel but including DCL and
LCL.
DCL will be able to draw on the amended facility provided certain
conditions are met, including (i) that the Borrower Group must be in compliance
with its obligations in respect of the aggregate build milestones for all
franchise areas as set forth in its telecommunications licenses and/or LDLs, as
described herein under the caption "Business -- Milestones", and that each
member of the Borrower Group must be in compliance with all of its other license
obligations, (ii) the receipt by the Company of additional equity of pound
sterling 25 million, (iii) the existence of pound sterling 429 million and $20
million of aggregate cash equity, defined to equal the sum of all called up
share capital and share premium balances of the Borrower Group and intra-Group
indebtedness of the Borrower Group to the Company, in the case of both (ii) and
(iii) above, which has been or will be used to fund qualifying expenditure (as
defined) and (iv) reported annualized cash flow (as defined) of the Borrower
Group of at least pound sterling 18.5 million (which condition is not currently
met). DCL will be able to draw on the amended facility in amounts up to
specified multiples of the Borrower Group's reported annualized cash flow.
In addition, the Senior Bank Facility contains various covenants,
including (i) financial covenants relating to leverage, bank debt loan charges
coverage ratios, cash interest coverage ratios and annualized EBITDA levels;
(ii) requirements that the Borrower Group maintain interest rate protection
agreements in relation to a portion of the loans expected to be outstanding for
the period January 1, 1998 to June 30, 2001; and (iii) restrictions on the
payment of dividends and intra-Group debt.
In addition to certain customary events of default, the following events
constitute events of default which may trigger acceleration under the Senior
Bank Facility: (i) failure of the Borrower Group to comply with aggregate build
milestones set forth in the terms of its telecommunications licenses and/or
LDLs, (ii) failure of a Borrower Group member to comply with (A) its build
milestones for individual franchise areas if OFTEL or the ITC has served a
notice on such Borrower Group member of its intent to make an order under
Section 17 of the Telecommunications Act (a "Notice Event") or equivalent in
relation to the ITC with respect to such failure to comply, or (B) any other
obligation in respect of such license, the breach of which (x) results in a
Notice Event or (y) is reasonably likely to have a material adverse effect on
the financial condition of the Borrower Group taken as a whole or on the
Group's telecommunication systems; and (iii) certain change of control events,
including certain persons or entities ceasing to control specified percentages
of the total voting and economic power of the Borrower Group.
Borrowings will bear interest at adjusted sterling LIBOR plus 0.75%.
Quarterly repayment of outstanding principal amounts is required beginning in
the fourth quarter of 2000, with final payment in 2003. See "Risk Factors --
Requirement for Additional Funds; Senior Bank Facility".
The Senior Bank Facility will restrict the amount of funds that the
Borrower Group can transfer to the Company in order for the Company to service
its debt obligations, including under the Senior Notes. This amount is set in
pounds sterling based on a specified exchange rate. Therefore, a weakening of
the pound sterling against the dollar below this specified rate would reduce
the dollar-equivalent amount of funds that could be transferred to the Company
to service its obligations under the Senior Notes, the 1994 Notes and the 1995
Notes.
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<PAGE> 66
DESCRIPTION OF 1995 NOTES
Cash interest is not payable on the 1995 Notes prior to December 15, 2000.
Thereafter, cash interest on the 1995 Notes is payable at a rate of 11 3/4% per
annum.
The 1995 Notes constitute senior unsecured indebtedness of the Company.
The indenture under which the 1995 Notes are issued (the "1995 Notes
Indenture") permits the Group to incur substantial additional indebtedness
including indebtedness to acquire, construct and operate additional cable
franchises.
The 1995 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 Group to the extent of the assets securing such
indebtedness. Indebtedness under the Senior Bank Facility will effectively rank
senior to the 1995 Notes. See "Risk Factors -- Holding Company Structure; Liens
on Assets".
The 1995 Notes are redeemable, in whole or in part, at the option of the
Group at any time on or after December 15, 2000 at scheduled redemption rates.
Upon a Change of Control (as defined in the 1995 Note Indenture), holders
of the 1995 Notes have the right to require the Company to repurchase such
holders' 1995 Notes at specified prices. There can be no assurance that the
Company would have the financial resources necessary or otherwise be able to
repurchase the 1995 Notes upon a Change of Control. See "Risk Factors --
Holding Company Structure; Liens on Assets".
The 1995 Note 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 indenture limits the ability of the Company to consolidate or
merge or sell all or substantially all of its assets. These covenants are
subject to a number of important exceptions and qualifications.
DESCRIPTION OF 1994 NOTES
Cash interest is not payable on the 1994 Notes prior to September 30,
1999. Thereafter, cash interest on the 1994 Notes is payable at a rate of 13
1/4% per annum.
The 1994 Notes constitute senior unsecured indebtedness of the Company.
The indenture under which the 1994 Notes are issued (the "1994 Note Indenture")
permits the Group to incur substantial additional indebtedness including
indebtedness to acquire, construct and operate additional cable franchises.
The 1994 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 Group to the extent of the assets securing such
indebtedness. Indebtedness under the Senior Bank Facility will effectively rank
senior to the 1994 Notes. See "Risk Factors -- Holding Company Structure; Liens
on Assets".
The 1994 Notes are redeemable, in whole or in part, at the option of the
Group at any time on or after the September 30, 1999 at scheduled redemption
rates.
Upon a Change of Control (as defined in the 1994 Note Indenture), holders
of the 1994 Notes have the right to require the Company to repurchase such
holders' 1994 Notes at specified prices. There can be no assurance that the
Company would have the financial resources necessary or otherwise be able to
repurchase the 1994 Notes upon a Change of Control. See "Risk Factors --
Holding Company Structure; Liens on Assets".
The 1994 Note 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 Indenture limits the ability of the Company to consolidate or
merge or sell all or substantially all of its assets. These covenants are
subject to a number of important exceptions and qualifications.
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OTHER COMPANY DEBT
As of December 31, 1996, the Group had outstanding long-term indebtedness
under capital leases in an aggregate principal amount of approximately pound
sterling 8.2 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 December 31, 1996, the
capital outstanding under the GPT leases was approximately pound sterling 0.6
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 December 31, 1996, the capital
outstanding under the Nortel Limited leases was approximately pound sterling 1.6
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 December 31,
1996, the capital outstanding under the IBM agreement was approximately
pound sterling 0.2 million.
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 December 31, 1996, the
capital outstanding under the Nortel Limited leases was approximately L.5.5
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 December 31, 1996, the capital outstanding under the IBM leases was
approximately pound sterling 0.2 million and the capital outstanding under the
various hire purchase agreements was approximately pound sterling 0.1 million.
DCL also has a mortgage for approximately pound sterling 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 draw on of July
1995, subject to a capital repayment moratorium that expired 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,
pound sterling 2.0 million had been drawn down under the loan agreement. The
swap has been recorded on the balance sheet at December 31, 1996 in other
liabilities at its fair value of negative pound sterling 1.2 million. See Note
17 to Notes to the Consolidated Financial Statements.
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DESCRIPTION OF THE SENIOR NOTES
The Senior Notes will be issued under an Indenture dated as of February
27, 1997 (the "Senior Notes Indenture"), between the Company and The Bank of
New York, as trustee (the "Trustee"). The following summary of certain
provisions of the Senior Notes Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to all of the
provisions of the Senior Notes Indenture, including the definitions of certain
terms therein and those terms made a part of the Senior Notes Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), as in effect on the date of the 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 Senior Notes Indenture.
GENERAL
The Senior Notes constitute general unsubordinated obligations of the
Company, limited to $420,500,000 aggregate principal amount at maturity and
will mature on February 15, 2007. The Senior Notes will accrete at a rate of 10
3/4% per annum, compounded semiannually, to their aggregate principal amount at
maturity by February 15, 2002 (the "Cash Interest Date"). Cash interest will
not be payable on the Senior Notes prior to the Cash Interest Date. Thereafter,
cash interest on the Senior Notes will accrue at a rate of 10 3/4% per annum
and be payable semi-annually in arrears on each February 15 and August 15
(each, an "Interest Payment Date"), commencing August 15, 2002, to the
Book-Entry Depositary (as hereinafter defined) in the case of the Global Senior
Notes (as hereinafter defined) and to holders of Definitive Registered Notes
(as hereinafter defined), if any, on the August 1 or February 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 Senior Notes, see "-- Description of Book-Entry
System -- Payments on the Global Senior Notes" and "-- Form of Senior Notes."
The Company has entered into a pound sterling 175 million Senior Bank
Facility. 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 Senior Notes. The 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
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
Senior Notes Indenture does not contain any provisions that permit the holders
of the Senior Notes to require that the Company repurchase or redeem the Senior
Notes or otherwise protect the holders of Senior Notes in the event of a
takeover, recapitalization or similar restructuring or in the event of any
other highly leveraged transaction.
Application has been made to list the Senior Notes on the Luxembourg Stock
Exchange. There can be no assurance that any trading market in the Senior Notes
will develop. See "Risk Factors -- Absence of a Public Market for the Senior
Notes; Possible Volatility of Senior Note Price".
FORM OF THE SENIOR NOTES
The Senior Notes will be represented by two global securities in bearer
form, without coupons attached (the "Global Senior Notes"), which will be
issued in a denomination equal to the outstanding principal amount at maturity
of Senior Notes represented thereby. Senior Notes initially offered and sold in
the United States will be represented by one Global Senior Note (the "U.S.
Global Note") and Senior Notes sold pursuant to Regulation S under the
Securities Act ("Regulation S") will be represented by a second Global Senior
Note (the "Regulation S Global Note"). The Global Senior Notes will be
deposited with The Bank of New York, as book-entry depositary (the "Book-Entry
Depositary"), pursuant to the terms of a Senior Notes Depositary Agreement, to
be dated as of February 27, 1997 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 Book-Entry Depositary at the
request of the Company within 120 days, (ii) in the event of an Event of
Default under the Senior Notes Indenture upon request of the owner of a
Book-Entry Interest, (iii) at any time
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if the Company in its sole discretion determines that the Global Senior Notes
(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 of its giving notification thereof to the Company.
In no event will definitive 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 or multiple thereof. 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 Notes are 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 or Notes
underlying the Book-Entry Interests to reflect any such issues or adjustments.
The 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, including Special Interest, if any, 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 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, all of
which will be solely the responsibility of the Company.
Principal of, premium, if any, and interest, including Special Interest,
if any, 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, including Special Interest, if
any, 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 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, including Special Interest, if any, on,
the Senior Notes may be made and through which the registration of transfer of
Senior Notes may be effected.
The initial paying agent and transfer agent appointed by the Company in
Luxembourg is Banquet Internationale a Luxembourg S.A., 69 route desk, L-1470
Luxembourg.
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REDEMPTION
OPTIONAL REDEMPTION
The 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
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, including Special Interest, if any, to the redemption date, if
redeemed during the 12-month period beginning February 15 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- -----
<S> <C>
2002 105.375%
2003 103.583%
2004 101.782%
2005 and thereafter 100.000%
</TABLE>
PURCHASE OBLIGATION
The Company is not required to make any mandatory redemption or sinking
fund payments in respect of the 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 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 and unpaid interest,
including Special Interest, if any, thereon, if any, to the date of purchase.
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
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 (including Special Interest), if any, to the date of purchase. 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 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
Senior Notes called for redemption will cease to accrete (if such redemption
occurs prior to the Cash Interest Date), interest on Senior Notes called for
redemption will cease to accrue from and after the date fixed for redemption
(unless the Company defaults in providing the funds for such redemption) and
such Senior Notes will then cease to be outstanding.
OPTIONAL TAX REDEMPTION
The 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 and unpaid interest,
including Special Interest, if any, to the date of redemption, 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 required, 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 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 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
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authority) is a party, if the amendment or change becomes effective on or after
the date of the 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 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 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 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 of (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 or, if
different, the beneficiary of the payment complied with a request of the
Company or any other person through whom payment may be made, made upon
reasonable notice prior to such payment, 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 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 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 Senior Notes. The
foregoing provisions shall survive any termination or discharge of the 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 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.
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<PAGE> 72
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 Senior Bank Facility; (ii) Debt of the
Company and/or any Restricted Subsidiary outstanding on the date of the 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
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 Senior Notes (in the event that the Senior Notes are redeemed in
part pursuant to the provisions described under "-- Redemption" above), the 1994
Notes or 1995 Notes 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 Senior Notes, the refinancing or refunding Debt is made pari
passu to the Senior Notes or subordinated to the Senior Notes, and, in the case
of any refinancing or refunding of Debt which is subordinated to the Senior
Notes or of Disqualified Equity, the refinancing or refunding Debt is
subordinated to the 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 pound sterling 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 International (or any of
its predecessors) in an aggregate amount not exceeding pound sterling 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 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 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 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
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
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after the issue date of the 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 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 pound
sterling 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 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
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 Senior Notes Indenture or to: (i) Liens securing
only the 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 Senior
Notes, if the sum of (i) the amount of Debt secured by a Lien entered into
after the date of the Senior Notes Indenture and otherwise prohibited by the
Senior Notes Indenture and (ii) the Attributable Value of all Sale and
Leaseback Transactions entered into after the date of the Senior Notes
Indenture and otherwise prohibited by the 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 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 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
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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 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), (b) or (f) 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
pound sterling 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 pound sterling 5.0 million (or series of related transactions involving in
excess of pound sterling 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 International or any successor or
assign, or any other management agreement which has substantially similar
terms; 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
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 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 pound sterling 1.0 million 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 pound sterling 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 pound
sterling 10.0 million the Company shall make to all holders of the Senior Notes
within 30 days of the determination thereof an Offer to Purchase 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 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 Senior Notes validly tendered and not
withdrawn by holders thereof exceeds the amount of Senior Notes which can be
purchased with the Excess Proceeds, 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
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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 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 Senior Notes. A "Change
of Control" will be deemed to have occurred in the event that, after the date
of the 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 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 Senior Bank Facility) may
contain provisions restricting the ability of the Company to repurchase 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 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 Senior Notes. In the absence of such a repayment
or refinancing, the Company may be precluded from offering to repurchase the
Senior Notes by the applicable provisions of such other agreements. The
failure of the Company to offer to repurchase the Senior Notes upon a Change of
Control would constitute an Event of Default under the Senior Notes Indenture.
Moreover, there can be no assurance that the Company will have the financial
resources necessary to effect any repurchase of 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 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 Senior Notes and the
performance of every covenant of the 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
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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
Senior Notes Indenture described under "Limitation on Liens" above, and the
Company or the successor entity to the Company shall have secured the 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 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 Senior Notes
Indenture.
EVENTS OF DEFAULT
The following will be Events of Default under the Senior Notes Indenture:
(a)failure by the Company to pay principal of (or premium, if any, on) any
Senior Note at its Maturity; (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 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 Senior Notes Indenture or the 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 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 pound sterling 5
million or which shall constitute the failure to pay any portion in excess of
pound sterling 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 pound sterling 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 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 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
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) above) occurs and is continuing, then either the Trustee or the holders of
at least 25% in aggregate principal amount of the Outstanding Senior Notes may
accelerate the maturity of all 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 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 Senior Notes Indenture. If an Event of
Default specified in Clause (h) above occurs, the Outstanding 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 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 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 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 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 Senior Notes
Indenture and as to any default in such performance.
DEFEASANCE
The Senior Notes Indenture will provide that (A) if applicable, the
Company will be discharged from any and all obligations in respect of the
Outstanding Senior Notes other than certain obligations to transfer the Senior
Notes, or (B) if applicable, the Company may omit to comply with certain
restrictive covenants, and certain events will cease to be
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Events of Default under the Senior Notes Indenture and the 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 Senior Notes. With respect to Clause (B),
the obligations under the 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 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 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 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
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 (h) 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 Senior Notes Indenture and the Senior Notes will be 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 Senior
Notes, may amend, waive or supplement the Senior Notes Indenture or the Senior
Notes for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the qualification of the
Senior Notes Indenture under the Trust Senior Notes Indenture Act or making any
change that does not adversely affect the rights of any holder.
Modifications and amendments of the 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 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 or currency 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
Senior Notes necessary to modify or amend the Senior Notes Indenture, (f)
reduce the percentage of principal amount of Outstanding Senior Notes necessary
for waiver of compliance with certain provisions of the Senior Notes Indenture
or for waiver of certain defaults, (g) modify certain provisions of the Senior
Notes Indenture relating to the modification of the 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 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 Senior Notes, on behalf of all holders of Senior Notes, may
waive compliance by the Company with certain restrictive provisions and
covenants of the Senior Notes Indenture. Subject to certain rights of the
Trustee, as provided in the Senior Notes Indenture, the holders of not less
than a majority in aggregate principal amount of the Outstanding Senior Notes,
on behalf of all holders of Senior Notes, may waive any past default under the
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 Senior Note.
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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 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 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 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 Senior Notes, the 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 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 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 Senior Notes Indenture. Reference is made to the 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 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 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 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 August 15 and February 15, at the rate of 10
3/4% per annum from the date of issuance of the 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.
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"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.
"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
pound sterling 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 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, 1995.
"Approved Jurisdiction" means the United States of America, Canada, the United
Kingdom and any other member nation of the Organization for Economic
Cooperation and Development. "Approved Rating Agency" means Standard & Poor's
Corporation, Moody's Investor Service and any other recognized rating agency
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that provides or assigns credit rating for debt securities similar to the
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 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.
"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
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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 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.
"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
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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 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
Senior Notes specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to this 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 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 Senior Notes pursuant to the Offer to Purchase. The Offer
shall also state:
(1) the Section of the 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 Senior Notes offered
to be purchased by the Company pursuant to the Offer to Purchase (including, if
less than all Outstanding Senior Notes, the manner by
which such has been determined pursuant to the Section hereof requiring the
Offer to Purchase) (the "Purchase Amount");
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(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Senior Notes accepted for payment (as specified pursuant to
the Senior Notes Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the 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 at
maturity;
(6) the place or places where 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
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 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 Senior Notes and (b)
if 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 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 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
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 Senior Notes Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement, to be dated February 27, 1997, between the Company and the
Purchasers.
"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 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
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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 1-02 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 Notes for the benefit of
DTC and its Participants, as hereinafter described. Pursuant to the terms of the
Deposit Agreement, the Global Senior Notes may be transferred only to a
successor of the Book-Entry Depositary. Beneficial interests in the Global
Senior Notes 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' 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 participants ("Indirect
Participants"), including Euroclear and Cedel. Procedures with respect to the
ownership of Book-Entry Interests are set forth below.
Upon receipt of each Global Senior Note, the Book-Entry Depositary will
issue 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 will credit 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.
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Purchasers of the Senior Notes pursuant to Rule 144A will hold their
beneficial interests under the U.S. Global Note and purchasers of the Senior
Notes pursuant to Regulation S will hold their beneficial interests under the
Regulation S Global Note.
Investors may hold their interests in the Regulation S Global Note through
Cedel or Euroclear, if they are account holders in such systems, or indirectly
through organizations which are account holders in such systems. After the
expiration of the Restricted Period (as defined below) but not earlier,
investors may also hold such interests through organizations other than Cedel
and Euroclear that are participants in the DTC system. Cedel and Euroclear will
hold interests in the Regulation S Global Note on behalf of their account
holders through securities accounts in their respective names on the books of
their respective depositaries, which, in turn, will hold such interests in the
Regulation S Global Note in securities accounts in the depositaries' names on
the books of DTC. Investors may hold their interests in the U.S. Global Note
directly through DTC, if they are Participants in such system, or indirectly
through organizations which are Participants in such system. All interests in
the Global Senior Notes, including those held through Euroclear or Cedel, may
be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Cedel may also be subject to the procedures and
requirements of such system.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Senior Notes, the Book-Entry Depositary or such nominee, as the case may
be, will be considered the sole holder of such Global Senior Notes for all
purposes under the Senior Notes Indenture. Except as set forth above under "--
Form of Senior Notes", Participants or Indirect Participants are not entitled
to have Senior Notes or Book-Entry Interests registered in their names, will
not receive or be entitled to receive physical delivery of Senior Notes or
Book-Entry Interests in definitive form and will not be considered the owners
or holders thereof under the 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 (being, in the case of Euroclear and Cedel, the procedures of
Euroclear and Cedel), to exercise any rights and remedies of a holder under the
Senior Notes Indenture. See "-- Actions by Owners of Book-Entry Interests"
below. If any definitive 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 Senior Notes." Unless and until
Book-Entry Interests are exchanged for Definitive Registered Notes (as
described under "-- Form of the 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 NOTES
Payments of any amounts owing in respect of the Global Senior Notes will
be made through one or more paying agents appointed under the Senior Notes
Indenture (which initially will include the Trustee) to the Book-Entry
Depositary, as the holder of the Global Senior Notes. 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 Notes 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
such 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
who so request whose aggregate ownership exceeds $20 million in principal
amount at maturity.
Because the provisions of the Senior Notes Indenture treat the holder of
the Global Senior Notes as the owner of the Senior Notes represented thereby
for the purpose of receiving amounts owing in respect of the 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 Notes. 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
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account of Book-Entry Interests or for maintaining,
supervising or reviewing any records relating to such Book-Entry Interests.
REDEMPTION
In the event any 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 any 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 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 AND TRANSFER RESTRICTIONS
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.
The U.S. Global Note will bear a legend substantially identical to that
appearing under "Notice to Investors", and neither the U.S. Global Note nor any
beneficial interest therein may be transferred except in compliance with the
transfer restrictions reflected in such legend. In addition, no Book-Entry
Interest in the U.S. Global Note may be transferred to a person that takes
delivery thereof through the Regulation S Global Note at any time unless the
transferor certifies, in effect, that such transfer meets the requirements of
Rule 903 or Rule 904 of Regulation S or of Rule 144 (if available).
Until and including the 40th day after the closing date with respect to
the Senior Notes (the "Restricted Period"), Book-Entry Interests in the
Regulation S Global Note may be held only through Euroclear or Cedel, unless
transfer and delivery is made through the U.S. Global Note. Prior to the end of
the Restricted Period, no Book-Entry Interest in the Regulation S Global Note
may be transferred to a person that takes delivery through the U.S. Global Note
unless the transferor certifies, in effect, that the transfer was made to a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A.
Prior to the expiration of the Restricted Period, a Book-Entry Interest in
the Regulation S Global Note may be transferred to a person who takes delivery
in the form of a Book-Entry Interest in the U.S. Global Note only upon receipt
by the Depositary of written certification from the transferor (in the form
provided in the Deposit Agreement) to the effect that such transfer is being
made to a person whom the transferor reasonably believes is purchasing for its
own account or for an account or accounts as to which it exercises sole
investment discretion and that such person and such account or accounts is a
qualified institutional buyer within the meaning of Rule 144A, in each case in
a transaction meeting the requirements of Rule 144A and in accordance with any
applicable securities laws of any state of the United States or any other
jurisdiction.
A Book-Entry Interest in the U.S. Global Note may be transferred to a
person who takes delivery in the form of a Book-Entry Interest in the
Regulation S Global Note, whether before or after the expiration of the
Restricted Period, only upon receipt by the Depositary of a written
certification from the transferor (in the form provided in the
Deposit Agreement) to the effect that such transfer is being made in accordance
with Rule 903 or Rule 904 of Regulation S or Rule 144 under the Securities Act
and that, if such transfer occurs prior to the expiration of the Restricted
Period, the Book-Entry Interest transferred will be held immediately thereafter
through Euroclear or Cedel.
Any Book-Entry Interest in the Regulation S Global Note that is
transferred to a person who takes delivery in the form of a Book-Entry Interest
in the U.S. Global Note will, upon transfer, cease to be represented by the
Regulation S Global Note and will become represented by the U.S. Global Note
and, accordingly, will thereafter be subject to all transfer restrictions and
other procedures applicable to interests in the U.S. Global Note for as long as
it remains such an interest. Any Book-Entry Interest in the U.S. Global Note
that is transferred to a person who takes delivery in the form of a Book-Entry
Interest in the Regulation S Global Note will, upon transfer, cease to be
represented by the U.S. Global Note and will become represented by the
Regulation S Global Note and, accordingly, will thereafter be subject to all
transfer restrictions and other procedures as applicable to Book-Entry
Interests in the Regulation S Global Note for as long as it remains such an
interest.
Although DTC, Euroclear and Cedel have agreed to certain procedures to
facilitate transfers of interests in the Regulation S Global Note and in the
U.S. Global Note among participants of DTC and account holders of Euroclear and
Cedel, they are under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Trustee or any of their respective agents will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants or account holders of their
respective obligations under the rules and procedures governing their
operations.
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ISSUANCE OF DEFINITIVE REGISTERED NOTES
Investors may, at their option, obtain Definitive Registered Notes as set
forth under "-- Form of the Senior Notes". While a 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 applicable Global Senior Note or exchange such
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 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
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 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 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 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
Senior Notes or the Book-Entry Interests. All notices regarding the 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 Notes shall be delivered
to that successor. If no such successor has been so appointed within 120 days
of such notification, 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 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 the owners 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 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."
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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 Purchasers), 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 will 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.
Clearance through Cedel and Euroclear
The Senior Notes have been accepted for clearance by Cedel and Euroclear
under the common code 7420536. The ISIN is USU25261AA36.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company on February 27, 1997, in a private
placement. In connection with that placement, the Company entered into the
Registration Rights Agreement, which requires that the Company file a
registration statement under the Securities Act with respect to the Senior
Notes and, upon the effectiveness of that registration statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of Senior Notes, which will be issued without a restrictive
legend and may be reoffered and resold by holders that are not affiliates of
the Company without registration under the Securities Act. Upon the completion
of the Exchange Offer, the Company's obligations with respect to the
registration of the Old Notes and the Senior Notes will terminate. The
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. Following the completion of the
Exchange Offer, holders of Old Notes not tendered will not have any further
registration rights and those Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for the Old
Notes could be adversely affected upon completion of the Exchange Offer.
Based on an interpretation by the Commission's staff set forth in
interpretive letters issued to third-parties unrelated to the Company, the
Company believes that, with the exceptions set forth below, Senior Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any person receiving such Senior
Notes, whether or not such person is the holder (other than any such holder or
such other person which is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the Senior
Notes are acquired in the ordinary course of business of the holder or such
other person and neither the holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of such Senior
Notes. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Senior Notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives Senior Notes
for its own account in exchange for Old Notes, where the Old Notes were
acquired by that broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Senior Notes. See "Plan of Distribution".
EXCHANGE OF BOOK-ENTRY INTERESTS
In connection with the Exchange Offer by the Company, Book-Entry Interests
in the Certificateless Depositary Interests in the Old Notes ("Old Book-Entry
Interests") may be tendered to the Global Depositary in exchange for Book-Entry
Interests in the Certificateless Depositary Interests in the Senior Notes ("New
Book-Entry Interests"). In such case, the Book-Entry Depositary has committed
to exchange a like principal amount of New Book-Entry Interests for the Old
Book-Entry Interests so tendered. Other than as described below under
"Procedures for Tendering Book-Entry Interest", the terms and conditions for
exchanging Old Book-Entry Interest for New Book-Entry Interests are identical to
the terms and conditions for exchanging Old Notes for Senior Notes. In this
regard, except as the context otherwise requires, holders, as used below,
includes, as appropriate, any participant in the Book-Entry Transfer Facility
system whose name appears on a security position as a holder of Book-Entry
Interests, references to Senior Notes or Old Notes include New Book-Entry
Interests and Old Book-Entry Interests, as appropriate, and provisions of the
following discussion that apply to the Company also apply, as appropriate, to
the Book-Entry Depositary. The Exchange Agent for the Company will also act as
exchange agent for the Book-Entry Depositary in effecting such exchange.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth
above), holders of Old Notes not tendered will not have any further
registration rights and those Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the market for a
holder's Old Notes could be adversely affected upon completion of the Exchange
Offer if the holder does not participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount at
maturity of Senior Notes in exchange for each $1,000 principal amount at
maturity of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer.
The form and terms of the Senior Notes are substantially the same as the
form and terms of the Old Notes
except that the Senior Notes have been registered under the Securities Act and
will not bear legends restricting their transfer. The Senior Notes will
evidence the same debt as the Old Notes and will be issued pursuant to, and
entitled to the benefits of, the Indenture pursuant to which the Old Notes were
issued.
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As of March 31, 1997, Old Notes representing $420,500,000 aggregate
principal amount at maturity were outstanding and there was one registered
holder (i.e., a nominee of The Depository Trust Company). This Prospectus,
together with the Letter of Transmittal, is being sent to such registered
Holder and to others believed to have beneficial interests in the Old Notes.
The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission promulgated thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Senior Notes from the Company. If any
tendered Old Notes are not accepted for exchange because of an invalid tender,
the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
In order to participate in the Exchange Offer, a holder must represent to
the Company, among other things, that (i) the Senior Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving the Senior Notes, whether or not such person is the holder of
the Old Notes, (ii) neither the holder nor any such other person is engaging in
or intends to engage in a distribution of the Senior Notes, (iii) neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of the Senior Notes, and (iv) neither
the holder nor any such other person is an "affiliate", as defined under Rule
405 promulgated under the Securities Act, of the Company.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer.
See "The Exchange Offer - Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. In order to extend the
Exchange Offer, the Company will notify the Exchange Agent and each registered
holder of any extension by oral or written notice prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth under "The Exchange Offer - Conditions" shall not have
been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (ii)
to amend the terms of the Exchange Offer in any manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
To tender in the Exchange Offer a holder must complete, sign and date the
Letter of Transmittal, or a copy thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver the Letter of Transmittal or copy to the Exchange Agent prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along with the Letter of Transmittal, or (ii)
in the case of Book-Entry Interests, a timely confirmation of a book-entry
transfer of such Book-Entry Interests (A "Book-Entry Confirmation"), if that
procedure is available, into the Exchange Agent's account at The Depositary
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the Holder must comply with the
guaranteed delivery procedures described below. To be tendered effectively,
the Letter of Transmittal and other required documents must be received by the
Exchange Agent at the address set forth under "The Exchange Offer - Exchange
Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES, OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
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Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the
beneficial owner wishes to tender on the owner's own behalf, the owner must,
prior to completing and executing the Letter of Transmittal and delivering the
owner's Old Notes, either make appropriate arrangements to register ownership
of the Old Notes in the beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership
may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. If signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, the guarantee must be by any eligible guarantor institution that
is a member of or participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program, the Stock
Exchange Medallion Program, or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities, or conditions of
tender as to particular Old Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends
to notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent, nor any other person shall
incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have
not been cured or waived will be returned by the Exchange Agent to the
tendering holders, unless otherwise provided in the Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "- - Conditions", to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions, or otherwise.
The terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (i) the Senior Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such Senior
Notes, whether or not such person is the holder, (ii) neither the holder nor
any such other person is engaging in or intends to engage in a distribution of
such Senior Notes, (iii) neither the holder not any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New
1997 Senior Notes, and (iv) neither the holder nor any such other person is an
"affiliate", as defined under Rule 405 of the Securities Act, of the Company.
In all cases, issuance of Senior Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation into the Exchange Agent's account at the Book-Entry Transfer
Facility, a properly completed and duly executed Letter of Transmittal (or,
with respect to DTC and its participants, electronic instructions in which the
tendering holder acknowledges its receipt of and agreement to be bound by the
Letter of Transmittal), and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering Holder thereof (or, in the
case of Book-Entry Interests, such non-exchanged Book-Entry Interests will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
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PROCEDURES FOR TENDERING BOOK ENTRY INTERESTS
Interests must be tendered for exchange through DTC's Automated Tender
Offer Program ("ATOP"). ATOP is the only method of processing exchange offers
through DTC. To exchange Old Book-Entry Interests for New Book-Entry Interests
through ATOP, participants in DTC must send electronic instructions to DTC
through DTC's communication system in place of sending a signed, hard copy
Letter of Transmittal. DTC is obligated to communicate those electronic
instructions to the Exchange Agent. The electronic instructions sent to DTC
and transmitted by DTC to the Exchange Agent must contain the character by
which the participant acknowledges its receipt of and agrees to be bound by the
Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly completed and
duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes or Book-Entry Interests to be
effective, a written or (for DTC participants) electronic ATOP transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee register
the transfer of such Old Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form, and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender, or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by
following one of the procedures described under "-- Procedures for Tendering"
at any time on or prior to the Expiration Date.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Questions, requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
For Information or
Confirmation by Telephone:
(212)815-2742
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission By Hand or Overnight Delivery:
The Bank of New York (for Eligible Institutions Only): The Bank of New York
101 Barclay Street (212) 571-6339 101 Barclay Street
New York, New York 10286 Enrique Lopez New York, New York 10286
Attention: Enrique Lopez Attention: Securities Processing Window
Corporate Trust Operations, 7E Ground Level Reorganization, 7E
</TABLE>
FEES AND EXPENSES
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<PAGE> 93
The Company will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be $ ,
which includes fees and expenses of the Trustee, accounting, legal, printing,
and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register Senior Notes in the name of, or request that
Old Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
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<PAGE> 94
PLAN OF DISTRIBUTION
Each broker-dealer that receives Senior Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Senior Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Senior Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Company has agreed that, starting on the
Expiration Date and ending on the close of business on the 90th day following
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Senior Notes by
broker-dealers. Senior Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options of the Senior Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Senior Notes. Any
broker-dealer that resells Senior Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Senior Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Senior Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Old Notes) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
The Company has not entered into any arrangements or understandings with
any person to distribute the Senior Notes to be received in the Exchange Offer.
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 managing director of Goldman Sachs, Muneer Satter, a managing director of
Goldman Sachs International, and John Thornton, a managing director of Goldman,
Sachs & Co. 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 --
Absence of Public Market for the Senior Notes; Possible Volatility of Senior
Note Price".
The Company has agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act of 1933.
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<PAGE> 95
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.
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 based upon 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 Offering
Circular and are subject to changes to those laws and practices, and any
relevant judicial decision, subsequent to the date of this Offering Circular
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
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<PAGE> 96
(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 (currently 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. 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 (currently 20 per cent.) 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 U.S. Holder will not be liable to United
Kingdom tax on interest on a Senior Note unless it is resident or ordinarily
resident in the U.K. or 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 non-U.K.
resident corporate U.S. 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 U.K. and
remains at all times outside the U.K. 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
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<PAGE> 97
doubt. If a Senior Note is subject to U.K. inheritance tax and U.S. federal
estate tax, 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
EXCHANGE OF OLD NOTES FOR SENIOR NOTES
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of Old Notes for Senior Notes, but does
not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury regulations, Internal Revenue Service rulings and pronouncements, and
judicial decisions now in effect, all of which are subject to change at any
time by legislative, judicial or administrative action. Any such changes may
be applied retroactively in a manner that could adversely affect a holder of
the Senior Notes. The description does not consider the effect of any
applicable foreign, state, local or other tax laws or estate or gift tax
considerations.
Although the matter is not free from doubt, the exchange of Old Notes for
Senior Notes should not be an exchange or otherwise a taxable event to a holder
for federal income tax purposes, accordingly, a holder should have the same
adjusted issue price, adjusted basis, and holding period in the Senior Notes as
it had in the Old Notes immediately before the exchange.
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<PAGE> 98
VALIDITY OF THE SENIOR NOTES
The validity of the Old Notes and of the Senior Notes will be 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.
EXPERTS
The consolidated financial statements of Diamond Cable Communications Plc
as of December 31, 1995 and 1996 and for each of the years in the three-year
period ended December 31, 1996 included in this Prospectus have been audited by
KPMG, independent auditors, as stated in their report appearing herein, and
have been included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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<PAGE> 99
GLOSSARY
Activation: see "Homes Activated" below.
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.
Churn: Churn is a measure of the incidence of service terminations among
customers using a given service. 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).
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.
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.
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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 activated: The number of homes that can be connected to the cable
network without further extension of transmission lines, apart from the final
connection to the home.
Homes marketed: The number of homes passed for which the initial marketing
phase has been completed.
Homes passed by civils construction: The number of homes that have had
ducting buried outside.
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. Penetration
rate of homes marketed is calculated by dividing the number of homes receiving
basic cable television or the number of residential telephone 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.
Premium service: Cable programming service available only for additional
subscription over and above the basic service.
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.
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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") a registration statement on Form S-4 under the Securities
Act (together with all amendments and exhibits thereto, the "Registration
Statement") with respect to this Exchange Offer. This Prospectus does not
contain all of the information set forth in the Registration Statement, 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
Registration Statement. The Registration Statement 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 1996 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.
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.
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INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Diamond Cable Communications Plc:
Independent Auditors' Report ........................................ F-2
Consolidated Statements of Operations for each of the years
in the three year period ended December 31, 1996 .................... F-3
Consolidated Balance Sheets at December 31, 1995 and 1996 ........... F-4
Consolidated Statements of Shareholders' Equity for each of the years
in the three year period ended December 31, 1996 .................... F-5
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1996 ........................... F-6
Notes to the Consolidated Financial Statements ...................... F-7
</TABLE>
F-1
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Diamond Cable Communications Plc
We have audited the accompanying consolidated balance sheets of Diamond
Cable Communications Plc and subsidiaries ("the Group") as of December 31, 1995
and 1996 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, 1996. These consolidated financial statements are the
responsibility of the Group's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Group
as of December 31, 1995 and 1996 and the results of their operations and their
cash flows for each of the years in the three year period ended December 31,
1996 in conformity with generally accepted accounting principles in the United
States of America.
KPMG
Chartered Accountants
Registered Auditors
Nottingham, England
[March 21, 1997.]
F-2
<PAGE> 104
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1994 1995 1996 1996
---- ---- ---- ----
(note 1)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
REVENUE
Business telecommunications..................... 3,402 5,852 9,763 $ 16,717
Residential telephone .......................... 2,545 6,662 17,723 30,347
Cable television ............................... 1,324 3,479 10,091 17,279
Other revenues ................................. 35 -- -- --
------- ------- ------- --------
7,306 15,993 37,577 64,343
------- ------- ------- --------
OPERATING COSTS AND EXPENSES
Telephone ...................................... (3,067) (5,454) (9,776) (16,739)
Programming .................................... (701) (1,844) (6,041) (10,344)
Selling, general and administrative ............ (4,562) (13,020) (22,391) (38,340)
Depreciation and amortization .................. (4,038) (8,867) (21,380) (36,609)
------- ------- ------- --------
(12,368) (29,185) (59,588) (102,032)
------- ------- ------- --------
OPERATING LOSS .................................. (5,062) (13,192) (22,011) (37,689)
Interest income ................................. 1,415 3,887 3,441 5,892
Interest expense and amortization of
debt discount and expenses ..................... (3,836) (17,118) (40,334) (69,064)
Foreign exchange (losses)/gains, net (note 17) .. (1,196) 925 31,018 53,112
Unrealized losses on derivative financial
instruments (note 3) ........................... -- (868) (7,944) (13,603)
Other expenses (note 4) ......................... -- (1,241) -- --
------- ------- ------- --------
Loss before income taxes ........................ (8,679) (27,607) (35,830) (61,352)
Income taxes (note 5) ........................... -- -- -- --
------- ------- ------- --------
NET LOSS......................................... (8,679) (27,607) (35,830) $(61,352)
======= ======= ======= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-3
<PAGE> 105
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------
1995 1996 1996
---- ---- ----
(note 1)
pound pound
sterling sterling
(in thousands except share data)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (note 6)............. 93,308 18,311 $31,354
Trade receivables (net of allowance for
doubtful accounts of pound sterling 773 and
pound sterling 1,691 at December 31, 1995
and 1996 respectively (note 7)) .............. 3,583 6,389 10,940
Other assets .................................. 5,358 3,904 6,685
Deferred financing costs (less accumulated
amortization of pound sterling 382 and
pound sterling 1,325 at December 31, 1995
and 1996 respectively)........................ 12,016 19,573 33,515
Property and equipment, net (note 8)........... 163,721 277,301 474,822
Goodwill (less accumulated amortization of
pound sterling 1,212 and pound sterling
6,064 at December 31, 1995 and 1996
respectively) (note 9)....................... 95,748 90,896 155,641
Franchise costs (less accumulated amortization
of pound sterling 69 and pound sterling 91
at December 31, 1995 and 1996 respectively).. 438 445 762
------- ------- --------
TOTAL ASSETS.................................. 374,172 416,819 $713,719
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................. 18,627 18,528 $31,726
Other liabilities ........................... 10,920 19,150 32,790
Senior discount notes (note 10) ............. 307,729 314,418 538,378
Capital lease obligations (note 11) ......... 9,263 8,146 13,948
Mortgage loan (note 12) ..................... 2,500 2,477 4,241
Shareholders' equity (note 13)
Ordinary shares: 70,000,000 authorized;
43,754,175 shares issued at December 31,
1995, 59,138,791 shares issued at
December 31, 1996 .......................... 1,094 1,478 2,531
Non-voting deferred shares: (i)
6 shares authorized and issued at
December 31, 1995 and 1996.................. -- -- --
Additional paid-in-capital ................. 70,186 134,466 230,246
Unrealized loss on securities .............. (330) (197) (337)
Accumulated deficit ........................ (45,817) (81,647) (139,804)
------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 374,172 416,819 $713,719
======= ======= ========
</TABLE>
(i) On September 4, 1995, the six A shares were automatically converted into
six non-voting deferred shares in accordance with the Articles of the
Company.
See accompanying Notes to the Consolidated Financial Statements
F-4
<PAGE> 106
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Non-voting
Ordinary shares deferred shares(i) Additional Unrealized Accum- Total
pound pound Paid-in- loss on ulated Shareholders'
Number sterling Number sterling capital securities Deficit Equity
(pound sterling in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994...... 400 -- -- -- 3,871 -- (9,531) (5,660)
Shares issued and capital
contributions (net of
expenses) ..................... 576,462 144 6 -- 33,787 -- -- 33,931
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 -- -- 6,500
Bonus shares issued ............ 587,874 15 -- -- (15) -- -- --
Net loss ....................... -- -- -- -- -- -- (8,679) (8,679)
----------- ----- ---- --- ------ ----- ------- -------
BALANCE AT DECEMBER 31, 1994.... 31,903,232 797 6 -- 43,505 -- (18,210) 26,092
=========== ===== ==== === ====== ===== ======= =======
BALANCE AT JANUARY 1, 1995...... 31,903,232 797 6 -- 43,505 -- (18,210) 26,092
Shares issued and capital
contributions (net of expenses) 9,437,428 236 -- -- 26,742 -- -- 26,978
Bonus shares issued............. 2,413,515 61 -- -- (61) -- -- --
Unrealized loss on securities... -- -- -- -- -- (330) -- (330)
Net loss........................ -- -- -- -- -- -- (27,607) (27,607)
----------- ----- ---- --- ------ ----- ------- -------
BALANCE AT DECEMBER 31, 1995.... 43,754,175 1,094 6 -- 70,186 (330) (45,817) 25,133
=========== ===== ==== === ====== ===== ======= =======
BALANCE AT JANUARY 1, 1996...... 43,754,175 1,094 6 -- 70,186 (330) (45,817) 25,133
Shares issued and capital
contributions (net of expenses) 15,384,616 384 -- -- 64,280 -- -- 64,664
Unrealized gain on securities... -- -- -- -- -- 133 -- 133
Net loss........................ -- -- -- -- -- -- (35,830) (35,830)
----------- ----- ---- --- ------ ----- ------- -------
BALANCE AT DECEMBER 31, 1996.... 59,138,791 1,478 6 -- 134,466 (197) (81,647) 54,100
=========== ===== ==== === ====== ===== ======= =======
</TABLE>
(i) On September 4, 1995, the six A shares were automatically converted into
six non-voting deferred shares in accordance with the Articles of the
Company.
F-5
<PAGE> 107
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1994 1995 1996 1996
---- ---- ---- ----
(note 1)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... (8,679) (27,607) (35,830) $(61,352)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization .................... 4,038 8,867 21,380 36,609
Foreign exchange (gains)/losses .................. 306 (613) (31,468) (53,883)
Profit on disposition of assets .................. (11) (11) (11) (19)
Provision for losses on accounts receivable ...... 121 407 918 1,572
Amortization of deferred financing costs ......... 70 312 943 1,615
Accretion of senior note discount ................ 3,248 14,335 38,157 65,336
Accretion of investment income ................... (525) 524 -- --
Profit on disposition of investments ............. -- (2,733) -- --
Change in operating assets and liabilities:
Change in trade receivables ..................... (869) (1,577) (3,724) (6,376)
Change in other assets .......................... (1,479) (2,175) 1,300 2,226
Change in accounts payable ...................... 1,960 4,532 (1,680) (2,877)
Change in other liabilities ..................... 2,316 1,626 8,667 14,841
------- ------- ------- --------
Net cash provided by/(used in) operating activities 496 (4,113) (1,348) (2,308)
------- ------- ------- --------
Cash flows from investing activities:
Cash invested in property and equipment .......... (19,061) (102,899) (128,246) (219,595)
Cash invested in marketable securities ........... (53,042) (17,445) -- --
Proceeds from disposition of assets .............. 162 72 65 111
Proceeds from disposition of investments ......... -- 73,644 -- --
Cash paid for franchises ......................... -- (45) (29) (50)
Payment for purchases of LCL (net of cash acquired) -- (108,844) -- --
------- ------- ------- --------
Net cash used in investing activities ............. (71,941) (155,517) (128,210) (219,534)
------- ------- ------- --------
Cash flows from financing activities:
Proceeds of issue of debt ........................ 95,117 194,881 -- --
Debt financing costs (note 14) ................... (4,474) (7,924) (9,096) (15,575)
New loans ........................................ -- 94,000 -- --
Repayment of loans ............................... -- (94,119) (23) (39)
Cash repaid to shareholders ...................... (18,713) -- -- --
Capital element of capital lease obligations ..... (878) (841) (1,117) (1,913)
Issue of shares and capital
contributions (net of expenses) ................. 40,431 26,978 64,664 110,724
Net increase/(decrease) in short-term borrowings 1,002 (773) -- --
------- ------- ------- --------
Net cash provided by financing activities ......... 112,485 212,202 54,428 93,197
------- ------- ------- --------
Net increase/(decrease) in cash ................... 41,040 52,572 (75,130) (128,645)
Cash and cash equivalents at beginning of year .... 26 41,066 93,308 159,771
Effect of exchange rate changes on cash and
cash equivalents ................................. -- (330) 133 228
------- ------- ------- --------
Cash and cash equivalents at end of year (note 6).. 41,066 93,308 18,311 $ 31,354
======= ======= ======= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-8
<PAGE> 108
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Diamond Cable Communications Plc ("the Company"), has exclusive licences
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 ("pound sterling") and
for the year 1996 also are presented in US dollars, the latter being unaudited
and presented solely for the convenience of the reader, at the rate of pound
sterling 1 = $1.7123, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 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 Group
was conducted by Diamond Cable (Nottingham) Limited which was subsequently
renamed Diamond Cable Communications (UK) Limited ("DCL") and its subsidiary
undertakings. On September 1, 1994 the shareholders of DCL transferred all of
their ordinary shares of 2.5p each and A shares of 25p each to the Company in
exchange for ordinary shares of 2.5p each and A shares of 25p each in the
Company. The transaction was accounted for at book value. During 1995, the
Company through Jewel Holdings Limited ("Jewel") acquired the entire share
capital of three undertakings, referred to collectively as "LCL". The
transaction has been recorded using the purchase method of accounting.
CABLE SYSTEM COSTS AND EXPENSES - The Group accounts for costs and
expenses applicable to the construction and operation of its cable system under
Statement of Financial Accounting 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.
INTEREST RATE SWAP - Interest rate swaps, which are not designated to an
asset or liability, are recorded on the balance sheet in other assets or other
liabilities at their market value. Any gains or losses are recognized in the
statement of operations. Interest rate swaps which are designated to assets
and liabilities are accounted for on an accruals basis.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the 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.
F-7
<PAGE> 109
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
GOODWILL IMPAIRMENT - The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through projected undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
projected future operating cash flows are not achieved.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation on equipment other than cable infrastructure is computed on a
straight line basis using estimated useful lives of 5 to 10 years. Motor
vehicles are depreciated on a reducing balance basis over 3 years. Leasehold
improvements are depreciated on a straight line basis over the period of the
lease.
FRANCHISE COSTS - Costs relating to an unsuccessful application are
charged to operations while costs relating to successful applications are
amortized over the franchise term, generally 23 years.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
FOREIGN CURRENCIES - The primary economic environment in which the Group
operates is the United Kingdom and hence its reporting currency is the United
Kingdom Pound Sterling (pound sterling). Transactions in foreign currencies
are recorded using the rate of exchange in effect on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated using the rate of exchange in effect on the balance sheet date
and gains or losses on translation are included in the statement of operations.
Foreign exchange forward contracts which do not hedge firm commitments are
accounted at market value with reported gains and losses recorded in the
statement of operations.
PENSION COSTS - The Group 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 pound sterling 40,000, pound sterling 55,000 and
pound sterling 125,000 in 1994, 1995 and 1996, 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.
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.
SHARE OPTIONS - The Group accounts for stock-based compensation using the
recognition provisions of APB No. 25, Accounting for Stock Issued to Employees.
The disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation are set out in note 18.
NEW ACCOUNTING STANDARDS APPLICABLE TO THE GROUP - SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, was issued in June 1996 and establishes, among other things,
new criteria for determining whether a transfer of financial assets in exchange
for cash or other consideration should be accounted for as a sale or as a
pledge of collateral in a secured borrowing. Statement 125 also establishes
new accounting requirements for pledged collateral. As issued Statement 125 is
effective for all transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. In December
1996, SFAS No. 127, Deferral of Effective Date of Certain Provisions of FASB
Statement No. 125, was issued. Statement 127 defers for one year the effective
date of certain requirements of Statement 125. Statement 125 is not expected
to have a material impact on the financial position or results of operations of
the Group.
F-8
<PAGE> 110
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Statement of Position (SOP) No. 96-1, Environmental Remediation
Liabilities, was issued in October 1996. This statement provides authoritative
guidance on specific accounting issues that are present in the recognition,
measurement, display, and disclosure of environmental remediation liabilities.
The provisions of this statement are effective for fiscal years beginning after
December 15, 1996. SOP 96-1 is not expected to have a material impact on the
financial position or results of operations of the Group.
3. UNREALIZED LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
pound pound pound
sterling sterling sterling
(in thousands)
Unrealized (loss)/gain on interest rate swap (note 17)............... - (868) 174
Unrealized loss on foreign exchange forward contract (note 17)....... - - (8,118)
------ ---- ------
- (868) (7,944)
====== ==== ======
</TABLE>
4. OTHER EXPENSES
Other expenses in 1995 represent costs incurred in an aborted flotation of
equity.
5. INCOME TAXES
No provision for taxation has been made due to operating losses incurred
to date. The Group has tax net operating losses carried forward of
approximately pound sterling 139 million and approximately pound sterling 3
million of capital losses carried forward at December 31, 1996. In previous
years the Group has not claimed tax allowances on capital assets as it was not
deemed beneficial to do so. As a result of changes to UK taxation legislation
this option is being re-examined. At the option of the Group elections can be
made to increase the operating losses carried forward to pound sterling 175
million. An evaluation of this option has not yet been concluded. For the
purpose of these financial statements the operating losses carried forward are
assumed to be pound sterling 139 million.
The operating losses have an unlimited carry forward period under United
Kingdom tax law (subject to restrictions on a loss carried forward where there
is a change in Group ownership and a major change in the nature or conduct of
the business), but are limited in their use to the type of business which
generated the loss. Capital losses carried forward are limited to their offset
against future capital gains.
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:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
pound pound pound
sterling sterling sterling
(in thousands)
Tax benefit of net losses at statutory rate........................ (2,864) (9,110) (11,824)
Non-deductible expenses ........................................... 26 367 1,695
Valuation allowance ............................................... 2,838 8,743 10,129
------ ------ -------
Net tax benefit.................................................... - - -
====== ====== =======
</TABLE>
F-9
<PAGE> 111
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (continued)
<TABLE>
<CAPTION>
December 31
-------------------
1995 1996
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Deferred tax assets relating to:
Net losses ............................................ 20,155 45,736
Property and equipment ................................ 3,616 -
Accretion of discount on debt ......................... 1,584 -
Unrealized loss on interest rate swap ................. 443 -
Other ................................................. 109 447
------- -------
Deferred tax asset .................................... 25,907 46,183
Valuation allowance ................................... (20,762) (27,299)
------- -------
5,145 18,884
------- -------
Deferred tax liabilities relating to:
Property and equipment ................................ - (18,087)
Financing costs ....................................... (3,650) (155)
Other ................................................. (1,495) (642)
------- -------
Deferred tax liability ................................ (5,145) (18,884)
------- -------
Deferred tax per balance sheet ........................ - -
======= =======
</TABLE>
During 1995 the Company acquired LCL which had tax net operating losses
carried forward of pound sterling 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 in 1995 is an asset of pound
sterling 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.
6. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
December 31
-------------------
1995 1996
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Cash at bank and in hand .............................. 9,965 1,241
Short term securities ................................. 83,343 17,070
------- -------
93,308 18,311
======= =======
</TABLE>
The short term securities represent short term deposits placed in a cash
based unit fund. The deposits are denominated in both US dollars and pounds
sterling.
F-10
<PAGE> 112
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
charged to
Balance at Arising on costs and Amounts Balance at
January 1 acquisition expenses written off December 31
---------- ----------- ----------- ----------- -----------
pound pound pound pound pound
sterling sterling sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C> <C>
1994
Allowance for doubtful accounts ...................... 112 - 121 - 233
=== === ===== ==== =====
1995
Allowance for doubtful accounts ...................... 233 133 439 (32) 773
=== === ===== ==== =====
1996
Allowance for doubtful accounts ...................... 773 - 1,143 (225) 1,691
=== === ===== ==== =====
</TABLE>
8. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Land and Cable Office Motor
buildings network equipment vehicles Total
---------- ----------- ----------- ----------- -----------
pound pound pound pound pound
sterling sterling sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C> <C>
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
----- ------- ----- ---- -------
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 .................................. 3,789 156,365 3,251 316 163,721
===== ======= ===== ==== =======
ACQUISITION COSTS
Balance at January 1, 1996 ........................... 3,863 170,660 4,701 644 179,868
Additions ............................................ 688 127,454 1,979 19 130,140
Dispositions ......................................... - (42) (154) (228) (424)
Reclassification ..................................... 467 (10) (457) - -
----- ------- ----- ---- -------
Balance at December 31, 1996 ......................... 5,018 298,062 6,069 435 309,584
----- ------- ----- ---- -------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996 ........................... 74 14,295 1,450 328 16,147
Charge for year ...................................... 150 14,737 1,524 95 16,506
Dispositions ......................................... - (41) (154) (175) (370)
Reclassification ..................................... 90 (50) (40) - -
----- ------- ----- ---- -------
Balance at December 31, 1996 ......................... 314 28,941 2,780 248 32,283
----- ------- ----- ---- -------
1996 NET BOOK VALUE .................................. 4,704 269,121 3,289 187 277,301
===== ======= ===== ==== =======
</TABLE>
The reclassification to land and buildings more appropriately allocates
expenditure on leasehold properties.
The Group leases certain cable network equipment and motor vehicles under
arrangements accounted for as capital leases. The original cost of assets held
under these arrangements was pound sterling 11,919,000 and pound
sterling 11,543,000 at December 31, 1995 and 1996, respectively. Accumulated
depreciation charged against these assets was pound sterling 2,817,000 and
pound sterling 3,882,000 at December 31, 1995 and 1996, respectively. During
the year certain of the assets held under capital lease arrangements were
purchased by the Group.
F-11
<PAGE> 113
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PROPERTY AND EQUIPMENT (continued)
Depreciation on assets held under capital lease arrangements charged to
the consolidated statement of operations during the year was pound
sterling 490,000, pound sterling 863,000 and pound sterling 1,375,000 in 1994,
1995 and 1996, respectively.
9. 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 owned a group of three
franchises contiguous to Diamond's existing franchise areas. The consideration
of pound sterling 109.1 million in cash was financed by way of existing cash
reserves, an equity issue and a pound sterling 61.5 million short term loan.
An additional pound sterling 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 pound sterling 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.
<TABLE>
<CAPTION>
(in thousands)
pound
sterling
<S> <C>
Acquired net assets/(liabilities) at book value (September 30, 1995)
EMCG ................................................................. (5,413)
EMCC ................................................................. 55
EMCH ................................................................. --
Acquired zero coupon bonds ............................................... 23,296
Less certain fair value adjustments ...................................... (5,761)
Goodwill ................................................................. 96,960
-------
109,137
=======
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
pound
sterling
<S> <C>
Fair value adjustments represent:
-- remeasurement of fixed assets .................................... (1,667)
-- accruals for direct acquisition costs ............................ (4,094)
-------
(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.
F-12
<PAGE> 114
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITION (continued)
<TABLE>
<CAPTION>
Year ended
December 31
---------------------
1994 1995
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Total revenues ............................ 9,883 21,001
Net loss ................................. (41,280) (52,566)
</TABLE>
10. DEBT
On September 28, 1994 the Company issued $285,101,000 of 13 1/4% Senior
Discount Notes due September 30, 2004 (the "1994 Notes") at an issue price of
$526.13 per $1,000 principal. Total proceeds received by the Company after
issuance costs amounted to pound sterling 91 million. Interest will not accrue
on the 1994 Notes prior to September 30, 1999. Interest on the 1994 Notes will
be payable on March 31 and September 30 of each year commencing March 31, 2000
at a rate of 13 1/4% per annum.
The 1994 Notes may be redeemed at the option of the Company, at any time
as a whole but not in part at the accreted value thereof or if such redemption
is to occur on or after September 30, 1999 at 100% of the principal amount at
maturity thereof, plus accrued and unpaid interest, if any, to the date of
redemption in the event of certain tax law changes requiring the Company to pay
additional amounts. In addition, the 1994 Notes may be redeemed in whole or in
part at the option of the Company, at any time after September 30, 1999, at
specified redemption prices.
On December 15, 1995, The Company issued $530,955,000 of 11 3/4% Senior
Discount Notes due December 15, 2005 (the "1995 Notes") at an issue price of
$565.02 per $1,000 principal. Total proceeds received by the Company amounted
to pound sterling 187 million after issuance costs of pound sterling 8 million.
Interest will not accrue on the 1995 Notes prior to December 15, 2000.
Interest on the 1995 Notes will be payable on June 15 and December 15 of each
year, commencing June 15, 2001 at a rate of 11 3/4% per annum.
The 1995 Notes may be redeemed at the option of the Company, in whole or
in part, at any time on or after December 15, 2000 at specified redemption
prices.
The 1995 Notes may be redeemed at the option of the Company in whole, but
not in part, at any time at the accreted value thereof or if such redemption is
to occur on or after December 15, 2000 at 100% of the principal amount plus
accrued interest to the date of redemption, in the event of certain tax law
changes requiring the payment of additional amounts.
The 1994 Notes and the 1995 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 1994 Notes and the 1995 Notes are stated net of unamortized discount
of approximately pound sterling 49 million ($84.7 million) and pound
sterling 113 million ($193.0 million), respectively at December 31, 1996. 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 pound sterling 38 million ($65.3 million).
The costs relating to the issue of the 1994 Notes and the 1995 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 1994 Notes or 1995 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 of Related Persons.
F-13
<PAGE> 115
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEBT (continued)
On February 21, 1997 the Company issued $420,500,000 of 10 3/4% Senior
Discount Notes due February 15, 2007 (the "1997 Notes") at an issue price of
$594.48 per $1,000 principal. Total proceeds received by the Company amounted
to approximately pound sterling 149 million after issuance costs of
approximately pound sterling 5 million. Interest on the 1997 Notes will be
payable on February 15 and August 15 of each year commencing August 15, 2002.
11. COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
The Group leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expenses under
such arrangements amounted to pound sterling 78,000, pound sterling 733,000 and
pound sterling 1,158,000 in 1994, 1995 and 1996, respectively.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1996.
<TABLE>
<CAPTION>
Capital Operating
leases leases
-------- ---------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
1997 ........................................... 2,286 1,089
1998 ........................................... 2,434 716
1999 ........................................... 2,155 502
2000 ........................................... 1,834 313
2001 ........................................... 934 179
2002 and thereafter ............................ 159 1,741
Imputed interest ............................... (1,656) --
----- -----
8,146 4,540
===== =====
</TABLE>
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by leases on other properties.
MILESTONES
The Group is obligated under the terms of its existing licenses, and under
the milestone requirements of Local Delivery Licenses ("LDL's"), to construct
cable systems passing a predefined number of premises. Should the Group 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 Group is unable to comply, its license in respect of which
milestones have not been met could be revoked, and awarded to other cable
operators, which could have a material adverse effect on the Group.
LIQUIDITY
To the extent that the Group is unable to utilize fully the Senior Bank
Facility, the amount required to complete the Group's planned build out exceeds
its estimates or the annualized cash flow of certain subsidiaries does not meet
expectations, the Group will require additional debt or other financing in
order to meet its funding requirements.
F-14
<PAGE> 116
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. MORTGAGE LOAN
The Group entered into a mortgage loan agreement of pound sterling 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 expired in
September 1996. Interest is paid monthly at a rate of LIBOR + 1 1/2%.
13. SHAREHOLDERS' EQUITY
The authorized and issued share capital of DCL during 1992 consisted of
two pound sterling 1 par value ordinary shares. On July 3, 1993 the
shareholders agreed to a four-for-one share split such that the share capital
consisted of eight 25 pence ordinary shares. In addition on such date DCL
issued an additional 392 shares in consideration of a reduction in the amount
of advances from shareholders of pound sterling 3.87 million.
On February 18, 1994, a further 1,780 DCL ordinary shares at 25 pence each
were issued for a total consideration of pound sterling 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 DCL was increased to pound
sterling 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 DCL. The deferred shares entitle holders thereof only to the
repayment of the amounts paid up on such shares after payment in respect of
each Ordinary Share of pound sterling 100,000. The holders of deferred shares
are not entitled to the payment of any dividend or other distribution.
On May 13, 1994 DCL's principal shareholder made a capital contribution
to DCL in the amount of $1.3 million (pound sterling 863,000).
On May 17, 1994 DCL issued six A shares for cash at par and, for nil
consideration an additional 999 ordinary shares of 25 pence each to each of its
shareholders for each of the 2,180 ordinary shares held at that time.
On July 6, 1994 DCL issued a further 574,682 ordinary shares of 25 pence
each to European Cable Capital Partners LP ("ECCP") for a consideration of
pound sterling 15.44 million (net of pound sterling 1 million financing fees)
which had been advanced to DCL at various dates in May and June 1994 pending
formal issue of these ordinary shares. At such date a bonus allotment of
146,981 ordinary shares of 25 pence each was made to the holders of A shares in
accordance with the rights attaching to the A shares.
On September 1, 1994 DCL effected a ten for one share split such that the
authorized ordinary shares consisted of 40,000,000 shares of 2.5 pence each, of
which 29,016,630 were outstanding. In addition, on such date the shareholders
exchanged their shares in DCL for 29,016,630 ordinary shares of 2.5 pence each
and six A shares of 25 pence each in Diamond Cable Communications Plc ("the
Company"), a newly formed public limited company in proportion to their
shareholding in DCL.
At September 1, 1994 the authorized share capital of the Company was
70,000,000 ordinary shares 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 pound sterling 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 pounds sterling
6.57 million. A further 587,873 ordinary shares of 2.5 pence each were allotted
by way of a bonus to the holders of the A shares in accordance with the terms of
such shares.
F-15
<PAGE> 117
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 pound
sterling 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 pound sterling 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 DCL
for ordinary shares of a newly incorporated company, Jewel Holdings Limited
("Jewel"). As a result, DCL became a wholly owned subsidiary of Jewel and
Jewel became a wholly owned subsidiary of the Company.
On June 27, 1996, a total of 15,384,616 ordinary shares of 2.5 pence each
of the Company were issued to ECCP, Goldman Sachs, DCI Partners, Investor
Investments AB, English Cable Enterprises Inc and Sanford R Climan for gross
proceeds of approximately pound sterling 64.7 million (net of expenses).
14. DEBT FINANCING COSTS
Cash expended for debt financing costs in 1996 consists of payments of
pound sterling 1.15 million to holders of the 1994 Notes in connection with
their consent to certain amendments to the 1994 Notes indenture which were made
to conform certain provisions thereof to provisions of the 1995 Notes
indenture, and payments of pound sterling 7.94 million relating to the
arrangement costs of the Senior Bank Facility (described herein).
15. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash paid for interest was pound sterling 518,000, pounds sterling
2,376,000 and pound sterling 1,060,000 for the years ended December 31, 1994,
1995 and 1996.
16. RELATED PARTY TRANSACTIONS
In 1995 the Group declared a bonus to Mr Davis, Managing Director, in an
amount sufficient to repay his loan from the former majority shareholder, and
to meet any related tax liabilities (together amounting to approximately $1.2
million).
DCL entered into a 10-year Management Agreement with effect from June 1,
1994 (the "Management Agreement") with ECE Management Company ("ECE
Management"), a company controlled by Ralph H. Booth II and Robert T. Goad,
shareholders in the Company. As of April 4, 1996, ECE Management assigned its
rights and obligations under the Management Agreement to ECE Management
International, also controlled by Ralph H. Booth II and Robert T. Goad. As of
July 1, 1996 DCL assigned its rights and obligations under the Management
Agreement to the Company. Pursuant to the Management Agreement, ECE
Management International has agreed to manage and act as agent (under the
supervision and control of the Company's board of directors) in connection with
the strategic activities of the Company, including preparation of strategic
business plans and capital budgets, identification of investment opportunities
and strategic issues relating to the construction of the Group's cable network,
the operation and administration of the Company's business and the retention of
consultants. The contract provides for an annual management fee of $200,000.
In addition, the Group has agreed to reimburse ECE Management International for
the costs of all expenses incurred in the performance of its duties, and to
indemnify ECE Management International from any liability incurred in
connection with the performance of its duties, except in the case of ECE
Management International's wilful misconduct, gross negligence or bad faith.
During 1995 and 1996, the Group recorded expenses of pound sterling 1,085,000
and pound sterling 1,610,000, respectively, as amounts paid or payable to
F-16
<PAGE> 118
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. RELATED PARTY TRANSACTIONS (continued)
ECE Management and/or ECE Management International in connection with
management services provided to the Group and all related expenses incurred.
ECCP is a Delaware limited partnership of which European Cable Capital
Partners Holding Inc is the general partner and certain Goldman Sachs
affiliates, Booth English Cable Inc and Columbia Management Inc are the limited
partners. Under the partnership agreement governing ECCP, the Goldman Sachs
affiliates effectively control ECCP, which effectively controls 66.7% of the
outstanding shares of the Company at December 31, 1996. In addition, other
investment funds managed by Goldman, Sachs & Co or its affiliates directly own
4.2% of the outstanding shares of the Company at December 31, 1996.
OTHER RELATIONSHIPS
Goldman, Sachs & Co acted as purchaser in connection with the 1997 Notes
offering and received underwriting commissions of approximately $6,750,000.
Goldman, Sachs & Co acted as underwriter in connection with the 1995 Notes
offering and received underwriting commissions of approximately $6,750,000. In
connection with the offering of the 1994 Notes, Goldman, Sachs & Co received
underwriting commissions of approximately $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 pound sterling 1,091,000.
Goldman Sachs International acted as agent and financial advisor in connection
with the negotiation of the Senior Bank Facility for which it has charged fees
of approximately pound sterling 400,000 in 1996. In 1995, Goldman, Sachs & Co
charged a fee of $750,000 for financial advisory services that Goldman, Sachs &
Co rendered the Company. Goldman, Sachs & Co was the counterparty to foreign
exchange contracts entered into by the Company in 1996 and 1997.
John Thornton, who is a managing director of Goldman Sachs International
and a Director of the Company, is also a director of BSkyB, a principal
supplier of programming to the Group and a principal competitor of the Group.
Robert T Goad, a Director and the Chief Executive Officer of the Company
also has an indirect minority interest in ICTL, which has significant cable
interests in the UK.
17. FINANCIAL INSTRUMENTS
INTEREST RATE SWAP - On July 3, 1995, a subsidiary of EMCG entered into a
five year agreement to swap a floating interest rate calculated at sterling
LIBOR for a fixed rate of 8.79%. The swap has a maximum nominal value of
pound sterling 33.6 million and its nominal value at December 31, 1996 was
pound sterling 13.3 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, 1996 of pound sterling 1.2 million. Profits or losses on the mark
to market of the interest rate swap are recognized in the consolidated
statement of operations. The Directors may decide to terminate the agreement
or they may retain the swap to alter the interest rate on its loan facility.
The net cash outflow in respect of the swap in 1996 was pound sterling 118,000.
FOREIGN EXCHANGE FORWARD CONTRACT - The Company entered into a foreign
exchange forward contract on November 1, 1996 for settlement on May 6, 1997 to
sell pound sterling 200 million at a rate of $1.6289 to pound sterling 1. On
January 31, 1997 an offsetting agreement was entered into at a rate of $1.6014
to pound sterling 1. The offsetting contracts were settled on February 6, 1997
with a payment of approximately pound sterling 3.4 million to the Company.
Because of changes in prevailing rates, the Company has recorded for the year
ended December 31, 1996, an unrealized loss of approximately pound sterling 8.1
million on the pounds sterling sell forward contract. During the first quarter
of 1997, the Company has recorded a gain of approximately pound sterling 11.5
million on the two offsetting forward contracts, reflecting the reversal of the
pound sterling 8.1 million loss referred to above and the approximately pound
sterling 3.4 million cash payment on settlement of the contracts.
F-17
<PAGE> 119
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. FINANCIAL INSTRUMENTS (continued)
DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES, TRADE ACCOUNTS PAYABLE AND
ACCRUED EXPENSES - The carrying amount approximates fair value because of the
short maturity of these instruments.
INTEREST RATE SWAP - The interest rate swap has been marked to market and
the resulting carrying amount approximates its fair value. The fair value of
the instrument has been calculated based on quotations received from
independent, third party financial institutions and represents discounted
future cash flows based on the industry norm derivatives formula.
SENIOR DISCOUNT NOTES - The fair value of the senior notes has been
calculated based on quotations from Goldman, Sachs & Co and are based on
discounting the future cash flows to net present values using appropriate
market interest rates prevailing at the year end. The following table compares
the carrying value with the fair value of the debt:
<TABLE>
<CAPTION>
Year ended 31 December
----------------------------------------------
1995 1996 1995 1996
Carrying Carrying Fair Fair
value value value value
-------- -------- ------- -------
pound pound pound pound
sterling sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
1994 Notes.................................. 113,559 117,062 127,841 136,740
1995 Notes.................................. 194,170 197,356 203,359 220,726
------- ------- ------- -------
307,729 314,418 331,200 357,466
======= ======= ======= =======
</TABLE>
FOREIGN EXCHANGE FORWARD CONTRACT - The foreign exchange forward contract
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 the
difference between the forward rate available at December 31, 1996 for the
remaining maturity of the contract and the contracted forward rate.
CONCENTRATION OF CREDIT RISK AND MARKET RISK - The Group operates
predominantly in one industry segment, the provision of cable television and
telecommunications services in certain areas of England. No single customer
accounts for 10% or more of consolidated net sales.
Financial instruments which potentially subject the Group to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Group places its temporary cash investments with
high credit quality financial institutions. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base. At December 31, 1996, the Group had no
significant concentrations of credit risk.
The Group is exposed to market risk on the interest rate swap to the
extent that the variable rate receivable is lower than the fixed rate payable.
The Group's revenues are generated in pounds sterling while the interest
and principal obligations with respect to the Senior discount notes will be
payable in US dollars. While the Company's policy has previously been not to
enter in hedging contracts it did enter into a foreign exchange forward
contract during 1996 (discussed herein). Changes in currency exchange rates
may continue to have a material effect on the results of operations of the
Group.
F-18
<PAGE> 120
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SHARE OPTIONS
The Group adopted a Senior Management Option Scheme on October 27, 1994.
Under the scheme, the Board of Directors may, for a period of 10 years, grant
options over Shares with an exercise price of pound sterling 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.
According to the rules of the Senior Management Option Scheme, the
aggregate number of shares which have been or may be issued pursuant to options
granted under the Senior Management Option Scheme and options granted under any
other option scheme of the Group may not exceed 10% of the Company's then
current issued share capital.
Options over a total of 728,000 shares were granted to directors, senior
management and certain principals of ECE Management on February 23, 1995 and
July 19, 1995 under the Senior Management Option Scheme with an exercise price
of pound sterling 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 pound
sterling 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 pound
sterling 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 Options Scheme.
The following table sets forth the number of options in issue:
<TABLE>
<CAPTION>
At 1 Granted At 31 Forfeited At 31
Jan 95 in 1995 Dec 95 in 1996 Dec 96
------ ------- ------ --------- ------
(number in thousands)
<S> <C> <C> <C> <C> <C>
- 1,872 1,872 (45) 1,827
=== ===== ===== ==== =====
</TABLE>
Options over 654,000 Shares were exercisable at December 31, 1995 and 1996.
No compensation expense has been recorded for these options under the
recognition provisions of APB 25 as they were all granted at a price which
approximated the market value at the date of grant.
The following pro-forma summary shows the reported net loss as if the fair
value based accounting method prescribed by SFAS No. 123 had been used to
account for stock-based compensation cost. In the absence of a reported share
price and restrictions on dividend payments, the fair value of the options has
been estimated using a risk-free interest rate based on prevailing interest
rates at the date of the grant of 6.25% and assuming options are exercised on
the seventh anniversary of the date of the grant. The pro-forma compensation
cost for 1995 and 1996 is pound sterling 0.20 million and pound sterling 0.33
million, respectively. The effects of applying SFAS No. 123 may not be
representative of the effects on reported net income/loss for future years.
F-19
<PAGE> 121
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SHARE OPTIONS (continued)
<TABLE>
<CAPTION>
Year ended
December 31
--------------------------
1995 1996
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Pro-forma net loss........................ (27,812) (36,164)
======= =======
</TABLE>
19. SENIOR BANK FACILITY AND RESTRICTION OF NET ASSETS
In August 1996 certain of the Company's subsidiaries entered into a pound
sterling 340 million senior bank loan and guarantee facility. Subsequent to the
year end, the terms of the Senior Bank Facility have been amended to reduce the
aggregate amount available for borrowing to pound sterling 220 million and to
revise certain covenants and borrowing conditions. Because the proceeds to the
Company from the issuance of the 1997 Notes exceeded $175 million the Company
has entered into negotiations under the terms of the Senior Bank Facility to,
among other things, reduce the amount available for borrowing under the
facility to pound sterling 175 million. To date, no funds have been drawn
under the facility.
Indebtedness under the Senior Bank Facility will be incurred and
guaranteed by certain of the Company's subsidiaries and secured by a lien on
their assets. The Senior Bank Facility contains various covenants, including
(i) financial covenants relating to leverage, bank debt loan charges coverage
ratios, cash interest coverage ratios and annualized EBITDA levels; (ii)
requirements that the Group maintain interest rate protection agreements in
relation of a portion of the loans expected to be outstanding for the period
January 1, 1998 to June 30, 2001; and (iii) restrictions on the payment of
dividends and intra-Group debt.
As a result of the above restrictions, certain subsidiaries are subject to
restrictions on their ability to make dividend payments, loans or other
transfers of cash to the Company. Such restrictions, unless amended or waived,
limit the use of any cash generated by these subsidiaries to pay obligations of
the Company. As of December 31, 1996 the conditions which would allow the
subsidiaries to make distributions to the Company were not satisfied and hence
the restrictions applied to the entire net assets of the subsidiaries.
The following condensed financial statements of the Company are provided
in compliance with the requirements of Rule 5-04 and 12-04 of Regulation S-X.
F-20
<PAGE> 122
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
------------------------------------------------
1994 1995 1996 1996
------- ------- -------- --------
(note A)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
OPERATING COSTS AND EXPENSES
Selling, general and administrative...... - - (1,468) $(2,514)
------ ------- ------- --------
OPERATING LOSS........................... - - (1,468) (2,514)
Interest income.......................... 1,258 3,543 40,119 68,695
Interest expense and amortization of
debt discount and expenses............. (3,319) (14,646) (39,100) (66,951)
Foreign exchange (losses)/gains, net..... (1,195) 909 (1,542) (2,640)
Unrealized loss on derivative financial
instruments............................ - - (8,118) (13,900)
Other expenses........................... - (911) - -
------ ------- ------- --------
Loss before income taxes................. (3,256) (11,105) (10,109) (17,310)
Income taxes............................. - - - -
------ ------- ------- --------
NET LOSS................................. (3,256) (11,105) (10,109) $(17,310)
====== ======= ======= ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-21
<PAGE> 123
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------------------
1995 1996 1996
------- ------- -------
(note A)
pound pound
sterling sterling
(in thousands except share data)
<S> <C> <C> <C>
ASSETS
Investments in and advances to subsidiaries........... 317,239 369,838 $633,273
Cash and cash equivalents............................. - 16,032 27,452
Other assets.......................................... 13 115 197
Deferred financing costs (less accumulated
amortization of pound sterling 382 and
pound sterling 1,325 at December 31,
1995 and 1996 respectively)......................... 12,016 11,960 20,479
------- ------- --------
TOTAL ASSETS.......................................... 329,268 397,945 $681,401
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities..................................... 1,635 9,265 15,864
Senior discount notes................................. 307,729 314,418 538,378
Shareholders' equity
Ordinary shares: 70,000,000 authorized;
43,754,175 shares issued at December 31, 1995,
59,138,791 shares issued at December 31, 1996..... 1,094 1,478 2,531
Non-voting deferred shares:
6 shares authorized and issued at December 31,
1995 and 1996..................................... - - -
Additional paid-in-capital.......................... 33,171 97,451 166,865
Unrealized loss on securities....................... - (197) (337)
Accumulated deficit ................................ (14,361) (24,470) (41,900)
------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ 329,268 397,945 $681,401
======= ======= ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-22
<PAGE> 124
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Non-voting
Ordinary shares deferred shares Additional Unrealized Accum- Total
pound pound Paid-in- loss on ulated Shareholders'
Number sterling Number sterling capital securities Deficit Equity
(pound sterling in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1994...... - - - - - - - -
Shares issued and capital
contributions (net of
expenses)...................... 31,315,358 782 6 - 6,505 - - 7,287
Bonus shares issued............. 587,874 15 - - (15) - - -
Net loss........................ - - - - - - (3,256) (3,256)
---------- ----- --- --- ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1994.... 31,903,232 797 6 - 6,490 - (3,256) 4,031
========== ===== === === ====== ==== ======= =======
BALANCE AT JANUARY 1, 1995...... 31,903,232 797 6 - 6,490 - (3,256) 4,031
Shares issued and capital
contributions (net of
expenses)..................... 9,437,428 236 - - 26,742 - - 26,978
Bonus shares issued............. 2,413,515 61 - - (61) - - -
Net loss........................ - - - - - - (11,105) (11,105)
---------- ----- --- --- ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1995.... 43,754,175 1,094 6 - 33,171 - (14,361) 19,904
========== ===== === === ====== ==== ======= =======
BALANCE AT JANUARY 1, 1996..... 43,754,175 1,094 6 - 33,171 - (14,361) 19,904
Shares issued and capital
contributions (net of
expenses).................... 15,384,616 384 - - 64,280 - - 64,664
Unrealized loss on
securities................... - - - - - (197) - (197)
Net loss....................... - - - - - - (10,109) (10,109)
---------- ----- --- --- ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1996... 59,138,791 1,478 6 - 97,451 (197) (24,470) 74,262
========== ===== === === ====== ==== ======= =======
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-23
<PAGE> 125
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
---------------------------------------------
1994 1995 1996 1996
------- -------- ------- -------
(note A)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... (3,256) (11,105) (10,109) $(17,310)
Adjustments to reconcile net loss to net cash
(used in)/provided by operating activities:
Foreign exchange losses/(gains).................. 338 (613) 820 1,404
Accrued interest on advances to subsidiaries..... - (318) (39,581) (67,774)
Amortization of deferred financing costs......... 70 312 943 1,615
Accretion of senior note discount................ 3,248 14,335 38,157 65,336
Accretion of investment income................... (525) 524 - -
Profit on disposition of investments............. - (2,733) - -
Change in operating assets and liabilities:
Change in other assets......................... - (13) (102) (175)
Change in other liabilities.................... 22 1,613 8,380 14,349
------- -------- ------- -------
Net cash (used in)/provided by operating activities (103) 2,002 (1,492) (2,555)
------- -------- ------- -------
Cash flows from investing activities:
Cash invested in marketable securities........... (53,042) (17,445) - -
Proceeds from disposition of investments......... - 73,644 - -
Advances to subsidiaries......................... (5,585) (310,611) (45,306) (77,577)
------- -------- ------- -------
Net cash used in investing activities.............. (58,627) (254,412) (45,306) (77,577)
Cash flows from financing activities:
Proceeds of issue of debt........................ 95,117 194,881 - -
Debt financing costs............................. (4,474) (7,924) (1,637) (2,803)
Issue of shares and capital
contributions (net of expenses)................ 6,562 26,978 64,664 110,724
------- -------- ------- -------
Net cash provided by financing activities.......... 97,205 213,935 63,027 107,921
------- -------- ------- -------
Net increase/(decrease) in cash.................... 38,475 (38,475) 16,229 27,789
Cash and cash equivalents at beginning of year..... - 38,475 - -
Effect of exchange rate changes on cash and
cash equivalents................................. - - (197) (337)
------- ------- ------- -------
Cash and cash equivalents at end of year........... 38,475 - 16,032 $27,452
======= ======== ======= =======
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-24
<PAGE> 126
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
A. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
All amounts herein are shown in Pounds Sterling ("pound sterling") and
for the year 1996 also are presented in US dollars, the latter being unaudited
and presented solely for the convenience of the reader, at the rate of pound
sterling 1 = $1.7123, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 1996.
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.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
FOREIGN CURRENCIES - The primary economic environment in which the Group
operates is the United Kingdom and hence its reporting currency is the United
Kingdom Pound Sterling (pound sterling). Transactions in foreign currencies
are recorded using the rate of exchange in effect on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated using the rate of exchange in effect on the balance sheet date
and gains or losses on translation are included in the statement of operations.
Foreign exchange forward contracts which do not hedge firm commitments are
accounted at market value with reported gains and losses recorded in the
statement of operations.
SENIOR DISCOUNT NOTES - The debt discount is amortized to the statement of
operations on a constant yield to maturity basis.
DEFERRED FINANCING COSTS - Costs incurred relating to the issue of debt
are shown as an asset on the balance sheet and are amortized over the term of
the debt as an adjustment of yield.
B. ADVANCES TO SUBSIDIARIES
The advances to subsidiaries consist of a dollar denominated loan of
approximately $491.7 million plus accrued interest and sterling denominated
loans.
The dollar denominated loan bears interest at a rate of 12.25% per annum.
The sterling denominated loans bear interest at a rate of LIBOR plus 2% per
annum.
The interest income on these loans in 1995 and 1996 was pound
sterling 318,000 and pound sterling 39.6 million respectively.
C. COMMITMENTS AND CONTINGENCIES
LIQUIDITY
To the extent that the Group is unable to utilize fully the Senior Bank
Facility, the amount required to complete the Group's planned build out exceeds
its estimates or the annualized cash flow of certain subsidiaries does not meet
expectations, the Group will require additional debt or other financing in
order to meet its funding requirements.
F-25
<PAGE> 127
[THIS PAGE INTENTIONALLY LEFT BLANK]
100
<PAGE> 128
- ------------------------------------------
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 NOT BE RELIED UPON
AS HAVING BEEN 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 HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
Service of Process and Enforcement
of Liabilities
Prospectus Summary
Risk Factors
Exchange Rates
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 the Senior Notes
The Exchange Offer
Validity of Senior Notes
Plan of Distribution
Certain Federal Income Tax
Considerations
Taxation
Experts
Glossary
Available Information
Index to Consolidated
Financial Statements F-1
</TABLE>
- ------------------------------------------
- ------------------------------------------
DIAMOND CABLE
COMMUNICATIONS PLC
10 3/4% SENIOR DISCOUNT
NOTES DUE FEBRUARY 15, 2007
TO BE ISSUED
IN EXCHANGE FOR
10 3/4% SENIOR DISCOUNT
NOTES DUE FEBRUARY 15, 2007
- ------------------------------------------
<PAGE> 129
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. 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.
(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."
i
<PAGE> 130
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.
ii
<PAGE> 131
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following is a list of exhibits to this Registration Statement:
*3.1 Memorandum and Articles of Association of Diamond Cable
Communications Plc.
4.1 Indenture dated as of February 27, 1997 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
4.2 Senior Notes Depositary Agreement, February 27, 1997 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 Loan Facility Agreement, dated February 13, 1997, among
Diamond Cable Communications (UK) Ltd, Jewel Holdings Limited,
Natwest Markets and National Westminster Bank plc, filed as an
exhibit to the Company's 1996 Annual Report on Form 10-K, File
No. 33-83740, and incorporated by reference herein.
*10.6 Service Contract, dated as of April 1, 1996, between Diamond
Cable (Nottingham) Ltd. and Stephen Rowles, filed as an
exhibit to the Company's 1996 Annual Report on Form 10-K, File
No. 33-83740, and incorporated by reference herein.
*10.7 Service Agreement, dated July 1, 1995, between Diamond Cable
Communications Plc and Nicholas Millard, filed as an
exhibit to the Company's 1996 Annual Report on Form 10-K, File
No. 33-83740, and incorporated by reference herein.
*10.8 Senior Management Option Scheme, adopted on October 29, 1994, filed
as an exhibit to the Company's 1994 Annual Report on Form 10-K,
File No. 33-83740, and incorporated by reference herein.
*10.9 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).
*10.10 Form of Indenture, dated as of December 15, 1995, 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. 33-98374; Exhibit No. 4.1)).
*10.11 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 (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-98374;
Exhibit No. 4.2)).
*10.12 Indenture, dated as of September 29, 1994 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
*10.13 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.
*10.14 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.
99.1 Form of Letter of Transmittal
**99.2 Form of Notice of Guaranteed Delivery
**99.3 Form of Letters to DTC Participants
**99.4 Form of Letter to Clients and Form of Instruction to Book-Entry
Transfer Participant
- ---------------
* Previously filed.
** To be filed by amendment.
(b) Financial Statement Schedules
iii
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Diamond Cable Communications Plc, certifies that it has duly caused
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in London, England, on April 15, 1997.
DIAMOND CABLE COMMUNICATIONS PLC
By: /s/ Robert T. Goad
-------------------
Name: Robert T. Goad
Title: Chief Executive Officer
iv
<PAGE> 133
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert T. Goad, Nicholas Millard, Muneer Satter
and J.A. Duncan Craig (with full power to each of them to act alone), his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that
such attorney may deem necessary or advisable under the Securities Act of 1933
(the "Act"), and any rules, regulations and requirements of the Commission in
connection with the registration under the Act of the 10 3/4% Senior Discount
Notes due February 15, 2007 of the Issuer, and any securities or Blue Sky law
of any of the states of the United States of America in order to effect the
registration or qualification (or exemption therefrom) of the said securities
for issue, offer, sale or trade under the Blue Sky or other securities laws of
any of such states and in connection therewith to execute, acknowledge, verify,
deliver, file and cause to be published applications, reports, consents to
service of process, appointments of attorneys to receive service of process and
other papers and instruments which may be required under such laws, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign his name in his capacity as Director, Executive Officer
or Authorized U.S. Representative of the Issuer, as the case may be, this
Registration Statement and/or such other form or forms as may be appropriate to
be filed with the Commission or under or in connection with any Blue Sky law or
other securities laws of any state of the United States of America or with such
other regulatory bodies and agencies as any of them may deem appropriate in
respect of the 10 3/4% Senior Discount Notes due February 15, 2007, to any and
all amendments, including post-effective amendments, to this Registration
Statement and to any and all instruments and documents filed as part of or in
connection with this Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the date indicated above.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Robert T. Goad
- ------------------------------ Director, Chief Executive Officer and
Robert T. Goad Authorized Representative in the
United States
/s/ Richard A. Friedman
- ------------------------------ Director
Richard A. Friedman
- ------------------------------ Director
Gary L. Davis
/s/ John L. McDonald
- ------------------------------ Director
John L. McDonald
/s/ Muneer A. Satter
- ------------------------------ Director
Muneer A. Satter
/s/ John L. Thornton
- ------------------------------ Director
John L. Thornton
______________________________ Director
Thomas Nilsson
______________________________ Director
Lord Francis Pym
/s/ Nicholas Millard
- ------------------------------ Chief Financial Officer
Nicholas Millard
/s/ J.A. Duncan Craig
- ------------------------------ Chief Accounting Officer
J.A. Duncan Craig
</TABLE>
v
<PAGE> 1
Exhibit 4.1
================================================================================
DIAMOND CABLE COMMUNICATIONS PLC
Company
TO
THE BANK OF NEW YORK
Trustee
----------
INDENTURE
Dated as of February 27, 1997
----------
$420,500,000
10 3/4% Senior Discount Notes due February 15, 2007
================================================================================
<PAGE> 2
Diamond Cable Communications Plc
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF FEBRUARY 27, 1997
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- --------------- ---------
<S> <C>
Section 310(a)(1) ................................................ 609
(a)(2) ................................................ 609
(a)(3) ................................................ Not Applicable
(a)(4) ................................................ Not Applicable
(b) ................................................... 608
610
Section 311(a) ................................................... 613
(b) ................................................... 613
Section 312(a) ................................................... 701
702(a)
(b) ................................................... 702(b)
(c) ................................................... 702(c)
Section 313(a) ................................................... 703(a)
(b) ................................................... 703(a)
(c) ................................................... 703(a)
(d) ................................................... 703(b)
Section 314(a) ................................................... 704
(b) ................................................... Not Applicable
(c)(1) ................................................ 102
(c)(2) ................................................ 102
(c)(3) ................................................ Not Applicable
(d) ................................................... Not Applicable
(e) ................................................... 102
Section 315(a) ................................................... 601
(b) ................................................... 602
(c) ................................................... 601
(d) ................................................... 601
(e) ................................................... 514
Section 316(a) ................................................... 101
(a)(1)(A) ............................................. 502
512
(a)(1)(B) ............................................. 513
(a)(2) ................................................ Not Applicable
(b) ................................................... 508
Section 317(a)(1) ................................................ 503
(a)(2) ................................................ 504
(b) ................................................... 1003
Section 318(a) ................................................... 107
</TABLE>
- --------------
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-i-
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PARTIES ................................................................... 1
Recitals of the Company ................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions:
Accreted Value ............................................... 2
Act .......................................................... 2
Additional Amounts ........................................... 2
Affiliate .................................................... 2
Annualized Consolidated Debt to Cash Flow Ratio .............. 2
Applicable Procedures ........................................ 2
Asset Acquisition ............................................ 3
Asset Disposition ............................................ 3
Attributable Value ........................................... 3
Authenticating Agent ......................................... 3
Board of Directors ........................................... 3
Board Resolution ............................................. 3
Business Day ................................................. 4
Cable Acquisition ............................................ 4
Cable Business ............................................... 4
Capital Lease Obligation ..................................... 4
Cash Equivalent .............................................. 4
Cash Interest Date ........................................... 5
Change of Control ............................................ 5
Commission ................................................... 5
Common Equity ................................................ 5
Company ...................................................... 5
Company Request; Company Order ............................... 5
Consolidated Income Tax Expense .............................. 5
Consolidated Interest Expense ................................ 5
Consolidated Net Income ...................................... 5
Consolidated Operating Cash Flow ............................. 6
Consolidated Subsidiaries .................................... 6
Consolidated Tangible Assets ................................. 6
Corporate Trust Office ....................................... 6
</TABLE>
- ----------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Corporation ................................................. 6
Covenant defeasance ......................................... 6
Currency Hedging Agreements ................................. 7
Debt ........................................................ 7
Default Amount .............................................. 7
Defaulted Interest .......................................... 7
defeasance .................................................. 7
Definitive Registered Security .............................. 7
Director .................................................... 7
Disqualified Equity ......................................... 7
Equity Homes ................................................ 7
Equity Securities ........................................... 8
Event of Default ............................................ 7
Excess Proceeds ............................................. 8
Exchange Act ................................................ 8
Exchange Offer .............................................. 8
Exchange Security ........................................... 8
Expiration Date ............................................. 8
Global Security ............................................. 8
Guarantee ................................................... 8
Holder ...................................................... 8
Incur ....................................................... 8
Indenture ................................................... 9
Initial Purchasers .......................................... 9
Initial Regulation S Securities ............................. 9
Insolvency Law .............................................. 9
Interest Payment Date ....................................... 9
Interest Rate Protection Obligation ......................... 9
Investment .................................................. 9
Lien ........................................................ 9
Material License ............................................ 9
Maturity .................................................... 10
Net Available Proceeds ...................................... 10
Non-Recourse Debt ........................................... 10
Non-Restricted Subsidiary ................................... 10
Offer ....................................................... 11
Offer to Purchase ........................................... 11
Officers' Certificate ....................................... 13
Opinion of Counsel .......................................... 13
Original Security
Outstanding ................................................. 13
pari passu .................................................. 14
Paying Agent ................................................ 14
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Permitted Holder ............................................ 14
Person ...................................................... 14
Predecessor Security ........................................ 14
Purchase Agreement .......................................... 14
Purchase Amount ............................................. 14
Purchase Date ............................................... 14
Purchase Price .............................................. 14
Redemption Date ............................................. 14
Redemption Price ............................................ 14
Registration Rights Agreement ............................... 15
Regular Record Date ......................................... 15
Regulation S ................................................ 15
Regulation S Certificate .................................... 15
Regulation S Global Security ................................ 15
Regulation S Legend ......................................... 15
Regulation S Securities ..................................... 15
Related Person .............................................. 15
Replacement Asset ........................................... 15
Resale Registration Statement ............................... 15
Restricted Global Security .................................. 15
Restricted Group ............................................ 15
Restricted Payments ......................................... 15
Restricted Period ........................................... 15
Restricted Security ......................................... 15
Restricted Securities Certificate ........................... 15
Restricted Securities Legend ................................ 16
Restricted Subsidiary ....................................... 16
Rule 144A ................................................... 16
Rule 144A Securities ........................................ 16
Sale and Leaseback Transaction .............................. 16
SEC Registered Security ..................................... 16
Securities .................................................. 16
Security Register; Security Registrar ....................... 16
Senior Bank Facility ........................................ 16
Significant Subsidiary ...................................... 16
Special Interest ............................................ 16
Special Record Date ......................................... 17
Stated Maturity ............................................. 17
Step-Down Date .............................................. 17
Step-Up ..................................................... 17
Subsidiary .................................................. 17
Successor Securities ........................................ 17
Taxes ....................................................... 17
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
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Total Consolidated Debt ..................................... 17
Trade Obligation ............................................ 17
Trust Indenture Act ......................................... 18
Trustee ..................................................... 18
U.S. Government Obligations ................................. 18
Voting Interest ............................................. 18
Weighted Average Life ....................................... 18
Wholly Owned ................................................ 18
SECTION 102. Compliance Certificates and Opinions ........................ 18
SECTION 103. Form of Documents Delivered
to Trustee ................................................ 19
SECTION 104. Acts of Holders; Record Date ................................ 20
SECTION 105. Notices, Etc., to Trustee and Company ....................... 21
SECTION 106. Notice to Holders; Waiver ................................... 21
SECTION 107. Conflict with Trust Indenture Act ........................... 22
SECTION 108. Effect of Headings and
Table of Contents ......................................... 22
SECTION 109. Successors and Assigns ...................................... 22
SECTION 110. Separability Clause ......................................... 22
SECTION 111. Benefits of Indenture ....................................... 22
SECTION 112. Governing Law ............................................... 23
SECTION 113. Legal Holidays .............................................. 23
SECTION 114. Agent for Service; Submission to
Jurisdiction; Waiver of Immunities ........................ 23
SECTION 115. Conversion of Currency ...................................... 24
SECTION 116. Currency Equivalent ......................................... 25
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally ............................................. 25
SECTION 202. Form of Face of Global Security ............................. 26
SECTION 203. Form of Face of Definitive Registered Security .............. 30
SECTION 204. Form of Reverse of Security ................................. 33
SECTION 205. Form of Trustee's Certificate of Authentication ............. 41
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ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms ............................................. 41
SECTION 302. Denominations ............................................... 42
SECTION 303. Execution, Authentication, Delivery and Dating .............. 42
SECTION 304. Temporary Securities ........................................ 43
SECTION 305. Transfer and Exchange ....................................... 43
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities ............ 49
SECTION 307. Payment of Interest; Interest Rights Preserved .............. 50
SECTION 308. Persons Deemed Owners ....................................... 51
SECTION 309. Cancellation ................................................ 51
SECTION 310. Computation of Interest ..................................... 51
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture ..................... 52
SECTION 402. Application of Trust Money .................................. 53
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default ........................................... 53
SECTION 502. Acceleration of Maturity; Rescission and Annulment .......... 55
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee ................................................... 57
SECTION 504. Trustee May File Proofs of Claim ............................ 57
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities ................................................ 58
SECTION 506. Application of Money Collected .............................. 58
SECTION 507. Limitation on Suits ......................................... 59
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest ...................................... 59
SECTION 509. Restoration of Rights and Remedies .......................... 60
SECTION 510. Rights and Remedies Cumulative .............................. 60
SECTION 511. Delay or Omission Not Waiver ................................ 60
SECTION 512. Control by Holders .......................................... 60
SECTION 513. Waiver of Past Defaults ..................................... 61
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SECTION 514. Undertaking for Costs ....................................... 61
SECTION 515. Waiver of Stay or Extension Laws ............................ 61
SECTION 516. No Personal Liability of Directors,
Employees and Shareholders ................................ 62
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities ......................... 62
SECTION 602. Notice of Defaults .......................................... 62
SECTION 603. Certain Rights of Trustee ................................... 63
SECTION 604. Not Responsible for Recitals or Issuance of Securities ...... 64
SECTION 605. May Hold Securities ......................................... 64
SECTION 606. Money Held in Trust ......................................... 64
SECTION 607. Compensation and Reimbursement .............................. 64
SECTION 608. Disqualification; Conflicting Interests ..................... 65
SECTION 609. Corporate Trustee Required; Eligibility ..................... 65
SECTION 610. Resignation and Removal; Appointment of Successor ........... 65
SECTION 611. Acceptance of Appointment by Successor ...................... 67
SECTION 612. Merger, Conversion, Consolidation
or Succession to Business ................................. 67
SECTION 613. Preferential Collection of Claims Against Company ........... 67
SECTION 614. Appointment of Authenticating Agent ......................... 67
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses
of Holders ................................................ 69
SECTION 702. Preservation of Information; Communications to Holders ...... 69
SECTION 703. Reports by Trustee .......................................... 70
SECTION 704. Reports by Company .......................................... 70
SECTION 705. Registration Rights ......................................... 70
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc. Only on Certain Terms ........ 71
SECTION 802. Successor Substituted ...................................... 72
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders ......... 73
SECTION 902. Supplemental Indentures with Consent of Holders ............ 74
SECTION 903. Execution of Supplemental Indentures ....................... 75
SECTION 904. Effect of Supplemental Indentures .......................... 75
SECTION 905. Conformity with Trust Indenture Act ........................ 75
SECTION 906. Reference in Securities to Supplemental Indentures ......... 75
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest ................. 75
SECTION 1002. Maintenance of Office or Agency ............................ 76
SECTION 1003. Money for Security Payments to be Held in Trust ............ 76
SECTION 1004. Existence .................................................. 77
SECTION 1005. Maintenance of Properties .................................. 77
SECTION 1006. Payment of Taxes and Other Claims .......................... 78
SECTION 1007. Maintenance of Insurance ................................... 78
SECTION 1008. Limitation on Consolidated Debt
and Disqualified Equity .................................. 80
SECTION 1009. Limitation on Restricted Payments .......................... 80
SECTION 1010. Limitations Concerning Distributions by
and Transfers to Restricted Group ........................ 82
SECTION 1011. Limitation on Liens ........................................ 83
SECTION 1012. Limitation on Sale and Leaseback Transactions .............. 84
SECTION 1013. Limitation on Transactions with
Affiliates and Related Persons ........................... 85
SECTION 1014. Limitation on Certain Asset Dispositions ................... 85
SECTION 1015. Change of Control .......................................... 87
SECTION 1016. Additional Amounts ......................................... 89
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SECTION 1017. Provision of Financial Information ......................... 90
SECTION 1018. Statement by Officers as to Default; Compliance
Certificates ............................................. 90
SECTION 1019. Waiver of Certain Covenants ................................ 91
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption ........................................ 91
SECTION 1102. Applicability of Article ................................... 92
SECTION 1103. Election to Redeem; Notice to Trustee ...................... 92
SECTION 1104. Selection by Trustee of Securities to Be Redeemed .......... 92
SECTION 1105. Notice of Redemption ....................................... 92
SECTION 1106. Deposit of Redemption Price ................................ 93
SECTION 1107. Securities Payable on Redemption Date ...................... 93
SECTION 1108. Securities Redeemed in Part ................................ 94
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Defeasance or Covenant
Defeasance ............................................... 94
SECTION 1202. Defeasance and Discharge ................................... 94
SECTION 1203. Covenant Defeasance ........................................ 95
SECTION 1204. Conditions to Defeasance or Covenant Defeasance ............ 95
SECTION 1205. Deposited Money and U.S. Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions ........................... 97
SECTION 1206. Reinstatement .............................................. 98
TESTIMONIUM ..............................................................
SIGNATURES ...............................................................
ACKNOWLEDGMENTS ..........................................................
</TABLE>
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INDENTURE, dated as of February 27, 1997 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, NG2 3GG, 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 duly authorized the creation of an issue of its 10 3/4%
Senior Discount Notes due February 15, 2007 (the "Securities") of substantially
the tenor and amount hereinafter set forth, and to provide therefor the Company
has duly authorized the execution and delivery of this Indenture. The Securities
may consist of either or both of Original Securities or Exchange Securities,
each as defined herein. The Original Securities and the Exchange Securities
shall rank pari passu.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
<PAGE> 12
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with United States generally
accepted accounting principles (whether or not such is indicated
herein), and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles as are generally accepted as of the date of the Indenture;
(4) unless otherwise specifically set forth herein, all
calculations or determinations of a Person shall be performed or made
on a consolidated basis in accordance with generally accepted
accounting principles but shall not include the accounts of
NonRestricted Subsidiaries, except to the extent of dividends and
distributions actually paid to the Company or one of the Restricted
Subsidiaries; and
(5) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"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 Security
and (b) the portion of the excess of the principal amount of each Security 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 August 15 and February 15, at the rate of 10
3/4% per annum from the date of issuance of the Security through the date of
determination computed on the basis of a 360-day year of twelve 30-day months.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Amounts" has the meaning specified in Section 1016.
"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.
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"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of any depository for such Security, Euroclear and Cedel,
in each case to the extent applicable to such transaction and as in effect from
time to time.
"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 any
member of the Restricted Group in any other Person, or any acquisition or
purchase of equity interests in any other Person by any member of the Restricted
Group, in either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged with or into any member of the Restricted Group or
(ii) any acquisition by any member of the Restricted Group 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 (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).
"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 250,000 pounds sterling 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.
"Authenticating Agent" means any Person authorized by the Trustee to
act on behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company
or any duly authorized committee of that board.
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<PAGE> 14
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or The City of London are authorized or obligated by law or executive order to
close.
"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 Section 1009, 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 any member of the Restricted
Group 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.
"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
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of December 31, 1995. "Approved Jurisdiction" means the United States of
America, Canada, the United Kingdom and any other member nation of the
Organization for 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.
"Cash Interest Date" means February 15, 2002.
"Change of Control" has the meaning specified in Section 1015.
"Commission" means the United States Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act,
or, if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Equity" of any Person means Equity Securities of such Person
that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Equity Securities of any
other class of such Person.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter "Company"
shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chief Executive Officer, its Managing
Director or a Director, and by its Director of Finance, its Company Secretary or
an Assistant Company Secretary, and delivered to the Trustee.
"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 deduction of 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.
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"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 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 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.
"Corporate Trust Office" means the principal office of the Trustee in
the Borough of Manhattan, The City of New York, New York, at which at any
particular time its corporate trust business shall be principally administered.
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"Corporation" means a corporation, association, company, joint-stock
company, partnership or business trust.
"Covenant defeasance" has the meaning specified in Section 1203.
"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
payable 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 shall be excluded from the definition of Debt.
"Default Amount" has the meaning specified in Section 502.
"Defaulted Interest" has the meaning specified in Section 307.
"defeasance" has the meaning specified in Section 1202.
"Definitive Registered Security" means any Security substantially in
the form set forth in Sections 203 and 204 hereof issued in accordance with
Section 305.
"Director", when used with respect to the Company, means any executive
officer who is a director, whether or not designated by a number or a word or
words added before or after the title "director".
"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,
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<PAGE> 18
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 Securities.
"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 and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity or capital interests of such Person, including, without limitation,
partnership interests.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" has the meaning specified in Section 1014.
"Exchange Act" refers to the United States Securities Exchange Act of
1934 as it may be amended and any successor act thereto.
"Exchange Offer" has the meaning specified in the form of the face of
either the Global Security set forth in Section 202 or the Definitive Registered
Security set forth in Section 203.
"Exchange Security" means any security issued by the Company (i)
pursuant to the Exchange Offer, (ii) upon the registration of transfer of a
Security registered for resale on a Resale Registration Statement or (iii) upon
the transfer of, or in exchange for, Securities which are Exchange Securities.
"Expiration Date" has the meaning specified in the definition of Offer
to Purchase.
"Global Security" means the Security evidencing all or a part of all
the securities substantially in the form set forth in Sections 202 and 204
hereof.
"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.
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"Holder" means (a) in the case of any Definitive Registered Security,
the Person in whose name such Definitive Registered Security is registered in
the Security Register and (b) in the case of any Global Security, the bearer
thereof (the "global bearer").
"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.
"Indenture" means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means Goldman, Sachs & Co. and CIBC Wood Gundy
Securities Corp.
"Initial Regulation S Securities" means the Securities sold by the
Initial Purchasers in the initial offering contemplated by the Purchase
Agreement in reliance on Regulation S.
"Insolvency Law" means any United Kingdom, United States (Federal or
State), or other applicable bankruptcy, insolvency, reorganization or similar
law in any applicable jurisdiction.
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Securities.
"Interest Rate Protection Obligation" of any Person means any interest
rate swap agreement or other similar 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 Increase 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
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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.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or 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 Common Equity of the Person owning such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must by the terms of such Debt or Lien or in order to obtain a necessary
consent to such Asset Disposition or by applicable law be repaid out of the
proceeds from such Asset Disposition, 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 those 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 a 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 Section 1009), 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
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Restricted Payment permitted by Section 1009) 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 or less, then 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 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 Trustee has received a
copy of a Board Resolution to such effect.
"Offer" has the meaning specified in the definition of Offer to
Purchase.
"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
provided to the Trustee by such Holder or appearing in the Security Register on
the date of the Offer offering to purchase up to the principal amount of
Securities specified in such Offer at the purchase price specified in such Offer
(as determined pursuant to this 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 Securities within five Business Days after the Expiration Date. The Company
shall notify the Trustee in writing 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 pursuant to Section 1017 (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 Securities pursuant to
the Offer to Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer
to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
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(3) the aggregate principal amount at maturity of the
Outstanding Securities offered to be purchased by the Company pursuant
to the Offer to Purchase (including, if less than all Outstanding
Securities, 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 at maturity of Securities accepted
for payment (as specified pursuant to this Indenture) (the "Purchase
Price");
(5) that the Holder may tender all or any portion of the
Securities registered in the name of such Holder and that any portion
of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount;
(6) the place or places where Securities are to be surrendered
for tender pursuant to the Offer to Purchase;
(7) that interest on any Security 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 Security 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 Security pursuant to
the Offer to Purchase will be required to surrender such Security at
the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Security 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 Securities 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 Security the Holder
tendered, the certificate number of the Security the Holder tendered
and a statement that such Holder is withdrawing all or a portion of his
tender;
(11) that (a) if Securities 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 Securities and (b) if Securities 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
Securities 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 Securities in denominations of $1,000 or
integral multiples thereof shall be purchased); and
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(12) that in case of any Holder whose Security is purchased
only in part, the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service
charge, a new Security or Securities 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 Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chief
Executive Officer, the Managing Director or a Director, and by the Director of
Finance, the Secretary or an Assistant Secretary, of the Company, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
"Original Securities" means Securities that are not Exchange
Securities.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if
such Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor
satisfactory to the Trustee has been made; and
(iii) Securities which have been paid pursuant to Section 306
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands such Securities are valid
obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the
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Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"pari passu", when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right of payment to the same Debt of such
Person as is the other and is so subordinate to the same extent and (b) is not
subordinate in right of payment to the other or to any Debt of such Person as to
which the other is not so subordinate.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"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 Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Purchase Agreement" means the Purchase Agreement, dated as of February
27, 1997, between the Company and the Initial Purchasers, as such agreement may
be amended from time to time.
"Purchase Amount" has the meaning specified in the definition of Offer
to Purchase.
"Purchase Date" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Price" has the meaning specified in the definition of Offer
to Purchase.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
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"Redemption Price", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement of even date herewith between the Company and the Purchasers as
defined therein.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the February 1 or August 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act (or any
successor provision), as it may be amended from time to time.
"Regulation S Certificate" means a certificate substantially in the
form set forth in Annex A.
"Regulation S Global Security" has the meaning specified in Section
201.
"Regulation S Legend" means a legend substantially in the form of the
legend required in the forms of face of Security set forth in Section 202 and
Section 203 to be placed upon a Regulation S Global Security.
"Regulation S Securities" means all Securities required pursuant to
Section 305(c) to bear a Regulation S Legend. Such term includes the Regulation
S Global Security.
"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.
"Replacement Asset" has the meaning specified in Section 1014.
"Resale Registration Statement" shall mean a registration statement
under the Securities Act registering the Securities for resale pursuant to the
terms of the Registration Rights Agreement.
"Responsible Officer" means, with respect to the Trustee, any vice
president, any assistant vice president, the secretary, any assistant secretary,
any assistant treasurer, any trust officer or assistant trust officer, employed
by the Trustee's corporate trust department or any other officer of the Trustee
customarily performing functions similar to those performed by any of the
above-designated officers and also means, with respect to a particular corporate
trust or agency matter, any other officer to whom such matter is referred
because of his or her knowledge and familiarity with the particular subject.
"Restricted Group" means the Company and the Restricted Subsidiaries.
"Restricted Payments" has the meaning specified in Section 1009.
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"Restricted Period" means the period of 41 consecutive days beginning
on and including the later of (i) the day on which Securities are first offered
to persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (ii) the day on which the closing of the offering of Securities
pursuant to the Purchase Agreement occurs.
"Restricted Security" means all Securities required pursuant to Section
305(c) to bear a Restricted Securities Legend. Such term includes the Restricted
Global Security.
"Restricted Securities Certificate" means a certificate substantially
in the form set forth in Annex B.
"Restricted Securities Legend" means a legend substantially in the form
of the legend required in the forms of face of Securities set forth in Section
202 and Section 203 to be placed upon a Restricted Security.
"Restricted Subsidiary" of any person means any Subsidiary of such
Person other than a Non-Restricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Securities" means all Securities initially distributed in
connection with the offering of the Securities by the Purchasers in reliance
upon Rule 144A.
"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.
"SEC Registered Securities" means the Exchange Securities and all other
Securities sold or otherwise disposed of pursuant to an effective registration
statement under the Securities Act, together with their respective Successor
Securities.
"Securities" means securities designated in the first paragraph of the
RECITALS OF THE COMPANY.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Senior Bank Facility" means the senior bank loan and guarantee
facility, dated August 5, 1996, between Jewel Holdings Limited, NatWest Capital
Markets and the other parties
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thereto, as such facility has been or may be amended, modified, supplemented,
replaced, renewed, extended or restated from time to time (including, for the
avoidance of doubt, through the supplemental agreement dated February 13, 1997).
"Significant Subsidiary" means a Subsidiary that qualifies as a
"significant subsidiary" under Rule 1-01 of the Commission's Regulation S-X.
"Special Interest" has the meaning set forth in the form of face of the
Global Security contained in Section 202 or the Definitive Registered Security
in Section 203. Unless the context otherwise requires, references herein to
"interest" on the Securities shall include Special Interest.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Step-Down Date" has the meaning set forth in the form of face of the
Global Security contained in Section 202 or the Definitive Registered Security
in Section 203.
"Step-Up" has the meaning set forth in the form of face of the Global
Security contained in Section 202 or the Definitive Registered Security in
Section 203.
"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.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that evidenced
by, such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.
"Taxes" has the meaning specified in Section 1016.
"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" of a Person means:
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(i) obligations of such Person 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 or exchange issued in respect of
any such purchase;
(ii) obligations of such Person 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 of such Person in respect of any Guarantee of
any obligation of the type specified in paragraph (i) or (ii) above,
except to the extent that such obligation is treated as indebtedness
under generally accepted accounting principles.
"Trust Indenture Act" means the United States Trust Indenture Act of
1939 as in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after such
date, "Trust Indenture Act" means, to the extent required by any such amendment,
the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"U.S. Government Obligations" has the meaning specified in Section
1204.
"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 Subsidiary (or Restricted
Subsidiaries) of such Person or by such Person and one or more Wholly Owned
Subsidiary (or Restricted Subsidiaries) of such Person.
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SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
Counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishings
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters
and one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or
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officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Date.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Section 601) conclusive in favor of the Trustee and
the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstance permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders of Definitive Registered Securities entitled to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action, or to vote on any action, authorized or permitted to be given or taken
by Holders. If not set by the Company prior to the first solicitation of a
Holder made by any Person in respect of any such action, or, in the case of any
such vote, prior to such vote, the record date for any such action or vote shall
be the 30th day (or, if later, the date of the most recent list of Holders
required to be provided pursuant to Section 701) prior to such first
solicitation or vote, as the case may be. With regard to any record date, only
the Holders of Definitive Registered Securities on such date (or their duly
designated proxies) shall be entitled to give or take, or vote on, the relevant
action.
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(d) The ownership of Definitive Registered Securities shall be proved
by the Security Register.
(e) In the case of the Global Security, its Holder shall be entitled to
give or take, or vote on, any relevant action with respect to all or only a
portion of the principal amount at maturity represented by the Global Security
as of the record date fixed for Definitive Registered Securities, as indicated
by Schedule A to the Global Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to give
or take any action hereunder with regard to any particular Security may do so
with regard to all or any part of the principal amount at maturity of such
Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any different part of such
principal amount.
(g) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporation Trust Trustee Administration, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its
registered office specified in the first paragraph of this instrument
or at any other address previously furnished in writing to the Trustee
by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the
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Security Register, or in the case of any Global Security, at the address
provided to the Trustee by the Holder thereof, not later than the latest date
(if any), and not earlier than the earliest date (if any), prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Any request, demand, authorization, directive, notice, consent or
waiver required or permitted under this Indenture shall be in the English
language.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act that is required under such Act to be part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
Until such time as this Indenture shall be qualified under the Trust Indenture
Act, this Indenture, the Company and the Trustee shall as a matter of contract
be deemed for all purposes hereof to be subject to and governed by the Trust
Indenture Act to the same extent as would be the case if this Indenture were so
qualified on the date hereof.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
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SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Holders of Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Purchase
Date or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date or Purchase
Date, or at the Stated Maturity, provided that no additional interest shall
accrue for the period from and after such Interest Payment Date, Redemption Date
or Purchase Date or Stated Maturity, as the case may be, on account of such
delay.
SECTION 114. Agent for Service; Submission to Jurisdiction; Waiver of
Immunities.
By the execution and delivery of this Indenture, the Company (i)
acknowledges that it has, by separate written instrument, irrevocably designated
and appointed CT Corporation Systems as its authorized agent upon which process
may be serviced in any suit or proceeding arising out of or relating to the
Securities or this Indenture that may be instituted in any Federal or State
court in the Borough of Manhattan, The City of New York or brought under Federal
or State securities laws or brought by the Trustee in its capacity as a trustee
hereunder, and acknowledges that CT Corporation Systems has accepted such
designation, (ii) submits to the jurisdiction of any such court in any such suit
or proceeding and waives any objection which it may now or hereafter have to the
laying of venue of any such proceeding or any claim of inconvenient forum, and
(iii) agrees that service of process upon CT Corporation Systems and written
notice of said service to it (mailed or delivered to its Secretary at its
principal office at the address specified in the first paragraph of this
instrument or at any other address previously furnished in writing to the
Trustee) shall be deemed in every respect effective service of
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<PAGE> 34
process upon it in any such suit or proceeding. The Company further agrees to
take any and all action, including the execution and filing of any and all such
documents and instruments, as may be necessary to continue such designation and
appointment of CT Corporation Systems in full force and effect so long as this
Indenture shall be in full force and effect and so long as any of the Securities
shall be outstanding.
To the extent that the Company has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, hereby
irrevocably waives such immunity in respect of its respective obligations under
this Indenture and the Securities to the fullest extent permitted by law.
SECTION 115. Conversion of Currency.
The Company covenants and agrees that the following provisions shall
apply to conversion of currency in the case of the Securities and this
Indenture:
(a) (i) If for the purpose of obtaining judgment in, or
enforcing the judgment of, any court in any country, it becomes
necessary to convert into any other currency (the "judgment currency")
an amount due in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public of
public and private debts ("U.S. Dollars"), then the conversion shall be
made at the rate of exchange prevailing on the Business Day before the
day on which the judgment is given or the order of enforcement is made,
as the case may be (unless a court shall otherwise determine).
(ii) If there is a change in the rate of exchange prevailing
between the Business Day before the day on which the judgment is given
or an order of enforcement is made, as the case may be (or such other
date as a court shall determine), and the date of receipt of the amount
due, the Company will pay such additional (or, as the case may be, such
lesser) amount, if any, as may be necessary so that the amount paid in
the judgment currency when converted at the rate of exchange prevailing
on the date of receipt will produce the amount in U.S. Dollars
originally due.
(b) In the event of the winding-up of the Company at any time
while any amount or damages owing under the Securities and this
Indenture, or any judgment or order rendered in respect thereof, shall
remain outstanding, the Company shall indemnify and hold the Holders
and the Trustees harmless against any deficiency arising or resulting
from any variation in rates of exchange between (1) the date as of
which the equivalent of the amount in U.S. Dollars due or contingently
due under the Securities and this Indenture (other than under this
Subsection (b)) is calculated for the purposes of such winding-up and
(2) the final date for the filing of proofs of claim in such
winding-up. For the purpose of this Subsection (b), the final date for
the filing of proofs of claim in the winding-up of the Company, shall
be the date fixed by the liquidator or otherwise in accordance with the
relevant provisions of applicable law as
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being the latest practicable date as at which liabilities of the
Company may be ascertained for such winding-up prior to payment by the
liquidator or otherwise in respect thereto.
(c) The term "rate(s) of exchange" shall mean the rate of
exchange quoted by The Bank of New York at its central foreign exchange
desk in its head office in New York, New York at 12:00 noon (New York
City time) for purchases of U.S. Dollars with the judgment currency
other than U.S. Dollars referred to in Subsections (a) and (b) above
and includes any premiums and costs of exchange payable.
SECTION 116. Currency Equivalent.
Except as provided in Section 115, for purposes of the construction of
the terms of this Indenture or of the Securities, in the event that any amount
is stated herein in the currency of one nation (the "First Currency"), as of any
date such amount shall also be deemed to represent the amount in the currency of
any other relevant nation (the "Other Currency") which is required to purchase
such amount in the First Currency at the rate of exchange quoted by The Bank of
New York at its central foreign exchange desk in its head office in New York,
New York at 12:00 noon (New York City time) on the date of determination.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificates of authentication shall
be in substantially the forms set forth in this Article, with such appropriate
legends, insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on steel engraved borders or may be
produced in any other manner permitted by the rules of any securities exchange
on which the Securities may be listed, all as determined by the officers
executing such Securities, as evidenced by their execution of such Securities.
The Securities will be initially issued as one or more Global
Securities. Each Global Security authenticated under this Indenture shall be in
global bearer form, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
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<PAGE> 36
Upon their original issuance, Rule 144A Securities and Initial
Regulation S Securities shall be issued in the form of separate Global
Securities. The Global Security representing Rule 144A Securities, together with
its Successor Securities which are Global Securities other than the Regulation S
Global Security, are collectively herein called the "Restricted Global
Security". The Global Security representing Initial Regulation S Securities,
together with its Successor Securities which are Global Securities other than
the Restricted Global Security, are collectively herein called the "Regulation S
Global Security".
SECTION 202. Form of Face of Global Security.
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007
No. ___________________
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1267(a) OF THE UNITED STATES INTERNAL REVENUE
CODE.
[Legend if Security is a Restricted Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE TRANSFEROR
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS. THIS SECURITY AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR
RESALES AND OTHER TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE
LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO
THE RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS
SECURITY SHALL BE DEEMED, BY THE ACCEPTANCE HEREOF, TO HAVE AGREED TO ANY SUCH
AMENDMENT OR SUPPLEMENT.]
[Legend if the Security is a Regulation S Security:
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<PAGE> 37
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS
THIS SECURITY IS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.]
[Legend if Security is not an Exchange Security:
THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS
OF, THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, DATED FEBRUARY 27, 1997,
BETWEEN THE COMPANY AND THE PARTIES REFERRED TO THEREIN.]
Diamond Cable Communications Plc, a public limited company duly
incorporated under the laws of England and Wales with registered number 2965241
(herein called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to bearer upon presentation and surrender the principal sum indicated on
Schedule A hereof on February 15, 2007 and to pay interest thereon from February
15, 2002 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, semi-annually on August 15 and February 15 in
each year, commencing August 15, 2002, at the rate of 10 3/4% per annum, until
the principal hereof is paid or made available for payment, and (to the extent
that the payment of such interest shall be legally enforceable) at the rate of
10 3/4% per annum on any overdue principal and premium and on any overdue
installment of interest until paid as specified on the reverse hereof. [If
Original Security, then insert: provided, however, that if (i) the Company has
not filed a registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), registering a security substantially identical to this
Security (except that such Security will not contain terms with respect to the
Special Interest payments described below or legends reflecting transfer
restrictions) pursuant to an exchange offer (the "Exchange Offer") (the
"Exchange Registration Statement") (or, if applicable, a registration statement
registering this Security for resale (a "Resale Registration Statement")) by May
28, 1997, or (ii) the Exchange Registration Statement relating to the Exchange
Offer (or, if applicable, a Resale Registration Statement) has not become or
been declared effective by August 26, 1997, or (iii) either the Exchange
Registration Statement or, if applicable, the Resale Registration Statement is
filed and declared effective but shall thereafter cease to be effective (except
as specifically permitted pursuant to the agreement referred to below) without
being succeeded promptly by an additional registration statement filed and
declared effective, in each case (i) through (iii) upon the terms and conditions
set forth in the Exchange and Registration Rights Agreement (the "Exchange and
Registration Rights Agreement"), dated as of February 27, 1997, by and between
the Company and the other parties referred to therein (each such event referred
to in clauses (i) through (iii), a "Registration Default"), then interest will
accrue (in addition to the original issue discount and any stated interest on
the Securities) (the "Step-Up") at a rate of 0.5% per annum, determined daily,
on the Accreted Value of the Securities (or, after February 15, 2002 on the
principal amount at maturity of the Securities), for the period from the
occurrence of the Registration Default until such time (the "Step-Down Date") as
no Registration Default is in effect. Interest
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<PAGE> 38
accruing as a result of the Step-Up is referred to herein as "Special Interest."
Accrued Special Interest, if any, shall be paid semi-annually on August 15 and
February 15 in each year; and the amount of accrued Special Interest shall be
determined on the basis of the number of days during which such Registration
Default is in effect. The Company shall provide the Trustee with written notice
of the date of any Registration Default and the Step-Down Date and, in
connection with each Step-Up, an Officer's Certificate specifying the Accreted
Value as of the date of such Step-Up. Any accrued and unpaid interest (including
Special Interest) on this Security upon the issuance of an Exchange Security (as
defined in the Indenture) in exchange for this Security shall cease to be
payable to the Holder hereof but such accrued and unpaid interest (including
Special Interest) shall be payable on the next Interest Payment Date for such
Exchange Security to the Holder thereof on the related Regular Record Date.]
The principal of this Security shall not accrue interest (other than
Special Interest, if any) until February 15, 2002, except in the case of a
default in payment of principal upon acceleration or redemption and, in such
case, the interest payable pursuant to the preceding paragraph on the overdue
principal as specified on the reverse hereof shall be payable on demand and, if
not so paid on demand, such interest shall itself bear interest at the rate of
12 3/4% per annum (to the extent that the payment of such interest shall be
legally enforceable), which shall accrue from the date of such demand for
payment to the date payment of such interest has been made or duly provided for,
and such interest on unpaid interest shall also be payable on demand.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
This Security is transferable by delivery.
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<PAGE> 39
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
DIAMOND CABLE COMMUNICATIONS PLC
By______________________________
Title:
SECTION 203. Form of Face of Definitive Registered Security.
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 27, 2007
No. __________ $________
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1267(a) OF THE UNITED STATES INTERNAL REVENUE
CODE.
[Legend if Security is a Restricted Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON THAT THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, IN EACH CASE IN
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<PAGE> 40
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS. THIS SECURITY AND ANY RELATED
DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE
RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS SECURITY
TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION
THEREOF) OR IN PRACTICES RELATING TO THE RESALE OR TRANSFER OF RESTRICTED
SECURITIES GENERALLY. THE HOLDER OF THIS SECURITY SHALL BE DEEMED, BY THE
ACCEPTANCE HEREOF, TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT. EACH
PURCHASER OF THIS SECURITY OR ANY INTEREST HEREIN IS HEREBY NOTIFIED THAT THE
SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.]
[Legend if the Security is a Regulation S Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS
THIS SECURITY IS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.]
[Legend if Security is not an Exchange Security:
THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS
OF, CERTAIN EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, DATED AS OF FEBRUARY 27,
1997, BETWEEN THE COMPANY AND THE PARTIES REFERRED TO THEREIN.]
Diamond Cable Communications Plc, a public limited company duly
incorporated under the laws of England with registered number 2965241 (herein
called the "Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to __________________, or registered assigns, the principal sum of
_____________________ Dollars on February 15, 2007 and to pay interest thereon
from February 15, 2002 or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, semi-annually on August 15 and
February 15 each year, commencing August 15, 2002, at the rate of 10 3/4% per
annum, until the principal hereof is paid or made available for payment, and (to
the extent that the payment of such interest shall be legally enforceable) at
the rate of 12 3/4% per annum on any overdue principal and premium and on any
overdue installment of interest until paid as specified on the reverse hereof.
[If Original Security, then insert: provided, however, that if (i) the Company
has not filed a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), registering a security substantially identical
to this Security (except that such Security will not contain terms with respect
to the Special Interest payments described below or legends reflecting transfer
restrictions) pursuant to an exchange offer (the "Exchange Offer") (the
"Exchange Registration Statement") (or, if applicable, a registration statement
registering this
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<PAGE> 41
Security for resale (a "Resale Registration Statement")) by May 28, 1997, or
(ii) the Exchange Registration Statement relating to the Exchange Offer (or, if
applicable, a Resale Registration Statement) has not become or been declared
effective by August 26, 1997, or (iii) either the Exchange Registration
Statement or, if applicable, the Resale Registration Statement is filed and
declared effective but shall thereafter cease to be effective (except as
specifically permitted pursuant to the agreement referred to below) without
being succeeded promptly by an additional registration statement filed and
declared effective, in each case (i) through (iii) upon the terms and conditions
set forth in the Exchange and Registration Rights Agreement (the "Exchange and
Registration Rights Agreement"), dated as of February 27, 1997, by and between
the Company and the other parties referred to therein (each such event referred
to in clauses (i) through (iii), a "Registration Default"), then interest will
accrue (in addition to the original issue discount and any stated interest on
the Securities) (the "Step-Up") at a rate of 0.5% per annum, determined daily,
on the Accreted Value of the Securities (or, after February 15, 2002 on the
principal amount at maturity of the Securities), for the period from the
occurrence of the Registration Default until such time (the "Step-Down Date") as
no Registration Default is in effect. Interest accruing as a result of the
Step-Up is referred to herein as "Special Interest." Accrued Special Interest,
if any, shall be paid semi-annually on August 15 and February 15 in each year;
and the amount of accrued Special Interest shall be determined on the basis of
the number of days during which such Registration Default is in effect. The
Company shall provide the Trustee with written notice of the date of any
Registration Default and the Step-Down Date and, in connection with each
Step-Up, an Officer's Certificate specifying the Accreted Value as of the date
of such Step-Up. Any accrued and unpaid interest (including Special Interest) on
this Security upon the issuance of an Exchange Security (as defined in the
Indenture) in exchange for this Security shall cease to be payable to the Holder
hereof but such accrued and unpaid interest (including Special Interest) shall
be payable on the next Interest Payment Date for such Exchange Security to the
Holder thereof on the related Regular Record Date.]
The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the August 1 or February 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
The principal of this Security shall not accrue interest (other than
Special Interest, if any) until February 15, 2002, except in the case of a
default in payment of principal upon acceleration or redemption and, in such
case, the interest payable pursuant to the preceding paragraph on the overdue
principal as specified on the reverse hereof shall be payable on
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<PAGE> 42
demand and, if not so paid on demand, such interest shall itself bear interest
at the rate of 12 3/4% per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
demand for payment to the date payment of such interest has been made or duly
provided for, and such interest on unpaid interest shall also be payable on
demand.
Payment of the principal of (and premium, if any) and any such interest
on this Security will be made at the office or agency of the Company maintained
for that purpose in the Borough of Manhattan, The City of New York, in such coin
or currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
DIAMOND CABLE COMMUNICATIONS PLC
By:_____________________________________
Title:
SECTION 204. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its 10 3/4% Senior Discount Notes due February 15, 2007
(herein called the "Securities"), limited in aggregate principal amount at
maturity to U.S.$420,500,000, issued and to be issued under an Indenture, dated
as of February 27, 1997 (herein called the "Indenture"), between the Company and
The Bank of New York, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights,
-32-
<PAGE> 43
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
All payments made by the Company under or with respect to this Security
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 other
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 this Security, the Company will pay such additional amounts
("Additional Amounts") as may be necessary so that the net amount (including
Additional Amounts) received by the Holder of this Security after such
withholding or deduction will not be less than the amount the Holder would have
received if such Taxes had not been required to be withheld or deducted;
provided that the foregoing obligation to pay Additional Amounts shall not apply
to (a) any Taxes that 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 this Security); (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 this Security; 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 this Security 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 this Security to any Holder
that is a fiduciary or partnership or Person other than the sole beneficial
owner of such payment, to the extent that 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 a 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 actual Holder of
this Security or (iv) if the payment is in respect of a Definitive Registered
Security issued (or whose Predecessor Security was issued) at the request of a
Holder (including following an Event of Default) and at the time the payment is
made Definitive Registered Securities have not been issued for the entire
principal amount at maturity of the Securities. The foregoing provisions shall
survive any termination or discharge of the Indenture and shall apply mutatis
mutandis to withholding or deduction for or on account of any present or future
taxes, assessments or other governmental charges of any jurisdiction in which
any successor Person to the Company is organized, or any political subdivision
or taxing
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<PAGE> 44
authority or agency thereof or therein. The Company will 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. Except as otherwise stated, all references in this Security
to principal or accreted value of or interest on this Security shall include any
Additional Amounts payable by the Company pursuant to this paragraph.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, at any time on or after the Cash Interest Date, as
a whole or in part, at the option of the Company; 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 following
Redemption Prices (expressed as percentages of the principal amount at
maturity): If redeemed during the 12-month period beginning February 15 of the
years indicated,
<TABLE>
<CAPTION>
Year Redemption
- ---- ----------
Price
-----
<S> <C>
2002................................................................ 105.375%
2003................................................................ 103.583%
2004................................................................ 101.792%
2005 and thereafter................................................. 100.0%
</TABLE>
together in the case of any such redemption with accrued and unpaid interest,
including Special Interest, if any, to the Redemption Date [insert in the case
of a Definitive Registered Security "but interest installments whose Stated
Maturity is on or prior to such Redemption Date will be payable to the Holders
of such Securities, or one or more Predecessor Securities, of record at the
close of business on the relevant Record Dates referred to on the face hereof,
all as provided in the Indenture"].
The Securities do not have the benefit of any sinking fund obligations.
In the event of redemption or purchase pursuant to an Offer to Purchase
of this Security in part only, a new Security or Securities for the unredeemed
or unpurchased portion hereof will be issued [insert "to the bearer hereof" in
the case of the Global Security, otherwise insert "in the name of the Holder
hereof"] upon the cancellation hereof.
If an Event of Default shall occur and be continuing, there may be
declared due and payable the Default Amount of the Securities, in the manner and
with the effect provided in the Indenture. Until and including the Cash Interest
Date, the Default Amount in respect of this Security as of any particular date
of acceleration shall equal the Accreted Value of this Security. For this
purpose, Accreted Value means the sum of (a) the initial offering price of each
Security and (b) the portion of the excess of the principal amount of each
Security 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 August 15 and February 15, at the rate of
10 3/4% per annum from the date of issuance of the Securities through the
date of determination computed on the basis of a 360-day year of twelve 30-day
-34-
<PAGE> 45
months. Such Default Amount shall bear interest at the rate of 12 3/4% per annum
(to the extent that the payment of such interest shall be legally enforceable),
which shall accrue from the date of acceleration to the date payment has been
made or duly provided for. On and after Cash Interest Date, the Default Amount
in respect of this Security shall equal 100% of the principal amount of the
Security. Such Default Amount shall bear interest at the rate of 12 3/4% per
annum from the Cash Interest Date or the most recent Interest Payment Date to
which interest has been paid or duly provided for. Upon payment of (i) the
Default Amount so declared due and payable and any overdue installment of
interest, (ii) interest on the Default Amount and (iii) as provided on the face
hereof, interest on any overdue installment of interest or, if acceleration
occurs prior to the Cash Interest Date on the interest referred to in the third
preceding sentence (in each case to the extent that the payment of such interest
shall be legally enforceable), all of the Company's obligations in respect of
the payment of the principal of and interest on the Securities shall terminate.
The Securities 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 that date of redemption) if such redemption is
prior to the Cash Interest Date, or 100% of the principal amount at maturity if
such redemption is on or after the Cash Interest Date, together in the case of
any such redemption with accrued interest to the Redemption Date, if such
redemption is on or after the Cash Interest Date [insert in the case of the
Definitive Registered Security "but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture"], if (a) the Company is required to issue Definitive
Registered Securities after using all reasonable efforts to avoid having to
issue such Definitive Registered Securities 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 Securities
or (b) the Company has become or would become obligated in the absence of any
applicable tax treaty to pay, on the next date on which any amount would be
payable with respect to the Securities, 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 to, 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, which amendment or change or execution becomes effective
on or after the date of the 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 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
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<PAGE> 46
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.
The Indenture provides that, subject to certain conditions, if (i)
certain Excess Proceeds are available to the Company as a result of Asset
Dispositions or (ii) a Change of Control occurs, the Company shall be required
to make an Offer to Purchase for all or a specified portion of the Securities.
In the event of redemption (or purchase pursuant to an Offer to
Purchase) of this Security in part only, a new Security of Securities for the
unredeemed (or unpurchased) portion hereof will be issued in the name of the
Holder hereof upon cancellation hereof.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Security or (ii) certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth therein.
Unless the context otherwise requires, the Original Securities (as
defined in the Indenture) and the Exchange Securities (as defined in the
Indenture) shall constitute one series for all purposes under the Indenture,
including without limitation, amendments, waivers, redemptions and Offers to
Purchase.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
[In the case of a Definitive Registered Security, insert the following
paragraph: "As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or
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<PAGE> 47
his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees."]
[In the case of a Definitive Registered Security, insert the following
paragraph: "In the event of redemption (or purchase pursuant to an Offer to
Purchase) of this Security in part only, a new Security or Securities for the
unredeemed (or unpurchased) portion hereof will be issued in the name of the
Holder hereof upon cancellation hereof."]
The Securities are issuable only without coupons in denominations of
$1,000 and any integral multiple thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are exchangeable
for a like aggregate principal amount of Securities of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
[In the case of Definitive Registered Security, insert the following
paragraph: "Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary."]
[In the case of the Global Security insert: "The bearer of this
Security may be treated as the owner of it for all purposes."]
Interest on this Security shall be computed on the basis of a 360-day
year of twelve 30-day months.
No director, officer, employee, incorporator or shareholder of the
Company, as such shall have any liability for any obligations of the Company
under the Securities, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of the Securities
by accepting a Security 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
Securities.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 48
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety by
the Company pursuant to Section 1014 or 1015 of the Indenture,
check the box: / /
If you want to elect to have only a part of this Security purchased by
the Company pursuant to Section 1014 or 1015 of the Indenture, state the amount:
U.S.$________.
Dated: [Your Signature:
_____________________________________
(Sign exactly as name appears
on the other side of this Security)]
[Attach the following Schedule A in the case of the Global Security:]
-38-
<PAGE> 49
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Security shall be
$420,500,000. The following decreases/increases in the principal amount at
maturity of this Security have been made:
<TABLE>
<CAPTION>
Decrease in Increase in Total Principal Notation Made
Date of Principal Principal Amount at Maturity by or on
Decrease/ Amount at Amount at Following such Behalf of
Increase Maturity Maturity Decrease/Increase Trustee
- -------- -------- -------- ----------------- -------
<S> <C> <C> <C> <C>
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
</TABLE>
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<PAGE> 50
SECTION 205. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
The Bank of New York as
Trustee
By ____________________
Authorized Signatory
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount at maturity of Securities which may be
authenticated and delivered under this Indenture is limited to $420,500,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906 or 1108 or in connection with an Offer to Purchase pursuant to
Section 1014 or 1015.
The Company may issue Exchange Securities from time to time pursuant to
an Exchange Offer or otherwise in authorized denominations in exchange for a
like principal amount at maturity of Original Securities. Upon any such exchange
the Original Securities shall be cancelled in accordance with Section 309 and
shall no longer be deemed Outstanding for any purpose. In no event shall the
aggregate principal amount of Original Securities and Exchange Securities
Outstanding exceed $420,500,000.
The Securities shall be known and designated as the "10 3/4% Senior
Discount Notes due February 15, 2007" of the Company. Their Stated Maturity
shall be February 15, 2007 and they shall bear interest at the rate of 10 3/4%
per annum, from the Cash Interest Date or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, as the case may be,
payable semi-annually on February 15 and August 15, commencing August 15, 2002
until the principal thereof is paid or made available for payment; provided,
however, with respect to Original Securities, if there has been a Registration
Default, a Step-Up will occur and the Original Securities will from then bear
Special Interest until the Step-Down Date. Accrued Special Interest, if any,
shall be paid in cash in arrears semi-annually on February 15 and August 15 in
each year, and the amount of accrued Special Interest shall be determined on the
basis of the number of days actually elapsed and computed as provided in Section
310.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company in the Borough of
Manhattan, The City of New York,
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<PAGE> 51
maintained for such purpose and at any other office or agency maintained by the
Company for such purpose; provided, however, that at the option of the Company
payment of interest may be made by check mailed to the address of the Person
entitled thereto as such address shall appear in the Security Register.
The Securities shall be subject to repurchase by the Company pursuant
to an Offer to Purchase as provided in Sections 1014 and 1015.
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subject to defeasance at the option of the
Company as provided in Article Twelve.
Unless the context otherwise requires, the Original Securities and the
Exchange Securities shall constitute one series for all purposes under the
Indenture, including without limitation, amendments, waivers, redemptions, Acts
of Holders and Offers to Purchase.
SECTION 302. Denominations.
The Securities shall be issuable only in global bearer or in definitive
registered form without coupons and in denominations of $1,000 principal amount
at maturity and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chief
Executive Officer, its Managing Director or one of its Directors. The signature
of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication
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<PAGE> 52
substantially in the form provided for herein executed by the Trustee by manual
signature, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities of
authorized denominations. Until so exchanged the temporary Securities shall in
all respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 305. Transfer and Exchange.
(a) Registration, Registration of Transfer and Exchange Generally.
Transfer of a Global Security shall be by delivery.
The Global Security shall be exchanged by the Company (with
authentication by the Trustee) for one or more Definitive Registered Securities,
if the Holder so requests, provided, that such Definitive Registered Securities
and such Global Security after such exchange shall be in authorized
denominations. In addition, if at any time the Company in its sole discretion
determines, the Global Security shall be exchanged (in whole but not in part)
for one or more Definitive Registered Securities. Whenever all of a Global
Security is exchanged for one or more Definitive Registered Securities it shall
be surrendered by the Holder thereof to the Trustee for cancellation. Whenever a
part of a Global Security is exchanged for one or more Definitive Registered
Securities the Global Security shall be surrendered by the Holder thereof to the
Trustee who shall cause an adjustment to be made to Schedule A of such Global
Security such that the principal amount of such Global Security will be reduced
by the portion of such Global Security so exchanged for Definitive Registered
Securities. All Definitive Registered Securities issued in exchange for a Global
Security or any portion thereof shall be registered in such names as the Holder
of the Global Security shall instruct the Trustee. Every Security
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<PAGE> 53
authenticated and delivered in exchange for or in lieu of, a Global Security or
any portion thereof, pursuant to Section 304, 306, 906 or 1108 or in accordance
with any Offer to Purchase pursuant to Section 1014 or 1015 hereof or otherwise,
shall be authenticated and delivered in the form of, and shall be, a Global
Security. A Global Security may not be exchanged for another Security other than
as provided in this paragraph.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Definitive Registered Securities and of transfers of Definitive
Registered Securities. The Trustee is hereby appointed "Security Registrar" for
the purpose of registering Definitive Registered Securities and transfers of
Definitive Registered Securities as herein provided. Such Security Register of
Definitive Registered Securities shall distinguish between Original Securities
and Exchange Securities.
Upon surrender for registration of transfer of any Definitive
Registered Security at an office or agency of the Company designated pursuant to
Section 1002 for such purpose, the Company shall execute, and the Trustee shall
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Definitive Registered Securities of any authorized
denominations and of a like aggregate principal amount and tenor and bearing
such legends reflecting restrictions as may be required by this Indenture.
Subject to Section 305(b), at the option of the Holder, Definitive
Registered Securities may be exchanged for other Definitive Registered
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Definitive Registered Securities to be exchanged
at such office or agency. Whenever any Definitive Registered Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Definitive Registered Securities which the Holder
making the exchange is entitled to receive.
All Definitive Registered Securities issued upon any registration of
transfer or exchange of Definitive Registered Securities shall be the valid
obligations of the Company, evidencing the same debt, and (subject to the
provisions in the Original Securities regarding the payment of Special Interest)
entitled to the same benefits under this Indenture, as the Definitive Registered
Securities surrendered upon such registration of transfer or exchange.
Every Definitive Registered Security presented or surrendered for
registration of transfer or for exchange shall (if so required by the Company or
the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed, by the Holder thereof or his attorney duly authorized in writing.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security other than to require delivery of
-43-
<PAGE> 54
such certificates and other documentation or evidence as are expressly required
by, and to do so if and when expressly required by the terms of, this Indenture,
and to examine the same to determine substantial compliance as to form with the
express requirements hereof.
In the event that the Company delivers to the Trustee a copy of an
Officers' Certificate certifying that a registration statement under the
Securities Act with respect to the Exchange Offer has been declared effective by
the Commission and that the Company has offered Exchange Securities to the
Holders in accordance with the Exchange Offer, the Trustee shall exchange, upon
request of any Holder, such Holder's Securities for Exchange Securities upon the
terms set forth in the Exchange Offer.
Subject to Section 305(b), the Holder of the Global Security may
increase the principal amount at maturity of the Global Security held by it by
surrendering any Definitive Registered Security registered in its name to the
Registrar for cancellation. Upon surrender of such Definitive Registered
Security, the Registrar shall forward such Definitive Registered Security to the
Trustee for cancellation and the Trustee shall make a notation on Schedule A of
the Global Security held by such Holder to increase the principal amount at
maturity of such Global Security by an amount equal to the principal amount at
maturity of the Definitive Registered Security surrendered for cancellation.
No service charge shall be made for any registration of transfer or
exchange of Definitive Registered Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Definitive Registered Securities, other than exchanges pursuant to Section 304,
306, 906 or 1108 or in accordance with any Offer to Purchase pursuant to Section
1014 or 1015 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Definitive Registered Security during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption of Securities selected for redemption under Section 1104 and ending
at the close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any Definitive Registered Security so selected for
redemption in whole or in part, except the unredeemed portion of any Definitive
Registered Security being redeemed in part.
(b) Certain Transfers and Exchanges. Notwithstanding any other
provision of this Indenture or the Securities, transfers and exchanges of
Securities and beneficial interests in a Global Security of the kinds specified
in this Section 305(b) shall be made only in accordance with this Section
305(b).
(i) Restricted Global Security to Regulation S Global
Security. If the Holder of the Restricted Global Security wishes at any
time to transfer such Security in whole or in part to the Holder of the
Regulation S Global Security, such transfer may be effected only in
accordance with the provisions of this Clause (b)(i) and Clause
(b)(vii) below and subject to the Applicable Procedures. Upon receipt
by the Trustee,
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as Security Registrar, of (A) an order given by the Holders of the
Regulation S Global Security and the Restricted Global Security
directing that the principal amount at maturity represented by the
Regulation S Global Security be increased by a specified amount and
that the principal amount at maturity represented by the Restricted
Global Security be reduced by an equal amount and (B) a Regulation S
Certificate, satisfactory to the Trustee and duly executed by the
Holder of the Restricted Global Security or his attorney in fact duly
authorized in writing, then the Trustee, as Security Registrar but
subject to Clause (b)(vii) below, shall reduce the principal amount at
maturity of the Restricted Global Security and increase the principal
amount at maturity of the Regulation S Global Security by such
specified principal amount at maturity as provided in Section 305(c).
(ii) Regulation S Global Security to Restricted Global
Security. If the Holder of the Regulation S Global Security wishes at
any time to transfer such Security in whole or in part to the Holder of
the Restricted Global Security, such transfer may be effected only in
accordance with this Clause (b)(ii) and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Security Registrar, of (A)
an order given by the Holders of the Regulation S Global Security and
the Restricted Global Security directing that the principal amount at
maturity represented by the Regulation S Global Security be reduced by
a specified amount and that the principal amount at maturity
represented by the Restricted Global Security be increased by an equal
amount and (B) if such transfer is to occur during the Restricted
Period, a Restricted Securities Certificate, satisfactory to the
Trustee and duly executed by the Holder of the Regulation S Global
Security or his attorney in fact duly authorized in writing, then the
Trustee, as Security Registrar, shall reduce the principal amount at
maturity of the Regulation S Global Security and increase the principal
amount at maturity of the Restricted Global Security by such specified
principal amount as provided in Section 305(c). If transfers under this
Section 305(b)(ii) occur after the Restricted Period, no Restricted
Securities Certificates will be required.
(iii) Restricted Non-Global Security to Restricted Global
Security or Regulation S Global Security. If the Holder of a Definitive
Registered Security that is a Restricted Security wishes at any time to
transfer all or any portion of such Security to the Holder of the
Restricted Global Security or the Regulation S Global Security, such
transfer may be effected only in accordance with the provisions of this
Clause (b)(iii) and Clause (b)(vii) below and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Security Registrar, of (A)
such Definitive Registered Security as provided in Section 305(a) and
instructions satisfactory to the Trustee directing that the principal
amount at maturity of the Restricted Global Security or Regulation S
Global Security be increased by a specified principal amount at
maturity not greater than the principal amount at maturity of such
Definitive Registered Security and (B) a Restricted Securities
Certificate, if the principal amount at maturity of the Restricted
Global Security is to be increased, or a Regulation S Certificate, if
the principal amount at maturity of the Regulation S Global Security is
to be increased, in either case satisfactory to the Trustee and duly
executed by such Holder or his attorney duly authorized in writing,
then the Trustee, as Security Registrar but subject to Clause
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(b)(vii) below, shall cancel such Definitive Registered Security (and
issue a new Definitive Registered Security in respect of any
untransferred portion thereof) as provided in Section 305(a) and
increase the principal amount of the Restricted Global Security or the
Regulation S Global Security, as the case may be, by the specified
principal amount at maturity as provided in Section 305(c).
(iv) Regulation S Non-Global Security to Restricted
Global Security or Regulation S Global Security. If the Holder of a
Definitive Registered Security that is a Regulation S Security wishes
at any time to transfer all or any portion of such Security to the
Holder of the Restricted Global Security or the Regulation S Global
Security, such transfer may be effected only in accordance with this
Clause (b)(iv) and Clause (b)(vii) below and subject to the Applicable
Procedures. Upon receipt by the Trustee, as Security Registrar, of (A)
such Definitive Registered Security as provided in Section 305(a) and
instructions satisfactory to the Trustee directing that the principal
amount at maturity of the Restricted Global Security or Regulation S
Global Security be increased by a specified principal amount at
maturity not greater than the principal amount at maturity of such
Definitive Registered Security and (B) if the transfer is to occur
during the Restricted Period and the principal amount at maturity of
the Restricted Global Security is to be increased, a Restricted
Securities Certificate satisfactory to the Trustee and duly executed by
such Holder or his attorney duly authorized in writing, then the
Trustee, as Security Registrar but subject to Clause (b)(vii) below,
shall cancel such Security (and issue a new Definitive Registered
Security in respect of any untransferred portion thereof) as provided
in Section 305(a) and increase the principal amount of the Restricted
Global Security or the Regulation S Global Security, as the case may
be, by the specified principal amount as provided in Section 305(c).
(v) Definitive Registered Security to Definitive
Registered Security. A Definitive Registered Security may be
transferred, in whole or in part, to a Person who takes delivery in the
form of another Definitive Registered Security as provided in Section
305(a), provided that, if the Security to be transferred in whole or in
part is a Restricted Security, or is a Regulation S Security and the
transfer is to occur during the Restricted Period, then the Trustee
shall have received (A) a Restricted Securities Certificate,
satisfactory to the Trustee and duly executed by the transferor Holder
or his attorney duly authorized in writing, in which case the
transferee Holder shall take delivery in the form of a Restricted
Security, or (B) a Regulation S Certificate, satisfactory to the
Trustee and duly executed by the transferor Holder or his attorney duly
authorized in writing, in which case the transferee Holder shall take
delivery in the form of a Regulation S Security (subject in each case
to Section 305(c)).
(vi) Exchanges between Global Security and Definitive
Registered Security. A Global Security (in whole or part) may be
exchanged for one or more Definitive Registered Securities as provided
in Section 305, provided that, if such Global Security is the
Restricted Global Security, or if such Global Security is the
Regulation S Global Security and such exchange is to occur during the
Restricted Period, then such Global Security shall be exchanged for one
or more Restricted
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Securities (subject in each case to Section 305(c)). A Definitive
Registered Security may be transferred to the Holder of a Global
Security only if (A) such transfer is effected in accordance with
Clause (b)(iii) or (iv) above or (B) such Security is a Regulation S
Security and such transfer occurs after the Restricted Period.
The Company shall notify the Trustee promptly of the
expiration of the Restricted Period. Such notification shall be in the form of
Annex D hereto.
(c) Securities Act Legends. Rule 144A Securities and their
Successor Securities shall bear a Restricted Securities Legend, and Initial
Regulation S Securities and their Successor Securities shall bear a Regulation S
Legend, subject to the following:
(i) subject to the following Clauses of this Section
305(c), a Security or any portion thereof which is exchanged, upon
transfer or otherwise, for a Global Security or any portion thereof
shall bear the Securities Act Legend borne by such Global Security
while represented thereby;
(ii) subject to the following Clauses of this Section
305(c), a new Definitive Registered Security which is issued in
exchange for another Security (including a Global Security) or any
portion thereof, upon transfer or otherwise, shall bear the Securities
Act Legend borne by such other Security, provided that, if such new
Definitive Registered Security is required pursuant to Section
305(b)(v) or (vi) to be issued in the form of a Restricted Security, it
shall bear a Restricted Securities Legend and, if such new Definitive
Registered Security is so required to be issued in the form of a
Regulation S Security, it shall bear a Regulation S Legend;
(iii) SEC Registered Securities shall not bear a
Securities Act Legend;
(iv) after the applicable Rule 144(k) restricted
period, a new Definitive Registered Security which does not bear a
Securities Act Legend may be issued in exchange for or in lieu of a
Definitive Registered Security or any portion thereof which bears such
a legend if the Trustee has received an Unrestricted Securities
Certificate, satisfactory to the Trustee and duly executed by the
Holder of such legended Security or his attorney duly authorized in
writing, and after such date and receipt of such certificate, the
Trustee shall authenticate and deliver such a new Definitive Registered
Security in exchange for or in lieu of such other Definitive Registered
Security as provided in this Article Three,
(iv) a new Definitive Registered Security which does
not bear a Securities Act Legend may be issued in exchange for or in
lieu of a Definitive Registered Security or any portion thereof which
bears such a legend if, in the Company's judgment, placing such a
legend upon such new Security is not necessary to ensure compliance
with the registration requirements of the Securities Act, and the
Trustee, at the direction of the Company, shall authenticate and
deliver such a new Security as provided in this Article Three, and
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(v) notwithstanding the foregoing provisions of this Section
305(c), a Successor Security of a Security that does not bear a
particular form of Securities Act Legend shall not bear such form of
legend unless the Company has reasonable cause to believe that such
Successor Security is a "restricted security" within the meaning of
Rule 144, in which case the Trustee, at the direction of the Company,
shall authenticate and deliver a new Security bearing a Restricted
Securities Legend in exchange for such Successor Security as provided
in this Article Three.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section , the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
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SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid (a) in the case of
the Global Security to its Holder and (b) in the case of a Definitive Registered
Security to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest (including Special Interest) on any Security which is
payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as
it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).
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(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
In the case of a Definitive Registered Security, prior to due
presentment of such Definitive Registered Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat,
to the extent permitted by applicable law, the Person in whose name such
Security is registered as the owner of such Definitive Registered Security for
the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary. In the case of the Global Security, the Company, the
Trustee and any agent of the Company or the Trustee may treat its global bearer
as the owner for all such purposes.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any Offer to Purchase pursuant to
Section 1014 and 1015 shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The
Company may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly cancelled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Securities held
by the Trustee shall be disposed of as directed by a Company Order; provided,
however, that the Trustee may but shall not be required to destroy cancelled
securities.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
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ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or paid
as provided in Section 306 and (ii) Securities for whose
payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(B) all such Securities not theretofore delivered to
the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust
funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee for cancellation, for
principal (and premium, if any) and interest to the date of
such deposit (in the case of Securities which have become due
and payable) or to the Stated Maturity or Redemption Date, as
the case may be;
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(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607, the obligations of the Trustee to any Authenticating Agent under Section
614 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of the principal of (or premium, if
any, on) any Security at its Maturity; or
(2) default in the payment of any interest or Additional
Amounts upon any Security when due and payable, and continuance of such
default for a period of 30 days; or
(3) default, on the applicable Purchase Date, in the purchase
of Securities (including payment of accreted and unpaid interest)
required
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to be purchased (or paid) by the Company pursuant to an Offer to
Purchase as to which an Offer has been mailed to Holders; or
(4) default in the performance, or breach, of Section 801; or
(5) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture (other than a covenant or
warranty a default in whose performance or whose breach is elsewhere in
this Section specifically dealt with), and continuance of such default
or breach for a period of 30 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(6) a default or defaults under any bond(s), debenture(s),
note(s) or other evidence(s) of Debt by the Company or any Significant
Restricted Subsidiary or under any mortgage(s), indenture(s) or
instrument(s) under which there may be issued or by which there may be
secured or evidenced any Debt of such type by the Company or any
Significant Restricted Subsidiary with a principal amount then
outstanding, individually or in the aggregate, in excess of (pound
sterling) 5 million, whether such Debt now exists or shall hereafter be
created, which default or defaults shall constitute a failure to pay in
excess of (pound sterling) 5 million of the principal of such Debt when
due and payable after the expiration of any applicable grace period
with respect thereto or shall have resulted in an aggregate of in
excess of (pound sterling) 5 million in principal amount of such Debt
becoming or being declared due and payable prior to the date on which
it would otherwise have become due and payable; or
(7) a final judgment or final judgments for the payment of
money are entered against the Company or any Significant Restricted
Subsidiary of the Company in an aggregate amount in excess of (pound
sterling) 5 million by a court or courts of competent jurisdiction,
which judgments remain undischarged or unbonded for a period (during
which execution shall not be effectively stayed) of 60 days after the
right to appeal all such judgments has expired; or
(8) the entry by a court having jurisdiction in the premises
of (A) a decree or order for relief in respect of the Company or any
Significant Restricted Subsidiary in an involuntary case or proceeding
under any applicable Insolvency Law or (B) a decree or order adjudging
the Company or any such Significant Restricted Subsidiary a bankrupt or
insolvent under any applicable Insolvency Law, or
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appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any such
Significant Restricted Subsidiary or of any substantial part of the
property of the Company or any such Significant Restricted Subsidiary,
or ordering the winding up or liquidation of the affairs of the Company
or any such Significant Restricted Subsidiary, and the continuance of
any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days; or
(9) the commencement by the Company or any Significant
Restricted Subsidiary of a voluntary case or proceeding under any
applicable Insolvency Law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by the Company or
any such Significant Restricted Subsidiary to the entry of a decree or
order for relief in respect of the Company or any Significant
Restricted Subsidiary in an involuntary case or proceeding under any
applicable Insolvency Law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Company or any Significant
Restricted Subsidiary, or the filing by the Company or any such
Restricted Subsidiary of a petition or answer or consent seeking
reorganization or relief under any applicable Insolvency Law, or the
consent by the Company or any such Significant Restricted Subsidiary to
the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Significant
Restricted Subsidiary or of any substantial part of the property of the
Company or any Significant Restricted Subsidiary, or the making by the
Company or any Significant Restricted Subsidiary of an assignment for
the benefit of creditors, or the admission by the Company or any such
Significant Restricted Subsidiary in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action (which shall involve the passing of one or more resolutions of
the Board of Directors or a committee thereof) by the Company or any
such Significant Restricted Subsidiary in furtherance of any such
action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 501(8) or (9) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in aggregate principal amount of the
Outstanding Securities may declare the Default Amount of all the Securities to
be due and payable immediately, by a notice in writing to the Company (and to
the Trustee if given by Holders), and upon any such declaration such Default
Amount and any accrued interest shall become immediately due and payable. If an
Event of Default specified in Section 501(8) or (9) occurs, the Default Amount
of and any accrued
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interest on the Securities then Outstanding shall ipso facto become immediately
due and payable without any declaration or other Act on the part of the Trustee
or any Holder.
Until and including the Cash Interest Date, the "Default Amount" in
respect of any particular Security as of any particular date of acceleration
shall equal the Accreted Value of the Security. On and after the Cash Interest
Date, the Default Amount in respect of any particular Security shall equal 100%
of the principal amount of the Security.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of (and premium, if any, on) any
Securities which have become due otherwise than by such
declaration of acceleration (including any Securities required
to have been purchased on the Purchase Date pursuant to an
Offer to Purchase made by the Company) and, to the extent that
payment of such interest is lawful, interest thereon at the
rate provided by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate provided by
the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security at the Maturity thereof or, with
respect to any Security required to have been purchased pursuant to an
Offer to Purchase made by the Company, at the Purchase Date thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at the rate
provided by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any judicial proceeding relative to the
Company (or any other obligor upon the Securities), or the property of the
Company (or such other obligor) or their creditors, the Trustee shall be
entitled and empowered, by intervention in such proceeding or otherwise, to take
any and all actions authorized under the Trust Indenture Act in order to have
claims of the Holders and the Trustee allowed in any such proceeding. In
particular, the Trustee shall be authorized to collect and receive any moneys or
other property payable or deliverable on any such claims and to distribute the
same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial
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proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: If applicable, to the Company.
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SECTION 507. Limitation on Suits.
No Holder of any Security shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in
its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date or, in the case of an Offer to Purchase made by the Company and required to
be accepted as to such Security, on the Purchase Date) and to institute suit for
the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
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SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
Subject to Section 603(c), the Holders of a majority in principal
amount of the Outstanding Securities shall 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, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
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SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default
(1) in the payment of the principal of (or premium, if any) or
interest on any Security (including any Security which is required to
have been purchased pursuant to an Offer to Purchase which has been
made by the Company), or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit to
file an undertaking to pay the costs of such suit, and may assess costs against
any such party litigant, in the manner and to the extent provided in the Trust
Indenture Act; provided, that neither this Section nor the Trust Indenture Act
shall be deemed to authorize any court to require such an undertaking or to make
such an assessment in any suit instituted by the Company, the Trustee, any
Holder or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities, or any Holder for the enforcement of the
payment of the principal of (or premium, if any) or interest on any Security on
or after the respective Stated Maturities expressed in such Security (or in the
case of redemption, on or after the Redemption, on or after the Redemption Date
or in the case of an Offer to Purchase made by the Company and required to be
accepted as to such Security, on the Purchase Date).
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein
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granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
SECTION 516. 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 Securities, the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of the Securities
by accepting a Security 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
Securities.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the foregoing, no
provision of this Indenture shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate security or
indemnity against such risk or liability is not reasonably assured to
it. Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions
of this Section .
(b) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture,
and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the
case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture (but need not confirm or
investigate the accuracy of mathematical calculations or other
facts stated therein).
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(c) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts.
(d) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Securities determined as provided in Sections 101, 104 and
512, relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Indenture with
respect to the Securities of such series.
SECTION 602. Notice of Defaults.
Within 45 days after a Responsible Officer in the Corporate Trust
office of the Trustee has been notified of the occurrence of any default
hereunder, the Trustee shall transmit by mail to all Holders, as their names and
addresses appear in the Security Register, and to the Holder of the Global
Security notice of such default hereunder unless such default shall have been
cured or waived; provided, however, that in the case of any default of the
character specified in Section 501(5), no such notice to Holders shall be given
until at least 30 days after the occurrence thereof. For the purpose of this
Section , the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
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(d) the Trustee may consult with counsel of its selection and
the written advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the use
or application by the Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
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SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation as
shall have been agreed upon in writing for all services rendered by it hereunder
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of this
trust, including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder.
The obligations of the Company under this Section to compensate and
indemnify the Trustee and any predecessor Trustee and to pay or reimburse the
Trustee and any predecessor Trustee for expenses, disbursements and advances
shall survive the payment of the Securities, resignation or removal of the
Trustee and satisfaction, discharge or other termination of this Indenture.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(8) or Section 501(9), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
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At the request of the Trustee, the Company shall file with the Trustee
promptly at the end of each calendar year (i) a written notice specifying the
amount of original issue discount (including daily rates and accrual periods)
accrued on Outstanding Securities as of the end of such year and (ii) such other
specific information relating to such original issue discount as may then be
relevant under the Internal Revenue Code of 1986, as amended from time to time.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000 and its Corporate Trust
Office in the Borough of Manhattan, The City of New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section , the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section , it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
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(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been a
bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such
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successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee;
but, on request of the Company or the successor Trustee, such retiring Trustee
shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder. Upon
request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer or partial
redemption or pursuant to Section 306, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference is
made in this Indenture to the authentication and delivery of Securities by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent.
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Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section , the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section , such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section .
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section , without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section , the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders as their
names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section .
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section , and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 607.
If an appointment is made pursuant to this Section , the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
This is one of the Securities described in the within-mentioned
Indenture.
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-----------------------------,
As Trustee
By ,
---------------------------
As Authenticating Agent
By
---------------------------
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each February
1, and August 1, commencing August 1, 1997, a list, in such form as the
Trustee may reasonably require, of the names and ad dresses of the
Holders as of such date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days
prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
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(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities and the
corresponding rights and duties of the Trustee, shall be as provided by the
Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to the names and addresses of Holders made pursuant
to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto
which report shall be as of May 15 and be provided on or before July 15 of each
year.
(b) A copy of each such report shall, at the time of such transmission
to Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when the Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall deliver to the Trustee and file with the Commission,
and transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with Commission pursuant
to Section 13 or 15(d) of the Exchange Act shall be delivered to the Trustee
within 15 days after the same is so required to be filed with the Commission.
SECTION 705. Registration Rights.
The Trustee shall maintain copies of the Registration Rights Agreement
available for inspection by Holders of Securities during normal business hours
at its Corporate Trust Office and for as long as there are Registrable
Securities (as defined in the Registration Rights Agreement) outstanding.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc. Only on Certain Terms.
The Company shall not, in a single transaction or through a series of
related transactions (a) consolidate with or merge into any other Person; (b)
permit any other Person to consolidate with or merge into the Company; (c)
directly or indirectly, transfer, assign, convey, sell, lease or otherwise
dispose of all or substantially all of its properties and asset as an entirety;
or (d) permit any Subsidiary of the Company 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
Persons, unless, in any such transaction:
(1) immediately before and after giving effect to such
transaction and treating any Debt Incurred by 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
such transaction, no Event of Default, and no event that, after notice
or lapse of time, or both, would become 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 (for purposes of this Article Eight, a
"Successor Company") 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) and interest and Additional Amounts,
if any, on all the Securities and the performance of every covenant of
this Indenture on the part of the Company to be performed or observed;
(3) the Company or the Successor Company will have an
Annualized Consolidated Debt to Cash Flow Ratio for the quarter next
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preceding such transaction for which quarterly financial statements are
available (determined on a pro forma basis as if such transaction 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 the
Successor Company after giving pro forma effect to such transaction may
be up to 0.5:1 greater than such ratio immediately preceding such
transaction;
(4) if, as a result of any such transaction, property and
assets of the Company or any Subsidiary of the Company would become
subject to a Lien which would not be permitted by Section 1011, the
Company or, if applicable, the Successor Company, as the case may be,
shall take such steps as shall be necessary effectively to secure the
Securities equally and ratably with (or prior to) Debt secured by such
Lien;
(5) such transaction would not result in the loss of a
Material License determined on a pro forma basis after giving effect to
such transaction; and
(6) the Company has delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer, lease or acquisition and,
if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, complies with this Article
and that all conditions precedent herein provided for relating to such
transaction have been complied with, and, with respect to such
Officer's Certificate, setting forth the manner of determination of the
ability to Incur Debt or issue Disqualified Equity in accordance with
Clause (3) of this Section (including the calculation of the Annualized
Consolidated Debt to Cash Flow Ratio) of the Company or, if applicable,
of the Successor Company as required pursuant to the foregoing.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any transfer, conveyance, sale, lease or other
disposition of all or substantially all of the properties and assets of the
Company as an entirety in accordance with Section 801, the Successor Company
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under this Indenture with the same effect as if such successor
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Person had been named as the Company herein, and thereafter, except in the case
of a lease, the predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders, or to surrender any right or power herein conferred upon
the Company; or
(3) to secure the Securities pursuant to the requirements of
Section 1011 or otherwise; or
(4) to comply with any requirements of the Commission in order
to effect and maintain the qualification of this Indenture under the
Trust Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture, provided such action pursuant to
this Clause (5) shall not adversely affect the interests of the Holders
in any material respect; or
(6) to modify the restrictions on and procedures for resales
and other transfers of this Security to reflect any change in
applicable law or regulation (or the interpretation thereof) or in
practices relating to the resale or transfer of restricted securities
generally.
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SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest or Additional Amounts on, any Security, or
reduce the principal amount thereof or the rate of interest thereon or
Additional Amounts or any premium payable thereon, or change the place
of payment where, or the coin or currency in which, any Security or any
premium or the interest thereon or Additional Amounts is payable, or
impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date or, in the case of an Offer
to Purchase which has been made, on or after the applicable Purchase
Date), or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 513
or Section 1019, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby, or
(4) following the mailing of an Offer with respect to an Offer
to Purchase pursuant to Section 1014 or 1015, modify the provisions of
this Indenture with respect to such Offer to Purchase in a manner
adverse to such Holder.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
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SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
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SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York, and in Luxembourg an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Company in
respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, The City of New
York, and in Luxembourg) where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York, and in Luxembourg for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby appoints the Trustee as Paying Agent under this
Indenture, and the Trustee hereby accepts this appointment.
SECTION 1003. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (and premium, if any) or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will,
prior to each due date of the principal of (and premium, if any) or interest on
any Securities, deposit with a Paying Agent a sum sufficient to pay the
principal (and premium, if any) or interest so becoming due, such sum to be held
in trust for the benefit of the Persons entitled to such principal, premium or
interest, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will (1) comply with the provisions of the Trust Indenture Act
applicable to it as a Paying Agent and (2) during the continuance of any default
by the Company (or any other obligor upon the Securities) in the making of any
payment in respect of the Securities, upon the written request of the Trustee,
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forthwith pay to the Trustee all sums held in trust by such Paying Agent for
payment in respect of the Securities.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in The City of New York, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 1004. Existence.
Subject to Article Eight and Section 1015, the Company will use all
reasonable best efforts to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (charter and
statutory); provided, however, that the Company shall not be required to
preserve any such right if the Board of Directors in good faith shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holders.
SECTION 1005. Maintenance of Properties.
The Company will use all reasonable best efforts to cause all
properties used or useful in the conduct of its business or the business of any
Subsidiary of the Company to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and
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advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the operation or
maintenance of any of such properties if such discontinuance is, as determined
by the Board of Directors in good faith, desirable in the conduct of its
business or the business of any Subsidiary and not materially disadvantageous to
the Holders.
SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (2) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company or
any of its Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1007. Maintenance of Insurance.
The Company shall, and shall cause its Subsidiaries to, keep insurance
with insurers believed by the Company to be responsible of such type and in such
amounts as the Company reasonably believes are customary in the United Kingdom
for similar companies; provided, however, that the Company shall be under no
obligation to insure the underground portion of its cable network.
SECTION 1008. 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 the following Debt or issue the
following Disqualified Equity:
(i) Debt up to the maximum amount contemplated to be available
under the Senior Bank Facility;
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(ii) Debt of the Company and/or any Restricted Subsidiary
outstanding on the date of the 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 in each case to be used in a
Cable Business;
(iv) Debt Incurred or Disqualified Equity issued to finance a
Cable Acquisition or to 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 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
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 the event that
the Securities are redeemed in part), the Company's 13 1/4% Senior
Discount Notes due September 30, 2004 or the Company's 11 3/4% Senior
Discount Notes due December 15, 2005 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
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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 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 (pound)20 million
at any time outstanding.
SECTION 1009. 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) 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, directly or indirectly, to 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 shares of 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 officer or director or former officer or director
of the Company or ECE Management International (or any of its predecessors) in
an aggregate amount not exceeding (pound)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
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Person of the Company, other than the Company or a Restricted Subsidiary that is
a Wholly Owned Subsidiary of the Company which is a Wholly Owned Subsidiary
prior to such investment, and (iv) shall not, and shall not permit any
Restricted Subsidiary to, redeem, defease (including, but not limited to, legal
or covenant defeasance), 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
Securities (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 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 Securities 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 Securities falls
through the last day of the last full fiscal quarter
immediately preceding such Restricted Payment for which
quarterly or annual financial statements of the Company are
available; and
(b) 100% of the aggregate net cash proceeds after the issue date
of the Securities, 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 Securities.
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) of Section 1008;
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(iii) investments by the Company or any Restricted
Subsidiary in an amount not to exceed in the aggregate
(pound)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.
SECTION 1010. Limitations Concerning Distributions by and Transfers to
Restricted Group.
The Company shall not, and shall 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 any member of the Restricted Group; (ii) to make loans
or advances to any member of the Restricted Group; or (iii) to transfer any of
its property or assets to any member of the Restricted Group.
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 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;
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(f) pursuant to an agreement pursuant to which Debt meeting
the requirements of clauses (iii), (iv), (v) or (ix) 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 than those contained in the terms
of the Senior Bank Facility (it being understood that such restrictions
may apply to Restricted Subsidiaries other than those provided in 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), (b) or (f) 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.
SECTION 1011. Limitation on Liens.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary of the Company to, Incur or suffer to exist any Lien upon any of its
property or assets, now owned or hereinafter acquired, to secure any Debt
without making, or causing such Subsidiary to make, effective provision for
securing the Securities (and, if the Company shall so determine, any other Debt
of the Company which is not subordinate to the Securities) (x) equally and
ratably with such Debt as to such property and assets for so long as such Debt
shall be so secured or (y) in the event such Debt is subordinate in right of
payment to the Securities, prior to such Debt as to such property and assets for
so long as such Debt shall be so secured.
The foregoing restrictions will not apply to Liens in respect of Debt
existing at the date of this Indenture or to:
(i) Liens securing only the Securities;
(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;
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(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 of Section 1008;
(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) to (vii) so long as such Lien does not
extend to any other property.
(b) In addition to the foregoing, the Company and its Restricted
Subsidiaries may incur and suffer to exist a Lien to secure any Debt or enter
into a Sale and Leaseback Transaction, without equally and ratably securing the
Securities, if the sum of (i) the amount of Debt secured by a Lien entered into
after the date of the Indenture and otherwise prohibited by the Indenture and
(ii) the Attributable Value of all Sale and Leaseback Transactions entered into
after the date of the Indenture and otherwise prohibited by the Indenture does
not exceed 5% of the Company's Consolidated Tangible Assets.
SECTION 1012. 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 would be
entitled to enter into such Sale and Leaseback Transaction pursuant to
the provisions of Section 1011(b) hereof without equally and ratably
securing the Securities and the terms of such transaction have been
approved by the Board of Directors as evidenced by a Board of
Resolution; or
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(ii) all of the conditions set forth in Section 1014 of
this Indenture (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.
SECTION 1013. Limitation on Transactions with Affiliates and Related Persons.
(a) Except as permitted by the following paragraph, the Company shall
not, and shall not permit any Restricted Subsidiary of the Company to, enter
into any transaction (including, without limitation, the purchase, sale, lease
or exchange of property, the rendering of any service or the making of any
Investment) 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 that, in the Company's good faith judgment, are at least as favorable to
the Company or such Subsidiary as those that could be obtained in a comparable
arm's length transaction with a Person that is not such an Affiliate or a
Related Person. Any such transaction (or series of related transactions) in
which such Affiliate or Related Person receives in excess of (pound)1.0 million
in any twelve-month period shall be approved as being in the Company's best
interest by a majority of the disinterested directors of the Board of Directors
as evidenced by a Board Resolution. Any such transaction involving in excess of
(pound)5.0 million (or series of related transactions involving in excess of
(pound)5.0 million), or as to which there are no disinterested directors, is
subject to the further requirement that the Company shall 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, as the case may be.
(b) The requirements of the preceding paragraph shall not be applicable
to (i) any transaction among the Company and any of its Wholly Owned
Subsidiaries; (ii) any existing management agreement with ECE Management
International, LLC, a limited liability company organized under the laws of the
State of Indiana, or any successor or assign, or any other management agreement
which has substantially similar terms; 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.
SECTION 1014. Limitation on Certain Asset Dispositions.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, make any Asset Disposition in one or more related transactions
unless
(i) the Company (or such Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Disposition at
least
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equal to the fair market value of the shares or assets sold or
otherwise disposed of, and
(ii) at least 90% of the consideration for such disposition
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 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 (pound)1.0 million 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 (pound)1.0 million referred to in the preceding
sentence) shall constitute "Excess Proceeds" subject to the provisions described
in the following paragraph.
(b) When the aggregate amount of Excess Proceeds equals or exceeds
(pound)10.0 million, the Company shall make within 30 days of the determination
thereof an Offer to Purchase to all Holders of the Securities with Purchase
Amounts equal to such Excess Proceeds at a Purchase 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 Securities 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 Securities validly tendered and not
withdrawn by holders thereof exceeds the amount of Securities which can be
purchased with the Excess Proceeds, Securities to be purchased will be selected
on a pro rata basis.
The Company shall not be entitled to any credit against its obligations
under this Section 1014 for the principal amount of any Securities acquired by
the Company otherwise than pursuant to the Offer to Purchase pursuant to this
Section 1014.
(c) Not later than the date of the Offer with respect to an Offer to
Purchase pursuant to this Section 1014, the Company shall deliver to the Trustee
an Officers' Certificate as to (i) the Purchase Amount, (ii) the allocation of
the Net Available Proceeds from the Asset Disposition pursuant to which such
Offer is being made, including, if amounts are invested in property or assets
related to a Cable Business, the actual assets acquired and a statement as to
the necessity
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of such assets for the maintenance of such business and (iii) the compliance of
such allocation with the provisions of paragraph (a).
The Company and the Trustee shall perform their respective obligations
specified in the Offer for the Offer to Purchase. On or prior to the Purchase
Date, the Company shall (i) accept for payment (on a pro rata basis, if
necessary) Securities or portions thereof tendered pursuant to the Offer, (ii)
deposit with the paying agent (or, if the Company is acting as its own paying
agent, segregate and hold in trust as provided in Section 1003) money sufficient
to pay the purchase price of all Securities or portions thereof so accepted and
(iii) deliver or cause to be delivered to the Trustee all Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof accepted for payment by the Company. The paying agent (or the Company,
if so acting) shall promptly mail or deliver to Holders of Securities so
accepted payment in an amount equal to the purchase price, and the Trustee shall
(x) in the case of Definitive Registered Securities, promptly authenticate and
mail or deliver to Holders of such Definitive Registered Securities a new
Definitive Registered Security equal in principal amount to any unpurchased
portion of the Security surrendered and (y) in the case of the Global Security,
return the Global Security indicating in Schedule A thereof the reduction in
principal amount. Any Security not accepted for payment shall be promptly mailed
or delivered by the Company to the Holder thereof. The Company shall publicly
announce the results of the Offer on or as soon as practicable after the
Purchase Date.
(d) Notwithstanding the foregoing, the Company and the Restricted
Subsidiaries will be permitted to consummate an Asset Disposition without
complying with the foregoing provisions of this Section 1014 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 foregoing
provisions of this Section 1014.
(e) For purposes of this Section 1014, the fair market value of shares
or assets disposed of in an Asset Disposition shall be as determined in good
faith by (x) a designated officer of the Company and evidenced by an Officer's
Certificate if such consideration is less than (pound)10 million and (y) the
Board of Directors and evidenced by a Board Resolution if such consideration is
greater than or equal to (pound)10 million.
(f) Notwithstanding the foregoing, this Section 1014 shall not apply to
any Asset Disposition which constitutes a transfer, conveyance, sale, lease or
other disposition of all or substantially all of the Company's properties or
assets within the meaning of Section 801 hereof.
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SECTION 1015. Change of Control.
(a) Upon the occurrence of a Change in Control, each Holder of a
Security shall have the right to have such Security repurchased by the Company
on the terms and conditions precedent set forth in this Section 1015 and this
Indenture. The Company shall, within 60 days following the date of the
consummation of a transaction resulting in a Change of Control, commence an
Offer with respect to an Offer to Purchase all Outstanding Securities at a
Purchase Price, on or prior to the Cash Interest Date, equal to 101% of their
Accreted Value to the Purchase Date and, thereafter, 101% of their principal
amount at maturity plus accrued interest to the Purchase Date (provided,
however, that in the case of Definitive Registered Securities installments of
interest whose Stated Maturity is on or prior to the Purchase Date shall be
payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 307). Each Holder
shall be entitled to tender all or any portion of the Securities owned by such
Holder pursuant to the Offer to Purchase, subject to the requirement that any
portion of a Security tendered must be tendered in an integral multiple of
$1,000 principal amount at maturity.
(b) The Company and the Trustee shall perform their respective
obligations specified in the Offer for the Offer to Purchase. Prior to the
Purchase Date, the Company shall (i) accept for payment Securities or portions
thereof tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or,
if the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the purchase price, and the
Trustee shall (x) in the case of Definitive Registered Securities, promptly
authenticate and mail or deliver to Holders a new Definitive Registered Security
or Securities equal in principal amount to any unpurchased portion of the
Security surrendered as requested by the Holder and (y) in the case of the
Global Security, return the Global Security indicating in Schedule A thereof the
unpurchased portion of the Security surrendered. Any Security not accepted for
payment shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Offer on or as
soon as practicable after the Purchase Date.
(c) A "Change of Control" shall be deemed to have occurred in the event
that, after the date of this Indenture, either (A) any Person or any Persons
(other than a Permitted Holder) acting together which would constitute a "group"
(a "Group") for purposes of Section 13(d) of the Exchange Act, or any successor
provision thereto, together with any Affiliates or Related Persons thereof,
shall beneficially own (as defined in Rule 13d-3 of the Exchange Act or any
successor provision thereto) at least 45% of the aggregate voting power of all
classes of 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 or their nominees elected to
the Board of Directors of the Company such that such nominees, when
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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,
shall constitute a majority of the Board of Directors of the Company or (C) any
event affecting the Company described in Section 501(8) or (9) occurs.
(d) 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.
SECTION 1016. Additional Amounts.
All payments made by the Company under or with respect to the
Securities shall be made free and clear of and without withholding or deduction
for or on account of any present or future tax, duty, assessment or other
governmental charge 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 Securities, 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 required to be withheld or deducted; provided that the foregoing
obligation to pay Additional Amounts shall not apply to (a) any Taxes that 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 Security); (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 Security;
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 Security (whether in global bearer or definitive registered form)
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 Security
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
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holder of such a Security, or (iv) if the payment is in respect of a Definitive
Registered Security issued (or whose Predecessor Security was issued) at the
request of a Holder (including following an Event of Default) and at the time
the payment is made Registered Securities have not been issued in exchange for
the entire principal amount at maturity of the Securities. The foregoing
provisions shall survive any termination or discharge of this Indenture. The
provisions of this Section 1016 shall apply mutatis mutandis to any withholding
or deduction for or on account of any present or future taxes, assessments or
other 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 or agency thereof or therein. The Company will 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. Except as otherwise stated, all references in this Indenture
(other than in Article Twelve) to principal or Accreted Value of, or interest on
the Securities shall include any Additional Amounts payable by the Company
pursuant to this Section 1016.
If the Company is, in respect of any payments, compelled to withhold or
deduct any amount for or on account of Taxes, the Company shall give notice
thereof to each of the Trustee and the Paying Agents. The Company shall, prior
to the due date for the payment thereof, pay any such Taxes, together with any
penalties or interest applicable thereto, and within 15 days after such payment
shall deliver to the Trustee and each of the Paying Agents evidence of such
payment and of the remittance thereof to the relevant taxing or other authority.
The Company shall indemnify the Trustee and each of the Paying Agents for any
loss, liability or expense incurred without gross negligence, bad faith or
willful misconduct on such person's part, arising out of or in connection with
actions taken or omitted by any of them in reliance on this paragraph or
information provided by the Company pursuant to this paragraph or the failure of
the Trustee or any Paying Agent for any reason (other than its own gross
negligence or willful misconduct) to receive on a timely basis the
above-described notice or any information or documentation requested by it or
otherwise required by applicable law or regulations to be obtained, furnished or
filed with it in respect of the Taxes.
SECTION 1017. Provision of Financial Information.
In addition to and without limitation on the Company's obligations
pursuant to Section 704, whether or not the Company is required to be subject to
Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto,
the Company shall file with the Commission and provide to the Trustee the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Section 13(a) or 15(d) or
any successor provision thereto if the Company were so required, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required so to
file such documents if the Company were so required. The Company shall also in
any event (a) within 15 days of each Required Filing Date (i) transmit by mail
to all Holders, as their names and addresses have been provided to the Trustee
or appear in the Security Register and, (ii) file with the Trustee copies of the
annual reports, quarterly reports and other documents which the Company would
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have been required to file with the Commission pursuant to Section 13(a) or
15(d) of the Exchange Act or any successor provisions thereto if the Company
were required to be subject to such Sections and (b) if filing such documents by
the Company with the Commission is not permitted under the Exchange Act,
promptly upon written request supply copies of such documents to any Holder.
SECTION 1018. Statement by Officers as to Default; Compliance Certificates.
(a) The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company ending after the date hereof an Officers'
Certificate, stating whether or not to the best knowledge of the signers thereof
the Company is in default in the performance and observance of any of the terms,
provisions and conditions of Section 801 or Sections 1004 to 1017, inclusive,
and if the Company shall be in default, specifying all such defaults and the
nature and status thereof of which they may have knowledge.
(b) The Company shall deliver to the Trustee, as soon as possible and
in any event within 10 days after the Company becomes aware of the occurrence of
an Event of Default or an event which, with notice or the lapse of time or both,
would constitute an Event of Default, an Officers' Certificate setting forth the
details of such Event of Default or default, and the action which the Company
proposes to take with respect thereto.
(c) The Company shall deliver to the Trustee within 120 days after the
end of each fiscal year a written statement by the Company's independent public
accountants stating (A) that their audit examination has included a review of
the terms of this Indenture and the Securities as they relate to accounting
matters, and (B) whether, in connection with their audit examination, any event
which, with notice or the lapse of time or both, would constitute an Event of
Default has come to their attention and, if such a default has come to their
attention, specifying the nature and period of the existence thereof.
SECTION 1019. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Section 801 and Sections 1004 to 1017, if
before the time for such compliance the Holders of at least a majority in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect; provided, however, with respect to an Offer to Purchase as to
which an Offer has been mailed, no such waiver may be made or shall be effective
against any Holder tendering Securities pursuant to such Offer, and the Company
may not omit to comply with the terms of such Offer as to such Holder.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
The Securities may be redeemed at the election of the Company, in
accordance with the provisions appearing in the form of Security hereinbefore
set forth, at the Redemption Prices specified in such form of Security together
with accrued interest to the Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company, as permitted
by any provision of this Indenture, shall be made in accordance with such
provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company of less than all the Securities, the Company
shall, at least 60 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee), notify the
Trustee of such Redemption Date and of the principal amount of Securities to be
redeemed.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, pro rata; provided that redemption of portions of the
principal amount of Securities are made in denominations in integral multiples
of $1,000.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
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SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Securities to be redeemed, at his address appearing in
the Security Register or provided to the Trustee by such Holder.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and that,
unless the Company defaults in making such payment on the Redemption
Date, interest thereon will cease to accrue on and after said date, and
(5) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) any applicable accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and any applicable
accrued interest) such Securities shall not bear interest.
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Upon surrender of any such Security for redemption in accordance with said
notice, such Security shall be paid by the Company at the Redemption Price,
together with any applicable accrued interest to the Redemption Date; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close of business on
the relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate provided by the
Security.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or 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), and the Company shall execute, and the Trustee shall authenticate
and deliver to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered. Upon
surrender of a Global Security if redeemed in part, the Paying Agent shall
forward the Global Security to the Trustee who shall make a notation on Schedule
A thereof to reduce the principal amount at maturity of the Global Security by
an amount equal to the redeemed portion of the Global Security, provided that
the Global Security shall be in an authorized denomination.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company's Option to Effect Defeasance or Covenant Defeasance.
The Company may at its option by Board Resolution, at any time, elect
to have either Section 1202 or Section 1203 applied to the Outstanding
Securities upon compliance with the conditions set forth below in this Article
Twelve.
SECTION 1202. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section , the Company shall be deemed to have been discharged
from its obligations with respect to the Outstanding Securities on the date the
conditions set forth below are satisfied
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(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of such Securities to receive, solely from the trust fund described in
Section 1204 and as more fully set forth in such Section , payments in respect
of the principal of (and premium, if any) and interest on such Securities when
such payments are due, (B) the Company's obligations with respect to such
Securities under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article
Twelve. Subject to compliance with this Article Twelve, the Company may exercise
its option under this Section 1202 notwithstanding the prior exercise of its
option under Section 1203.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section , (i) the Company shall be released from its
obligations under Sections 1005 through 1017, inclusive, and Clauses (3) and (4)
of Section 801, (ii) the occurrence of an event specified in Sections 501(3),
501(4) (with respect to Clauses (1), (3) or (4) of Section 801), 501(5) (with
respect to any of Sections 1005 through 1017, inclusive), 501(6) and 501(7)
shall not be deemed to be an Event of Default on and after the date the
conditions set forth below are satisfied (hereinafter, "covenant defeasance").
For this purpose, such covenant defeasance means that the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such Section or Clause, whether directly or
indirectly by reason of any reference elsewhere herein to any such Section or
Clause or by reason of any reference in any such Section or Clause to any other
provision herein or in any other document, but the remainder of this Indenture
and such Securities shall be unaffected thereby.
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1202 or Section 1203 to the then Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 609 who shall agree to comply with the
provisions of this Article Twelve applicable to it) as trust funds in
trust for the purpose of making the following payments, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of such Securities, (A) money in an amount, or (B) U.S.
Government Obligations which through the scheduled payment of principal
and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment,
money in an
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<PAGE> 106
amount, or (C) a combination thereof, sufficient, in the opinion of an
internationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee,
to pay and discharge, and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge, the principal of
(premium, if any) and each instalment of interest on the Securities on
the Stated Maturity of such principal or instalment of interest in
accordance with the terms of this Indenture and of such Securities. For
this purpose, "U.S. Government Obligations" means securities that are
(x) direct obligations of the United States of America for the payment
of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by
the United States of America, which, in either case, are not callable
or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the United States Securities Act of 1933, as amended) as
custodian with respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation
or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1202, the Company
shall have delivered to the Trustee (i) an Opinion of Counsel stating
that (x) the Company has received from, or there has been published by,
the United States Internal Revenue Service a ruling, or (y) since the
date of this Indenture there has been a change in the applicable United
States Federal income tax law, in either case to the effect that, and
based thereon such opinion shall confirm that, the Holders of the
Outstanding Securities will not recognize gain or loss for United
States Federal income tax purposes as a result of such deposit,
defeasance and discharge and will be subject to United States 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 (ii) 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 Section 1016 above were applicable to such
payments.
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<PAGE> 107
(3) In the case of an election under Section 1203, the Company
shall have delivered to the Trustee (i) an Opinion of Counsel (which
may be based upon an Internal Revenue Service ruling) to the effect
that the Holders of the Outstanding Securities will not recognize gain
or loss for United States Federal income tax purposes as a result of
such deposit and covenant defeasance and will be subject to United
States 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 covenant
defeasance had not occurred and (ii) 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 Section 1016 above were
applicable to such payments.
(4) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest for purposes of the Trust
Indenture Act with respect to any securities of the Company.
(5) No Event of Default or event which with notice or lapse of
time or both would become an Event of Default shall have occurred and
be continuing on the date of such deposit or, insofar as subsections
501(8) and (9) are concerned, at any time during the period ending on
the 121st day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until the expiration of
such period).
(6) Such defeasance or covenant defeasance shall not result in
a material breach of, or constitute a material default under, any other
agreement or instrument evidencing Debt Incurred by the Company or a
Restricted Subsidiary to which the Company is a party or by which it is
bound.
(7) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1202 or the covenant defeasance under Section 1203 (as
the case may be) have been complied with.
(8) The Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that such defeasance or covenant defeasance
shall not result in the trust arising from such deposit to be subject
to regulation as an investment company under the United States
Investment Company Act of 1940, as amended, or such trust shall be
qualified under such act.
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<PAGE> 108
SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee--collectively, for purposes of
this Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Securities shall be held in trust and applied by the Trustee, in accordance with
the provisions of such Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Holders of such Securities,
of all sums due and to become due thereon in respect of principal (and premium,
if any) and interest, but such money need not be segregated from other funds
except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 1206. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1202 or 1203 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Twelve until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 1202 or 1203;
provided, however, that if the Company makes any payment of principal of (and
premium, if any) or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money held by the Trustee or
the Paying Agent.
--------------------
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 but one and the same instrument.
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<PAGE> 109
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
------------------------------------
Name: Muneer Satter
Title: Director:
------------------------------------
Name: Joseph Ravitch
Title: Secretary
THE BANK OF NEW YORK,
As Trustee
------------------------------------
Name:
Title:
Attest:
- ------------------------------
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<PAGE> 110
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to Section 305(b)(i) and (iii)
of the Indenture)
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Re: 10 3/4% Senior Discount Notes due February 15, 2007 of Diamond
Cable Communications Plc (the "Securities")
Reference is made to the Indenture, dated as of February 27,
1997 (the "Indenture"), from Diamond Cable Communications Plc (the "Company") to
The Bank of New York, as Trustee. Terms used herein and defined in the Indenture
or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to U.S. $____________ principal
amount at maturity of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities, (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so or (iii) it
is the Holder of a Global Security and has received a certification to the
effect set forth below. Such beneficial owner or owners are referred to herein
collectively as the "Owner". If the Specified Securities are not represented by
a Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in the form of
a Regulation S Security. In connection with such transfer, the Owner hereby
certifies or has certified that, unless such transfer is being effected pursuant
to an effective registration statement under the Securities Act, it is being
effected in accordance with Rule 904 or Rule 144 under the Securities Act and
with all applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies or has certified
as follows:
(1) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
A-1
<PAGE> 111
(A) the Owner is not a distributor of the Securities, an
affiliate of the Company or any such distributor or a person acting on
behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States or for the account or benefit of a U.S.
Person;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or through
the facilities of the Eurobond market, as regulated by the
Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner
nor any person acting on its behalf knows that the transaction
has been prearranged with a buyer in the United States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other renumeration in respect of the
Specified Securities, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(c)(1) have been
satisfied; and
(F) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after February 27, 1999 and
is being effected in accordance with the applicable amount,
manner of sale and notice requirements of Rule 144; or
(B) the transfer is occurring after February 27, 2000 and
the Owner is not, and during the preceding three months has
not been, an affiliate of the Company.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers.
A-2
<PAGE> 112
Dated: ----------------------------------
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
By:
--------------------------------
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
A-3
<PAGE> 113
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 305(b)(ii),
(iii), (iv) and (v) of the Indenture)
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Re: 10 3/4% Senior Discount Notes due February 15, 2007 of Diamond
Cable Communications Plc (the "Securities")
Reference is made to the Indenture, dated as of February 27,
1997 (the "Indenture"), from Diamond Cable Communications Plc (the "Company") to
The Bank of New York, as Trustee. Terms used herein and defined in the Indenture
or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to U.S. $_____________ principal
amount at maturity of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities, (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so or (iii) it
is the Holder of a Global Security and has received a certification to the
effect set forth below. Such beneficial owner or owners are referred to herein
collectively as the "Owner". If the Specified Securities are not represented by
a Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
transferred to a person (the "Transferee") who will take delivery in the form of
a Restricted Security. In connection with such transfer, the Owner hereby
certifies or has certified that, unless such transfer is being effected pursuant
to an effective registration statement under the Securities Act, it is being
effected in accordance with Rule 144A or Rule 144 under the Securities Act and
all applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies or has certified
that:
B-1
<PAGE> 114
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to
a person that the Owner and any person acting on its behalf
reasonably believe is a "qualified institutional buyer" within
the meaning of Rule 144A, acquiring for its own account or for
the account of a qualified institutional buyer; and
(B) the Owner and any person acting on its behalf
have taken reasonable steps to ensure that the Transferee is
aware that the Owner may be relying on Rule 144A in connection
with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected
pursuant to Rule 144:
(A) the transfer is occurring after February 27, 1999
and is being effected in accordance with the applicable
amount, manner of sale and notice requirements of Rule 144; or
(B) the transfer is occurring after February 27, 2000
and the Owner is not, and during the preceding three months
has not been, an affiliate of the Company.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers.
Dated: ------------------------------------
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
By:
---------------------------------
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
B-2
<PAGE> 115
ANNEX C -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 305(c))
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Re: 10 3/4% Senior Discount Notes due February 15, 2007 of Diamond
Cable Communications Plc (the "Securities")
Reference is made to the Indenture, dated as of February 27,
1997 (the "Indenture"), from Diamond Cable Communications Plc (the "Company") to
The Bank of New York, as Trustee. Terms used herein and defined in the Indenture
or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the
"Securities Act") are used herein as so defined.
This certificate relates to U.S. $_____________ principal
amount at maturity of Securities, which are evidenced by the following
certificate(s) (the "Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities, (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so or (iii) it
is the Holder of a Global Security and has received a certification to the
effect set forth below. Such beneficial owner or owners are referred to herein
collectively as the "Owner". If the Specified Securities are not represented by
a Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be
exchanged for Securities bearing no Securities Act Legend pursuant to Section
305(c) of the Indenture. In connection with such exchange, the Owner hereby
certifies or has certified that the exchange is occurring after February 27,
2000 and the Owner is not, and during the preceding three months has not been,
an affiliate of the Company. The Owner also acknowledges or has acknowledged
that any future transfers of the Specified Securities must comply with all
applicable securities laws of the states of the United States and other
jurisdictions.
C-1
<PAGE> 116
This certificate and the statements contained herein are made
for your benefit and the benefit of the Company and the Initial Purchasers.
Dated: ------------------------------------
(Print the name of the Undersigned,
as such term is defined in the
second paragraph of this
certificate.)
By:
---------------------------------
Name:
Title:
(If the Undersigned is a
corporation, partnership or
fiduciary, the title of the person
signing on behalf of the Undersigned
must be stated.)
C-2
<PAGE> 117
ANNEX D
DIAMOND CABLE COMMUNICATIONS PLC
_______, 1996
The Depository Trust Company
55 Water Street, 49th Floor
New York, New York 10041
The Bank of New York,
As Trustee
101 Barclay Street
New York, New York 10286
Re: 10 3/4% Senior Discount Notes due February 15, 2007
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of February
27, 1997 (the "Indenture") from Diamond Cable Communications Plc, as Issuer, to
The Bank of New York, as Trustee. Capitalized terms used and not defined herein
shall have the meanings given them in the Indenture.
This letter relates to U.S. $________ principal amount of
Securities represented by the Regulation S Global Security, held by the Trustee
pursuant to Section 201 of the Indenture. We hereby certify that the offering of
the Securities closed on February 27, 1997 and therefore, the restricted period
(as defined in Regulation S) with respect to the offer and sale of the
Securities will terminate on __________, 1997.
DIAMOND CABLE COMMUNICATIONS PLC
By:______________________
Name:
Title:
cc: Euroclear
CEDEL
<PAGE> 1
LON/71510.05
Exhibit 4.2
DIAMOND CABLE COMMUNICATIONS PLC
and
THE BANK OF NEW YORK
As Global Depositary
and
THE OWNERS OF BOOK-ENTRY INTERESTS
in
10-3/4% Senior Discount Notes due February 15, 2007
SENIOR NOTES DEPOSITARY AGREEMENT
Dated as of February 27, 1997
<PAGE> 2
SENIOR NOTES DEPOSITARY AGREEMENT
THIS AGREEMENT is made as of this 27th day of February, 1997 by and
between Diamond Cable Communications Plc, a public limited company organized
and existing under the laws of England (the "Company"), which is a party for
the limited purposes referred to herein, The Bank of New York, as Global
Depositary (the "Global Depositary") and owners from time to time of Book-Entry
Interests.
ARTICLE ONE
DEFINITIONS AND OTHER GENERAL PROVISIONS
SECTION 1.01 Definitions.
The following terms, as used herein, have the following meanings:
"Additional Amounts" shall have the meaning ascribed to it in Section 2.15
hereof.
"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 specified 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.
"Agent Member" means any member of, or participant in, the Depositary.
"Board Resolution" shall have the meaning ascribed to it in the Indenture.
"Book-Entry Interests" means interests in any Certificateless Depositary
Interest issued pursuant to this Agreement, which are eligible for trading
through DTC's book-entry system. References to Book-Entry Interests in a
Global Security should be understood to mean Book-Entry Interests in the
Certificateless Depositary Interest issued with respect to such Global
Security.
"Business Day" shall have the meaning ascribed to it in the Indenture.
"Certificateless Depositary Interest" means an interest in a Global
Security held by the Global Depositary that (i) shall, at all times, represent
the right to receive 100% of the principal and premium (if any) of and interest
on such Global Security and the right to require the Global Depositary to
procure the issue of one or more Definitive Registered Securities representing
up to 100% of the principal amount at maturity represented by the Global
Security and (ii) is issued by the Global Depositary to the Depositary or its
nominee.
"Company" means the party named as such in this Agreement until a
successor replaces it pursuant to the applicable provisions of the Indenture
and, thereafter, means the successor.
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<PAGE> 3
"Company Order" and "Company Request" shall have the meaning ascribed to
them in the Indenture.
"Corporate Trust Office" means the office of the Global Depositary in the
City of New York, at which any particular time its corporate trust business
shall be principally administered, which at the date hereof is located at 101
Barclay Street, Floor 21W, New York, New York, 10286.
"Definitive Registered Securities" means the Securities issued pursuant to
the Indenture in substantially the form set forth in Sections 203 and 204
thereto.
"Depositary" means DTC, or any successor, as the owner of the
Certificateless Depositary Interest and indicated as such in the records of the
Global Depositary.
"DTC" means The Depository Trust Company or its nominee.
"Event of Default" shall have the meaning ascribed to it in the Indenture.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended.
"Exchange Offer" shall have the meaning ascribed to it in the Indenture.
"Global Depositary" means the party named as such in this Agreement or its
nominee or the custodian of either until a successor shall have become such
pursuant to Section 3.08 hereof, and thereafter "Global Depositary" shall mean
such successor or its nominee or the custodian of either.
"Global Security" shall have the meaning ascribed to it in the Indenture.
References to the "Global Securities" shall mean each of the Regulation S
Global Security, the Restricted Global Security and the Unrestricted Global
Security, as applicable.
"Indenture" means the indenture of even date herewith between the Company
and The Bank of New York, as Trustee relating to the 10:% Senior Discount Notes
due February 15, 2007 of the Company as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
thereto entered into pursuant to the applicable provisions thereof, including,
for all purposes the provisions of the TIA that are deemed to be a part of and
govern such instrument.
"Letter of Representations" means the Letter of Representations to DTC of
even date herewith from the Global Depositary.
"Officers' Certificate" shall have the meaning ascribed to it in the
Indenture.
"Opinion of Counsel" means a written opinion from legal counsel, who may
be counsel to the Company and who shall otherwise be reasonably satisfactory to
the Global Depositary.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
-2-
<PAGE> 4
"Regulation S Certificate" means the certificate, the form of which is set
forth in Annex A hereto.
"Regulation S Global Security" shall have the meaning ascribed to it in
the Indenture.
"Responsible Officer" means, with respect to the Global Depositary, any
vice president, any assistant vice president, the secretary, any assistant
secretary, any assistant treasurer, any trust officer or assistant trust
officer, employed by the Global Depositary's corporate trust department or any
other officer of the Global Depositary customarily performing functions similar
to those performed by any of the above-designated officers and also means, with
respect to a particular corporate trust or agency matter, any other officer to
whom such matter is referred because of his or her knowledge and familiarity
with the particular subject.
"Restricted Global Security" shall have the meaning ascribed to it in the
Indenture.
"Restricted Period" shall have the meaning ascribed to it in the
Indenture.
"Restricted Security" shall have the meaning ascribed to it in the
Indenture.
"Restricted Securities Certificate" means the certificate, the form of
which is set forth in Annex B hereto.
"Security" means any 10-3/4% Senior Discount Note due February 15, 2007 of
the Company issued under the Indenture.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"TIA" means the United States Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after such
date, "TIA" means, to the extent required by such amendment, the Trust Indenture
Act of 1939, as so amended.
"Trustee" means the Person acting as Trustee under the Indenture until a
successor Trustee shall have become such pursuant to the applicable provisions
of the Indenture, and thereafter "Trustee" shall mean such successor Trustee.
"Unrestricted Global Security" means a Global Security other than the
Restricted Global Security (but which may be the Regulation S Global Security),
with respect to which Book-Entry Interests therein may be transferable without
material restriction under the Securities Act.
SECTION 1.02 Rules of Construction.
Unless the context otherwise requires: (1) a term has the meaning
assigned to it; (2) any capitalized term not otherwise defined herein shall
have the meaning ascribed to it in the Indenture; (3) "or" is not exclusive;
(4) "including" means including without limitation; (5) words in the singular
include the plural and words in the plural include the singular; and (6) the
words "herein", "hereof" and
-3-
<PAGE> 5
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision.
ARTICLE TWO
BOOK-ENTRY INTERESTS
SECTION 2.01 Deposit of the Global Securities.
The Global Depositary hereby accepts custody of the Restricted Global
Security and the Regulation S Global Security and shall act as Global
Depositary in accordance with the terms of this Agreement. The Global
Depositary shall hold such Global Securities at its Corporate Trust Office in
The Borough of Manhattan, The City of New York or at such place or places as it
shall determine with the consent of the Company for the purposes of Section
2.03 below and shall issue the Certificateless Depositary Interests in
accordance with the Letter of Representations.
SECTION 2.02 Book-Entry System.
(a) Upon acceptance by DTC of the Certificateless Depositary Interests in
each of the Global Securities for entry into its book-entry settlement system
in accordance with the terms of the Letter of Representations, Book-Entry
Interests will be traded through DTC's book-entry system, and ownership of such
Book-Entry Interests shall be shown in, and the transfer of such ownership
shall be effected only through, records maintained by (i) DTC or its successors
or (ii) institutions that have accounts with DTC or its successors ("DTC
Participants"). Book-Entry Interests shall be transferable only as units in
the same authorized denominations as the Securities.
(b) The Certificateless Depositary Interests shall be issuable only to
DTC, or successors of DTC or their respective nominees. Except as provided in
Section 2.05 or Section 2.10, no owner of Book-Entry Interests shall be
entitled to receive a Definitive Registered Security on account of such
ownership, and such owner's interest therein shall be shown only in accordance
with the procedures of DTC as set forth in the Letter of Representations.
SECTION 2.03 Procedures in the Event of an Exchange Offer.
Upon receipt by the Global Depositary as Holder of a Global Security of
notice of either the commencement of an Exchange Offer or the implementation of
arrangements permitting the resale by holders of Securities pursuant to the
registration provisions of the Securities Act, the Global Depositary will
forward to the Depositary materials relating to such Exchange Offer or other
arrangements with any additional instructions applicable to owners of
Book-Entry Interests. In the case of an Exchange Offer, upon notice by the
Depositary of the principal amount at maturity of Book-Entry Interests in the
Regulation S Global Security or the Restricted Global Security (as applicable)
tendered in response to the Exchange Offer, the Global Depositary shall (i) in
accordance with Section 305 of the Indenture, deliver to the Trustee that
portion of the Global Securities (as applicable) with respect to which Book-
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Entry Interests have been tendered and receive in exchange therefor (to the
extent such portions of the Global Securities are accepted pursuant to the
Exchange Offer) a new Unrestricted Global Security (or an increase in an
existing Unrestricted Global Security) in like principal amount at maturity as
the Book-Entry Interests tendered, (ii) to the extent the Unrestricted Global
Security is new, issue to the Depositary or its nominee a new Certificateless
Depositary Interest in the new Unrestricted Global Security, (iii) record
pursuant to Section 2.04 any changes in the principal amount at maturity of the
Certificateless Depositary Interests in each of the Regulation S Global
Security, the Restricted Global Security and the Unrestricted Global Security,
and (iv) notify the Depositary of any such changes. Book-Entry Interests in
the Unrestricted Global Security shall be assigned a CUSIP number different
from that assigned to Book-Entry Interests in the Restricted Global Security or
the Regulation S Global Security (if the Unrestricted Global Security is not
the Regulation S Global Security).
SECTION 2.04 Record of Transfer of the Certificateless Depositary Interests.
The Company appoints the Global Depositary as its agent for the sole
purpose of maintaining at the Global Depositary's Corporate Trust Office
records in which the Global Depositary shall (i) record DTC as the initial
owner of each Certificateless Depositary Interest, (ii) record the transfer of
any Certificateless Depositary Interest, and (iii) record the increases and
decreases in the principal amount at maturity represented by the
Certificateless Depositary Interests. The Certificateless Depositary Interests
cannot be transferred unless such transfer is noted in the records of the
Global Depositary. The Global Depositary shall treat the Person in whose name
the Certificateless Depositary Interests are recorded in the records of the
Global Depositary as the owner thereof for all purposes whatsoever and shall
not be bound or affected by any notice to the contrary, other than an order of
a court having jurisdiction over the Global Depositary.
The foregoing paragraph shall not (i) impose an obligation on the Global
Depositary to record the interests in or transfers of Book-Entry Interests held
by DTC Participants or Persons that may hold Book-Entry Interests through DTC
Participants or (ii) restrict transfers of such Book-Entry Interests held by
DTC Participants or such Persons.
In connection with the Global Depositary's appointment as the Company's
agent under this Section 2.04, the Company shall have such rights and
obligations as regards removal of the Global Depositary and appointment of a
successor as are specified in Section 3.08 hereof.
SECTION 2.05 Transfer of the Global Securities.
The Global Depositary shall hold each Global Security in custody for the
benefit of the Depositary. The Global Depositary shall not transfer or lend
any Global Security or any interest therein except that the Global Depositary
may transfer the Global Securities to a successor Global Depositary in
accordance with Section 3.08 or deliver the Global Securities to the Trustee
pursuant to the Exchange Offer in accordance with Section 2.03.
Notwithstanding the foregoing, the Global Depositary shall not under any
circumstances surrender or deliver the Global Securities to the Depositary. If
(i) the Global Depositary notifies the Company and the Trustee under Section
3.08 hereof that it is unwilling or unable to continue as Global Depositary and
no successor Global Depositary has been appointed by the Company within 120
days of such notification, (ii) DTC notifies the Global Depositary that it is
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unwilling or unable to continue as Depositary with respect to the
Certificateless Depositary Interest or if at any time it is unable to or ceases
to be a clearing agency registered under the Exchange Act and a successor
Depositary registered as a clearing agency under the Exchange Act is not
appointed within 120 days by the Global Depositary at the written request of
the Company, or (iii) the Company determines pursuant to Section 305 of the
Indenture that the Global Securities should be exchanged (in whole but not in
part) for Definitive Registered Securities, then the Global Depositary shall
promptly notify the Depositary that the Global Securities will be exchanged in
whole for Definitive Registered Securities pursuant to Section 305 of the
Indenture and, at the option of the Depositary, either (1) one or more
Definitive Registered Securities shall be issued pursuant to the Indenture and
deposited with the Depositary in exchange for the Certificateless Depositary
Interest held by the Depositary, whereupon all outstanding Book-Entry Interests
will represent interests in such Definitive Registered Securities, or (2)
Definitive Registered Securities shall be issued in such names and
denominations as the Depositary shall specify upon cancellation of the
Certificateless Depositary Interests and all Book-Entry Interests. The Global
Depositary agrees that in either such event it will promptly surrender each
Global Security held by it to the Trustee in connection with such exchange for
cancellation pursuant to Section 305 of the Indenture.
SECTION 2.06 Cancellation.
If any Global Security is surrendered for payment, or for redemption or
purchase in full of all the Securities evidenced thereby or for exchange for
Definitive Registered Securities to any Person other than the Trustee then such
Global Security shall, subject to Sections 2.08, 2.09 and 2.10, become void and
be delivered to the Trustee for cancellation.
SECTION 2.07 Payments in Respect of the Certificateless Depositary Interests
and Global Securities.
(a) Whenever the Global Depositary shall receive from the Paying Agent
appointed under the Indenture any payment on any Global Security, the amount so
received shall be distributed promptly to the Depositary entitled thereto, on
the corresponding payment date for such Global Security. So long as DTC is the
Depositary, such payments shall be made in accordance with the Letter of
Representations.
(b) The Global Depositary shall forward to the Company or its agents such
information from its records as the Company may reasonably request to enable
the Company or its agents to file necessary reports with governmental agencies,
and the Global Depositary, the Company or their agents may (but shall not be
required to) file any such reports necessary to obtain benefits under any
applicable tax treaties for the Depositary or beneficial owners of Book-Entry
Interests.
(c) None of the Company, the Trustee, the Global Depositary or any agent
of the Company or the Trustee or the Global Depositary will have any
responsibility or liability for any aspect of the records relating to payments
made by the Depositary (or its direct or indirect participants) on account of
Book-Entry Interests or for maintaining, supervising or reviewing any records
relating to such Book-Entry Interests.
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(d) Notwithstanding any other provision of this Agreement, the Global
Depositary shall be required to pay to the Depositary only amounts (including
Additional Amounts) received by the Global Depositary under a Global Security.
SECTION 2.08 Redemption of Securities and Book-Entry Interests.
In the event that the Company exercises any right of redemption under the
Indenture and terms of the Securities in respect of all or any part of any
Global Security, the Global Depositary shall promptly deliver such Global
Security to the Trustee and request the Trustee to endorse Schedule A to such
Global Security to reflect the reduction in the principal amount at maturity of
such Global Security as a result of such redemption. In addition, the Global
Depositary shall notify the Depositary of the principal amount at maturity
redeemed and of a corresponding reduction of the same principal amount at
maturity of the Certificateless Depositary Interest. The Global Depositary
shall pay all such amounts received by it in connection with such redemption to
the Depositary.
SECTION 2.09 Offer to Purchase Securities and Book-Entry Interests.
Upon receipt by the Global Depositary as holder of a Global Security of an
Offer to Purchase Securities pursuant to the Indenture, the Global Depositary
will forward the Offer to Purchase to the Depositary with any additional
instructions applicable to owners of Book-Entry Interests. Upon notice by the
Depositary of the principal amount at maturity of Book-Entry Interests tendered
for purchase in response to such Offer to Purchase, the Global Depositary will
surrender the applicable Global Security in accordance with the instructions
set forth in the Offer to Purchase, indicating the portion of the principal
amount at maturity of such Global Security that is being tendered for purchase
pursuant to the Offer to Purchase. Upon receipt of any payment resulting from
the Offer to Purchase, the Global Depositary shall pay any amounts received to
the Depositary, indicate the principal amount at maturity of such Global
Security reduced by the Trustee in connection with the Offer to Purchase, and
notify the Depositary of a corresponding reduction in the principal amount of
the Certificateless Depositary Interest.
SECTION 2.10 Exchange for Definitive Registered Securities; Transfers and
Transfer Restrictions.
If, upon an Event of Default or at any other time, the owner of a
Book-Entry Interest shall so request (such request of the owner to be given in
writing only through the Depositary), upon transfer or surrender of such
owner's Book-Entry Interest to the account of the Global Depositary maintained
with the Depositary, the Global Depositary shall (i) promptly deliver the
applicable Global Security to the Trustee and request that the Trustee exchange
any part of such Global Security for one or more Definitive Registered
Securities registered in the names specified by the Depositary and endorse
Schedule A to such Global Security to reflect the reduction in principal amount
of such Global Security resulting from such exchange, provided that the
principal amount at maturity of such Definitive Registered Securities and of
such Global Security after such exchange shall be in authorized denominations
and (ii) instruct the Depositary to cancel the Book-Entry Interest surrendered
or transferred to the account of the Global Depositary maintained with the
Depositary and notify the Depositary of a reduction in the principal amount at
maturity of the Certificateless Depositary Interest.
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Thereafter, if any Global Security is still outstanding, then at the
request of any holder of a Definitive Registered Security and upon surrender by
such holder of such Definitive Registered Security to the Registrar for
registration of transfer of such Definitive Registered Security to the Global
Depositary, the Global Depositary shall promptly (i) surrender such Definitive
Registered Security to the Registrar for cancellation, deliver the applicable
Global Security held by the Global Depositary to the Trustee and request that
the Trustee endorse Schedule A thereof to increase the principal amount at
maturity of such Global Security by an amount equal to the principal amount at
maturity of the Definitive Registered Security delivered to the Registrar for
cancellation and (ii) notify the Depositary of an increase in the
Certificateless Depositary Interest for the account of such holder equal in
principal amount at maturity to the principal amount at maturity of such
Definitive Registered Security.
If the owner of a Book-Entry Interest in one Global Security wishes at any
time to transfer such interest to a Person who wishes to take delivery thereof
in the form of a Book-Entry Interest in a second Global Security, then upon
receipt by the Global Depositary of (A) an order given by the Depositary or its
authorized representative directing that a Book-Entry Interest in the second
Global Security in a specified principal amount at maturity be credited to a
specified Agent Member's account and that a Book-Entry Interest in the first
Global Security in an equal principal amount be debited from another specified
Agent Member's account and (B) if applicable (see below), a Restricted
Securities Certificate or a Regulation S Certificate satisfactory to the Global
Depositary and duly executed by the owner of such Book-Entry Interest or his
attorney in fact duly authorized in writing, then the Global Depositary shall
(i) promptly deliver the applicable Global Securities to the Trustee and
request that the Trustee endorse Schedule A to such Global Securities to
reflect the reduction in principal amount at maturity of the first Global
Security and the corresponding increase in the second Global Security resulting
from such transfer and (ii) notify the Depositary of the corresponding
adjustments in the principal amount at maturity of the Certificateless
Depositary Interests.
Reference is made to Section 305(b) of the Indenture which sets forth
certain transfer restrictions and certification requirements relating to
exchanges or transfers between Holders of the Global Securities and/or
Definitive Registered Securities. Owners of Book-Entry Interests acknowledge
that analogous transfer restrictions and certification shall apply to transfers
and exchanges described in this Section 2.10. Accordingly, in the
circumstances where a Restricted Securities Certificate (as defined in the
Indenture) or a Regulation S Certificate (as defined in the Indenture) is
required under Section 305(b) of the Indenture to be delivered to the Trustee
in connection with any transfer or exchange involving a Global Security, a
Restricted Securities Certificate (as defined herein) or a Regulation S
Certificate (as defined herein) as applicable shall be delivered to the Global
Depositary in connection with any analogous transfer or exchange involving a
Book-Entry Interest in such Global Security.
The parties hereto acknowledge that pursuant to arrangements with the
Depositary, during the Restricted Period, any trades in Book-Entry Interests in
the Regulation S Global Security will only occur in or through accounts
maintained at the Depositary by the Euroclear System and Cedel Bank, sociJtJ
anonyme.
Each owner of Book-Entry Interests in the Restricted Global Security
understands that such Book-Entry Interests have not been registered under the
Securities Act and may not be offered, resold, pledged or otherwise transferred
by such owner except (a)(i) to a person who such owner reasonably believes is a
qualified institutional buyer acquiring for its own account or the account of a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A, (ii) in an offshore
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transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S,
(iii) pursuant to an exemption from registration under the Securities Act
provided by Rule 144 thereunder (if available) or (iv) pursuant to an effective
registration statement under the Securities Act and (b) in accordance with all
applicable securities laws of the states of the United States and other
jurisdictions.
SECTION 2.11 Record Date.
Whenever (i) the Global Depositary shall receive notice of any action to
be taken by the holder of a Global Security, or (ii) the Global Depositary
otherwise deems it appropriate in respect of any other matter, the Global
Depositary shall fix a record date for the determination of the principal
amount at maturity represented by the Certificateless Depositary Interest at
such record date, with respect to which the Depositary shall be entitled to
take any such action or to act in respect of any such matter, which record date
shall be the same date as that fixed with respect to the holder of a Global
Security or holders of Definitive Registered Securities under the Indenture.
Subject to the provisions of this Agreement, only the Depositary in whose name
the Certificateless Depositary Interest is recorded in the records of the
Global Depositary at the close of business on such record date shall be
entitled to receive any such payment, to give instructions as to such action or
to act in respect of any such matter.
SECTION 2.12 Action in Respect of the Certificateless Depositary Interests.
As soon as practicable after receipt by the Global Depositary of notice of
any solicitation of consents or request for a waiver or other action by the
holder of a Global Security under the Indenture or by the Global Depositary
under this Agreement, the Global Depositary shall mail to the Depositary a
notice containing (a) such information as is contained in the notice received,
(b) a statement that the Depositary at the close of business on a specified
record date (established in accordance with Section 2.11 hereof) will be
entitled, subject to the provisions of or governing the Certificateless
Depositary Interest or Global Securities, to instruct the Global Depositary as
to the consent, waiver or other action, if any, pertaining to this Agreement or
the Indenture and (c) a statement as to the manner in which such instructions
may be given. In addition, the Global Depositary will forward to the
Depositary or, based upon instructions received from the Depositary, to owners
of Book-Entry Interests, all materials pertaining to any such solicitation,
request, offer or other action. Upon the written request of the Depositary
received on or before the date established by the Global Depositary for such
purpose, the Global Depositary shall endeavor insofar as practicable and
permitted under the provisions of this Agreement or the Indenture, as the case
may be, to take such action regarding the requested consent, waiver or other
action in respect of all or only a portion of the principal amount at maturity
of the Certificateless Depositary Interest or applicable Global Security, as
the case may be, with respect to which instructions in accordance with any
instructions set forth in such request have been received. The Depositary may
grant proxies or otherwise authorize DTC Participants (or persons owning
Book-Entry Interests through such DTC Participants) to provide such
instructions to the Global 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
Indenture. The Global Depositary shall not itself exercise any discretion in
the granting of consents or waivers or the taking of any other action in
respect of a Global Security. Without prejudice to Section 2.07(c), the
records of the Depositary shall, absent manifest error, be conclusive evidence
of the owners of Book-Entry Interests and the principal amount at maturity
represented by such Book-Entry Interests.
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SECTION 2.13 Changes Affecting the Global Securities.
Upon any reclassification of the Global Securities, or upon any
recapitalization, reorganization, merger or consolidation or sale of assets
affecting the Company or to which the Company is a party, any securities that
shall be received by the Global Depositary in exchange for or in respect of a
Global Security shall be treated as a new Global Security or as part of the
Global Security under this Agreement and any corresponding Certificateless
Depositary Interest shall thenceforth represent the Global Security, including
such new securities so received.
SECTION 2.14 Reports.
The Global Depositary shall immediately send to the Depositary any
notices, reports and other communications received from the Company that are
received by the Global Depositary as holder of the Global Securities.
SECTION 2.15 Additional Amounts.
All payments made on Book-Entry Interests will be made free and clear of
and without deduction or withholding 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 such deduction or
withholding is required by the United Kingdom or any political subdivision or
taxing authority thereof or therein ("Taxes"), each owner of Book-Entry
Interests shall be entitled to receive from the Global Depositary additional
amounts ("Additional Amounts") with respect to any such payment, but subject to
the limitations contained in the Indenture, such Additional Amounts and
limitations to be applied for these purposes by treating the owner of any
Book-Entry Interests as a Holder or beneficiary of such payments (referred to
in Section 1016 - Additional Amounts in the Indenture). At least 10 days prior
to the first date on which withholding on account of Taxes would be required
under applicable law or payment of Additional Amounts would be required
pursuant to this Section 2.15 to be made, and at least 10 days prior to any
subsequent such date if there has been any change with respect to such matters,
the Company will furnish the Global Depositary with an Officers' Certificate
that shall specify by country the amount, if any, required to be withheld on
such payments to the Depositary and the amount of Additional Amounts payable to
the Depositary, net of amounts to which the Depositary or any owner of a
Book-Entry Interest is not entitled. The Global Depositary shall have no
responsibility for determining whether the Depositary or any owner of a
Book-Entry Interest is entitled to the payment of Additional Amounts, but shall
be entitled to rely conclusively for this purpose on the Officers' Certificate
or on certifications from the Depositary. The Company shall indemnify the
Global Depositary for, and hold it harmless against, any loss, liability or
expense reasonably incurred without negligence or bad faith on its part arising
out of or in connection with actions taken or omitted by it in reliance on any
Officers' Certificate furnished to it pursuant to this Section 2.15 or failure
to furnish any such Officers' Certificate. Notwithstanding anything to the
contrary provided above, the Global Depositary shall pay or cause to be paid
Additional Amounts only out of funds that shall be received by it from the
Company for that purpose.
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ARTICLE THREE
THE GLOBAL DEPOSITARY
SECTION 3.01 Certain Duties and Responsibilities.
(a) The Global Depositary undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement.
(b) No provision of this Agreement shall be construed to relieve the
Global Depositary from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) the duties and obligations of the Global Depositary with respect
to the Certificateless Depositary Interests and the Global Securities
shall be determined solely by the express provisions of this Agreement
and the Global Depositary shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into
this Agreement against the Global Depositary; and
(2) in the absence of bad faith on its part, the Global Depositary
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Global Depositary and
conforming to the requirements of this Agreement, but in the case of any
such statements, certificates or opinions that by any provision hereof
are specifically required to be furnished to the Global Depositary, the
Global Depositary shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Agreement.
(c) The Global Depositary shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Global Depositary, unless it
shall be proved that the Global Depositary was negligent in ascertaining the
pertinent facts.
(d) The Global Depositary shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Depositary relating to the time, method and place of
conducting any proceeding for any remedy available to the Global Depositary, or
exercising any power conferred upon the Global Depositary, under this
Agreement.
(e) No provision of this Agreement shall require the Global Depositary to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(f) Whether or not therein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Global Depositary shall be subject to the provisions of this
Section.
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SECTION 3.02 Notice of Default.
Within 90 days after the occurrence of any Event of Default under the
Indenture of which a Responsible Officer of the Global Depositary assigned to
its Corporate Trustee Administration Department has actual knowledge, the
Global Depositary shall transmit by mail to the Depositary in the manner
provided in Section 4.02, notice of such Event of Default, provided that such
Event of Default shall be continuing.
SECTION 3.03 Certain Rights of Global Depositary.
Subject to the provisions of Section 3.01 hereof:
(a) the Global Depositary may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon, security, or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by an Officers' Certificate, a Company Order or
Company Request, and any resolution of the Board of Directors of the
Company may be sufficiently evidenced by a Board Resolution;
(c) the Global Depositary may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection with respect to any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon
in accordance with such advice or Opinion of Counsel;
(d) the Global Depositary shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document, but the Global Depositary, in its discretion,
may make reasonable further inquiry or investigation into such facts or
matters related to the issuance of the Global Securities and if the
Global Depositary shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, at reasonable times during normal business
hours, personally or by agent or attorney;
(e) the Global Depositary may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Global Depositary shall not be responsible for any
misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder;
(f) the Global Depositary shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement at the
request, order or direction of the Depositary pursuant to this Agreement,
unless the Depositary shall have offered to the Global Depositary
reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred
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<PAGE> 14
by it in compliance with such request, order or direction, provided that such
request, order or direction shall not expose the Global Depositary to personal
liability;
(g) the Global Depositary shall not be liable for any action taken
or omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion, rights or powers conferred upon it
by this Agreement; and
(h) whenever in the administration of its duties under this
Agreement the Global Depositary shall deem it necessary or desirable that
a matter be proved or established prior to taking or suffering or
omitting any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Global Depositary, be deemed
to be conclusively proved and established by an Officers' Certificate
delivered to the Global Depositary.
SECTION 3.04 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in the Indenture and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Global Depositary assumes no responsibility for their
correctness. The Global Depositary makes no representations as to the validity
or sufficiency of this Agreement or of the Securities or of any offering
materials. The Global Depositary shall not be accountable for the use or
application by the Company of the proceeds with respect to the Securities.
SECTION 3.05 Money Held in Trust.
Money held by the Global Depositary in trust hereunder need not be
segregated from other funds held by the Global Depositary, except to the extent
required by law. The Global Depositary shall be under no obligation to invest
or pay interest on any money received by it hereunder, except as otherwise
agreed with the Depositary (or in the absence of such an agreement, with the
Company).
SECTION 3.06 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Global Depositary from time to time such
compensation as agreed between them in writing for all services rendered
by it hereunder (which compensation shall not be limited by any provision
of law with regard to the compensation of a trustee of an express trust);
(b) to reimburse the Global Depositary and any predecessor Global
Depositary upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Global Depositary in accordance with
any provision of this Agreement (including the reasonable compensation
and the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
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(c) to indemnify the Global Depositary and any predecessor Global
Depositary for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this
Agreement and its duties hereunder, including the costs and expenses of
defending itself against or investigating any claim of liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
The obligations of the Company under this Section to compensate and
indemnify the Global Depositary and any predecessor Global Depositary and to
pay or reimburse the Global Depositary and any predecessor Global Depositary
for expenses, disbursements and advances shall survive the payment of the
Global Securities, resignation or removal of the Global Depositary and
satisfaction, discharge or other termination of this Agreement.
SECTION 3.07 Global Depositary Required; Eligibility.
At all times when there is a Global Depositary hereunder, such Global
Depositary shall be a corporation organized and doing business under the laws
of the United States of America, any State thereof or the District of Columbia,
having, together with its parent, a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by Federal, State or
District of Columbia authority, willing to act on reasonable terms. Such
corporation shall have its principal place of business in the Borough of
Manhattan, the City of New York, if there be such a corporation in such
location willing to act upon reasonable and customary terms and conditions. If
such corporation, or its parent, publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. The Global Depositary hereunder shall at all times be the Trustee
under the Indenture, subject to receipt of an Opinion of Counsel that the same
Person is precluded by law from acting in such capacities. If at any time the
Global Depositary shall cease to be eligible in accordance with the provisions
of this Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
SECTION 3.08 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Global Depositary and no appointment
of a successor Global Depositary pursuant to this Article shall become
effective until (i) the acceptance of appointment by the successor Global
Depositary in accordance with the applicable requirements of Section 3.09
hereof or (ii) the issuance of Definitive Registered Securities in accordance
with Section 2.05 hereof.
(b) The Global Depositary may resign by giving written notice thereof to
the Company and the Depositary, in accordance with Section 4.01 and Section
4.02, 60 days prior to the effective date of such resignation. The Global
Depositary may be removed at any time upon 90 days' notice by the filing with
it of an instrument in writing signed on behalf of the Company and specifying
such removal and the date when it is intended to become effective.
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<PAGE> 16
(c) If at any time
(1) the Global Depositary shall cease to be eligible under Section
3.07 hereof and shall fail to resign after written request therefor by
the Company or by the Depositary, or
(2) the Global Depositary shall become incapable of acting with
respect to the Certificateless Depositary Interest or shall be adjudged a
bankrupt or insolvent, or a receiver or liquidator of the Global
Depositary or of its property shall be appointed or any public officer
shall take charge or control of the Global Depositary or of its property
or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, by Board Resolution, may immediately
remove the Global Depositary and appoint a successor Global Depositary or (ii)
the Depositary or Global Depositary may, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Global Depositary and the appointment of a successor Global
Depositary or Global Depositaries unless the Global Securities have been
completely replaced by Definitive Registered Securities which have been issued
in accordance with the Indenture. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, remove the Global Depositary and
appoint a successor Global Depositary.
(d) If the Global Depositary shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Global Depositary for
any cause, the Company, by Board Resolution, shall promptly appoint a successor
Global Depositary (other than the Company) and shall comply with the applicable
requirements of Section 3.09 hereof. If no successor Global Depositary with
respect to the Global Securities shall have been so appointed by the Company
and accepted appointment in the manner required by Section 3.09, the Depositary
or Global Depositary may, on behalf of itself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Global Depositary unless the Global Securities have been completely
replaced by Definitive Registered Securities which have been issued in
accordance with the Indenture.
(e) The Company shall give, or shall cause such successor Global
Depositary to give, notice of each resignation and each removal of a Global
Depositary and each appointment of a successor Global Depositary to the
Depositary in accordance with Section 4.02 hereof. Each notice shall include
the name of the successor Global Depositary and the address of its Corporate
Trust Office. If the Company fails to give notice within ten days after
acceptance of appointment by the successor Global Depositary, the successor
Global Depositary shall cause such notice to be given at the expense of the
Company.
SECTION 3.09 Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Global Depositary,
every such successor Global Depositary so appointed shall execute, acknowledge
and deliver to the Company and to the retiring Global Depositary an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Global Depositary shall become effective and such successor Global
Depositary, without any further act, deed or conveyance, shall become vested
with all the rights, powers, agencies and duties of the retiring Global
Depositary, with like effect as if originally named as
-15-
<PAGE> 17
Global Depositary hereunder; but, on the request of the Company or the
successor Global Depositary, such retiring Global Depositary shall, upon
payment of all amounts due and payable to it pursuant to Section 3.06 hereof,
execute and deliver an instrument transferring to such successor Global
Depositary all the rights and powers of the retiring Global Depositary and
shall duly assign, transfer and deliver to such successor Global Depositary all
property and money held by such retiring Global Depositary hereunder and shall
deliver the Global Securities to the successor.
(b) Upon request of any such successor Global Depositary, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Global Depositary all such rights, powers and
agencies referred to in paragraph (a) of this Section.
(c) No successor Global Depositary shall accept its appointment unless at
the time of such acceptance such successor Global Depositary shall be eligible
under this Article.
(d) Upon acceptance of appointment by any successor Global Depositary as
provided in this Section, the Company shall give notice thereof to the
Depositary in accordance with Section 4.02 hereof. If the acceptance of
appointment is substantially contemporaneous with the resignation of the Global
Depositary, then the notice called for by the preceding sentence may be
combined with the notice called for by Section 3.08 hereof. If the Company
fails to give such notice within 15 days after acceptance of appointment by the
successor Global Depositary, the successor Global Depositary shall promptly
cause such notice to be given at the expense of the Company.
SECTION 3.10 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Global Depositary may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Global Depositary
shall be a party, or any corporation succeeding to all or substantially all the
agency business of the Global Depositary, shall be the successor of the Global
Depositary hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation shall be otherwise eligible under this Article.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
SECTION 4.01 Notices to Global Depositary or Company.
Any request, demand, authorization, direction, notice, consent, or waiver
or other document provided or permitted by this Agreement to be made upon,
given or furnished to, or filed with,
(a) the Global Depositary by the Depositary, the Trustee or the Company
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and delivered
or mailed and received, first-class postage prepaid, to the Global Depositary
at its Corporate Trust Office, Attention: Corporate Trust Trustee
Administration Department, or at any other address previously furnished in
writing by the Global Depositary to the Depositary, the Trustee and the
Company, or
-16-
<PAGE> 18
(b) the Company, by the Global Depositary shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided) if made, given,
furnished or filed in writing and delivered or mailed and received, first-class
postage prepaid to Diamond Cable Communications Plc, Attention: Managing
Director, Regency House, 2A Sherwood Rise, Nottingham NG7 6JN, England, or at
any other address previously furnished in writing to the Global Depositary by
the Company.
SECTION 4.02 Notice to Depositary and Owners; Waiver.
Where this Agreement provides for notice to the Depositary or owners of
Book-Entry Interests of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided or as provided in the Letter of
Representations) if in writing and mailed, first-class postage prepaid, to the
Depositary at the address notified to the Global Depositary, in each case not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. Where this Agreement provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by the Depositary shall be filed
with the Global Depositary, but such filing shall not be a condition precedent
to the validity of any such action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Global Depositary
shall constitute a sufficient notification for every purpose hereunder.
SECTION 4.03 Effect of Headings.
The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
SECTION 4.04 Successors and Assigns.
All covenants and agreements of the Company in this Agreement and the
Securities shall bind the Company's successors and assigns, whether so
expressed or not.
SECTION 4.05 Separability Clause.
In case any provision in this Agreement or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof and thereof shall not in any way be affected or
impaired thereby.
SECTION 4.06 Benefits of Agreement.
-17-
<PAGE> 19
Nothing in this Agreement, the Securities or the Indenture, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any benefits or any legal or equitable right, remedy or
claim under this Agreement. The owners from time to time of the Book-Entry
Interests shall be parties to this Agreement and, by their acceptance of
delivery of the Book-Entry Interests, shall be deemed to be bound by all of the
terms and conditions hereof and of the Indenture and the Securities.
SECTION 4.07 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW THEREOF.
SECTION 4.08 Jurisdiction.
By the execution and delivery of this Agreement, the Company (i)
acknowledges that it has, by separate written instrument, irrevocably
designated and appointed CT Corporation Systems as its authorized agent upon
which process may be serviced in any suit or proceeding by the Global
Depositary arising out of this Agreement that may be instituted in any Federal
or State court in the Borough of Manhattan, The City of New York, and
acknowledges that CT Corporation Systems has accepted such designation, (ii)
submits to the jurisdiction of any such court in any such suit or proceeding,
and waives any objection which it may now or hereafter have to the laying of
venue of any such proceeding or any claim of inconvenient forum and (iii)
agrees that service of process upon CT Corporation Systems and written notice
of said service to it (mailed or delivered to its Secretary at its principal
office) shall be deemed in every respect effective service of process upon it
in any such suit or proceeding. The Company further agrees to take any and all
action, including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and appointment
of CT Corporation Systems in full force and effect so long as this Agreement
shall be in full force and effect and so long as any Global Security shall be
outstanding.
To the extent that the Company has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution
or otherwise) with respect to itself or its property, hereby irrevocably waives
such immunity in respect of its respective obligations under this Agreement to
the fullest extent permitted by law.
SECTION 4.09 Counterparts.
This Agreement may be executed in any number of counterparts by the
parties hereto on separate counterparts, each of which, when so executed and
delivered, shall be deemed an original, but all such counterparts shall
together constitute one and the same instrument.
SECTION 4.10 Inspection of Agreement.
-18-
<PAGE> 20
A copy of this Agreement shall be available at all reasonable times during
normal business hours at the Corporate Trust Office of the Global Depositary
for inspection by any owner of Book-Entry Interests.
SECTION 4.11 Satisfaction and Discharge.
This Agreement upon a Company Request shall cease to be of further effect,
and the Global Depositary, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Agreement, when
(i) the Indenture has been satisfied and discharged pursuant to the provisions
thereof or Definitive Registered Securities have been issued and the Global
Securities have been cancelled in accordance with the provisions of Section
2.05 or 2.06 hereof, (ii) the Company has paid or caused to be paid all sums
payable hereunder by the Company and (iii) the Company has delivered to the
Global Depositary an Officers' Certificate and an Opinion of Counsel, stating
that all conditions precedent herein provided relating to the satisfaction and
discharge of this Agreement have been complied with.
SECTION 4.12 Amendments.
The Company and the Global Depositary may amend this Agreement without the
consent of the Depositary or the owners of Book-Entry Interests:
(a) to cure any ambiguity, omissions, defect or inconsistency;
(b) to add to the covenants and agreements of the Global Depositary or the
Company;
(c) to evidence or effectuate the assignment of the Global Depositary's
rights and duties to a qualified successor, as provided herein;
(d) to evidence the succession of another person to the Company (when a
similar amendment with respect to the Indenture is being executed) and the
assumption by any such successor of the covenants of the Company therein;
(e) to comply with any requirements of the Securities and Exchange
Commission and the TIA; or
(f) to modify, alter, amend or supplement this Agreement in any other
manner that is not adverse to the Depositary or the owners of Book-Entry
Interests.
No amendment that adversely affects the Depositary may be made to this
Agreement or the Book-Entry Interests without the consent of the Depositary.
SECTION 4.13 Global Depositary To Sign Amendments.
-19-
<PAGE> 21
The Global Depositary shall sign any amendment authorized pursuant to
Section 4.12 if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Global Depositary. If it does, the Global
Depositary may, but need not, sign it. In signing such amendment, the Global
Depositary shall be entitled to receive indemnity reasonably satisfactory to it
and to receive, and shall be fully protected in reasonably relying upon, an
Officers' Certificate (which need only cover the matters set forth in clause
(a) below) and an Opinion of Counsel stating that:
(a) such amendment is authorized or permitted by this Agreement;
(b) the Company has all necessary corporate power and authority to execute
and deliver the amendment and that the execution, delivery and performance of
such amendment has been duly authorized by all necessary corporate action;
(c) the execution, delivery and performance of the amendment do not
conflict with, or result in the breach of or constitute a default under any of
the terms, conditions or provisions of (i) this Agreement, (ii) the Memorandum
of Association and Articles of Association of the Company or (iii) any law or
regulation applicable to the Company; and
(d) such amendment has been duly and validly executed and delivered by the
Company, and this Agreement together with such amendment constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
DIAMOND CABLE COMMUNICATIONS PLC
--------------------------------
Name: Nicholas Millard
Title: Chief Financial Officer
THE BANK OF NEW YORK
as Global Depositary
--------------------------------
Name:
Title:
-20-
<PAGE> 22
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
The Bank of New York, as Global Depositary
101 Barclay Street, 21st Floor
New York, New York 10286
Re: 10-3/4% Senior Discount Notes due February 2007 of
Diamond Cable Communications Plc (the "Securities")
Reference is made to the Senior Notes Depositary Agreement, dated as of
February 27, 1997 (the "Deposit Agreement"), among inter alia The Bank of New
York, as Global Depositary, and the owners of Book-Entry Interests. Terms used
herein and defined in the Deposit Agreement or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to U.S. $____________ principal amount at
maturity of Securities, or Book-Entry Interests therein (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
AGENT MEMBER'S
ACCOUNT No(s). _________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security,
Book-Entry Interests therein are held through The Depository Trust Company or
an agent member in the name of the Undersigned, as or on behalf of the Owner.
If the Specified Securities are not represented by a Global Security, they are
registered in the name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Regulation S
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective registration
statement under the Securities Act, it is being effected in accordance with
Rule 904 or Rule 144 under the Securities Act and with all applicable
securities laws of the states of the United States and other jurisdictions.
Accordingly, the Owner hereby further certifies as follows:
A-1
<PAGE> 23
(1) Rule 904 Transfers. If the transfer is being effected in
accordance with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of Diamond Cable Communications Plc (the "Company") or
any such distributor or a person acting on behalf of any of the
foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States or for the account or benefit of a U.S.
Person;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated
by the Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner
nor any person acting on its behalf knows that the
transaction has been prearranged with a buyer in the United
States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other renumeration in respect of the
Specified Securities, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(c)(1) have
been satisfied; and
(F) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant
to Rule 144:
(A) the transfer is occurring after February 27, 1999 and is
being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after February 27, 2000 and the
Owner is not, and during the preceding three months has not been,
an affiliate of the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Purchasers.
A-2
<PAGE> 24
Dated: ------------------------------------------------
(Print the name of the Undersigned, as such term
is defined in the second paragraph of this
certificate.)
By:
--------------------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
A-3
<PAGE> 25
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
The Bank of New York, as Global Depositary
101 Barclay Street, 21st Floor
New York, New York 10286
Re: 10-3/4% Senior Discount Notes due February 2007 of
Diamond Cable Communications Plc (the "Securities")
Reference is made to the Senior Notes Depositary Agreement, dated as of
February 27, 1997 (the "Deposit Agreement"), among inter alia The Bank of New
York, as Global Depositary, and the owners of Book-Entry Interests. Terms used
herein and defined in the Deposit Agreement or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to U.S. $_____________ principal amount at
maturity of Securities, or Book-Entry Interests therein (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
AGENT MEMBER'S
ACCOUNT No(s).__________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security,
Book-Entry Interests therein are held through The Depository Trust Company or
an agent member in the name of the Undersigned, as or on behalf of the Owner.
If the Specified Securities are not represented by a Global Security, they are
registered in the name of the Undersigned, as or on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective
B-1
<PAGE> 26
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies as:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably
believe is a "qualified institutional buyer" within the meaning of
Rule 144A, acquiring for its own account or for the account of a
qualified institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the
Owner may be relying on Rule 144A in connection with the transfer;
and
(2) Rule 144 Transfers. If the transfer is being effected pursuant
to Rule 144:
(A) the transfer is occurring after February 27, 1999 and is
being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after February 27, 2000 and the
Owner is not, and during the preceding three months has not been,
an affiliate of the Diamond Cable Communications Plc (the
"Company").
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Purchasers.
Dated: ------------------------------------------------
(Print the name of the Undersigned, as such term
is defined in the second paragraph of this
certificate.)
By:
--------------------------------------------
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
B-2
<PAGE> 1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
UNAUDITED
EXHIBIT 12
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------
1994 1995 1996
-------- --------- ---------
(in thousands)
<S> <C> <C> <C>
US GAAP
EARNINGS:
Profit and loss before taxes L.(8,679) L.(27,607) L.(35,830)
FIXED CHARGES:
Interest element of capital lease charges 352 515 853
Rental expense deemed to be representative of interest factor(1) 26 244 386
Other interest expense 166 1,956 381
Amortisation of debt discount and expense 3,318 14,647 39,100
-------- --------- ---------
3,862 17,362 40,720
-------- --------- ---------
(Loss)/profit before income taxes and fixed charges (4,817) (10,245) 4,890
Fixed charges (3,862) (17,362) (40,720)
-------- --------- ---------
Deficiency of earnings to fixed charges (8,679) (27,607) (35,830)
-------- --------- ---------
Ratio of earnings to fixed charges(2) 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.
vi
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders
Diamond Cable Communications Plc:
We consent to the use of our report with respect to Diamond Cable
Communications Plc included herein and to the references to our firm under the
headings "Experts" and "Selected Financial Data" in the Prospectus.
KPMG
Nottingham, England
April 14, 1997
vii
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
DIAMOND CABLE COMMUNICATIONS PLC
OFFER TO EXCHANGE
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007
FOR ANY AND ALL OUTSTANDING
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007
PURSUANT TO THE PROSPECTUS, DATED APRIL , 1997
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 1997,
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAW PRIOR TO 5:00
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Delivery To: The Bank of New York, as Exchange Agent
If by Mail, Hand or Overnight Courier:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Securities Processing Window -
Ground Level Reorganization, 7E
or
If by Registered or Certified Mail:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attention: Enrique Lopez -
Corporate Trust Operations, 7E
If by Facsimile:
(212) 571-6339
Enrique Lopez
Confirm by Telephone:
Enrique Lopez: (212) 815 2742
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE,
OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT
CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus dated April , 1997 (the "Prospectus"), of Diamond Cable
Communications Plc (the "Company"), and this letter of transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange $1,000 in principal amount of a new series of 10 3/4% Senior
Discount Notes due February 15, 2007 (the "New Notes") for each $1,000 in
principal amount of outstanding 1o 3/4% Senior Discount Notes due February 15,
2007 (the "Old Notes"). Capitalized terms used but not defined herein have the
meanings given to them in the Prospectus.
<PAGE> 2
In connection with the Exchange Offer by the Company, Book-Entry Interests
in the Certificateless Depositary Interests in the Old Notes ("Old Book-Entry
Interests"), which are traded through the facilities of The Depositary Trust
Company (the "Book-Entry Transfer Facility"), may be tendered to the Global
Depositary in exchange for Book-Entry Interests in the Certificateless
Depositary Interests in the New Notes ("New Book-Entry Interests"). In such
case, the Book-Entry Depositary has committed to exchange a like principal
amount of New Book-Entry Interests for the Old Book-Entry Interests so tendered.
Other than as described below, the terms and conditions for exchanging Old
Book-Entry Interest for New Book-Entry Interests are identical to the terms and
conditions for exchanging Old Notes for New Notes. This instrument is to be
used for purposes of such exchange. In this regard, except as the context
otherwise required, holders, as used below, includes, as appropriate, any
participants in the Book-Entry Transfer Facility system whose names appear on a
security position as holders of Book-Entry Interests, references to New or Old
Notes include New or Old Book-Entry Interests and provisions of the following
discussion that apply to the Company also apply, as appropriate, to the
Book-Entry Depositary. The Exchange Agent for the Company will also act as
exchange agent for the Global Depositary in effecting such change.
For each Old Note accepted for exchange not validly withdrawn, the holder
of such Old Note will receive a New Note having a principal amount at maturity
equal to that of the surrendered Old Note. Holders of Old Notes accepted for
exchange will be deemed to have waived the right to receive any other payments
or accrued interest on the Old Notes. The Company expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open, and thereby delay acceptance of any Old
Notes, by giving oral or written notice of such extension to the Exchange Agent
and notice of such extension to the holders as described in the next sentence,
in which event the term "Expiration Date" shall mean the latest time and date
to which the Exchange Offer is extended. The Company shall notify the holders
of the Old Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date. Notwithstanding the foregoing,
pursuant to the Registration Agreement, the Company has agreed to keep the
Exchange Offer open for not less than 30 days after the date notice thereof is
mailed to the holders of the Old Notes (or longer if required by applicable
law).
Either this Letter or an Agent's Message is to be completed by a holder of
Old Notes in order to tender Old Notes. All deliveries of Old Notes must be
made by book-entry transfer to the account maintained by the Exchange Agent at
The Depositary Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in the Prospectus under "The Exchange Offer --
Procedures for Tendering Book-Entry Interests". Holders of Old Notes who are
unable to deliver confirmation of the book-entry tender of their Old Notes into
the Exchange Agent's account at The Book-Entry Transfer Facility (a "Book-Entry
Confirmation") or all other documents required by this Letter to the Exchange
Agent on or prior to the Expiration Date, must tender their Old Notes according
to the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer -- Guaranteed Delivery Procedures". See Instruction 1. Delivery
of documents to the Book-Entry Transfer Facility does not constitute delivery
to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the principal amount at maturity of Old Notes
should be listed on a separate signed schedule affixed hereto.
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<PAGE> 3
DESCRIPTION OF OLD NOTES
<TABLE>
<S> <C> <C>
1 2
AGGREGATE PRINCIPAL
NAME(S) AND ADDRESS(ES) OF HOLDER(S) AMOUNT AT MATURITY PRINCIPAL AMOUNT AT
(PLEASE FILL IN, IF BLANK) OF OLD NOTE(S) MATURITY TENDERED*
Total
</TABLE>
* Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in column
2. See Instruction 2. Old Notes tendered hereby must be in denominations of
principal amount at maturity of $1,000 and any integral multiple thereof. See
Instruction 1.
CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
The Depositary Trust Company
Account Number _________________ Transaction Code Number ___________________
By crediting the Old Notes to the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's Automated Tender Offer Program ("ATOP") and by complying with
applicable ATOP procedures with respect to the Exchange Offer, including
transmitting a computer-generated message (an "Agent's Massage") to the
Exchange Agent in which the holder of the Old Notes acknowledges and agrees to
be bound by the terms of this Letter, the participant in the Book-Entry
Transfer Facility confirms on behalf of itself and the beneficial owners of
such Old Notes all provisions of this Letter applicable to it and such
beneficial owners as fully as if it had completed the information required
herein and executed and transmitted this Letter to the Exchange Agent.
CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Holder(s) __________________________________________________
Name of Institution with guaranteed delivery __________________________
The Depositary Trust Company
Account Number _________________ Transaction Code Number ______________
-3-
<PAGE> 4
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ________________________________________________________________
Address: _____________________________________________________________
______________________________________________________________________
You are entitled to as many copies as you may reasonably request and if
you need more than 10 copies, please so indicate by a notation below.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Book-Entry Depositary the aggregate principal
amount at maturity of Old Notes indicated above. Subject to, and effective
upon, the acceptance for exchange of the Old Notes tendered hereby, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Book-Entry Depositary all right, title and interest in and to such Old Notes as
are being tendered hereby. Each participant in the Book-Entry Transfer
Facility transmitting by means of the Book-Entry Transfer Facility a
computer-generated message forming part of a Book-Entry Confirmation, on behalf
of itself and the beneficial owner of the Old Notes tendered thereby,
acknowledges receipt of the Prospectus and this Letter and agrees to be bound
by the terms and conditions of the Exchange Offer as set forth in the
Prospectus and this Letter.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Book-Entry will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim when the same are accepted by
the Book-Entry Depositary. The undersigned hereby irrevocably constitutes and
appoints the Exchange Agent its agent and attorney-in-fact with full power of
substitution, for purposes of delivering this Letter and the Old Notes to the
Book-Entry Depositary. The Power of Attorney granted in this paragraph shall
be deemed irrevocable from and after the Expiration Date and coupled with an
interest.
The Undersigned also acknowledges that this Exchange Offer is being made
by the Company in reliance on an interpretation by the staff of the Securities
and Exchange Commission (the "SEC"), as set forth in no-action letters issued
to third parties, that the New Notes issued in exchange for the Old Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders thereof (other than a broker-dealer, as set forth below,
or any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"))
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution (within the meaning of the Securities
Act) of such New Notes. By tendering, each holder of Old Notes represents to
the Company and the Book-Entry Depositary that (i) the New Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
such
-4-
<PAGE> 5
holder, (ii) neither the holder of Old Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, (iii) if the holder is not a broker-dealer or is a
broker-dealer but will not receive New Notes for its own account in exchange
for Old Notes, neither the holder nor any such other person is engaged in or
intends to participate in a distribution of such New Notes and (iv) neither the
holder nor any such other person is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act. By tendering each holder of Old
Notes that is a broker-dealer (whether or not it is also an "affiliate") that
will receive New Notes for its own account pursuant to the Exchange Offer,
represents that the Old notes to be exchanged for the New Notes were acquired
by it as a result of market-making activities or other trading activities, and
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. The undersigned acknowledges that in reliance on an
interpretation by the staff of the SEC, a broker-dealer may fulfill his
prospectus delivery requirements with respect to the New Notes (other than a
resale of an unsold allotment from the original sale of the Old Notes) with the
Prospectus which constitutes part of this Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company or the Book-Entry Depositary to be necessary or
desirable to complete the sale, assignment and transfer of the Old Notes
tendered hereby. All authority conferred or agreed to be conferred in this
Letter and every obligation of the undersigned hereunder shall be binding upon
the successors, assigns, heirs, executors, administrators, trustees in
bankruptcy and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
The tender may be withdrawn only in accordance with the procedure with the
procedure set forth in "The Exchange Offer -- Withdrawal Rights" section of the
Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please credit the account indicated above maintained at
the Book-Entry Transfer Facility.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
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<PAGE> 6
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE
(TOGETHER WITH A BOOK-ENTRY CONFIRMATION AND ANY OTHER REQUIRED DOCUMENTS OR
THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON OR PRIOR TO THE EXPIRATION DATE.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if New Notes and/or if Old Notes delivered by
book-entry transfer which are not accepted for exchange are to be credited to
an account maintained at the Book-Entry Transfer Facility other than the
account indicated above.
Issue: New Notes and/or Old Notes to:
Names(s)......................................
(PLEASE TYPE OR PRINT)
..............................................
(PLEASE TYPE OR PRINT)
Address ......................................
..............................................
(ZIP CODE)
..............................................
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
[ ] Credit New Notes and/or unexchanged Old Notes to be Book-Entry Transfer
Facility account set forth below.
______________________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER)
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
-6-
<PAGE> 7
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
Dated:................................................................., 1997
x....................................................., 1997
x....................................................., 1997
(SIGNATURE(S) OF OWNER (DATE)
Area Code and Telephone Number..........................................
If a holder is tendering any Old Notes, this Letter must be signed by the
person in whose name such Old Notes are registered on the security position
listing maintained by DTC or by any person(s) authorized to become holder(s) by
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instructions 3.
Name(s).................................................................
........................................................................
(PLEASE TYPE OR PRINT)
Capacity:...............................................................
Address:................................................................
........................................................................
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
SIGNATURE(S) GUARANTEED BY
AN ELIGIBLE INSTITUTION:................................................
(AUTHORIZED SIGNATURE)
........................................................................
(TITLE)
........................................................................
Dated:..................................................................
-7-
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
FOR THE 10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007 IN EXCHANGE
FOR THE 10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007 OF
DIAMOND CABLE COMMUNICATIONS PLC
1. Delivery of this Letter and Notes; Guaranteed Delivery Procedures
Either this Letter or an Agent's Message is to be completed by holders
(which term, for purposes of the Exchange Offer, includes any participant in
the Book-Entry Transfer Facility system whose name appears on a security
position listing as the holder of such Old Notes) in order to tender Old Notes.
All tenders of Old Book-Entry Interests must be made pursuant to the
procedures for delivery by book-entry transfer set forth in the Prospectus
under "The Exchange Offer -- Book-Entry Transfer." A Book-Entry Confirmation,
as well as either (i) a properly completed and duly executed Letter (or
manually signed facsimile hereof) and all other documents required by this
Letter or (ii) an Agent's Message, must be received by the Exchange Agent on or
prior to the Expiration Date, or the tendering holder must comply with the
guaranteed delivery procedures set forth below. Old Notes tendered hereby must
be in denominations of principal amount at maturity of $1,000 and any integral
multiple thereof.
Note holders who cannot deliver all required documents to the Exchange
Agent on or prior to the Expiration Date, or who cannot complete the procedure
for book-entry transfer on a timely basis, may tender their Old Notes pursuant
to the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer -- Guaranteed Delivery Procedures". Pursuant to such
procedures, (i) such tender must be made through an Eligible Institution, (ii)
on or prior to the Expiration Date, the Exchange Agent must receive from such
Eligible Institution either a properly completed and duly executed Letter (or a
facsimile thereof) or a properly transmitted Agent's Message and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of such holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, a Book-Entry Confirmation, and
all other documents required by the Letter will be deposited by the Eligible
Institution with the Exchange Agent.
The method of delivery of this Letter, the Old Notes and all other
documents required by this Letter is at the election and risk of the tendering
holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If required documents are sent by mail, it is
suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City
time, on or prior to the Expiration Date. No Letters should be sent to the
Company.
See the Prospectus under "The Exchange Offer".
2. TENDER BY HOLDER
Only a holder of record as of --, 1997 may tender such Old Notes in the
Exchange Offer. Any beneficial owner of Old Notes who wishes to tender should
arrange with The Depositary Trust Company ("DTC"), a participant whose name
appears on a security position maintained by DTC or the owner of the Old Notes
to execute and deliver this Letter or an Agent's Message on his or her behalf.
-8-
<PAGE> 9
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES
If this Letter is signed by the DTC participant whose name appears on a
security position maintained by DTC, the signature must correspond exactly with
such participant's name as it appears on a security position maintained by DTC
listing such participant as the owner of the Old Notes, without any change
whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
When this Letter is signed by the holders of the Old Notes specified
herein and tendered hereby, no separate bond powers are required. If, however,
the New Notes are to be issued, or any untendered Old Notes are to be reissued,
to a person other than the holder, then separate bond powers are required.
Signatures on such bond powers must by guaranteed by an Eligible Institution.
If this Letter or any bond powers are signed by the trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority to so act must be submitted.
SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE
GUARANTEED BY A FIRM WHICH IS A MEMBER OF A REGISTERED NATIONAL SECURITIES
EXCHANGE OR A MEMBER OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR
BY A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE
UNITED STATES (AN "ELIGIBLE INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION IF: (I) THIS LETTER IS SIGNED BY ANY PARTICIPANT IN DTC WHOSE NAME
APPEARS ON A SECURITY POSITION LISTING MAINTAINED BY THE DTC AS THE OWNER OF
THE OLD NOTES AND SUCH PERSON HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL
ISSUANCE INSTRUCTIONS" ON THIS LETTER, OR (II) THE OLD NOTES ARE TENDERED FOR
THE ACCOUNT OF AN ELIGIBLE INSTITUTION.
4. SPECIAL ISSUANCE INSTRUCTION.
Tendering holders of Old Notes should indicate in the box the DTC account
to which New Notes issued pursuant to the Exchange Offer and/or substitute Old
Notes not exchanged are to be issued, if different from the DTC account of the
person signing this Letter. The employer identification or social security
number of the person named must also be indicated. If no such instructions are
given, such New Notes and/or Old Notes not exchanged will be credited to the
DTC account of the person signing this Letter.
5. TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the
transfer of Old Notes to it or its order pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the transfer of
Old Notes to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer will be billed directly to such tendering holder.
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<PAGE> 10
6. WAIVER OF CONDITIONS
The Company reserves the absolute right to waive satisfaction of any or
all conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter,
shall waive any right to receive notice of the acceptance of their Old Notes
for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone and facsimile numbers indicated
above.
9. INCORPORATION OF LETTER OF TRANSMITTAL
This Letter shall be deemed to be incorporated in and acknowledged and
accepted by any tender through the Book-Entry Transfer Facility's ATOP
procedures by any participant in the Book-Entry Transfer Facility on behalf of
itself and the beneficial owners of any Old Notes so tendered.
-10-
