<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997
REGISTRATION NO. 333-25193
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
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 of
Registrant's principal executive offices) 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 AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) 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(5)
</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.
(5) Previously paid.
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.
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<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 June 4, 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% of
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
Comments--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
April 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 L175 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 March
31, 1997, the Group had approximately L501 million of indebtedness outstanding,
including approximately L126 million and L211 million in accreted value of the
1994 Notes and the 1995 Notes, respectively, and approximately L153 million in
accreted value of the Old Notes. 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 12 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.
----------------
The date of this Prospectus is June *, 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.
____________________________
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. For financial accounting purposes, the
acquisition was given effect as of September 30, 1995. At and prior to
September 30, 1995, substantially all of LCL's operating activities were
carried out through LCL Cable Communications Limited ("LCL Cable") (now Diamond
Cable (Leicester) Limited). On April 26, 1995, LCL Cable became the principal
operating subsidiary of EMCG. References herein to LCL may also refer to LCL
Cable or EMCG as appropriate.
____________________________
The 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
$1.6448 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 March 31, 1997. The Noon
Buying Rate on May 30, 1997 was $1.6360 per L.1.00. See "Exchange Rates" for
information regarding the Noon Buying Rate for the past five fiscal years.
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 Legal Director, Katherine B. Wolfsohn, 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 Legal Director, Katherine B. Wolfsohn, 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.
The Company has appointed CT Corporation Systems as its authorized agent upon
which process may be served in any suit or proceeding arising out of or relating
to the Senior Notes 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 and submits to the jurisdiction of any such court in any such
suit or proceeding.
2
<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 March 31, 1997, the Group's cable television and
telecommunications network had passed by civils construction approximately
473,700 homes and an estimated 24,700 businesses, of which portions of the
network passing approximately 366,500 homes and an estimated 18,800 businesses
had been activated. As of that date, the Group had approximately 111,800
residential telephone lines, 60,000 cable television subscribers and 20,800
business telephone lines. Through that date, L.342 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. 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.
3
<PAGE> 6
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 and at
and for the three-month period ended March 31, 1997. 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,
----------------------------------------------------------------- MARCH 31,
1994 1995 1996 1997
---------- --------------------------------------- ---------- -----------
DIAMOND LCL COMBINED
----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Homes passed by civils construction(1)... 55,919 222,335 58,976 281,311 453,496 473,741
Homes activated(2)....................... 32,033 105,951 51,955 157,906 347,246 366,513
Homes marketed(3)........................ 31,330 77,657 48,950 126,607 252,601 280,990
CABLE TELEVISION
Basic service subscribers................ 8,936 20,261 10,488 30,749 59,242 60,008
Penetration rate of homes marketed(4).... 28.5% 26.1% 21.4% 24.3% 23.5% 21.4%
Average monthly revenue per subscriber(5) L.14.71 L.16.80 L.18.89 L.17.62 18.03 L.20.35
Churn(6)................................. 28.5% 35.5% 31.0% 33.8% 40.9% 46.8%(7)
RESIDENTIAL TELEPHONE
Residential lines connected.............. 14,150 36,122 16,576 52,698 104,460 111,881
Penetration rate of homes marketed(4).... 45.2% 46.5% 33.9% 41.6% 41.4% 39.8%
Average monthly revenue per line(8)(9)... L.18.83 L.18.68 L.22.19 L.19.88 L.18.40 L.18.62
Pro-forma average monthly revenue per
line(9).................................. L.18.83 L.18.11 L.21.35 L.19.22 L.18.64 L.18.62
Churn(6)................................. 13.8% 13.9% 17.2% 15.0% 20.6% 18.1%(7)
BUSINESS TELECOMMUNICATIONS
Business customers accounts.............. 979 1,627 772 2,399 3,935 4,339
Business lines connected................. 3,928 7,036 2,843 9,879 18,932 20,874
Private circuits(10)..................... 70 151 10 161 226 232
Average lines per business account(11)... 4.0 4.3 3.7 4.1 4.8 4.8
Average monthly revenue per line(9)(12).. L.88.68 L.74.60 L.59.60 L.70.23 L.50.17 L.47.14
Pro-forma average monthly revenue per
line(9).................................. L.88.68 L.72.02 L.56.88 L.67.70 L.51.25 L.47.14
</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 or by three (for the three months ended March
31, 1997).
(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). Churn for the three months ended March 31,
1997 is annualized by multiplying the amount as calculated above by four.
(7) The Company changed the method of calculating churn for the quarter ended
March 31, 1997 to eliminate from the number of net disconnected accounts
those subscribers who disconnect from the service when moving residence
and reconnect to the service in their new residence. These subscribers
could not be identified under the Company's information systems prior to
the first quarter of 1997 and were therefore included in the churn
calculation as disconnected accounts. If churn for the quarter to March
31, 1997 were calculated on a basis consistent with prior periods churn
would have been (annualized) 49.7% and 21.9% for cable television and
residential telephone, respectively. The difference between churn on the
new and prior
4
<PAGE> 7
bases is not necessarily indicative of the adjustment that would arise if
it were possible to recalculate the churn for prior quarters.
(8) The average monthly revenue per residential telephone line is calculated
by dividing (i) line and equipment rental, outgoing call charges and
incoming call charges for the period by (ii) the average number of
residential telephone lines (calculated as a simple average of the number
of subscribed lines at the end of each month during the period) and
dividing that amount by 12 or by three (for the three months ended March
31, 1997).
(9) 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.
(10) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(11) 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.
(12) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12 or
by three (for the three months ended March 31, 1997).
5
<PAGE> 8
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.
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. Furthermore, a Change of Control, which
could occur (among other reasons) if any Person (other than
a Permitted Holder) or Group beneficially owns at least 45%
of the aggregate voting power of all Equity Securities of
the Company or has elected a majority of the Board of
Directors, would enable holders of the 1994 Notes and the
1995 Notes to
6
<PAGE> 9
exercise a similar right to require the Company to repurchase the 1994 Notes and
the 1995 Notes. The simultaneous exercise of these rights
would make it less likely that the Company would be able to
fulfill its obligation to repurchase the Senior Notes. See
"Description of the Senior Notes -- Certain Covenants --
Change of Control" and "Risk Factors -- Holding Company
Structure; Liens on Assets".
ORIGINAL ISSUE
DISCOUNT The Old Notes were initially sold 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
the issue price of the Old Notes) will accrete from the
issue date of the Old Notes and will be included as ordinary
income (including for periods ending prior to the Cash
Interest Date) for U.S. federal income tax purposes in
advance of receipt of the cash payments to which the income
is attributable. 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".
7
<PAGE> 10
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 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
and will not bear any legends restricting their
transfer. Nor will the Senior Notes contain certain
provisions for an increase in the interest rate on
the Old Notes related to certain defaults in respect
of the Company's undertakings to carry out this
Exchange Offer. Upon the completion of the Exchange
Offer, such undertakings will have been satisfied
and therefore such defaults will no longer be
applicable.
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 - Certain
Conditions."
8
<PAGE> 11
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 book-entry interests in 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")).
9
<PAGE> 12
SUMMARY FINANCIAL DATA
The summary consolidated financial data for the Group at and for the years
ended December 31, 1994, 1995 and 1996 and at and for the three months ended
March 31, 1996 and 1997 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, THREE MONTHS ENDED MARCH 31,
------------------------------------- -------------------------------------
1994 1995(1) 1996 1996 1997 1997(2)
------------ ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications.......... L. 3,402 L. 5,852 L. 9,763 L. 2,371 L. 3,173 $ 5,219
Residential telephone................ 2,545 6,662 17,723 3,551 6,171 10,150
Cable television..................... 1,324 3,479 10,091 1,961 3,818 6,280
Other revenues....................... 35 -- -- -- -- --
--------- --------- --------- --------- --------- --------
Total revenues....................... 7,306 15,993 37,577 7,883 13,162 21,649
Operating costs and expenses:
Telephone............................ (3,067) (5,454) (9,776) (2,680) (2,596) (4,270)
Programming.......................... (701) (1,844) (6,041) (1,175) (2,292) (3,770)
Selling, general and
administrative....................... (4,562) (13,020) (22,391) (4,865) (6,201) (10,199)
Depreciation and amortization........ (4,038) (8,867) (21,380) (4,633) ( 6,380) (10,494)
--------- --------- --------- --------- --------- --------
Total operating costs and expenses... (12,368) (29,185) (59,588) (13,353) (17,469) (28,733)
--------- --------- --------- --------- --------- --------
Operating loss....................... (5,062) (13,192) (22,011) (5,470) (4,307) (7,084)
Interest income...................... 1,415 3,887 3,441 1,164 943 1,551
Interest expense, and amortization
of debt discount and expenses........ (3,836) (17,118) (40,334) (9,961) (12,181) (20,035)
Foreign exchange gains/(losses)
net.................................. (1,196) 925 31,018 (5,398) (11,994) (19,728)
Unrealized (losses)/gains on
derivative financial instrument...... -- (868) (7,944) 689 76 125
Other expenses....................... -- (1,241) -- -- -- --
Realized gain on derivative financial
instrument........................... -- -- -- -- 11,553 19,002
--------- --------- --------- --------- --------- --------
Loss before income taxes............. (8,679) (27,607) (35,830) (18,976) (15,910) (26,169)
Incomes taxes........................ -- -- -- -- -- --
--------- --------- --------- --------- --------- --------
Net loss............................. L. (8,679) L.(27,607) L.(35,830) L.(18,976) L.(15,910) $(26,169)
========= ========= ========= ========= ========= ========
BALANCE SHEET DATA:
Property and equipment, net.......... L.35,127 L.163,721 L.277,301 L.192,422 L.297,424 $489,203
Total assets......................... 138,606 374,172 416,819 364,032 575,066 945,869
Total debt (3)....................... 103,068 319,492 325,041 334,076 501,209 824,389
Shareholders' equity (4)............. 26,092 25,133 54,100 6,786 38,048 62,581
OTHER DATA:
EBITDA (5) L. (1,024) L. (6,434) L. (8,575) L. (148) L. 13,702 $ 22,537
Net cash (used in)/provided by
operating
activities........................... 496 (4,113) (1,348) (1,909) 10,473 17,226
Net cash used in investing activities (71,941) (155,517) (128,210) (36,049) (26,097) (42,924)
Net cash (used in)/provided by
financing
activities........................... 112,485 212,202 54,428 (217) 148,557 244,346
Deficiency of earnings to fixed
charges (6).......................... (8,679) (27,607) (35,830) (18,976) (15,910) (26,169)
Capital expenditures................. 21,252 136,314 130,140 32,116 25,304 41,620
</TABLE>
10
<PAGE> 13
(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
$1.6448 = L.1.00, the Noon Buying Rate on March 31, 1997.
(3) 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, and total debt at March 31, 1997 included in addition to such
indebtedness the Old Notes.
(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 service and incur indebtedness. EBITDA is not,
however, a measure of financial performance under GAAP, may not be
comparable to other similarly titled measures of other companies and
should not 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.
11
<PAGE> 14
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 March 31, 1997, approximately L.342 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 498,000
premises (homes and businesses), and that portion of the network that had been
activated included approximately 385,000 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.550 million (of which L.500 million relates to capital
expenditures occurring from March 31, 1997 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, and the Company has subsequently
negotiated further amendments to the senior bank facility (as amended, the
"Senior Bank Facility"), including a reduction in the amount available for
borrowing under the facility to L.175 million to reflect the additional
proceeds available to the Company through the February issue of Senior Notes,
adjustments to the repayment schedule and further revisions to the covenants
and borrowing conditions. 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"). To date, no funds have been
drawn under the facility, and the Company does not anticipate borrowing under
the facility prior to meeting the necessary conditions. The facility does allow
for the provision of guarantees and the Company has drawn a bond of L.1.2
million in order to meet its obligations under the Group's telecommunications
licenses. 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. See "Description of Company Debt --
Senior Bank Facility".
Based on the estimated additional required investment, the Company
believes that available cash resources 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 under the Senior
Bank Facility. If such amounts are not available or are insufficient, the Group
would be required to obtain further debt and/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 revenue market share of business telecommunications and
penetration of residential telephone, cable television and premium channels,
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 and/or equity 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;
12
<PAGE> 15
(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 "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. While the pace of the Company's construction slowed
during the first quarter of 1997, 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. During the three months to March 31,
1997 the Company's pace of civils construction and activation slowed due in
large part to the phase out during the period of one of the Company's largest
contractors which went into liquidation. The Group may encounter difficulty in
obtaining other qualified contractors and may encounter cost overruns or
further delays in construction. Although the Company believes it will be able
to continue 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
increased 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 annualized cable television subscriber churn rate
was 46.8% for the three months to March 31, 1997 (49.7% before taking into
account the new adjustments described above in Note 7 to "Prospectus Summary --
Certain Operating Data".) 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".
13
<PAGE> 16
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 Cable and Wireless
Communications plc ("CWC") (which owns 100% of 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
CWC each have resources substantially greater than those of the Group. In
addition, each of Mercury and BT has a national presence which may permit it to
offer telecommunications, data transmission and other services on a nationwide
basis to business telecommunications customers with nationwide operations
beyond those that the Group is currently able to offer on its own. With effect
from May 1997, Mercury was merged with three U.K. regional cable companies,
NYNEX CableComms Group plc, Bell Cablemedia plc and Videotron Holdings plc, to
create a new group held by CWC, which is a 52.6% owned subsidiary of Cable and
Wireless plc. 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 and Ionica in providing
residential telephone service.
In addition to BT, Mercury and Ionica, 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. 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 announced that BSkyB (as defined below) intends to introduce a digital DTH
satellite service, offering the possibility of over 200 television channels and
a range of interactive services in the Spring of 1998. Third, licenses are
anticipated to be awarded in mid-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. British Digital
Broadcasting, a joint venture including BSkyB, and two of the U.K.'s largest
independent terrestrial television companies, Carlton Communications plc and
Granada Group plc, has 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. BSkyB
has also announced a joint venture with BT, Midland Bank and Matsushita called
British Interactive Broadcasting to develop and
14
<PAGE> 17
market a digital set top decoder on a heavily subsidized basis. 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 and
interactive services 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 March 31, 1997, the Group had
approximately L.501 million aggregate amount of 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 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".
15
<PAGE> 18
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.
HISTORICAL OPERATING LOSSES
The Group had incurred aggregate operating and net losses, from
commencement of operations through March 31, 1997 of approximately L.65.1
million and L.121.4 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
On May 1, 1997, a Labour government was elected in the U.K., following a
period of Conservative government since 1979. 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 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.
It is the stated policy of the Labour Party to review the restrictions on
national PTOs and the government has announced its intention to commence
discussions with BT. It is too early to predict the detailed policy which the
Labour government will adopt. 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.
16
<PAGE> 19
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".
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 March 31, 1997, the
portion of the Group's network that had been activated was approximately 385,000
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 March 31, 1997, 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, due to administrative delays in granting
telecommunications licenses by the Department of Trade and Industry ("DTI"),
which are required before construction can commence, 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 was granted a national
telecommunications license in April 1997. Due to delays in the commencement of
construction in seven LDL franchise areas pending granting of this national
telecommunication license, the Group intends to ask the ITC formally to modify
the year-end 1997 milestones for certain of these franchise areas. 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 Old 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
which was settled in the first quarter of 1997. See "Management's
17
<PAGE> 20
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 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. In
addition, the Group does not currently carry broadcaster's liability insurance.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Old Notes were issued at an original issue discount for U.S. federal
income tax purposes. Consequently, holders 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.
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 Old 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
18
<PAGE> 21
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".
19
<PAGE> 22
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 1.48 1.71
1997 (through May 30, 1997) 1.63 1.70 1.59 1.64
</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 May 30, 1997 was $1.6360 = 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 March 31, 1997. 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>
35,519
--------------------
(in thousands)
<S> <C> <C>
Indebtedness (2): L. $
Mortgage................. 2,460 4,046
Capital Lease obligations 8,262 13,589
1994 Notes............... 125,774 206,873
1995 Notes............... 211,461 347,811
Senior Notes............. 153,252 252,069
Total indebtedness.......... 501,209 824,388
Shareholders' equity........ 38,048 62,581
Total capitalization........ 539,257 886,969
</TABLE>
(1) Based on the Noon Buying Rate in effect on March 31, 1997 of L.1.00 =
$1.6448.
(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.
20
<PAGE> 23
SELECTED FINANCIAL DATA
The selected data set forth below for the Group as of December 31, 1992,
1993, 1994, 1995 and 1996 and for each of the years in the five-year period
ended December 31, 1996 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 financial data as of and for the three months ended March 31, 1996
and 1997 set forth below have been derived from the unaudited financial
statements of the Group, and, in the opinion of the Company, have been prepared
on a basis substantially consistent with that of the audited periods. The
selected data have been prepared in accordance with United States generally
accepted accounting principles ("U.S. GAAP") and should be read in conjunction
with, and are qualified in their entirety by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements of the Company and the related Notes
thereto, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS END MARCH 31,
--------------------------------------------------------- --------------------------------
1992 1993 1994 1995(1) 1996 1996 1997 1997(2)
--------- --------- ----------- ---------- ---------- ---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <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 L. 2,371 L. 3,173 $ 5,219
Residential telephone................ 153 1,251 2,545 6,662 17,723 3,551 6,171 10,150
Cable television..................... 458 719 1,324 3,479 10,091 1,961 3,818 6,280
Other revenues....................... 11 20 35 -- -- -- -- --
-------- -------- -------- --------- --------- --------- --------- --------
Total revenues.................... 800 3,227 7,306 15,993 37,577 7,883 13,162 21,649
Operating costs and expenses:
Telephone............................ (140) (1,097) (3,067) (5,454) (9,776) (2,680) (2,596) (4,270)
Programming.......................... (184) (324) (701) (1,844) (6,041) (1,175) (2,292) (3,770)
Selling, general and
administrative..................... (917) (1,632) (4,562) (13,020) (22,391) (4,865) (6,201) (10,199)
Depreciation and amortization........ (1,530) (2,520) (4,038) (8,867) (21,380) (4,633) ( 6,380) (10,494)
-------- -------- -------- --------- --------- --------- --------- --------
Total operating costs and expenses. (2,771) (5,573) (12,368) (29,185) (59,588) (13,353) (17,469) (28,733)
-------- -------- -------- --------- --------- --------- --------- --------
Operating loss......................... (1,971) (2,346) (5,062) (13,192) (22,011) (5,470) (4,307) (7,084)
Interest income........................ -- -- 1,415 3,887 3,441 1,164 943 1,551
Interest expense, and amortization
of debt discount and expenses........ (53) (231) (3,836) (17,118) (40,334) (9,961) (12,181) (20,035)
Foreign exchange gains/(losses)
net.................................. (1,314) (221) (1,196) 925 31,018 (5,398) (11,994) (19,728)
Unrealized (losses)/gains on
derivative financial instruments..... -- -- -- (868) (7,944) 689 76 125
Other expenses......................... -- -- -- (1,241) -- -- -- --
Realized gains on derivative financial
instrument........................... -- -- -- -- -- -- 11,553 19,002
-------- -------- -------- --------- --------- --------- --------- --------
Loss before income taxes............... (3,338) (2,798) (8,679) (27,607) (35,830) (18,976) (15,910) (26,169)
Income taxes........................... -- -- -- -- -- -- -- --
-------- -------- -------- --------- --------- --------- --------- --------
Net loss............................... L.(3,338) L.(2,798) L.(8,679) L.(27,607) L.(35,830) L.(18,976) L.(15,910) $(26,169)
======== ======== ======== ========= ========= ========= ========= ========
BALANCE SHEET DATA:
Property and equipment, net............ L. 8,678 L.18,021 L.35,127 L.163,721 L.277,301 L.192,422 L.297,424 $489,203
Total assets........................... 9,487 19,882 138,606 374,172 416,819 364,032 575,066 945,869
Total debt (3)......................... 13,779 21,889 103,068 319,492 325,041 334,076 501,209 824,389
Shareholders' equity (4)............... (6,733) (5,660) 26,092 25,133 54,100 6,786 38,048 62,581
OTHER DATA:
EBITDA (5) L. (441) L. 174 L.(1,024) L. (6,434) L. (8,575) L.(148) L. 13,702 $ 22,537
Net cash (used in)/provided by
operating activities................. 773 37 496 (4,113) (1,348) (1,909) 10,473 17,226
Net cash used in investing activities.. (5,884) (9,937) (71,941) (155,517) (128,210) (36,049) (26,097) (42,924)
Net cash (used in)/provided by
financing activities................. 5,276 9,759 112,485 212,202 54,428 (217) 148,557 244,346
Deficiency of earnings to fixed
charges (6).......................... (3,338) (2,798) (8,679) (27,607) (35,830) (18,976) (15,910) (26,169)
Capital expenditures................... 7,799 11,880 21,252 136,314 130,140 32,116 25,304 41,620
</TABLE>
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
21
<PAGE> 24
(2) Translated, solely for the convenience of the reader, at a rate of $1.6448
= L.1.00, the Noon Buying Rate on March 31, 1997.
(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, and total debt at March
31, 1997 included in addition to such indebtedness the Old Notes.
(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
service and incur indebtedness. EBITDA is not, however, a measure of
financial performance under GAAP, may not be comparable to other similarly
titled measures of other companies and should not 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.
22
<PAGE> 25
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 March 31, 1997, approximately L.342 million had been invested (at
original cost) in the construction of the Group's network and related systems.
As of March 31, 1997, approximately 498,000 of the premises (homes and
businesses) in the Group's franchise areas had been passed by civils
construction, of which approximately 385,000 premises had been activated,
representing approximately 38% 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, and
L.26.1 million in the first three months of 1997. 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. Net cash provided by financing activities was L.148.6
million in the first three months of 1997, due primarily to the issuance of the
Old Notes. 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, L.128.2 million in 1996 and L.26.1 million in the
first quarter of 1997). 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.0.5 million, 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 have been
met principally through the issuance of three series of senior discount notes,
equity capital and from bank and lease financing. 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
23
<PAGE> 26
expenses) will be approximately L.550 million (of which L.500 million relates to
capital expenditures occurring from March 31, 1997 through January 1, 2001),
although these amounts could vary significantly.
The Company believes that available cash reserves 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 and/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 revenue markets share of business telecommunications and penetration
of residential telephone, cable television and premium channels, average
revenues in each of these areas, churn and expenses such as programming costs
and interconnect charges. 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 and/or equity 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".
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-MONTH PERIODS ENDED MARCH 31, 1996 AND 1997
The Group continued to experience increases in its subscribers, revenues
and expenses during the three month period ended March 31, 1997. In general,
these increases were attributable to the Group's continued network construction,
activation and marketing of new homes and businesses. Homes passed by civils
construction increased by 20,245 homes (4.5%) and homes activated increased by
19,267 (5.5%) from December 31, 1996 to March 31, 1997. During the three months
to March 31, 1997 the Company's pace of civils construction and activation
slowed due in large part to the phase out during the period of one of the
Company's largest contractors which went into liquidation. Nevertheless, the
Group met the required quarterly milestone obligations under each of its
telecommunications licenses as at March 31, 1997.
In addition, in order to improve the management and quality of the
residential sales force, in February 1997 the Company terminated arrangements
with its independent sales contractors and began to develop its own internal
sales force through direct hiring of residential sales people. Prior to this
reorganization, the sales force comprised approximately 150 residential sales
people who were employed by the independent contractors that the Group paid on a
full commission basis. The Group now employs residential sales people directly
and pays them on the basis of a salary plus sales commission. At March 31, 1997,
the Company employed approximately 120 residential sales people, including
24
<PAGE> 27
former contracted sales people who were hired by the Company in accordance with
its employment criteria following interviews. The Company is planning to
increase the number of residential sales people further. The reorganization has
delayed the progress of marketing and affected penetration in the areas being
marketed during this transitional period. At March 31, 1997, residential
telephone line penetration had fallen to 39.8% and cable television penetration
had fallen to 21.4% from 41.4% and 23.5% respectively at December 31, 1996.
Penetration rates for residential telephone and cable television were 41.9% and
23.9% at March 31, 1996.
REVENUE
For the three months ended March 31, 1997, total revenues were L.13.2
million, a 67% increase over total revenues of L.7.9 million for the comparable
period in 1996. This growth is attributable to increases in revenues in all
three of Diamond's primary lines of business.
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. Based on interim rates for the year to March 31, 1997, no rebates will be
payable to or due from BT for the three month period to March 31, 1997. The
rebates that will be paid to BT relating to the incoming termination element
amount to an estimated L.1,351,000 based on 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, of which L.151,000 and L.122,000, respectively, relates to the
three month period ended March 31, 1996. 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 for the nine-month period to December 31,
1996. 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 of which L.273,000 relates to
the three month period ended March 31, 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 for periods up
to December 31, 1996 adjusting for the incoming termination rebates in the
appropriate periods as if the revised interconnect agreements and the final
rates for the year to March 31, 1996 and interim rates for the nine months to
December 31, 1996 had been in effect.
Business Telecommunications. Business telecommunications revenue was L.3.2
million for the three month period ended March 31, 1997 compared to L.2.4
million (pro-forma L.2.2 million) for the comparable period in 1996,
representing an increase of 34% (41% on a pro-forma basis). The growth in
reported revenues is due primarily to an increase in the number of business
lines installed from 11,054 at March 31, 1996 to 20,874 at March 31, 1997, an
increase of 89%. The growth in the number of business lines was partially offset
by lower monthly revenue per line. The monthly revenue per line decreased from
L.70.70 in the three months to March 31, 1996 (L.66.90 on a pro-forma basis) to
L.47.14 in the comparable period in 1997. This decline 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 (the Company operated 8,522 Centrex lines at March 31, 1997
compared to 2,832 Centrex lines at March 31, 1996), (ii) a reduction in certain
tariffs in response to price reductions by competitors, including BT, Diamond's
principal competitor for business telecommunications services which reduced in
June 1996 its prices by an average of 10% for most of its business customers and
made smaller price reductions at other times during 1996, 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. Monthly revenue per line has remained relatively stable during the three
month periods ended September 30, 1996, December 31, 1996 and March 31, 1997.
The Company may lower prices in the future if necessary for competitive reasons.
Residential Telephone. Residential telephone revenues were L.6.2 million in
the three month period to March 31, 1997 compared to L.3.6 million (L.3.4
million on a pro-forma basis) for the comparable period in 1996, an increase of
74% (79% on a pro-forma basis). The growth in residential telephone revenue is
due primarily to an increase in the number of residential telephone lines from
64,095 at March 31, 1996 to 111,881 at March 31, 1997, representing an increase
of 75%. Monthly revenue per line was L.19.88 (pro-forma L.19.24) in the three
month period to March 31, 1996 and L.18.62 in the comparable period in 1997. The
fall in average revenues was partly due to a reduction in overall tariffs for
LCL subscribers in July 1996 to conform tariffs for all Diamond subscribers
together with additional call tariff reductions in late 1996. These call tariff
reductions were partly offset by increases in line rental charges in January
1997. The Company will continue to review and adjust its tariffs to maintain its
price competitive advantage. The churn rate (annualized) was 18.1% for the first
three months of 1997 (21.9% before taking into account the new adjustments
described above in Note 7 to "Prospectus Summary -- Certain Operating Data") as
compared to 16.0% in the comparable period in 1996. The increase in churn in
1997 is attributable in part to a tighter disconnect policy for certain
customers and ongoing efforts by BT aimed at regaining former customers.
Cable Television. Cable television revenues increased from L.2.0 million in
the three months to March 31, 1996 to L.3.8 million in the comparable period in
1997, an increase of 95%. This growth in cable television revenue was primarily
due to a combination of an increase in the number of cable television
subscribers which rose from 36,574 at March 31, 1996 to 60,008 at March 31,
1997, an increase of 64% and an increase in the average monthly revenue per
25
<PAGE> 28
subscriber from L.18.23 for the first three months of 1996 to L.20.35 for the
comparable period in 1997. The increase in average revenue per subscriber is
primarily due to increases in cable television pricing. The number of cable
television subscribers increased by 766 from 59,242 at December 31, 1996 to
60,008 at March 31, 1997. This was supplemented by an increase in average
revenues from L.18.94 in the quarter to December 31, 1996 to L.20.35 in the
quarter to March 31, 1997, resulting in an increase in cable television revenues
of 15% between the quarter to December 31, 1996 and the first quarter of 1997.
The small increase in the number of subscribers was due to the delay in the
sales effort described earlier and the level of churn.
The Group's churn rate was 46.8% for the three months to March 31, 1997
(49.7% before taking into account the new adjustments described above in Note 7
to "Prospectus Summary -- Certain Operating Data") as compared to a churn rate
of 36.6% in the comparable period in 1996. The Company believes that the
increase in churn was due in part to the continuing effect of increases in the
fourth quarter of 1996 in premium subscription rates which led certain
longer-term customers who had previously benefitted from grandfathered rates, to
disconnect service, the effect of an increase in the basic subscription rate,
additional price increases resulting from the Company passing on to its
customers a new BSkyB charge for Sky Sports 3 (which BSkyB provides to its own
sports subscribers at no additional charge) and other aggressive promotional
activity of BSkyB, as well as to the application of a stricter disconnect policy
relating to non payment. With the aim of reducing churn among new subscribers,
the Company 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, Mercury and Energis were L.2.7 million in the three months to March 31,
1996 and L.2.6 million in the three months to March 31, 1997. 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.2.4 million in the three
months to March 31, 1996. As a percentage of combined business
telecommunications and residential telephone revenues, these direct costs
decreased from 45% (42% on a pro-forma basis) in the three months to March 31,
1996 to 28% in the comparable period in 1997 due primarily to reduced
interconnect charges paid to these operators.
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.1.2 million in the three months to March 31, 1996 to
L.2.3 million in the comparable period in 1997. As a percentage of cable
television revenues, these direct costs were 60% in both the three month periods
ended March 31, 1996 and 1997.
Selling, general and administrative expenses increased by 27% from the
three months to March 31, 1996 to the comparable period in 1997. The increase
was due to higher administration costs associated with the expansion of the
Company's business. In February 1997, the Group began employing residential
sales people directly and paying them on the basis of a salary plus sales
commissions.
Depreciation and amortization expenses increased by 38% from the three
month period to March 31, 1996 to the comparable period in 1997. This increase
was attributable to the increasing size of the Company's network.
INTEREST INCOME/EXPENSE
Interest expense was L.12.2 million in the three months ended March 31,
1997 compared to L.10.0 million in the comparable period in 1996. The increase
is due primarily to the accretion on the Senior Notes of L.11.2 million in the
first quarter of 1997 (compared to L.9.5 million in the first quarter of 1996).
In addition, amortization of debt financing costs was L.0.5 million and other
interest expense was L.0.5 million in the three months to March 31, 1997,
compared to L.0.2 million and L.0.3 million respectively in the three months to
March 31, 1996. Interest received was L.0.9 million in the three months to March
31, 1997 through temporary investments of the proceeds of the 1997 Senior Notes.
FOREIGN EXCHANGE GAINS/(LOSSES), NET
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, 1996, the Group recognized an unrealized foreign exchange gain on
the translation of its liability on the Senior Notes issued in 1994 and 1995 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. During the three months ended March 31, 1997, the Group recorded a
net foreign exchange loss of L.12.0 million primarily due to the unrealized loss
on translation of its liability on the Senior Notes.
GAINS ON DERIVATIVE FINANCIAL INSTRUMENTS
Unrealized gains on derivative financial instruments of L.0.1 million in
the three months to March 31, 1997 consist of 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
26
<PAGE> 29
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 Senior
Notes and 1995 Senior 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 an L.8.1 million loss
referred to above and the approximately L.3.4 million cash payment on settlement
of the contracts. The realized gain on the foreign exchange forward contract in
the first quarter of 1997 largely offset the unrealized loss that was recorded
in the same period on the translation of the U.S. dollar denominated obligations
on the Senior Notes.
NET LOSS
As a result of the foregoing factors, Diamond had net losses of L.15.9
million in the three-month period ended March 31, 1997, compared to net losses
of L.19.0 million in the comparable period of 1996.
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.
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 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 for the nine month period to December 31, 1996. 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 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.
27
<PAGE> 30
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.
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. 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.
28
<PAGE> 31
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 GAINS/(LOSSES), NET
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.
As noted above, 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.
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.
MARKET RISK
The principal form of market risk to which the Group is exposed is foreign
exchange rate risk. The three series of senior discount notes, which
constitute the 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. Accordingly, as noted
above, movements in the dollar/pound sterling exchange rate can significantly
affect the Group's reported results of operations. For example, based on the
aggregate accreted value of the three series of senior discount notes at March
31, 1997, a one cent decrease in the dollar/pound exchange rate would have
increased the Group's reported senior discount note liability by approximately
L.3.0 million. In the future, the Company will also be subject to
transaction risk with respect to the senior discount notes when the Company is
obligated to commence making cash interest payments under the senior discount
notes in dollars. Such cash payments with respect to the 1994 Notes commence in
1999.
The Group's 1996 and first quarter 1997 results were also affected by the
foreign exchange contract described above, which the Company entered into based
on its assessment of foreign currency market conditions and a desire to manage
currency exchange exposure risks associated with the dollar-denominated senior
discount note liabilities. The effect of this transaction was to offset in part
reported currency-related gains in 1996, and during the first quarter of 1997 a
realized gain resulting from this transaction almost fully offset the reported
translation loss. The Company may from time to time in the future enter into
similar foreign currency contracts based on its assessment of 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.
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<PAGE> 32
The Group also holds an interest rate swap that LCL had entered into prior
to its acquisition by the Company. See Note 17 to Notes to the Consolidated
Financial Statements. Neither this nor any other instrument currently held by
the Group is expected to materially affect the Group's results of operations.
30
<PAGE> 33
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 and at
and for the three-month period ended March 31, 1997. 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,
------------------------------------------------------------------- MARCH 31,
1994 1995 1996 1997
---------- ---------------------------------------- ----------- ---------
DIAMOND LCL COMBINED
----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Homes passed by civils construction(1)... 55,919 222,335 58,976 281,311 453,496 473,741
Homes activated(2)....................... 32,033 105,951 51,955 157,906 347,246 366,513
Homes marketed(3)........................ 31,330 77,657 48,950 126,607 252,601 280,990
CABLE TELEVISION
Basic service subscribers................ 8,936 20,261 10,488 30,749 59,242 60,008
Penetration rate of homes marketed(4).... 28.5% 26.1% 21.4% 24.3% 23.5% 21.4%
Average monthly revenue per
subscriber(5).......................... L.14.71 L.16.80 L.18.89 L. 17.62 L.18.03 L.20.35
Churn(6)................................. 28.5% 35.5% 31.0% 33.8% 40.9% 46.8%(7)
RESIDENTIAL TELEPHONE
Residential lines connected.............. 14,150 36,122 16,576 52,698 104,460 111,881
Penetration rate of homes marketed(4).... 45.2% 46.5% 33.9% 41.6% 41.4% 39.8%
Average monthly revenue per line(8)(9)... L.18.83 L.18.68 L.22.19 L. 19.88 L.18.40 L.18.62
Pro-forma average monthly revenue per
line(9)................................ L.18.83 L.18.11 L.21.35 L. 19.22 L.18.64 L.18.62
Churn(6)................................. 13.8% 13.9% 17.2% 15.0% 20.6% 18.1%(7)
BUSINESS TELECOMMUNICATIONS
Business customers accounts.............. 979 1,627 772 2,399 3,935 4,339
Business lines connected................. 3,928 7,036 2,843 9,879 18,932 20,874
Private circuits(10)..................... 70 151 10 161 226 232
Average lines per business account(11)... 4.0 4.3 3.7 4.1 4.8 4.8
Average monthly revenue per line(9)(12).. L.88.68 L.74.60 L.59.60 L. 70.23 L.50.17 L.47.14
Pro-forma average monthly revenue per
line(9)................................ L.88.68 L.72.02 L.56.88 L. 67.70 L.51.25 L.47.14
</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 or by three (for the three months ended March
31, 1997).
(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).
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<PAGE> 34
Churn for the three months ended March 31, 1997 is annualized by
multiplying the amount as calculated above by four.
(7) The Company changed the method of calculating churn for the quarter ended
March 31, 1997 to eliminate from the number of net disconnected accounts
those subscribers who disconnect from the service when moving residence and
reconnect to the service in their new residence. These subscribers could
not be identified under the Company's information systems prior to the
first quarter of 1997 and were therefore included in the churn calculation
as disconnected accounts. If churn for the quarter to March 31, 1997 were
calculated on a basis consistent with prior periods churn would have been
(annualized) 49.7% and 21.9% for cable television and residential
telephone, respectively. The difference between churn on the new and prior
bases is not necessarily indicative of the adjustment that would arise if
it were possible to recalculate the churn for prior quarters.
(8) The average monthly revenue per residential telephone line is calculated by
dividing (i) line and equipment rental, outgoing call charges and incoming
call charges for the period by (ii) the average number of residential
telephone lines (calculated as a simple average of the number of subscribed
lines at the end of each month during the period) and dividing that amount
by 12 or by three (for the three months ended March 31, 1997).
(9) 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.
(10) Private circuits are point-to-point customer specific connections for which
a fixed annual rental charge is made.
(11) 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.
(12) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12 or
by three (for the three months ended March 31, 1997).
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, U.K. government policy, which was introduced by the
Conservative government that was in office until May 1, 1997, 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.
The Labour government which took office after May 1, 1997 has stated its
intention to review this policy. 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
32
<PAGE> 35
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 1997 merger of NYNEX
CableComms Group plc, Videotron Holdings Plc, Mercury and Bell Cablemedia plc.
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 4,339 business telecommunications customer
accounts at March 31, 1997 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 County 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, Grantham Hospital, Lincoln Hospital NHS Trust,
Nottingham University, Nottingham Trent University, Leicester University,
Lincoln University, BBC Radio Nottingham, Radio Trent, the Nottingham Building
Society, Vision Express Group, Knoll Pharmaceuticals, Pedigree Pet Foods, the
Northcliff Newspaper Group (four regional newspapers including Nottingham's
Evening Post and the Leicester Mercury) and the Mansfield Chad Newspaper.
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 March 31, 1997, the Group
provided 20,874 business lines to its 4,339 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
33
<PAGE> 36
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 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 was launched in May 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 39.8% of homes
marketed at March 31, 1997. 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:
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<PAGE> 37
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. Most 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), call diversion (i.e., call forward) and voice mail. The Group's network
architecture provides a flexible platform for the Group to offer additional
telephony services as they become available in the future.
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 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 NTL 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.
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>
<CAPTION>
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
</TABLE>
35
<PAGE> 38
<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ----------- -----------
<S> <C>
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
Channel 5 U.K. terrestrial television
Bravo(1) Films and television series
Trouble(1) Cult films 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
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
- --------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ----------- -----------
<S> <C>
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, Bravo and Trouble 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.
(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 programs, 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).
37
<PAGE> 40
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.
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.
38
<PAGE> 41
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.
In addition, 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. Digital
technology allows operators to provide more channels, through digital
compression, and higher quality pictures and sound. 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
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 full commission basis. In order to improve the management
and quality of the residential sales force, in February 1997 the Company
terminated arrangements with its independent sales contractors and began to
develop its own internal sales force through direct hiring of residential sales
people. The Group now employs residential sales people directly and pays them
on the basis of a salary plus sales commission. At March 31, 1997, the Company
employed approximately 120 residential sales people, including a number of
former contracted sales people who were hired by the Company in accordance with
its employment criteria following interviews. The Company is planning to
increase the number of residential sales people further.
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
39
<PAGE> 42
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.
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
retail customers, which last until July 31, 1997. OFTEL has issued revised
price controls to be in effect from August 1, 1997 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 and 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. The revised price controls on BT 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. BT
has also implemented extensive marketing campaigns to win back customers from
cable operators.
Ionica has also commenced offering a residential telephone service based
on radio technology in certain of the Group's franchise areas.
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 Mercury, Ionica and mobile
telecommunications providers such as Vodafone, Cellnet, Mercury One2One and
Orange.
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:
40
<PAGE> 43
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 previous 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, British Digital
Broadcasting, 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. The ITC is expected to award the licenses in
mid-1997. 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 picture and sound quality. BskyB has announced a joint venture with BT,
Midland Bank and Matsushita called British Interactive Broadcasting to develop
and market a digital set top decoder on a heavily subsidized basis. 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 higher up-front or ongoing costs for the
purchase or rental of a satellite dish and related equipment required for DTH;
(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 certain interactive and integrated entertainment, telecommunications and
information services not expected to be available in the future through DTH
satellite service.
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. Recent aggressive promotional activity by BskyB has accentuated this
advantage. In addition, BskyB has announced its intention to introduce a
digital DTH satellite service (offering the possibility of over 200 television
channels) and a range of interactive services in the spring of 1998. The
Company believes that DTH satellite
41
<PAGE> 44
services may become more competitive with cable service if digital services are
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 eight
individual franchise telecommunications licenses and 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 individual franchise telecommunications licenses and the
Burton-upon-Trent and Hinckley LDLs) and the ITC (for the other LDLs).
<TABLE>
<CAPTION>
EQUITY
OWNERSHIP 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 a
national telecommunications license that covers all of the U.K. including
the LDL franchise areas but excluding the areas covered by the Group's
individual franchise telecommunications licenses.
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
42
<PAGE> 45
customer needs than its national competitors, thereby increasing customer
loyalty and (c) increase its name recognition.
Under present rules, the individual franchise 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 individual franchise telecommunications licenses currently held by
the Group incorporate construction milestones which are reviewed by OFTEL. LDLs
include milestones that are reviewed by the ITC. See "-- Milestones". The
national telecommunications license lasts for an initial period of 25 years
from the date of grant, April 28, 1997, and is then subject to revocation on 10
years' notice to expire at any time after April 28, 2022. 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 March 31, 1997, approximately 498,000 of the premises in the Group's
franchise areas had been passed by civils construction and a portion of the
network passing approximately 385,000 premises had been activated. The number
of premises activated represents approximately 38% 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. While the pace of the Company's
construction slowed during the first quarter of 1997, the Company intends to
continue the rapid growth and development of network construction and
activation to meet the Group's regulatory milestones. During the three months
to March 31, 1997 the Company's pace of civils construction and activation
slowed due in large part to the phase out during the period of one of the
Company's largest contractors which went into liquidation. The Group may
encounter difficulty in obtaining other qualified contractors and may encounter
cost overruns or further 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 March 31, 1997. 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
23% 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.
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<PAGE> 46
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 individual franchise
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 individual franchise
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 and March 31, 1997. 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 administrative delays in the granting of telecommunications
licenses by the DTI covering these franchises, which were required before
construction could commence, the ITC 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 was granted a national
telecommunications license in April 1997. Due to delays in the commencement of
construction in seven LDL franchise areas pending granting of the national
telecommunications license, the Group intends to ask the ITC to modify the
year-end 1997 milestones for certain of these franchise areas.
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.
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<PAGE> 47
<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 individual
franchise 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>
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 1996 1996 1996 1996 1997
------------ ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Nottingham 79,866 98,504 110,548 123,910 139,286 145,402
Mansfield 11,686 20,863 32,755 40,474 46,916 50,879
Newark-on-Trent 7,420 7,420 8,392 12,707 13,509 13,509
Grantham 0 0 3,503 11,515 14,894 15,719
Melton Mowbray 0 0 0 9,819 10,045 10,045
Lincoln 5,177 5,177 12,459 16,887 20,131 23,389
Grimsby and Cleethorpes 8,057 13,386 21,604 30,699 37,130 40,885
Leicester and Loughborough 57,366 61,007 67,766 77,017 83,280 85,562
---------- ---------- --------- ---------- --------- ----------
Cumulative Total 169,572 206,357 257,027 323,028 365,191 385,390
========== ========== ========= ========== ========= ==========
</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.
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<PAGE> 48
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 could 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 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
46
<PAGE> 49
cable manufactured in the same cable housing/insulation package so that both
services are installed at the same time. From a subscriber's home, the
telephone cable is run through the street cabinet up to the 500 home hub
cabinet where calls are processed through a primary multiplexer which handles
many calls and transmits them to the telephone switching equipment. The calls
are then routed, if possible, to their final destination via the lowest cost
routing, be it BT, Mercury, Energis, 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 2 Mb 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 Nortel
switches 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 an additional
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 March 31, 1997, the Group had 882 employees, including 741 employees
in operations and 141 employees in civils construction. With effect from
February 1997, DCL began to directly employ residential salespeople, which
increased 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 March 31, 1997, the Group leased or rented 22 properties for
administrative and sales offices, hub, switch and head-end sites, warehouses
and equipment sites. At that date, the Group leased an aggregate of
approximately 179,000 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 head-end/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.
47
<PAGE> 50
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 stated that it would review the existing regulatory
structure if it came into power and having come into power on May 1, 1997 has
announced its intention to open discussions with BT regarding the restrictions
on BT carrying broadcast entertainment over the existing network. 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
48
<PAGE> 51
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.
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 were 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.
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CABLE TELECOMMUNICATIONS
The Telecommunications Act
The Telecommunications Act provides a licensing and regulatory framework
for telecommunications activities in the U.K. and established OFTEL under the
Director General as an independent regulatory authority. Telecommunications
policy is overseen by the DTI. The DTI on behalf of the Secretary of State also
has primary licensing authority under the Telecommunications Act, although it
may delegate that authority to the Director General. The functions of the
Director General are, among other things, to monitor and enforce compliance
with telecommunications license conditions, establish and administer standards
for telecommunications equipment and contractors, and investigate complaints
and exercise certain functions concurrently with other regulators to promote or
ensure competition in telecommunications markets. The Director General may
modify telecommunications licenses either with the agreement of the licensee
following a statutory period of public consultation or following a report by
the MMC. The Director General is also empowered to issue enforcement orders
requiring compliance with telecommunication license conditions which have been
breached (see below).
Telecommunications Licenses
The Group holds eight individual franchise telecommunications licenses and
a national telecommunications license which covers those areas of the U.K. for
which it does not hold an individual franchise telecommunications license,
including the areas for which it has been granted LDLs. 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 individual franchise telecommunications licenses granted to a cable
operator are for a particular area, they are 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. There are now over 200
telecommunication licensed operators in the U.K. 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. OFTEL indicated in January 1997 that it
is reviewing the PTO licenses held by cable operators to convert them to the
"slimline" format of BT and Mercury's current licenses. This will involve the
deletion of a number of the obligations currently in the Group's
telecommunications licenses.
The telecommunications licenses of BT and Mercury now contain a condition,
referred to as the fair trading condition, which prohibits any abuse of their
dominant position and any agreement or concerted practice between the licensee
and other entities restricting or distorting competition in the
telecommunications market. OFTEL is seeking the consent of other operators,
including the Group, to include the fair trading condition in their
telecommunications licenses during 1997.
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.
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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 individual franchise 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 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 individual franchise
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
Group's national telecommunications license is for an initial 25-year term and
continues thereafter subject to a 10-year notice period.
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.
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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.
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. DCL is now able to link non-contiguous
franchises under its national telecommunications license 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 has now assessed final charges based on BT's
final financial statements for that period. 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. OFTEL published a
further consultation document in May 1997 ahead of final proposals which OFTEL
expects to publish in July 1997, which will then be put to BT for its consent.
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. Due to delays in the consultations the current regime
will now continue until October 1997.
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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 1, 1997 until
2001 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. OFTEL
has indicated that this is likely to be the last retail price control imposed
on BT. See "Business -- Competition -- Residential Telephone".
BT has limited opportunity for differential pricing to the same class of
customer because it is subject to prohibitions on undue preference and undue
discrimination across the U.K. Following the Duopoly Review, BT's
telecommunications license was modified to permit it to offer discounts to high
volume users, subject to several conditions. However, BT may not offer
discounted services in local markets without offering the discounts nationally
if such discounts result in undue discrimination or unfair cross-subsidy.
Following modifications made to BT's telecommunications license in 1995, the
Director General is proposing an amendment to BT's telecommunications license
to ensure that BT's interconnect prices are sufficiently transparent to enable
a comparison between the component elements of BT's charges to the Group and
other operators with those charged by BT to itself and to ensure that BT does
not favor its own business over that of other operators. The proposals for
price controls will mean further modification of interconnect prices in 1997.
The telephone service prices charged by the Group and other service
providers other than BT currently are not regulated by the Director General,
although undue preference, undue discrimination, linked sales and cross-subsidy
regulations within each of its franchise areas currently do apply to the Group.
Indirect and Equal Access
Indirect access is access to a customer through another operator whereas
equal access means preselection by the customer of the indirect access operator
or dialing parity, where the number of digits dialed for calls over the first
(access) network is the same as for calls over the second (indirect) network.
In July 1996, OFTEL released a statement setting out its policy on indirect and
equal access, dealing with the continued provision by BT of indirect access to
Mercury and other operators, the possible extension of the obligation imposed
on BT to include equal access, and the possible extension of an indirect access
obligation to Mercury and other "non-dominant" operators.
OFTEL concluded in its statement that indirect access will remain an
important route for many customers who are not yet able to take advantage of
competition in direct connections to receive the benefits of competitive
provision of telecommunication services and that, given BT's continuing
dominant position in the direct access network, BT should continue to be
obligated to provide indirect access to other operators. However, OFTEL also
concluded that this obligation on BT should not extend to providing equal
access to other operators. OFTEL, having commissioned a cost benefit analysis,
concluded that, rather than a cost benefit, there would be a significant net
cost in implementing equal access. Further, OFTEL concluded that "non-dominant"
operators (such as Mercury and the cable operators) should not be required to
give indirect access to other operators. Although all PTO licenses include a
condition regarding the provision of indirect access, it is subject to a number
of tests including the need to ensure that the requirements of fair competition
are satisfied and that indirect access, in all the circumstances, is reasonably
required. OFTEL considered that these tests were not satisfied. However, OFTEL
stated that it considers the "well established" operator threshold of 25% of
customer connections in a relevant market to be a useful guide in determining
whether a "non-dominant" operator should, in the future, be required to grant
indirect access to other operators. OFTEL stated that this threshold would not
automatically mean that the operator would be required to grant indirect
access, but that OFTEL would investigate the issue further in respect of that
operator and market conditions generally once that threshold was reached.
Number Portability
Telephone subscribers changing their telephone service to a cable operator
have historically had to change their telephone numbers. As a result certain
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
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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.
On April 9, 1997, OFTEL issued a Statement which set out OFTEL's proposals
to modify the license conditions of Mercury and other fixed operators including
cable operators to ensure that they provide number portability. The license
modifications would ensure that number portability is available for all users
of fixed phones and, in addition to portability of geographic numbers, covers
portability of specially tariffed services such as toll-free (0800), premium
rate and national rate services.
The license modifications take full account of the MMC report and are
based on the current license condition in BT's PTO license. They also apply the
MMC's principles on the charges which operators can make to each other for
providing portability. In particular, the following principles are applied:
(i) the licensee would be required to provide portability on request
from another qualifying licensee;
(ii) the principle of reciprocity would apply;
(iii) each licensee would be required to pay the initial costs of
modifying its network;
(iv) each licensee would be able to pass on to the other licensee
concerned the costs of enabling individual customers to port their
numbers;
(v) the exporting licensee would not directly charge the
importing licensee for any additional conveyance costs associated
with routing a call to a ported number; and
(vi) if requested, the Director General would determine the
reasonableness of the terms and conditions upon which portability
was offered.
OFTEL expects that portability of some non-geographic numbers will become
available in July 1997.
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 new Labour government has stated that its
policy is to review the restrictions upon the conveyance and provision by BT
and Mercury of broadcast entertainment ahead of the schedule set by the former
Conservative government, which did not intend to review the restrictions on
conveyance until 1998 and the restrictions on provision until 2001. The Duopoly
Review policy did not prevent the national PTOs from providing cable television
services of the kind currently provided by the Group, but it did require that
such services be provided through separate systems by separate subsidiaries of
the national PTOs under separate licenses similar to those held by the Group.
The ITC's policy of granting one cable television license for each geographic
area has ensured that no national PTO subsidiaries compete with the Group in
the provision of cable television services in the same area. BT currently owns
and operates one broadband cable franchise in the U.K., in Westminster, central
London 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
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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.
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. 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 DTI, OFTEL
and the ITC have stated that lifting these restrictions would limit competition
by jeopardizing the investment programs of cable operators. The Labour
Government policy is to 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. The Labour government
has announced its intention to commence discussions with BT.
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,
British Digital Broadcasting, is a joint venture by BSkyB, Carlton
Communications plc and Granada Group plc. The ITC has indicated it will award
the licenses in mid-1997.
In addition, on August 23, 1996 regulations came into force to implement
in the U.K. the European Advanced Television Services Directive. The Advanced
Television Services 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 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.
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Following public consultation, OFTEL published guidelines on the
regulation of conditional access services for digital television. The
guidelines set out how OFTEL would propose to deal with anti-competitive
behavior in relation to the provision of conditional access services. The
guidelines are not legally binding and are expected to be reviewed where market
developments so require.
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.
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.
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<PAGE> 59
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 and DCL has
a national telecommunications license which covers all of the U.K., excluding
the areas covered by Group individual franchise telecommunications licenses.
Individual franchise telecommunications licenses are 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).
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<PAGE> 60
SHAREHOLDERS
The following table sets forth, as of May 30, 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)......................... 39,447,443 66.7%
85 Broad Street, New York, NY 10004
AmSouthBank of Alabama, as Trustee (3)........................... 8,750,238 14.8%
1901 Sixth Avenue North, Third Floor,
Harbert Plaza, Birmingham, AL 35203
DCI Capital Partners............................................. 3,909,754 6.6%
9830 Wilshire Boulevard,
Beverly Hills, California CA 90212
Investor Investments AB.......................................... 3,909,754 6.6%
Arsenalsgatan 8c, P.O. Box 161574, S-103 24
Stockholm, Sweden
Booth English Cable Inc.(4) 4,118,601 6.9%
33 West Fort St., Suite 1230 Detroit, MI 48226
Robert T. Goad(5)................................................ 2,991,099 5.1%
c/o Columbia Management, Inc. P.O. Box 499,
Carmel, IN 46032
All directors and executive officers of the Company as a group(6) 2,991,099 5.1%
</TABLE>
(1) The percentage of Shares owned has been calculated based on the
59,138,791 Shares which are outstanding. The number of Shares outstanding
does not include 1,817,000 Shares issuable upon the exercise of options
which are in issue.
(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) Includes the interests held by Mr. Goad, 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
58
<PAGE> 61
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
(former Managing Director) 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. 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".
59
<PAGE> 62
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
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. 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.
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
60
<PAGE> 63
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.
Mr. Gary Davis retired as Managing Director of the Group on March 12, 1997
and retired as a Director as of April 26, 1997.
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
Stuart Roberts 46 Residential Sales Director
Nicholas J. Dearden 47 Management Information
Systems 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.
61
<PAGE> 64
Mr. Roberts joined the Company in May 1997 as Residential Sales Director.
Prior to joining the Company, Mr. Roberts held senior sales and marketing
positions at Rank Xerox, BAT Industries and G.E.C.
Mr. Dearden joined the Company in May 1997 as Management Information
Systems Director. Mr. Dearden has held senior management and director
positions in American Express Europe, Mercury Communications and Action
Computer Supplies.
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 seven 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
"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 retaining 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 L.3.44
per Share and L.4.11 per Share, respectively.
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<PAGE> 65
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 1994, 1995 and 1996
had they been such.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-------------------------------------------------------------------
ANNUAL SECURITIES
NAME AND PRINCIPAL YEAR UNDERLYING
POSITION COMPENSATION(2) SALARY BONUS OTHER OPTIONS (#)
- ------------------------ --------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gary L. Davis,
Managing Director(3).... 1996 $256,845 $111,300 $37,715 --
1995 $233,025 $77,675 $31,547 872,000
1994 $164,691 $39,162 $49,297 --
Nicholas R. Millard,
Chief Financial Officer. 1996 $162,669 $95,889 $36,076 --
1995 $69,908 $34,954 $16,223 60,000
J.A. Duncan Craig
Chief Accounting Officer 1996 $77,054 $15,411 $15,776 --
Stephen D. Rowles,
Executive Director...... 1996 $153,900 $17,230 $17,760 --
1995 $76,620 $46,605 $14,281 --
1994 $98,341 $29,764 $11,027 60,000
Mark Harris,
Technical Director...... 1996 $145,544 $85,615 $35,912 --
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 L.1.00, $1.5535 to
L.1.00 and $1.7123 to L.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
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$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 and resigned as a
Director as of April 26, 1997.
SENIOR MANAGEMENT OPTION SCHEME
The Company adopted a Senior Management Option Scheme on October 27, 1994
which has not been approved by the U.K. Inland Revenue. Under the scheme, the
Board of Directors may, for a period of 10 years, grant options over Shares
with an exercise price of L.3.44 or such other price as the Board of Directors
may determine, to executives or other individuals associated with the Group
selected by the Board of Directors. Options granted on or before April 30, 1995
can be exercised as to 50% of the shares subject to the option on or after June
30, 1998 and as to the other 50% on or after June 30, 1999, in each case, until
the seventh anniversary of the date of grant of the option. Options granted
after April 30, 1995 can only be exercised as to 50% on or after the fourth
anniversary of the date of grant, and as to the remaining 50%, on or after the
fifth anniversary of the date of grant, in each case, until the seventh
anniversary of the date of grant of the option. Options may be exercised early
in certain circumstances if the option holder ceases to be a director or
employee of the Group or if there is a change in control of the Group.
Options over a total of 728,000 Shares were granted to directors, senior
management and certain principals of ECE Management on February 23, 1995 and
July 19, 1995 under the Senior Management Option Scheme with an exercise price
of L.3.44. Of these 218,000 were granted to Gary Davis and 10,000 to Lord Pym.
On October 24, 1995, options over a total of 490,000 shares were granted
to directors, senior management and certain principals of ECE Management under
the Senior Management Option Scheme with an exercise price of L.4.11 per share.
On May 7, 1997, options over a total of 30,000 shares were granted to Mark
Harris under the Senior Management Option Scheme with an exercise price of
L.4.11 per share.
Options were granted on January 5, 1995 to CGT, in which Mr. Davis and his
family are shareholders, over 654,000 Shares with an exercise price of L.3.44
and are exercisable at any time up to January 5, 2002. These options were not
granted under the Senior Management Option Scheme but are subject to some of
the provisions of the Senior Management Option Scheme.
According to the rules of the Senior Management Option Scheme, the
aggregate number of shares which have been or may be issued pursuant to options
granted under the Senior Management Option Scheme and options granted under any
other option scheme of the Company may not exceed 10% of the Company's then
current issued share capital.
Set forth below is certain information regarding options granted to the
executive officers and employees whose compensation is disclosed above.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN FISCAL YEAR 1996
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL RATES OF
UNDERLYING GRANTED TO STOCK PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM
GRANTED IN FISCAL PRICE ----------------------------
NAME (#) YEAR 1996 (L./SHARE) EXPIRATION DATE 5% (L.) 10% (L.)
- ------------------- ---------- ----------- ---------- ------------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Davis...... 872,000 0% L.3.44 January 5, 2002 and L.1,221,170 L.2,845,850
February 23, 2002
Nicholas R. Millard 60,000 0% L.3.44 July 19, 2002 84,025 195,815
J.A. Duncan Craig.. 20,000 0% L.3.44 February 23, 2002 28,008 65,272
Stephen D. Rowles.. 60,000 0% L.3.44 February 23, 2002 84,025 195,815
</TABLE>
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<PAGE> 67
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mark Harris... 30,000 0% L.3.44 February 23, 2002 42,012 97,908
</TABLE>
COMPENSATION OF DIRECTORS
The Articles of Association of the Company provide that the ordinary
remuneration to directors who are not executive officers shall not exceed in
aggregate L.300,000 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 L.250,307 and L.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 L.150,000 a year plus a bonus of up to half
his salary calculated by performance criteria determined annually by the board
of directors of DCL.
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 L.1,085,000
and L.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
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<PAGE> 69
financial advisor in connection with the negotiation of Senior Bank Facility
for which it has charged fees of approximately L.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 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.
DESCRIPTION OF COMPANY DEBT
SENIOR BANK FACILITY
In August 1996 certain of Company's subsidiaries entered into a L.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 L.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 L.175 million, adjustments to the
repayment schedule and further revisions to the covenants and borrowing
conditions. To date, no funds have been drawn under the facility. The facility
does allow for the provision of guarantees and the Company has drawn a bond of
L.1.2 million in order to meet its obligations under the Group's
telecommunications licenses.
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
L.25 million, (iii) the existence of L.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, in the case of both (ii) and (iii) above, Borrower
Group and intra-Group indebtedness of the Borrower Group to the Company 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
L.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.
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<PAGE> 70
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.
DESCRIPTION OF 1995 NOTES
The 1995 Notes were issued in December 1995 with a principal amount at
maturity of $530,955,000. 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
The 1994 Notes were issued in September 1994 with a principal amount at
maturity of $285,101,000. 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 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
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<PAGE> 71
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.
OTHER COMPANY DEBT
As of March 31, 1997, the Group had outstanding long-term indebtedness
under capital leases in an aggregate principal amount of approximately L.8.3
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 March 31, 1997,
the capital outstanding under the GPT leases was approximately L.0.5 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 March 31, 1997, the capital
outstanding under the Nortel Limited leases was approximately L.1.5 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 February 2002. As at March 31, 1997,
the capital outstanding under the IBM agreement was approximately L.0.6
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 March 31, 1997, the
capital outstanding under the Nortel Limited leases was approximately L.5.4
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 March 31, 1997, the capital outstanding under the IBM leases was
approximately L.0.2 million and the capital outstanding under the various hire
purchase agreements was approximately L.0.1 million.
DCL also has a mortgage for approximately L.2.5 million to partly fund the
construction of the Company's headquarters in Nottingham. The mortgage is
repayable over a period of 20 years from the date of 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,
L.2.0 million had been drawn down under the loan agreement. The swap has been
recorded on the balance sheet at March 31, 1997 in other liabilities at its
fair value of negative L.1.1 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 L.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 one or more 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. 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
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Interest, (iii) at any time 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
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rules or regulations thereunder) of the United Kingdom or any political
subdivision or taxing authority thereof or therein (or, in the case of
Additional Amounts payable by a successor Person to the Company, of the
jurisdiction in which such successor Person is organized or any political
subdivision or taxing authority thereof or therein) or any amendment or change
in any official interpretation or application of such laws or rules or
regulations or any execution of or amendment to any treaty affecting taxation
to which the United Kingdom or such political subdivision or taxing authority
(or such other jurisdiction or political subdivision or taxing authority) is a
party, if the amendment or change becomes effective on or after the date of the
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:
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LIMITATION ON CONSOLIDATED DEBT AND DISQUALIFIED EQUITY
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur any Debt or issue any Disqualified Equity unless, immediately after
giving effect to the Incurrence of such Debt or the issuance of such
Disqualified Equity and the receipt and application of the proceeds thereof,
the Annualized Consolidated Debt to Cash Flow Ratio of the Restricted Group for
the quarter next preceding the Incurrence of such Debt or the issuance of such
Disqualified Equity, as the case may be, for which quarterly financial
statements are available, calculated on a pro forma basis (as if such Debt had
been Incurred or such Disqualified Equity had been issued at the beginning of
such quarter) would be less than 7.0 to 1.
Notwithstanding the foregoing paragraph, the Company may, and may permit
any Restricted Subsidiary to, Incur or issue the following: (i) Debt up to the
maximum amount available under the 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 L.20
million at any time outstanding.
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) shall not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities or otherwise) in respect of any class of its Equity
Securities or to the holders of any class of its Equity Securities (including
pursuant to a merger or consolidation of the Company, but excluding any
dividends or distributions payable solely in its Equity Securities (other than
Disqualified Equity) or in options, warrants or other rights to acquire its
Equity Securities (other than Disqualified Equity)), (ii) shall not, and shall
not permit any Restricted Subsidiary of the Company to, directly or indirectly,
purchase, redeem or otherwise acquire or retire for value (a) any Equity
Securities of the Company or any Related Person of the Company or (b) any
options, warrants or rights to purchase or acquire Equity Securities of the
Company or any Related Person of the Company (except options, warrants or
rights to purchase or acquire such Equity Securities held by any current or
former officer or director of the Company or ECE Management International (or
any of its predecessors) in an aggregate amount not exceeding L.5 million),
(iii) shall not make, or permit any
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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 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 L.10 million in a Person
which is engaged in a Cable Business or a business incidental thereto; and (iv)
investments in Non-Restricted Subsidiaries made with the proceeds of a
substantially concurrent (1) capital contribution to the Company or (2) issue
or sale of Equity Securities (other than Disqualified Equity) of the Company.
LIMITATION ON LIENS
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur or suffer to exist any Lien upon any of its properties or assets, now
owned or hereafter acquired, to secure any Debt without making, or causing such
Restricted Subsidiary to make, effective provision for securing the 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
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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 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 L.1.0 million in any twelve-month period shall be approved as being
in the Company's best interests by a majority of the disinterested directors of
the Board of Directors of the Company. Any such transaction involving in excess
of L.5.0 million (or series of related transactions involving in excess of
L.5.0 million), or as to which there are no disinterested directors, is subject
to the further requirement that the Company obtain an opinion of an
internationally recognized expert with experience in appraising the terms and
conditions of the relevant type of transaction (or series of related
transactions) stating that the transaction or series of related transactions is
fair (from a financial point of view) to the Company or such Restricted
Subsidiary.
The above requirements shall not be applicable to (i) any transaction
among the Company and its Wholly Owned Subsidiaries; (ii) any existing
management agreement with ECE Management 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
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Bank Facility or any Debt of a Restricted Subsidiary, or are not so applied,
the Company or such Restricted Subsidiary, as the case may be, may apply such
Net Available Proceeds within 365 days of the receipt thereof, to an investment
in properties and assets that will be used in a Cable Business (or in Equity
Securities of any such Person that will become a Restricted Subsidiary as a
result of such investment to the extent that such Person owns properties and
assets that will be used in a Cable Business) of the Company or any Restricted
Subsidiary ("Replacement Assets"). Notwithstanding the foregoing, the Company
may retain the Net Available Proceeds from any Asset Disposition, the Net
Available Proceeds of which do not exceed L.1.0 million for any purpose. Any
Net Available Proceeds from any Asset Disposition that are neither used to
repay amounts outstanding under the Senior Bank Facility or any Debt of a
Restricted Subsidiary nor invested in Replacement Assets within such 365-day
period (exclusive of the up to L.1.0 million referred to in the preceding
sentence) shall constitute "Excess Proceeds" subject to the provisions
described in the following paragraph.
When the aggregate amount of Excess Proceeds equals or exceeds L.10.0
million the Company shall make to all holders of the 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 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
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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 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 L.5 million or
which shall constitute the failure to pay any portion in excess of L.5 million
of principal or similar amount when due and payable after the expiration of any
applicable grace period; (g) the rendering of a final judgment or judgments
against the Company or any Significant Restricted Subsidiary in an amount in
excess of L.5 million which remains undischarged or unstayed for a period of 60
days after the date on which the right to appeal has expired; and (h) certain
events of bankruptcy, insolvency or reorganization affecting the Company or any
Significant Restricted Subsidiary.
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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 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
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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.
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
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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.
"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 L.250,000 of (i) shares or other ownership interest of a Subsidiary of the
Company, (ii) substantially all of the assets of the Company or any Subsidiary
representing a division or line of business, or (iii) other assets or rights
outside of the ordinary course of business.
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"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
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
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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 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.
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"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 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
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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
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which such has been determined pursuant to the Section hereof requiring the
Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of 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.
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"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 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
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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.
Investors may hold their Book-Entry Interests through Cedel or Euroclear,
if they are account holders in such systems, or indirectly through
organizations which are account holders in such systems. Cedel and Euroclear
will hold such interests 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 securities accounts
in the depositaries' names on the books of DTC. Investors may also hold their
Book-Entry Interests 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
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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 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
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.
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.
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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."
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.
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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 Book-Entry Depositary in exchange for
Book-Entry Interests in the Certificateless Depositary Interests in the Senior
Notes ("New Book-Entry Interests") which are traded through the facilities of
the Depository Trust Company (the "Book-Entry Transfer Facility"). 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
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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 identical to the form and terms
of the Old Notes except that (i) the Senior Notes have been registered under
the Securities Act and will not bear any legends restricting their transfer and
(ii) the Senior Notes will not contain certain provisions for an increase in
the interest rate on the Old Notes related to certain defaults in respect of
the Company's undertakings to carry out this Exchange Offer. Upon the
completion the of the Exchange Offer, such undertakings will have been
satisfied and therefore such defaults will no longer be applicable. 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.
As of March 31, 1997, Old Notes representing $420,500,000 aggregate
principal amount at maturity were outstanding and there was one holder (i.e., a
nominee of The Depository Trust Company). This Prospectus, together with the
Letter of Transmittal, is being sent to such 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 "- Certain - 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
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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.
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
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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.
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),
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(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.
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue Senior Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if at
any time before the acceptance of such Old Notes for exchange or the exchange of
the Senior Notes for such Old Notes, such acceptance or issuance would violate
applicable law or any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise the foregoing rights shall not be deemed a waiver of any such right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Senior Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect to
either the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
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:
<TABLE>
<S> <C> <C>
For Information or
Confirmation by Telephone:
(212) 815-2742
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
Corporate Trust Operations, 7E Processing Window
Ground Level Reorganization, 7E
</TABLE>
FEES AND EXPENSES
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
approximately $250,000, 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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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 & Co., Muneer
Satter, a managing director of Goldman Sachs International, and John Thornton,
a managing director of Goldman, Sachs & Co. 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".
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<PAGE> 100
The Company has agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act of 1933.
Goldman Sachs have informed the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority without
prior written approval of such transactions by the customer.
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") 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 the material U.K. tax matters with respect
to ownership of the Senior Notes and is based on the laws as in force and as
applied in practice on the date of this Offering Circular and is subject to
changes to those laws and practices, and any relevant judicial decision,
subsequent to the date of this Offering Circular.
PAYMENTS ON THE SENIOR NOTES
The Company will not be required to deduct or withhold on account of U.K.
income tax from payments of principal or, for so long as the Senior Notes are
represented by a Global Senior Note and are listed on the Luxembourg Stock
Exchange or some other stock exchange recognized by the U.K. Inland Revenue,
from payments of interest where:
(a) the payment of interest is made by a paying agent outside the
U.K.; or
(b) the payment of interest is made by or through a person who is
in the U.K. but the person beneficially entitled to the interest is not
resident in the U.K. and beneficially owns the Senior Notes from which
the interest derives and either the person by or through whom the payment
is made has received a declaration in a form prescribed by regulations
confirming that these requirements are satisfied or the Inland Revenue
has issued a notice to that person stating that they consider them
satisfied.
In other cases, and in particular where paid in respect of Definitive
Registered Notes, interest will (subject to what is said below) be paid after
deduction of income tax at the lower rate (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.
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<PAGE> 101
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 (which includes redemption and could
include the exchange of Old Notes for Senior Notes) 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 U.K. 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 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.
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UNITED STATES
The following summary of the material U.S. federal income tax consequences
of ownership and disposition of the Senior Notes deals only with Senior Notes
held as capital assets by purchasers who purchased the Old Notes in the
offering at the offering price. It does not discuss all of the tax consequences
that may be relevant to a holder in light of its particular circumstances or to
special classes of holders, such as securities dealers, banks, tax-exempt
organizations, life insurance companies, persons that hold Senior Notes that
are part of a straddle or conversion transaction, persons that are not U.S.
Holders, or persons whose functional currency is not the U.S. dollar. Investors
who purchased the Old Notes other than in the offering at the offering price or
who acquire Senior Notes other than pursuant to the Exchange Offer should
consult their tax advisors as to the possible applicability to them of the
acquisition premium or market discount rules. The summary is based on the Code,
its legislative history, existing and proposed regulations thereunder,
published rulings and court decisions, all as currently in effect and all
subject to change at any time, perhaps with retroactive effect.
EXCHANGE OF OLD NOTES FOR SENIOR NOTES
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.
ORIGINAL ISSUE DISCOUNT
The Senior Notes will be treated as issued with original issue discount
("OID") because the "issue price" of the Old Notes was less than their "stated
redemption price at maturity" by more than a de minimis amount. The "issue
price" of the Old Notes equals the first price at which a substantial amount of
the Old Notes were sold to persons other than bond houses, brokers or similar
persons or organizations acting in the capacity of underwriters, placement
agents or wholesalers. The "stated redemption price at maturity" equals the sum
of all payments provided under the Old Notes other than payments of "qualified
stated interest." A "qualified stated interest" payment is generally any one of
a series of stated interest payments that, among other requirements, are
unconditionally payable at least annually. Because the Old Notes did not
provide for the payment of interest prior to the Cash Interest Date, none of
the interest on the Old Notes will be "qualified stated interest." Therefore,
all payments provided for under the Old Notes will be included in the "stated
redemption price at maturity" and the total OID on an Old Note will equal the
difference between the sum of all payments provided under the Old Note and its
issue price.
A U.S. Holder of a Senior Note must include OID in income calculated in
accordance with a constant-yield method before the receipt of cash attributable
to such income. Under the constant-yield method, interest is accrued at a
constant rate based on the Old Notes' yield to maturity, which is the discount
rate that, when used in computing the present value of all payments to be made
under the Old Notes, produces an amount equal to their issue price. The amount
of OID includible in income by a U.S. Holder of a Senior Note is the sum of the
daily portions of OID with respect to the Senior Note for each day during the
taxable year or portion of the taxable year on which the U.S. Holder holds such
Senior Note ("accrued OID"). The daily portion is determined by allocating to
each day in any "accrual period" a pro rata portion of the OID allocable to
that accrual period. Accrual periods with respect to a Senior Note may be of
any length selected by the U.S. Holder and may vary in length over the term of
the Senior Note as long as (i) no accrual period is longer than one year and
(ii) each scheduled payment of interest or principal on the Senior Note occurs
on either the final or first day of an accrual period. The amount of OID
allocable to an accrual period will equal the product of the Senior Note's
"adjusted issue price" at the beginning of the accrual period and such Senior
Note's yield to maturity (determined on the basis of compounding at the close
of each accrual period and properly adjusted for the length of the particular
accrual period). The amount of OID allocable to an initial short accrual period
may be computed using any reasonable method if all other accrual periods other
than a final short accrual period are of equal length. The amount of OID
allocable to the final accrual period is the difference between the amount
payable at the maturity of the Senior Note and the Senior Note's adjusted issue
price as of the beginning of the final accrual period.
<PAGE> 103
The "adjusted issue price" of a Senior Note at the beginning of any
accrual period will be the issue price of the Old Note increased by the amount
of accrued OID for each prior accrual period and decreased by the amount of any
payments made on the Senior Note. Because OID will accrue and be includible in
income at least annually and no payments will be made under the Senior Notes
until the Cash Interest Date, the adjusted issue price will increase until the
Cash Interest Date. The amount of OID includible in income will therefore
increase during each accrual period until the Cash Interest Date. In taxable
years of a U.S. Holder beginning after the Cash Interest Date, the amount of
OID includible in the U.S. Holder's income should be approximately equal to the
expected interest payments on the Senior Notes.
OID accrued with respect to the Senior Notes constitutes income from
sources outside the United States, but generally will be "passive" or, in the
case of certain U.S. Holders, "financial services" income, which is treated
separately from other types of income for purposes of computing the foreign tax
credit allowable to a U.S. Holder.
SALE, EXCHANGE OR RETIREMENT OF THE SENIOR NOTES
Upon the sale, exchange or retirement of a Senior Note, a U.S. Holder will
generally recognize taxable gain or loss equal to the difference between the
amount realized on the sale, exchange or retirement and such Holder's adjusted
tax basis in the Senior Note. A U.S. Holder's adjusted tax basis in a Senior
Note will generally equal the cost of the Old Note to such Holder, increased by
the amounts of any OID previously included in income by the Holder with respect
to such Old Note and Senior Note and reduced by any payments on the Senior
Notes received by the Holder.
Gain or loss realized on the sale, exchange or retirement of a Senior Note
will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held for more than one year. Gain, if any, will
generally be U.S. source gain.
Although the matter is not free from doubt, an exchange of Old Notes for
Senior Notes pursuant to the Exchange Offer should not be taxable to U.S.
Holders.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to the accrual
of OID and payments of principal, premium and interest on a Senior Note within
the United States (including payments made by wire transfer from outside the
United States to an account maintained by the U.S. Holder with a fiscal or
paying agent in the United States) to a non-corporate U.S. Holder, and "backup
withholding" at a rate of 31% will apply to such payments if the U.S. Holder
fails to provide an accurate taxpayer identification number or is notified by
the Internal Revenue Service that it has failed to report all interest and
dividends required to be shown on its federal income tax returns. Payment of
the proceeds from the sale of a Senior Note to or through the United States
office of a broker may be subject to information reporting and backup
withholding. Payment of the proceeds from the sale of a Senior Note made to or
through a foreign office of a broker generally will not be subject to
information reporting or backup withholding. If, however, the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting (but not backup withholding) may apply to such
payments.
The amount of any backup withholding from a payment to a U.S. Holder will
be allowed as a credit against such Holder's U.S. federal income tax liability
and may entitle such Holder to a refund, provided that the required information
is furnished to the Internal Revenue Service.
LONDON: 84725.1
<PAGE> 104
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 Katherine B. Wolfsohn, Legal Director of 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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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.
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Street Works Act: The New Roads and Street Works Act 1991.
Telecommunications Act: The Telecommunications Act 1984, which governs the
licensing and operation of the telecommunications industry in the U.K.
Telecommunications license: A license granted under the Telecommunications
Act by the DTI which authorizes installation and operation of a
telecommunications network used to provide cable television and cable telephone
services.
Telephone number portability: The ability of a telephone customer to
retain its telephone number when changing telephone service providers.
Video-on-demand: A generic term applied to a range of services where a
customer has direct control over the timing and content of programming
received. The choice exercised over the potential range of programs and
particularly their start time distinguishes video-on-demand services from those
which are broadcast.
AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission
(the "Commission") 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>
PAGE
----
<S> <C>
DIAMOND CABLE COMMUNICATIONS PLC:
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ........................................ F-2
Consolidated Statements of Operations for each of the years
in the three year period ended December 31, 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
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Statements of Operations for
the three months ended March 31, 1997 and 1996 ................... F-27
Unaudited Condensed Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 ............................. F-28
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the three months ended March 31, 1997 ................. F-29
Unaudited Condensed Consolidated Statements of Cash
Flows for the three months ended March 31, 1997 and 1996 ......... F-30
Notes to the Unaudited Condensed Consolidated Financial
Statements ....................................................... F-31
</TABLE>
F-1
<PAGE> 110
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> 111
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1994 1995 1996 1996
---------- ---------- ---------- ---------
(note 1)
(in thousands)
<S> <C> <C> <C> <C>
REVENUE
Business telecommunications .................... L. 3,402 L. 5,852 L. 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 amortisation .................. (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 amortisation 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 ........................................ L. (8,679) L. (27,607) L. (35,830) $ (61,352)
========= ========== ========== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-3
<PAGE> 112
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
---------------------------------
1995 1996 1996
------ ------ ------
(note 1)
(in thousands except share data)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (note 6) ............................ L. 93,308 L.18,311 $31,354
Trade receivables (net of allowance for doubtful
accounts of L.773 and L.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 amortisation of
L.382 and L.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 amortisation of L.1,212 and L.6,064
at December 31, 1995 and 1996 respectively) (note 9) ......... 95,748 90,896 155,641
Franchise costs (less accumulated amortisation of
L.69 and L.91 at December 31, 1995 and 1996 respectively) .... 438 445 762
--------- --------- ---------
TOTAL ASSETS .................................................. L.374,172 L.416,819 $713,719
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable .............................................. L.18,627 L.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 authorised;
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 authorised 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 .................... L.374,172 L.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> 113
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Non-voting
Ordinary shares deferred shares (i) Additional Unrealized Accum- Total
--------------------- -------------------- Paid-in- loss on ulated Shareholders'
Number L. Number L. capital securities Deficit Equity
---------- --------- -------- -------- ---------- ---------- ---------- -------------
(L. in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
AT JANUARY 1, 1994 .......... 400 L. - - L. - L. 3,871 L. - L. (9,531) L. (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 L. 797 6 L. - L.43,505 L. - L. (18,210) L.26,092
========== ========= ======== ======== ========== ========= ========== =============
BALANCE
AT JANUARY 1, 1995 .......... 31,903,232 L. 797 6 L. - L.43,505 L. - L. (18,210) L.26,092
Shares issued and capital
contributions (net of
expenses) .................. 9,437,428 236 - - 26,742 - - 26,978
Bonus shares issued ......... 2,413,515 61 - - (61) - - -
Unrealized loss on securities - - - - - (330) - (330)
Net loss .................... - - - - - - (27,607) (27,607)
---------- --------- -------- -------- ---------- --------- ---------- -------------
BALANCE
AT DECEMBER 31, 1995 ........ 43,754,175 L. 1,094 6 L. - L.70,186 L. (330) L. (45,817) L.25,133
========== ========= ======== ======== ========== ========= ========== =============
BALANCE
AT JANUARY 1, 1996 .......... 43,754,175 L. 1,094 6 L. - L.70,186 L. (330) L. (45,817) L.25,133
Shares issued and capital
contributions (net of
expenses) .................. 15,384,616 384 - - 64,280 - - 64,664
Unrealized gain on
securities ................. - - - - - 133 - 133
Net loss .................... - - - - - - (35,830) (35,830)
---------- --------- -------- -------- ---------- --------- ---------- -------------
BALANCE
AT DECEMBER 31, 1996 ........ 59,138,791 L.1,478 6 - L.134,466 L. (197) L. (81,647) L.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.
See accompanying Notes to the Consolidated Financial Statements
F-5
<PAGE> 114
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
1994 1995 1996 1996
---------- ---------- ---------- ---------
(note 1)
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ...................................... L. (8,679) L. (27,607) L.(35,830) $(61,352)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Depreciation and amortisation ................ 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
Amortisation 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 purchase 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) L. 41,066 L. 93,308 L. 18,311 $31,354
========== ========== ========== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-6
<PAGE> 115
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 ("L.") 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 L.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". During the prematurity period,
depreciation of the cable infrastructure is charged monthly to write-off the
estimated cost at the end of the prematurity phase over 40 years weighted by
factors influenced by the growth in the number of subscribers. The
prematurity period covers the period between connecting the first customer and
substantial completion of the network. Initial subscriber installation costs
are capitalized and depreciated over a period of 7 years. A proportion of the
costs of the installation department representing the costs of disconnecting
and reconnecting subscribers is charged to expenses. The carrying value of the
cable network is evaluated periodically to assess whether the costs can be
recovered through the estimated future cash flows to be derived from its use.
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.
F-7
<PAGE> 116
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
GOODWILL IMPAIRMENT - The Company assesses the recoverability of this
intangible asset by determining whether the amortisation 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 (L.). Transactions in foreign currencies are recorded
using the rate of exchange in effect on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using
the rate of exchange in effect on the balance sheet date and gains or losses on
translation are included in the statement of operations. Foreign exchange
forward contracts which do not hedge firm commitments are accounted at market
value with reported gains and losses recorded in the statement of operations.
PENSION COSTS - The Group does not have a defined benefit pension plan but
contributes up to specified limits to a third party plan. Pension costs of
L.40,000, L.55,000 and L.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
F-8
<PAGE> 117
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 LOSS ON DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1994 1995 1996
----------- -------------- ----------
(in thousands)
<S> <C> <C> <C>
Unrealized (loss)/gain on interest rate swap (note 17) .......... L. - L. (868) L. 174
Unrealized loss on foreign exchange forward contract (note 17) .. - - (8,118)
------- ------- --------
L. - L. (868) L.(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 L.139 million and approximately L.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 L.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 L.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
----------- -------------- ------------
(in thousands)
<S> <C> <C> <C>
Tax benefit of net losses at statutory rate .. L.(2,864) L.(9,110) L.(11,824)
Non-deductible expenses ...................... 26 367 1,695
Valuation allowance .......................... 2,838 8,743 10,129
-------- --- ---- --------
Net tax benefit .............................. L. - L. - L. -
======== ======== =========
</TABLE>
F-9
<PAGE> 118
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (continued)
<TABLE>
<CAPTION>
December 31
------------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets relating to:
Net losses ............................. L.20,155 L.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 .. L. - L. -
========= ==========
</TABLE>
During 1995 the Company acquired LCL which had tax net operating losses
carried forward of L.17.2 million. The resulting deferred tax asset was
reduced by a 100% valuation allowance in the purchase accounting entries.
Within the deferred tax balance in 1995 is an asset of L.109,000 with a
100% valuation allowance in respect of the unrealized loss on securities which
is recognized as a separate component of equity.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable losses, and tax planning strategies in making its assessment
as to the appropriateness of the reported valuation allowance.
6. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
December 31
------------------------
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
Cash at bank and in hand .. L. 9,965 L. 1,241
Short term securities ..... 83,343 17,070
-------- --------
L.93,308 L.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> 119
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
---------- ----------- --------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
1994
Allowance for doubtful accounts .. L. 112 L. - L. 121 L. - L. 233
========= ========= ========= =========== ==========
1995
Allowance for doubtful accounts .. L. 233 L. 133 L. 439 L. (32) L. 773
========= ========= ========= =========== ==========
1996
Allowance for doubtful accounts .. L. 773 L. - L. 1,143 L. (225) L. 1,691
========= ========= ========= =========== ==========
</TABLE>
8. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Land and Cable Office Motor
buildings network equipment vehicles Total
--------- --------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1995 .... L. 1,934 L. 39,964 L. 1,336 L. 476 L. 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 ........... L. 3,789 L.156,365 L. 3,251 L. 316 L.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 ........... L. 4,704 L.269,121 L. 3,289 L. 187 L.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 L.11,919,000 and L.11,543,000 at December 31, 1995
and 1996 respectively. Accumulated depreciation charged against these assets
was L.2,817,000 and L.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> 120
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 L.490,000,
L.863,000 and L.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 L.109.1 million in cash was financed by way of existing cash reserves, an
equity issue and a L.61.5 million short term loan. An additional L.30 million
short term capital expenditure facility was also drawn down to fund
construction.
EMCG and subsidiaries represent the trading activities and substantially
all the assets of LCL. The acquisition was accounted for as a purchase and,
accordingly, the cost of the acquisition was allocated to the net assets
acquired based on their fair values. The excess of the purchase price over the
fair value of the net assets acquired, amounting to L.97 million, is being
amortized over twenty years.
The following represents the allocation of the excess of purchase price
over the estimated fair values of the acquired net assets of LCL. The fair
value of the acquired net assets is not materially different from the
historical net book value, except as noted in the table below.
Acquired assets and liabilities at book value (September 30, 1995)
<TABLE>
<CAPTION>
(in thousands)
EMCG EMCC EMCH Total
<S> <C> <C> <C> <C>
Property and equipment, net L. 27,988 - - L. 27,988
Other assets 2,181 5, 276 46 7,503
--------- -------- ----- ---------
Total assets L. 30,169 L. 5,276 L. 46 L. 35,491
Zero coupon bonds (23,296) - - (23,296)
Other liabilities (12,286) (5,221) (46) (17,553)
--------- -------- ----- ---------
Net (liabilities)/assets L. (5,413) L. 55 - L.(5,358)
========= ======== =====
Acquired zero coupon bonds 23,296
Less certain fair value adjustments (5,761)
Goodwill 96,960
---------
L.109,137
=========
</TABLE>
<TABLE>
(in thousands)
<S> <C>
Fair value adjustments represent:
- remeasurement of fixed assets ............................ L. (1,667)
- accruals for direct acquisition costs .................... (4,094)
------------
L. (5,761)
</TABLE>
EMCG's primary business is the provision of cable television and
telecommunications services focused on a regional market centered around
Leicester, England, an area which is contiguous to the Company's existing
franchise areas.
F-12
<PAGE> 121
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITION (continued)
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 amortisation of goodwill, is provided for information only. It
is based on historical information and does not necessarily reflect the actual
results that would have occurred, nor is it necessarily indicative of future
results of operations of the combined companies.
<TABLE>
<CAPTION>
Year ended
December 31
--------------------------
1994 1995
----------- -----------
(in thousands)
<S> <C> <C>
Total revenues .................... L. 9,883 L. 21,001
=========== ===========
Net loss .......................... L. (41,280) L. (52,566)
=========== ===========
</TABLE>
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 L.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 L.187 million after issuance costs of L.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 L.49 million ($84.7 million) and L.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 L.38 million ($65.3
million).
F-13
<PAGE> 122
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 L.149 million after issuance costs of approximately L.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 L.78,000, L.733,000 and L.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
-------- ----------
(in thousands)
<S> <C> <C>
1997 ................. L. 2,286 L. 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) -
-------- ---------
L. 8,146 L. 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> 123
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. MORTGAGE LOAN
The Group entered into a mortgage loan agreement of L.2.5 million to fund
the construction of the Company's headquarters in Nottingham. The mortgage is
repayable over a period of 20 years from July 31, 1995, the date of drawdown,
subject to a capital repayment moratorium which expired in September 1996.
Interest is paid monthly at a rate of LIBOR + 1 1/2%.
13. SHAREHOLDERS' EQUITY
The authorised and issued share capital of DCL during 1992 consisted of
two L.1 par value ordinary shares. On July 3, 1993 the shareholders agreed to
a four-for-one share split such that the 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 L.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 L.17.59 million. The proceeds of the
issue were used to repay the advance from shareholders.
On May 6, 1994 the authorised share capital of DCL was increased to
L.1,000,001 divided into 4,000,000 ordinary shares of 25 pence each and six 'A'
class shares of 25 pence each. The six 'A' shares have now been converted into
non-voting deferred shares in accordance with the Articles of Association of
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 L.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 (L.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
L.15.44 million (net of L.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
authorised 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 authorised share capital of the Company was
70,000,000 ordinary shares and six A shares of 2.5 pence each of which
29,016,630 ordinary shares and six A shares of 25 pence each were outstanding.
The six A shares conferred certain anti-dilution rights and have now been
converted into non-voting deferred shares in accordance with the Articles of
Association.
On October 11, 1994, the Company issued 2,298,728 ordinary shares of 2.5
pence each to a wholly owned subsidiary of Investor Investments AB, a company
incorporated in Sweden, for gross proceeds of L.6.57 million. A total of
587,874 ordinary shares of 2.5 pence each were allotted by way of bonus to the
holders of the A shares in accordance with the terms of such shares.
On February 7, 1995 the Company issued 2,298,728 ordinary shares of 2.5
pence each to Creative Artists Agency Inc. for gross proceeds of L.6.57
million. A further 587,873 ordinary shares 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> 124
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SHAREHOLDERS' EQUITY (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 L.20.4
million. A further 1,825,642 ordinary shares of 2.5 pence each were allotted
on August 31, 1995 and September 4, 1995 by way of a bonus to the holders of
the A shares of 25 pence each, in accordance with the terms of such shares.
The conditions in the Articles relating to the conversion of the A shares of 25
pence each into non-voting deferred shares of 25 pence each were thereby
satisfied and the six A shares of 25 pence each converted automatically into
six non-voting deferred shares of 25 pence each on September 4, 1995.
The deferred shares entitle holders thereof only to the repayment of the
amounts paid up on such shares after payment in respect of each ordinary share
of L.100,000. The holders of deferred shares will not be entitled to the
payment of any ordinary dividend or other distributions.
On August 16, 1995, the Company exchanged all its ordinary shares in 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 L.64.7 million (net of expenses).
14. DEBT FINANCING COSTS
Cash expended for debt financing costs in 1996 consists of payments of
L.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 L.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 L.518,000, L.2,376,000 and L.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 L.1,085,000 and
L.1,610,000, respectively, as amounts paid or payable to
F-16
<PAGE> 125
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 L.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 L.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
L.33.6 million and its nominal value at December 31, 1996 was L.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 L.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
L.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 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 has recorded for the year ended December 31, 1996, an
unrealized loss of approximately L.8.1 million on the pounds sterling sell
forward contract. 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.
F-17
<PAGE> 126
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
--------- ---------- ----------- ---------
(in thousands)
<S> <C> <C> <C> <C>
1994 Notes .. L.113,559 L.117,062 L.127,841 L.136,740
1995 Notes .. 194,170 197,356 203,359 220,726
--------- --------- --------- ---------
L.307,729 L.314,418 L.331,200 L.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> 127
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 L.3.44 or such other price as the
Board of Directors may determine, to executives or other individuals associated
with the Group selected by the Board of Directors. Options granted on or
before April 30, 1995 can be exercised as to 50% of the shares subject to the
option on or after June 30, 1998 and as to the other 50% on or after June 30,
1999, in each case, until the seventh anniversary of the date of grant of the
option. Options granted after April 30, 1995 can only be exercised as to 50%
on or after the fourth anniversary of the date of grant, and as to the
remaining 50%, on or after the fifth anniversary of the date of grant, in each
case, until the seventh anniversary of the date of grant of the option.
Options may be exercised early in certain circumstances if the option holder
ceases to be a director or employee of the Group or if there is a change in
control of the Group.
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 L.3.44. Of these 218,000 were granted to Gary Davis and 10,000 to Lord Pym.
On October 24, 1995, options over a total of 490,000 shares were granted
to directors, senior management and certain principals of ECE Management under
the Senior Management Option Scheme with an exercise price of L.4.11 per share.
Options were granted on January 5, 1995 to CGT, in which Mr Davis and his
family are shareholders, over 654,000 shares with an exercise price of L.3.44
and are exercisable at any time up to January 5, 2002. These options were not
granted under the Senior Management Option Scheme but are subject to some of
the provisions of the Senior Management 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>
- 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 L.0.20 million and L.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> 128
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SHARE OPTIONS (continued)
<TABLE>
<CAPTION>
Year ended
December 31
------------------------
1995 1996
----------- -----------
(in thousands)
<S> <C> <C>
Pro-forma net loss .. L. (27,812) L. (36,164)
=========== ===========
</TABLE>
19. SENIOR BANK FACILITY AND RESTRICTION OF NET ASSETS
In August 1996 certain of the Company's subsidiaries entered into a L.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 L.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 L.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> 129
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)
(in thousands)
<S> <C> <C> <C> <C>
OPERATING COSTS AND EXPENSES
Selling, general and administrative ... L. - L. - L. (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 .............................. L. (3,256) L. (11,105) L.(10,109) $(17,310)
============ =========== ========= ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-21
<PAGE> 130
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)
(in thousands except share data)
ASSETS
<S> <C> <C> <C>
Investments in and advances to subsidiaries ................... L. 317,239 L. 369,838 $633,273
Cash and cash equivalents ..................................... - 16,032 27,452
Other assets .................................................. 13 115 197
Deferred financing costs (less accumulated amortization of
L.382 and L.1,325 at December 31, 1995 and 1996 respectively) 12,016 11,960 20,479
----------- ----------- --------
TOTAL ASSETS .................................................. L.329,268 L.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 .................... L.329,268 L.397,945 $681,401
=========== =========== ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-22
<PAGE> 131
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 Total
---------------------- ------------------------ Paid-in- loss on Accumulated Shareholders'
Number L. Number L. capital securities Deficit Equity
--------- --------- ---------- --------- -------- ---------- --------- ------------
(L. in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
AT AUGUST 31, 1994 ...... - L. - - L. - L. - L. - L. - L. -
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 L. 797 6 L. - L. 6,490 L. - L. (3,256) L. 4,031
========== ======== ======== ======== ======== ======== ========= ========
BALANCE
AT JANUARY 1, 1995 ...... 31,903,232 L. 797 6 L. - L. 6,490 L. - L. (3,256) L. 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 L. 1,094 6 L. - L.33,171 L. - L.(14,361) L.19,904
========== ======== ======== ======== ======== ======== ========= ========
BALANCE
AT JANUARY 1, 1996 ...... 43,754,175 L. 1,094 6 L. - L.33,171 L. - L.(14,361) L.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 L. 1,478 6 L. - L.97,451 L. (197) L.(24,470) L.74,262
========== ======== ======== ======== ======== ======== ========= ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-23
<PAGE> 132
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)
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................... L.(3,256) L.(11,105) L.(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 ........ L.38,475 L. - L. 16,032 $ 27 ,452
======== ========= ========= =========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-24
<PAGE> 133
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 ("L.") 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 L.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 (L.). Transactions in foreign currencies are recorded
using the rate of exchange in effect on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated using
the rate of exchange in effect on the balance sheet date and gains or losses on
translation are included in the statement of operations. Foreign exchange
forward contracts which do not hedge firm commitments are accounted at market
value with reported gains and losses recorded in the statement of operations.
SENIOR DISCOUNT NOTES - The debt discount is amortized to the statement of
operations on a constant yield to maturity basis.
DEFERRED FINANCING COSTS - Costs incurred relating to the issue of debt
are shown as an asset on the balance sheet and are amortized over the term of
the debt as an adjustment of yield.
B. ADVANCES TO SUBSIDIARIES
The advances to subsidiaries consist of a dollar denominated loan 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 L.318,000 and
L.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> 134
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1996 1997 1997
---------- ---------- ----------
(NOTE 1)
(in thousands)
REVENUE
<S> <C> <C> <C>
Business telecommunications.............. L. 2,371 L. 3,173 $ 5,219
Residential telephone.................... 3,551 6,171 10,150
Cable television......................... 1,961 3,818 6,280
---------- ---------- ----------
7,883 13,162 21,649
---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Telephone................................ (2,680) (2,596) (4,270)
Programming.............................. (1,175) (2,292) (3,770)
Selling, general, and
administrative........................... (4,865) (6,201) (10,199)
Depreciation and amortization............ (4,633) (6,380) (10,494)
---------- ---------- ----------
(13,353) (17,469) (28,733)
---------- ---------- ----------
OPERATING LOSS........................... (5,470) (4,307) (7,084)
Interest income.......................... 1,164 943 1,551
Interest expense and amortization of debt
discount and expenses.................. (9,961) (12,181) (20,035)
Foreign exchange losses, net............. (5,398) (11,994) (19,728)
Unrealized gain on derivative financial
instrument............................. 689 76 125
Realized gain on derivative financial
instrument............................. -- 11,553 19,002
---------- ---------- ----------
Loss before income taxes................. (18,976) (15,910) (26,169)
Income taxes............................. -- -- --
---------- ---------- ----------
Net loss................................. L. (18,976) L. (15,910) $ (26,169)
=========== =========== ==========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
F-26
<PAGE> 135
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
AT DECEMBER 31, AT MARCH 31,
-------------------------
1996 1997 1997
--------------- ---------- ---------
(NOTE 1)
(IN THOUSANDS)
Assets
<S> <C> <C> <C>
Cash and cash equivalents...................... L. 18,311 L. 151,102 $248,533
Trade receivables (net of allowance
for doubtful accounts of L.1,691 at
December 31, 1996 and L.1,898 at
March 31, 1997)................................ 6,389 6,762 11,122
Other assets................................... 3,904 5,311 8,736
Deferred financing costs (less
accumulated amortization of
L.1,325 at December 31, 1996 and
L.1,868 at March 31, 1997)..................... 19,573 24,344 40,041
Property and equipment, net (note 3)........... 277,301 297,424 489,203
Goodwill (less accumulated amortization of
L.6,064 at December 31, 1996 and L.7,277
at March 31, 1997)............................. 90,896 89,683 147,510
Franchise costs (less accumulated
amortization of L.91 at December 31, 1996 and
L.96 at March 31, 1997)........................ 445 440 724
--------------- ---------- ---------
TOTAL ASSETS................................... L.416,819 L.575,066 $945,869
=============== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................... L. 18,528 L. 23,884 $39,285
Other liabilities.............................. 19,150 11,925 19,614
Senior discount notes.......................... 314,418 490,487 806,753
Capital lease obligations...................... 8,146 8,262 13,589
Mortgage loan.................................. 2,477 2,460 4,046
Shareholders' equity
Ordinary shares (70,000,000 authorized;
59,138,791 issued at December 31, 1996 and
at March 31, 1997)............................. 1,478 1,478 2,431
Non-voting deferred shares..................... -- -- --
Additional paid-in-capital..................... 134,466 134,466 221,170
Unrealized loss on securities.................. (197) (339) (557)
Accumulated deficit............................ (81,647) (97,557) (160,462)
--------------- ---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY......................................... L.416,819 L.575,066 $945,869
=============== ========== =========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
F-27
<PAGE> 136
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Non-voting Additional Unrealized Accumu- Total
deferred Paid- loss on lated Sharehold-
Ordinary Shares shares in-capital securities Deficit ers' Equity
-------------------- ---------------- ------------- ------------- ------------ -----------
(IN THOUSANDS EXCEPT SHARE DATA)
Number Number
---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997... 59,138,791 L.1,478 6 -- L.134,466 L.(197) L.(81,647) L. 54,100
Unrealized loss on securities -- -- -- -- -- (142) -- (142)
Net loss..................... -- -- -- -- -- -- (15,910) (15,910)
---------- -------- ------ ----- ------------- ---------- ------------ -----------
BALANCE AT MARCH 31, 1997.... 59,138,791 L.1,478 6 -- L.134,466 L.(339) L.(97,557) L. 38,048
========== ======== ====== ===== ============= ========== ============ ===========
</TABLE>
- ------------
See the accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.
F-28
<PAGE> 137
DIAMOND CABLE COMMUNICATIONS PLC
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
1996 1997 1997
---------- ---------- ----------
(NOTE 1)
(IN THOUSANDS)
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss.................................................... L. (18,976) L. (15,910) $ (26,169)
Adjustments to reconcile net loss to net cash (used
in)/provided by operating activities:
Depreciation and amortization............................... 4,633 6,380 10,494
Unrealized foreign exchange losses.......................... 5,296 11,193 18,410
Loss on disposition of assets............................... -- 11 18
Accretion of Senior Note discount........................... 9,478 11,184 18,395
Provision for losses on accounts receivables................ 278 207 341
Amortization of deferred financing costs.................... 209 543 893
Change in operating assets and liabilities:
Change in trade receivables................................. (927) (580) (954)
Change in other assets...................................... 690 (1,407) (2,314)
Change in accounts payable.................................. (1,595) 6,311 10,380
Change in other liabilities................................. (995) (7,459) (12,268)
---------- ---------- ----------
Net cash (used in)/provided by operating activities......... (1,909) 10,473 17,226
---------- ---------- ----------
Cash flows from investing activities:
Cash invested in property and equipment..................... (36,051) (26,105) (42,937)
Proceeds from disposition of assets......................... 2 8 13
---------- ---------- ----------
Net cash used in investing activities....................... (36,049) (26,097) (42,924)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds of issue of debt................................... -- 153,692 252,792
Debt financing costs........................................ -- (4,767) (7,841)
Repayment of mortgage loan.................................. -- (17) (28)
Capital element of capital lease repayments................. (217) (351) (577)
---------- ---------- ----------
Net cash (used in)/provided by financing activities......... (217) 148,557 244,346
---------- ---------- ----------
Net (decrease)/increase in cash and cash equivalents........ (38,175) 132,933 218,648
Cash and cash equivalents at beginning of period............ 93,308 18,311 30,118
Effect of exchange rate changes on cash and cash equivalents 804 (142) (233)
---------- ---------- ----------
Cash and cash equivalents at end of period.................. L. 55,937 L. 151,102 $248,533
========== ========== ==========
</TABLE>
See the accompanying notes to the Unaudited Condensed Consolidated
Financial Statements.
F-29
<PAGE> 138
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Diamond Cable Communications Plc (the "Company") owns and operates cable
television and telecommunications systems through its subsidiaries. The
unaudited consolidated financial statements of the Company and its subsidiaries
(the "Group") have been prepared in accordance with U.S. generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The financial statements are stated in pounds sterling (L.). Merely for
convenience the financial statements contain translations of certain pound
sterling amounts into U.S. dollars at $1.6448 per L.1.00, the noon buying rate
in the City of New York for cable transfers in pounds sterling as certified for
customs purposes by the Federal Reserve Bank of New York on March 31, 1997.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the periods ended March 31, 1997
and 1996 are unaudited. However, in the opinion of the management, such
statements include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the results for the periods
presented. The results of operations for any interim period are not
necessarily indicative of the results for the full year. The interim financial
statements should be read in conjunction with the financial information
included in the Company's 1996 Annual Report on Form 10-K filed with the SEC.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
LAND AND CABLE OFFICE MOTOR
BUILDINGS NETWORK EQUIPMENT VEHICLES TOTAL
----------- ----------- ----------- --------- ---------
(IN THOUSANDS)
ACQUISITION COSTS
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997...... L.5,018 L.298,062 L. 6,069 L. 435 L.309,584
Additions....................... -- 24,928 376 -- 25,304
Dispositions.................... -- (53) -- (107) (160)
--------- ---------- --------- --------- ---------
Balance at March 31, 1997....... 5,018 322,937 6,445 328 334,728
--------- ---------- --------- --------- ---------
ACCUMULATED DEPRECIATION
Balance at January 1, 1997...... 314 28,941 2,780 248 32,283
Charge for period............... 45 4,611 490 16 5,162
Dispositions.................... -- (53) -- (88) (141)
--------- --------- --------- --------- ---------
Balance at March 31, 1997....... 359 33,499 3,270 176 37,304
--------- --------- --------- --------- =========
MARCH 31, 1997 NET BOOK VALUE... 4,659 289,438 3,175 152 297,424
========= ========= ========= ========= =========
DECEMBER 31, 1996 NET BOOK VALUE L.4,704 L.269,121 L.3,289 L. 187 L.277,301
========= ========== ========= ========= =========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
The Company is obligated under the terms of its existing licenses, and
under the milestone requirements of its local delivery licenses ("LDLs"), to
construct cable systems passing a predetermined number of premises. Should the
Company fail to achieve these milestones, without license modifications, the
Director General could commence proceedings to require compliance. Similarly,
the Independent Television
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F-30
<PAGE> 139
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Commission ("ITC") may commence proceedings to require compliance with the
build milestones in the LDLs. If the Company is unable to comply, its licenses
in respect of which milestones have not been met could be revoked, which could
have a material adverse effect on the Company.
5. 1997 SENIOR NOTES
On February 21, 1997 the Company issued $420,500,000 of 10 3/4% Senior
Discount Notes due February 15, 2007 ("the 1997 Senior Notes") at an issue
price of $594.48 per $1.000 principal. Total proceeds received by the Company
amounted to approximately L.149 million after issuance costs of approximately
L.5 million. Interest on the 1997 Senior Notes will be payable on February 15
and August 15 of each year commencing August 15, 2002.
F-31
<PAGE> 140
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 DIAMOND CABLE
WHICH SUCH OFFER OR SOLICITATION IS COMMUNICATIONS PLC
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. 10 3/4% SENIOR DISCOUNT
______________ NOTES DUE FEBRUARY 15, 2007
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page TO BE ISSUED
---- IN EXCHANGE FOR
<S> <C>
Service of Process and Enforcement
of Liabilities.................... 2
Prospectus Summary.................. 3 10 3/4% SENIOR DISCOUNT
Risk Factors........................ 12 NOTES DUE FEBRUARY 15, 2007
Exchange Rates...................... 20
Capitalization...................... 20
Selected Financial Data............. 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 23
Business............................ 31
Certain Regulatory Matters.......... 48
Company Organization................ 57
Shareholders........................ 58
Management.......................... 60
Certain Transactions................ 66
Description of Company Debt......... 67
Description of the Senior Notes..... 70
The Exchange Offer.................. 92
Plan of Distribution................ 97
Taxation............................ 98
Validity of the Senior Notes........ 100
Experts............................. 100
Glossary............................ 101
Available Information............... 103
Index to Consolidated
Financial Statements.............. F-1
</TABLE>
<PAGE> 141
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."
<PAGE> 142
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.
<PAGE> 143
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following is a list of exhibits to this Registration Statement:
<TABLE>
<S> <C>
*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 Katherine B. Wolfsohn 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.
*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. (incorporated by reference to the
Company's registration statement on form S-1 (File No. 33-83740,
Exhibit No. 10.1)).
*10.2 Management Agreement, dated July 5, 1994, between ECE
Management Company and Diamond Cable (Nottingham) Limited
(incorporated by reference to the Company's registration statement on
form S-1 (File No. 33-83740, Exhibit No. 10.2)).
*10.3 Service Agreement, dated May 17, 1994, between Gary L. Davis
and Diamond Cable (Nottingham) Limited (incorporated by reference to
the Company's registration statement on form S-1 (File No. 33-83740,
Exhibit No. 10.3)).
*10.4 Service Contract, dated March 1, 1994, between Duncan Craig
and Diamond Cable (Nottingham) Limited (incorporated by reference to
the Company's registration statement on form S-1 (File No. 33-83740,
Exhibit No. 10.4)).
*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 (incorporated by
reference to the Company's registration statement on form S-1
(File No. 33-83740, Exhibit No. 4.1)).
*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 (incorporated by reference to the Company's
registration statement on form S-1 (File No. 33-83740, Exhibit No. 4.2))..
*10.14 First Supplemental Indenture, dated as of May 31, 1996 between
Diamond Cable Communications Plc and The Bank of New York, as
Trustee (incorporated by reference to the Company's
registration statement on form S-1 (File No. 33-83740, Exhibit No. 4.3)).
10.15 Supplemental Management Agreement, dated February 27, 1997,
among Diamond Cable Communications Plc, Diamond Cable
Communications (UK) Ltd and ECE Managment International, LLC.
10.16 Second Supplemental Agreement, dated 4 April 1997, relating
to a Loan Facility Agreement among Diamond Cable Communications (UK)
Ltd, Natwest Markets and CIBC Wood Gundy PLC.
*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 Exhibit 8.2).
</TABLE>
_____________________________
*Previously filed.
<PAGE> 144
<TABLE>
<S> <C>
23.3 Consent of KPMG.
23.4 Consent of Katherine B. Wolfsohn (included in Exhibit 5.2)
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 Letter to DTC Participants from the Book-Entry Depositary
99.4 Form of Exchange Agent Agreement
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
<PAGE> 145
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Diamond Cable Communications Plc, certifies that it has duly caused
this Amendment No. 1 to the Registration Statement on Form S-4 to be signed on
its behalf by the undersigned, thereunto duly authorized, in England, on June
3, 1997.
DIAMOND CABLE COMMUNICATIONS PLC
By: /s/ Nicholas Millard
____________________________
Name: Nicholas Millard
Title: Chief Financial Officer
<PAGE> 147
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the 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>
* Director, Chief Executive Officer and
- ----------------------- Authorized Representative in the
Robert T. Goad United States
* Director
- -----------------------
Richard A. Friedman
* Director
- -----------------------
John L. McDonald
* Director
- -----------------------
Muneer A. Satter
* Director
- -----------------------
John L. Thornton
* Director
- -----------------------
Thomas Nilsson
Director
- -----------------------
Lord Francis Pym
/s/ Nicholas Millard Chief Financial Officer
- -----------------------
Nicholas Millard
</TABLE>
<PAGE> 148
<TABLE>
<S> <C>
* Chief Accounting Officer
- -----------------------
J.A. Duncan Craig
/s/ Nicholas Millard Attorney-in-Fact
- -----------------------
Nicholas Millard
</TABLE>
<PAGE> 149
EXHIBIT INDEX
Item No. Description
- -------- -----------
<TABLE>
<S> <C>
*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 Katherine B. Wolfsohn 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.
*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. (incorporated by reference to the
Company's registration statement on form S-1 (File No. 33-83740,
Exhibit No. 10.1)).
*10.2 Management Agreement, dated July 5, 1994, between ECE
Management Company and Diamond Cable (Nottingham) Limited
(incorporated by reference to the Company's registration statement on
form S-1 (File No. 33-83740, Exhibit No. 10.2)).
*10.3 Service Agreement, dated May 17, 1994, between Gary L. Davis
and Diamond Cable (Nottingham) Limited (incorporated by reference to
the Company's registration statement on form S-1 (File No. 33-83740,
Exhibit No. 10.3)).
*10.4 Service Contract, dated March 1, 1994, between Duncan Craig
and Diamond Cable (Nottingham) Limited (incorporated by reference to
the Company's registration statement on form S-1 (File No. 33-83740,
Exhibit No. 10.4)).
*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 (incorporated by
reference to the Company's registration statement on form S-1
(File No. 33-83740, Exhibit No. 4.1)).
*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 (incorporated by reference to the Company's
registration statement on form S-1 (File No. 33-83740, Exhibit No. 4.2))..
*10.14 First Supplemental Indenture, dated as of May 31, 1996 between
Diamond Cable Communications Plc and The Bank of New York, as
Trustee (incorporated by reference to the Company's
registration statement on form S-1 (File No. 33-83740, Exhibit No. 4.3)).
10.15 Supplemental Management Agreement, dated February 27, 1997,
among Diamond Cable Communications Plc, Diamond Cable
Communications (UK) Ltd and ECE Managment International, LLC.
10.16 Second Supplemental Agreement, dated 4 April 1997, relating
to a Loan Facility Agreement among Diamond Cable Communications (UK)
Ltd, Natwest Markets and CIBC Wood Gundy PLC.
*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 Exhibit 8.2).
</TABLE>
_____________________________
*Previously filed.
<PAGE> 150
EXHIBIT INDEX
Item No. Description
- -------- -----------
<TABLE>
<S> <C>
23.3 Consent of KPMG.
23.4 Consent of Katherine B. Wolfsohn (included in Exhibit 5.2)
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 Letter to DTC Participants from the Book-Entry Depositary
99.4 Form of Exchange Agent Agreement
</TABLE>
______________________
*Previously filed.
<PAGE> 1
Exhibit 5.1
June 3, 1997
Diamond Cable Communications Plc,
Diamond Plaza,
Daleside Road,
Nottingham NG2 3GG,
England.
Dear Sirs:
In connection with the registration under the Securities Act of 1933
(the "Act") of $420,500,000 in aggregate principal amount at maturity of 10 3/4%
Senior Discount Notes due February 15, 2007 (the "Securities") of Diamond Cable
Communications Plc, an English public limited company (the "Company"), we, as
your special United States counsel, have examined such corporate records,
certificates and other documents, and such questions of law, as we have
considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion,
when the Registration Statement has
<PAGE> 2
Diamond Cable Communications Plc -2-
become effective under the Act, and the Securities have been duly executed and
authenticated in accordance with the Indenture and issued and delivered as
contemplated in the Registration Statement, the Securities will constitute valid
and legally binding obligations of the Company, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
In rendering the foregoing opinion, we are expressing no opinion as to
Federal or state laws relating to fraudulent transfers.
The foregoing opinion is limited to the Federal laws of the United
States, and the laws of the State of New York, and we are expressing no opinion
as to the effect of the laws of any other jurisdiction. With respect to all
matters of English law, we note that you have been provided with the opinion,
dated the date hereof, of Katherine B. Wolfsohn, Legal Director of the Company.
Also, we have relied as to certain matters on information obtained from
public officials, officers of the Company and other sources believed by us to be
responsible, and we have assumed that the Indenture has been duly authorized,
executed and delivered by you and by the Trustee
<PAGE> 3
Diamond Cable Communications Plc -3-
thereunder, assumptions which we have not independently verified.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us under the headings
"Taxation" and "Validity of the Senior Notes" in the Prospectus. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
SULLIVAN & CROMWELL
<PAGE> 1
June 3, 1997
The Directors,
Diamond Cable Communications Plc,
Diamond Plaza,
Daleside Road,
Nottingham NG2 36G.
Re: Diamond Cable Communications Plc
(the Company) 10 3/4% Senior Discount
Notes due February 2007 (the Securities) to
be registered under the United States
Securities Act of 1933
-------------------------------------------
Dear Sirs:
INTRODUCTION
1. I am legal director of the Company.
2. For the purposes of this opinion I have examined the documents
listed in the Schedule to this opinion. Terms defined in the Schedule have the
same meaning where used in this opinion. In this opinion the definitive
Securities, the Global Security, the Depositary Agreement and the Indenture are
together referred to as the Issue Documents.
3. This opinion is confined to matters of English law. Accordingly, I
express no opinion herein with regard to any system of law other than the laws
of England as currently applied by the English courts. In particular, I express
no
<PAGE> 2
The Directors -2-
opinion on European Community law as it affects any jurisdiction other than
England. Statements relating to United Kingdom taxation are based on the laws of
England as currently applied by the English courts and on generally published
practice of the Inland Revenue and H.M. Customs and Excise applying as at the
date of this opinion. This opinion is to be governed by and construed in
accordance with English law as at the date of this opinion. To the extent that
the laws of the United States of America or any State thereof may be relevant, I
have made no investigation thereof.
ASSUMPTIONS
4. In considering the documents referred to above and in rendering this
opinion I have with your consent and without any further enquiry assumed:
(a) the authenticity and completeness of all documents submitted to me
whether as originals or copies;
(b) the conformity to originals of all documents supplied to me as
photocopies or facsimile copies;
(c) that the Issue Documents will be executed in the form of the drafts
examined by me;
(d) that the information revealed by my search of the public microfiche
of the Company kept at the Companies Registration Office in London referred to
in paragraph 5(a)(i) below and my oral enquiry of the Central Registry of
Winding up Petitions referred to in paragraph 5(a)(ii) below was accurate in all
respects and has not since the time of such search or enquiry been altered;
(e) that the Issue Documents will be executed by duly authorized
directors of the Company;
(f) that the Issue Documents will be duly authorized, executed and
delivered by each of the parties thereto in accordance with all applicable laws;
(g) that the Issue Documents constitute legal, valid and binding
obligations of each of the parties thereto enforceable in accordance with their
terms under all
<PAGE> 3
The Directors -3-
applicable laws (including the laws of the State of New York by which the Issue
Documents are expressed to be governed) (other than, in the case of the Company,
the laws of England);
(h) that in any proceedings before the English courts with respect to
the Issue Documents satisfactory evidence of the laws of the State of New York
(by which the Issue Documents are expressed to be governed) which is required to
be pleaded and proved as a fact in such proceedings, could and would be so
pleaded and proved;
(i) that none of the Issue Documents is an agreement to which either
Section 5(1)(a) or Section 5(1)(b) of the Financial Services Act 1986 (the Act)
applies and that neither the Underwriting Agreement nor any transactions,
agreements or documents contemplated thereby (including, but without limitation,
the issue of the Securities) have been, or will be, entered into in the course
of or in consequence of an unsolicited call (as defined in the Act) in breach of
Section 56 of the Act or after the issue of any investment advertisement (as
defined in the Act) relating to the Securities in breach of Section 57 of the
Act;
(j) that the Registration Statement and prospectus forming part of the
Registration Statement and any document in respect of the Securities
constituting an investment advertisement within the meaning of the Act has only
been issued or caused to be issued, and will only be issued or caused to be
issued, in the United Kingdom to persons who are either of a kind described in
Article 11(3) of The Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or are persons to whom the relevant document may
otherwise lawfully be issued or passed on in the United Kingdom;
(k) that any act done or any course of conduct engaged in in the United
Kingdom for the purpose of stabilizing the price of the Securities will be, or
has been, done, or engaged in in conformity with the rules made under Section
48(7) of the Act; and
(l) that none of the Securities has been or will be offered for
subscription or sale to persons in the United Kingdom except to persons whose
ordinary activities involve
<PAGE> 4
The Directors -4-
them in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their business or otherwise in circumstances which
have not resolved and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offer of Securities Regulations 1995.
OPINION
5. On the basis of, and subject to, the foregoing and the matters set
out in paragraph 6 below and subject to any matters not disclosed to me, and
having regard to such considerations of English law in force, and generally
published practice of the Inland Revenue and H.M. Customs and Excise applying,
as at the date of this opinion as I consider relevant, I am of the opinion that:
(a) the Company has been duly incorporated in Great Britain and
registered in England and Wales and:
(i) my search today of the public microfiche of the Company kept at
the Companies Registration Office in London revealed no order or resolution
for the winding up of the Company and no notice of appointment in respect
of the Company of a liquidator, receiver, administrative receiver or
administrator; and
(ii) the Central Registry of Winding up Petitions has confirmed in
response to my oral enquiry made today that no petition for the winding up
of the Company has been presented within the period of six months covered
by such enquiry;
(b) the Company has the requisite corporate capacity to enter into the
Issue Documents and to perform its obligations thereunder;
(c) the obligations of the Company under the Securities, when duly
executed and delivered by the Company and authenticated in the manner provided
in the Indenture, will be valid and enforceable by the English courts; and
(d) subject to certain exceptions and time limitations, English courts
will treat a final and conclusive
<PAGE> 5
The Directors -5-
judgment of a U.S. court for a liquidated amount as a debt enforceable by fresh
proceedings in the English courts. However, no opinion is expressed as to
whether the enforcement by an English court of any judgment would be in English
pounds or as to what would be the date of determination of the applicable
exchange rate from U.S. dollars to English pounds.
QUALIFICATIONS
6. My opinion is subject to the following qualifications:
(a) the search at the Companies Registration Office referred to in
paragraph 5(a)(i) above is not conclusively capable of revealing whether or not:
(i) a winding up order has been made or a resolution passed for the
winding up of a company; or
(ii) an administration order has been made; or
(iii) a receiver, administrative receiver or liquidator has been
appointed, as notice of these matters may not be filed with the Registrar
of Companies immediately and, when filed, may not be entered on the public
microfiche of the relevant company immediately. In addition, that search is
not capable of revealing, prior to the making of the relevant order,
whether or not a winding up petition or a petition for an administration
order has been presented;
(b) the enquiry at the Central Registry of Winding up Petitions
referred to in paragraph 5(a)(ii) above relates only to a compulsory winding up
and is not conclusively capable of revealing whether or not a winding up
petition in respect of a compulsory winding up has been presented since details
of the petition may not have been entered on the records of the Central Registry
of Winding up Petitions immediately or, in the case of a petition presented to a
County Court, may not have been notified to the Central Registry and entered on
such records at all, and the response to an enquiry only relates to the period
of six months prior to the date when the enquiry was made;
<PAGE> 6
The Directors -6-
(c) the choice of New York law to govern the Issue Documents would not
be recognized or upheld if there were reasons for avoiding the choice of law on
the grounds that its application would be manifestly incompatible with public
policy. The choice of New York law would not be upheld, for example, if it was
made with the intention of evading the law of the jurisdiction with which the
agreement had its most substantial connection and which, in the absence of New
York law, would have invalidated the agreement or been inconsistent therewith;
(d) English courts can give judgments in currencies other than sterling
if, subject to the terms of the contract, it is the currency which most fairly
expresses the plaintiff's loss but such judgments may be required to be
converted into sterling for enforcement purposes;
(e) any action brought against the Company in the English courts would
be subject to the rules and procedures of the English courts, including the
power of an English court, at its discretion, to order a plaintiff in an action,
being a party who is not ordinarily resident in some part of the United Kingdom,
to provide security for costs;
(f) any undertakings or indemnities in relation to United Kingdom stamp
duties given by the Company may be void under the provisions of Section 117 of
the Stamp Act 1891;
(g) an English court may refuse to give effect to any provision of the
Issue Documents (i) for the payment of expenses in respect of the costs of
enforcement (actual or contemplated) or of unsuccessful litigation brought
before an English court or where the court has itself made an order for costs or
(ii) which would involve the enforcement of foreign revenue or penal laws or
(iii) which would be inconsistent with English public policy;
(h) a determination, designation, calculation or certificate of any
party to any of the Issue Documents as to any matter provided for therein might,
in certain circumstances, be held by an English court not to be final,
conclusive and binding (for example, if it could be shown to have an
unreasonable or arbitrary basis or not to have been
<PAGE> 7
The Directors -7-
reached in good faith) notwithstanding the provisions of the relevant document;
(i) any provision of the Issue Documents providing for the payment of
additional moneys by the Issuer consequent on the breach of any provision
thereof by the Issuer, whether expressed by way of penalty, additional interest,
liquidated damages or otherwise, would be unenforceable if such provision were
held to constitute a penalty and not a genuine and reasonable pre-estimate of
the loss likely to be suffered as a result of the breach or default in question;
I express no opinion as to whether any such provision does constitute such a
genuine and reasonable pre-estimate;
(j) in some circumstances an English court would not give effect to any
provision of the Issue Documents which provides that in the event of any
invalidity, illegality or unenforceability of any provision of any such document
the remaining provisions thereof shall not be affected or impaired, in
particular if to do so would not accord with public policy or would involve the
court in making a new contract for the parties;
(k) this opinion is not to be taken to imply that any obligation would
necessarily be capable of enforcement in all circumstances in accordance with
its terms. In particular:
(i) an English court will not necessarily grant any remedy, the
availability of which is subject to equitable considerations or which is
otherwise in the discretion of the court. In particular, orders for
specific performance and injunctions are, in general, discretionary
remedies under English law and specific performance is not available where
damages are considered by the court to be an adequate alternative remedy;
(ii) claims may become barred under the Limitation Act 1980 or the
Foreign Limitation Periods Act 1984 or may be or become subject to the
defense of set-off or to counterclaim; and
(iii) where obligations are to be performed in a jurisdiction outside
England, they may not be enforceable
<PAGE> 8
The Directors -8-
in England to the extent that performance would be illegal under the laws,
or contrary to the exchange control regulations, of the other jurisdiction;
and
(l) this opinion is subject to all applicable laws relating to
insolvency, bankruptcy, administration, reorganization, liquidation or analogous
circumstances.
CONSENT
7. I hereby consent to the references to my name and opinion under the
caption "Service of Process and Enforcement of Liabilities" and to this opinion
being filed as an exhibit to the Registration Statement. In giving this consent,
I do not hereby admit that I am within the category of persons whose consent is
required within Section 7 of the United States Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder.
Yours faithfully,
/s/ Katherine B. Wolfsohn
<PAGE> 9
THE SCHEDULE
(a) a copy of the Memorandum and Articles of Association and Certificate of
Incorporation of the Company;
(b) a copy dated February 27, 1997 of an Indenture (the "Indenture") between
the Company and The Bank of New York;
(c) a copy dated February 27, 1997 of a Senior Notes Depositary Agreement (the
"Depositary Agreement") between the Company and The Bank of New York; and
(d) the draft forms of the definitive Securities and Global Security (the
"Global Security") set out in the Indenture.
<PAGE> 1
June 3, 1997
Diamond Cable Communications Plc,
Diamond Plaza,
Daleside Road,
Nottingham NG2 3GG,
England.
Dear Sirs:
We have acted as special United States counsel to Diamond Cable
Communications Plc (the "Company") in connection with the exchange offer by the
Company of its 10 3/4% Senior Discount Notes due February 15, 2007 (the
"Notes"). We hereby confirm to you our opinion as set forth in the Prospectus
included in the Registration Statement on Form S-4 relating to the Notes (the
"Registration Statement") under the caption "Taxation - United States".
We hereby consent to the use of our name and filing of this letter as an
exhibit to the Registration Statement. In giving such consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.
Very truly yours,
SULLIVAN & CROMWELL
<PAGE> 1
The Directors
Diamond Cable Communications Plc
Diamond Plaza
Daleside Road
Nottingham NG2 36G
3 June 1997
Dear Sirs
DIAMOND CABLE COMMUNICATIONS PLC (THE COMPANY)
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007 (THE SECURITIES)
INTRODUCTION
1. We have acted as English legal advisers to the Company in relation to the
issue (the Issue) by the Company of the Securities for the limited purpose
referred to in this opinion. We understand that the Securities are to be listed
on the Luxembourg Stock Exchange and registered under the United States
Securities Act of 1933, as amended, (the Securities Act) pursuant to a
registration statement dated 3 June 1997 on Form S-4 (the Registration
Statement) filed under the Securities Act with the Securities and Exchange
Commission. We have been asked by the Company to deliver our opinion in respect
of the section under the heading "Taxation - United Kingdom" in the Registration
Statement.
2. For the purposes of this opinion we have examined the documents listed in
the Schedule to this opinion. Terms defined in the Schedule have the same
meaning where used in this opinion. In this opinion the definitive Securities,
the Global Security, the Depositary Agreement and the Indenture are together
referred to as the Issue Documents.
3. This opinion is confined to matters of English law as applied by the
English courts and is given on the basis that it will be governed by and
construed in accordance with English law at the date of this opinion.
Accordingly, we express no opinion herein with regard to any system of law other
than the laws of England as currently applied by the English courts. In
particular, we express no opinion on European Community law as it affects any
jurisdiction other than England. This opinion is based on the laws of England as
currently applied by the English courts and on generally published practice of
the Inland Revenue and H.M. Customs and Excise applying as at the date of this
<PAGE> 2
opinion. This opinion is to be governed by and construed in accordance with
English law as at the date of this opinion and is subject to changes to laws and
practices and any relevant judicial decisions, subsequent to the date of this
opinion. To the extent that the laws of the United States of America or any
State thereof may be relevant, we have made no investigation thereof.
Assumptions
4. In considering the documents referred to above and in rendering this
opinion we have with your consent and without any further enquiry assumed:
(a) the genuineness of all signatures on, and the authenticity and
completeness of, all documents submitted to us whether as originals or
copies;
(b) the conformity to originals of all documents supplied to us as photocopies
or facsimile copies;
(c) that the Issue Documents will be executed in the form of the drafts
examined by us;
(d) that the Issue Documents will be executed by duly authorised directors of
the Company;
(e) that the Issue Documents will be duly authorised, executed and delivered
by each of the parties thereto in accordance with all applicable laws;
(f) that the Issue Documents constitute legal, valid and binding obligations
of each of the parties thereto enforceable in accordance with their terms
under all applicable laws (including the laws of the State of New York by
which the Issue Documents are expressed to be governed) (including, in the
case of the Company, the laws of England); and
(g) that in any proceedings before the English Courts with respect to the
Issue Documents satisfactory evidence of the laws of State of New York (by
which the Issue Documents are expressed to be governed) which is required
to be pleaded and proved as a fact in such proceedings, could and would be
so pleaded and proved.
Opinion
5. On the basis of, and subject to, the foregoing and the matters set out in
paragraph 6 below and subject to any matters not disclosed to us, and having
<PAGE> 3
regard to such considerations of English law in force, and generally published
practice of the Inland Revenue and H.M. Customs and Excise applying, as at the
date of this opinion as we consider relevant, we are of the opinion that the
statements in the prospectus forming part of the Registration Statement under
the heading "Taxation - United Kingdom", insofar as such statements relate to
United Kingdom tax matters under English law and practice in relation to
prospectuses, fairly summarises the potential United Kingdom tax consequences to
a U.S. Holder as therein defined.
Consent
6. We hereby consent to the references to our name and opinion under the
caption "Taxation" and to this opinion being filed as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required within Section 7 of
the United States Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Yours faithfully
/S/ Freshfields
<PAGE> 4
THE SCHEDULE
(a) a copy dated 27 February 1997 of an Indenture (the Indenture)
between the Company and The Bank of New York;
(b) a copy dated 27 February 1997 of a Senior Notes Depositary
Agreement (the Depositary Agreement) between the Company
and The Bank of New York; and
(c) the draft forms of the definitive Securities and Global Security
(the Global Security) set out in the Indenture.
<PAGE> 1
Exhibit 10.15
THIS SUPPLEMENTAL AGREEMENT is made the 27 day of February 1997.
BETWEEN:
1. DIAMOND CABLE COMMUNICATIONS PLC (Registered in England No 2965241) of
Diamond Plaza, Daleside Road, Nottingham NG2 3GG ("Diamond");
2. DIAMOND CABLE COMMUNICATIONS (UK) LIMITED (formerly Diamond Cable Limited)
(Registered in England No 2357645) of Diamond Plaza, Daleside Road,
Nottingham NG2 3GG ("Assignor"); and
3. ECE MANAGEMENT INTERNATIONAL, LLC, an Indiana limited liability company of
P.O Box 499, Carmel, Indiana, 46032 USA ("ECE").
WHEREAS:
A. By a Management Agreement effective as of 1 June 1994 between Assignor and
ECE Management Company, a partnership organised under the law of Indiana
("ECE Management"), ECE Management agreed to provide certain management
services to Assignor.
B. By an Assignment of Management Agreement and Consent effective as of 4 April
1996 ECE Management assigned its rights under the Management Agreement
referred to in Recital A to ECE, ECE assumed ECE Management's obligations
under the said Management Agreement and Assignor consented to such
assignment and assumption. The said Management Agreement as so assigned
is referred to herein as the "Management Agreement".
1
<PAGE> 2
C. As of 1 July, 1996, ECE, Assignor and Diamond agreed that certain amendments
to the Management Agreement would take effect and Diamond would assume
the rights and obligations of Assignor under the Management Agreement so
amended.
D. The purpose of this Supplemental Agreement is to record formally the events
referred to in Recital C.
NOW the parties hereby agree as follows:
1. With effect from 1 July, 1996, the terms of the Management Agreement were as
set out in Annex 1 to this Supplemental Agreement.
2. With effect from 1 July, 1996:
2.1 Assignor assigned to Diamond absolutely all of its rights and
obligations under the Management Agreement. Assignor shall remain
liable under the Management Agreement only as to obligations thereunder
for periods prior to 1 July, 1996 and Assignor shall have no further
rights or obligations under the Management Agreement for periods from
and after 1 July, 1996, except with respect to services performed for
periods to and excluding 1 July, 1996;
2.2 Diamond assumed all rights and obligations of Assignor under the
Management Agreement from and after 1 July, 1996 and agreed to perform
any and all obligations of Assignor from and including 1 July, 1996; and
2.3 ECE confirms its consent to the assignment by Assignor and the
assumption by Diamond described in this Clause 2.
2
<PAGE> 3
3. This Supplemental Agreement shall be read as one with the Management
Agreement and shall be governed by and construed in accordance with the
laws of England.
4. This Supplemental Agreement may be signed in two or more counterparts and
each counterpart shall be an original but all the counterparts shall
together form one agreement binding on the parties hereto.
IN WITNESS WHEREOF the parties have executed this Supplemental Agreement the
day and year first above written.
For and on behalf of
Diamond Cable Communications
Plc:
/s/ Robert T. Goad
.....................................................
Director
For and on behalf of
Diamond Cable Communications
(UK) Limited:
/s/
......................................................
Director
3
<PAGE> 4
For and on behalf of
ECE Management International, LLC
BY RTG Enterprises, Inc, as Member
By:
/s/ Robert T. Goad
.................................................
Robert T Goad
President
By Booth English Cable, Inc, as Member
By:
/s/ Ralph H. Booth II
...................................................
Ralph H Booth II
President
4
<PAGE> 5
ANNEX 1
MANAGEMENT AGREEMENT effective as of 1 July, 1996 BETWEEN:
1. DIAMOND CABLE COMMUNICATIONS PLC of Diamond Plaza, Daleside Road, Nottingham
NG2 3GG ("Diamond"); and
2. ECE MANAGEMENT INTERNATIONAL, LLC of P.O Box 499, Carmel, Indiana 46032 USA
("Manager")
1. Engagement of Manager
1.1 Diamond hereby engages Manager to provide those services described in
Section 3 below to the Diamond Group. For the purposes of this Agreement
"Diamond Group" shall mean Diamond and its Affiliates as defined in
Section 2. Each member of the Diamond Group shall be free to retain
consultants and enter into management and service contracts, in each case
relating to the Diamond Group's telephony and telecommunications
business, following consultation with Manager, the activities and
performance of such consultants and providers of management and other
services to be subject to the overall strategic management of Manager in
accordance with the provisions of Section 3.
1.2 Notwithstanding any other provision of this Agreement, the Board of
Directors of Diamond shall at all times exercise overall management and
control and shall supervise, direct, and monitor the performance by
Manager of its duties under this Agreement and Manager shall comply with
such direction consistent with the terms of this Agreement and applicable
law.
5
<PAGE> 6
1.3 Neither Diamond nor any member of the Diamond Group may enter into
any other management contract for the provision of services relating to
the Diamond Group's cable television, entertainment and information
business without the prior written consent of Manager except that any
member of the Diamond Group may enter into management or services
contracts if, in Diamond's judgement, the Diamond Group requires
technological support that is the subject of such contract and Manager
is unable to provide such technological support on reasonable terms.
2. Term; Termination of Agreement
2.1 The term of this Agreement shall commence on 1 July 1996 and shall
continue until 1 June 2004, unless earlier terminated in accordance with
this Agreement.
2.2 This Agreement shall terminate prior to the expiration of the term
described in Section 2.1 upon the first to occur of the following events:
(a) A material breach of this Agreement by, or the insolvency of, either
party to this Agreement, followed by the delivery to such party of a
notice of termination from the other party; provided, that any
termination of Manager due to alleged underperformance on the part of the
Diamond Group shall be solely under and in accordance with subparagraph
2.2(c) below;
(b) Any natural person having (directly or indirectly through an
Affiliate) a Percentage Share in the Manager of 50% or more as of July 1,
1996, shall die or shall cease for a period of three (3) months to
perform services on behalf of Manager.
(c) Delivery to Manager of a notice of termination from Diamond following
material underperformance on the part of the Diamond Group as compared
with the Diamond Group's annual business plan prepared by
6
<PAGE> 7
Manager and approved by the Board of Directors of Diamond, which
underperformance is other than primarily as the result of (i) fire,
explosion, flood or other calamity, (ii) any court or governmental
action, order or decree, (iii) the failure of the Diamond Group to
obtain financing as contemplated by the Business Plan, (in the case of
each of (i) through (iii) above other than as the result of actions
taken by Manager); or (iv) any other cause that is beyond the ability of
Manager to significantly influence; provided, however, prior to any
termination under this subparagraph 2.2(c) Diamond shall give notice
thereof to Manager and shall afford Manager the reasonable opportunity
to meet with the Board of Directors of Diamond to discuss such
termination and to present any reasons Manager deems appropriate for
consideration by the Board of Directors as to why such termination
should not occur.
For purposes of subparagraph 1.1 and subparagraph 2.2(b) above,
"Affiliate" means, as to any person, any other person that, either
directly or indirectly through one or more intermediaries, controls, or
is controlled by or is under common control with the person specified and
"control" shall mean possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or
otherwise. In addition, with respect to any natural person, any member
of such person's Immediate Family, or any trust for the benefit of such
natural person and/or any member of such person's Immediate Family, shall
also be deemed to be an "Affiliate" of such natural person. "Immediate
Family" means an individual's spouse, children (including adopted
children), grandchildren, parents, grandparents and siblings. For the
avoidance of doubt with respect to Robert T Goad ("Goad") and Ralph H
Booth II ("Booth"), the term "Affiliate" shall not include any person
that controls or is under common control with Goad or Booth and shall
include any person in which Goad and Booth each hold (i) directly or
indirectly, at least 40% of the voting equity securities and (ii) the
power to affect significant corporate or partnership decisions.
7
<PAGE> 8
3. Duties
3.1 Subject to Paragraph 1.2 hereof, Manager shall, consistent with
applicable business plans and budgets approved by Diamond's Board of
Directors, manage and act as agent in connection with:
3.1.1 preparation of strategic business plans as regards the future
investment and business strategy of the Diamond Group;
3.1.2 identification, investigation and consideration of future
investment opportunities for the Diamond Group;
3.1.3 preparation of capital budgets for the Diamond Group as regards
future investments and business plans, identification of appropriate
funding strategies and implementation thereof; and,
3.1.4 the strategic issues relating to the construction, operation, and
administration of the telephony and telecommunications and the cable
television, entertainment and information businesses of the Diamond
Group, and the retention of consultants and contractors as reasonably
deemed appropriate by Manager.
Manager shall also prepare for approval by Diamond's Board of Directors
proposed capital budgets and strategic business plans relating to the
Diamond Group. Manager shall use efforts reasonably required to perform
its duties under this Agreement.
3.2 Manager is an independent contractor, and is not a general agent or
partner of Diamond or the Diamond Group. Manager may act for or on
behalf of the Diamond Group to the extent necessary or appropriate in
performing its
8
<PAGE> 9
duties under this Agreement, but otherwise Manager may not incur
obligations on behalf of the Diamond Group without the approval of the
Board of Directors of Diamond.
3.3 In addition to the services described in Section 3.1, Manager shall
provide such incidental services in relation to the day-to-day operations
of the Diamond Group as may be necessary or desirable as determined by
Manager in addition to the strategic services described in Section 3.1.
4. Indemnity
4.1 Subject to the terms of Section 5.2, Diamond shall indemnify and hold
Manager harmless from and against any and all claims asserted against and
liabilities incurred by Manager in connection with its performance under
this Agreement, except for such claims and liabilities incurred as a
result of Manager's wilful misconduct, gross negligence or bad faith.
Manager shall not be liable to Diamond or the Diamond Group in the
absence of wilful misconduct, gross negligence or bad faith.
5. Compensation of Manager; Reimbursement of Expenses Incurred by Manager
5.1 As compensation for the services of Manager under this Agreement,
Diamond shall pay to Manager during the term of this Agreement an annual
management fee equal to US $200,000, representing US $180,000 in respect
of services under Section 3.1 and US $20,000 in respect of services under
Section 3.3, payable in equal quarterly instalments within thirty (30)
days after each calendar quarter (the first such calendar quarter
commencing on the effective date set forth on the first page of this
Agreement (the "Commencement Date"). The allocation of the management
fee between services provided under Section 3.1 and under Section 3.3 may
be reviewed at the end of each calendar year and adjusted by mutual
agreement of the parties.
9
<PAGE> 10
5.2 In addition to the fees described above, Diamond will reimburse
Manager, at cost, for all expenses (including all administrative,
overhead and other direct and indirect expenses) reasonably incurred by
Manager in connection with the performance of its duties under this
Agreement. Within thirty (30) days after the end of each calendar quarter
(the first such calendar quarter commencing on the Commencement Date),
Manager shall submit to Diamond a written request for reimbursement of
such expenses incurred during such calendar quarter, which shall include
a detailed breakdown of expenses for which reimbursement is requested,
distinguishing to the extent practicable between expenses incurred in the
course of services under Section 3.1 and services under Section 3.3,
together with copies of vouchers, invoices or other documents evidencing
such expenses. All requests by Manager for reimbursement shall be
subject to review and approval by the Board of Directors of Diamond in
accordance with standards, procedures and practices established by the
Board of Directors of Diamond from time to time. Such standards,
procedures and practices shall in any event be a continuation of and
consistent with standards, procedures and practices of Diamond (including
but not limited to those relating to the types and scope of expenses
reimbursed to the Manager), and the course of dealing between the Diamond
Group and the Manager, applied with respect to reimbursement of expenses
of the Manager under the Management Agreement for periods prior to July
1, 1996. In addition, the parties acknowledge that expenses incurred by
the Manager under this Agreement may not be allocable to services
performed under Sections 3.1 and 3.3 respectively, in the same or similar
proportions as the management fee is allocated to those services under
Section 5.1. Amounts due to Manager under this Paragraph 5.2 shall be
paid to Manager within thirty (30) days after submission of a request for
reimbursement.
5.3 Subject to the approval of the Board of Directors of Diamond, Manager
will have the authority to allocate and determine the terms and
conditions of the vesting and exercise of options to purchase
newly-issued shares of
10
<PAGE> 11
Diamond to be granted by Diamond to the executive management of the
Diamond Group.
6. Miscellaneous
6.1 Notices
Any notice, request, demand, report, consent, offer or other document or
instrument which may be required or permitted to be furnished to or
served upon a party hereunder shall be in writing which shall be
personally delivered (including, but not limited to, by express courier
service, facsimile machine, telex or telegram) or deposited in the mail
of the country where such party is located, postage prepaid, addressed to
the party entitled to receive the same at its address set forth below (or
such other address as such party shall designate by notice to the other
party given in the manner set forth herein):
<TABLE>
<S> <C>
If to Diamond or Diamond Cable Communications Plc
the Diamond Group Diamond Plaza, Daleside Road,
Nottingham NG2 3GG
Attn: Chief Financial Officer
Fax: (0115) 912 2218
With a copy to: European Cable Capital Partners L.P.
85 Broad Street
New York, New York 10004
Attn: Richard A Friedman
Fax: (212) 902-3000
If to Manager: ECE Management International, LLC
845 West 116th Street
Carmel, Indiana 46032
Fax: (317) 575-9817
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
With a copy to: Booth American Company
333 West Fort Street
Detroit, Michigan 48226
Attn: Mr Ralph H Booth II
Fax: (313) 965-1160
With an additional copy to: Columbia Management, Inc.
845 West 116th Street
Carmel, Indiana 46032
Attn: Mr Robert T Goad
Fax: (317) 575-9817
</TABLE>
Any notice given by telephone shall be confirmed promptly in writing (and
shall be considered given when confirmed). Any notice given personally
or by mail, courier, facsimile, telex or telegraph shall only be
effective on delivery.
6.2 Remedies Cumulative
Each right, power and remedy provided for herein or now or hereafter
existing at law, in equity, by statute or otherwise, shall be cumulative,
and the exercise or the forbearance of exercise by any party of one or
more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by such party of any or all of such other
rights, powers or remedies.
6.3 Construction
The section numbers and captions appearing in this Agreement are inserted
only as a matter of convenience and are in no way intended to define,
limit, construe or describe the scope or intent of such sections of this
Agreement, or in any way affect this Agreement. Words in the singular
shall be read and construed as though in the plural and vice versa, and
words in the masculine,
12
<PAGE> 13
neuter or feminine gender shall be read and construed as though in
either of the genders, where the context so applies.
6.4 Severability
If any provision of this Agreement, or the application thereof to any
person or circumstances, shall, for any reason or to any extent, be
invalid or unenforceable, such invalidity or unenforceability shall not
in any manner affect or render invalid or unenforceable the remainder of
this Agreement, and the application of that provision to other persons or
circumstances shall not be affected but, rather, shall be enforced to the
extent permitted by law. In the event of the invalidity or
unenforceability of any provision of this Agreement or the application
thereof to any person or circumstances, the parties shall, at the request
of any of the parties, negotiate in good faith to agree on changes or
amendments to this Agreement which are required to carry out the intent
and accomplish the purpose of this Agreement and the parties in light of
such invalidity or unenforceability.
6.5 Further Assurances
Each party hereto shall co-operate and shall take such further documents
as may be reasonably requested by any of the other parties hereto in
order to carry out the intent and accomplish the purpose of this
Agreement.
6.6 Successors
All the provisions of this Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the parties hereto; provided,
however, that Manager may not assign any of its duties under this
Agreement without the consent of the Board of Directors of Diamond,
except to an Affiliate of Manager that has entered into an agreement
reasonably satisfactory
13
<PAGE> 14
to the Board of Directors of Diamond whereby such Affiliate undertakes
to be bound by this Agreement as if it had been named herein in place
of Manager.
6.7 Entire Agreement, Amendment
This Agreement contains the complete statement of all agreements among
the parties hereto with respect to the subject matter hereof. All prior
agreements among the parties hereto respecting the subject matter hereof,
whether written or oral, are merged in this Agreement and shall be
considered superseded hereby. Any amendment, modification, waiver or
revision of this Agreement shall be considered effective only if in
writing signed by each of the parties hereto or their respective
successors or assigns.
6.8 Governing Law
This Agreement, and all rights and obligations of the parties hereto
related to this Agreement, shall be governed by and construed in
accordance with the laws of England.
6.9 Consent to Jurisdiction
Without prejudice to Section 6.1, in connection with matters arising out
of this Agreement, the parties hereby consent to the jurisdiction of the
courts of England. The parties hereby waive the right to contest the
jurisdiction of such courts on the ground of inconvenience or otherwise.
6.10 Compliance with Laws
The parties shall comply with the provisions of all applicable national,
federal, state, provincial and local laws, ordinances, decrees and
regulations (collectively "Laws") of the United States, the United
Kingdom and any other
14
<PAGE> 15
country in which activities are being carried out by or on behalf of
Diamond or the Diamond Group.
6.11 Counterparts
This Agreement may be signed by the parties hereto in one or more
counterparts which when taken together constitute one complete agreement.
15
<PAGE> 1
Exhibit 10.16
CONFORMED COPY
SECOND SUPPLEMENTAL AGREEMENT
DATED 4th APRIL, 1997
RELATING TO A
LOAN FACILITY
FOR
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
ARRANGED BY
NATWEST MARKETS
AND
CIBC WOOD GUNDY PLC
pursuant to a Credit Agreement dated 5th August, 1996
as amended and restated by a Supplemental Agreement dated
13th February, 1997
ALLEN & OVERY
London
B1:88668.4
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. Interpretation ...................................................... 1
2. Amendments .......................................................... 2
3. Conditions precedent ................................................ 5
4. Representations and warranties ...................................... 5
SCHEDULES
Schedule 1 Banks ........................................................ 6
Schedule 2 Conditions precedent documents ............................... 7
Signatories ............................................................. 8
</TABLE>
<PAGE> 3
THIS SECOND SUPPLEMENTAL AGREEMENT is dated 4th April, 1997 between:
(1) DIAMOND CABLE COMMUNICATIONS (UK) LIMITED formerly Diamond Cable
(Nottingham) Limited (Registered No. 2357645) (the "Borrower");
(2) JEWEL HOLDINGS LIMITED (Registered No. 3085518) ("Jewel") and THE
SUBSIDIARIES OF JEWEL listed in schedule 1 to the Credit Agreement (each a
"Guarantor");
(3) NATWEST MARKETS (a division of National Westminster Bank Plc) and CIBC
WOOD GUNDY PLC as Arrangers (in this capacity each an "Arranger");
(4) NATIONAL WESTMINSTER BANK PLC as security agent and trustee for the Banks
(in this capacity the "Security Agent");
(5) NATIONAL WESTMINSTER BANK plc as agent (in this capacity the "Agent");
(6) THE FINANCIAL INSTITUTIONS listed in Schedule 1 as banks (the "Banks"; and
(7) NATIONAL WESTMINSTER BANK PLC as issuing bank (in this capacity the
"Issuing Bank").
BACKGROUND
(A) The parties to this Second Supplemental Agreement are parties to a credit
agreement dated 5th August, 1996 as amended and restated by a Supplemental
Agreement dated 13th February, 1997 (the "Credit Agreement").
(B) The parties to this Second Supplemental Agreement wish to amend the Credit
Agreement in accordance with Clause 28 (Amendments and waivers) of the
Credit Agreement on the terms set out below.
1. INTERPRETATION
1.1 Definitions
In this Supplemental Agreement, unless the contrary intention appears or
the context otherwise requires:
"Agreed Base Case 2"
means the base case dated 13th March, 1997 in the form agreed by the
Borrower and the Arrangers and initialled for the purposes of
identification by them.
"Effective Date"
means the date of this Second Supplemental Agreement.
<PAGE> 4
2
1.2 Interpretation
A reference to a "Clause" or a "Schedule" is a reference to a Clause of, or
a Schedule in, as the case may be, this Second Supplemental Agreement.
1.3 Incorporation
Clauses 1.2 (Construction), 12 (Payments), 24 (Expenses), 25 (Stamp
duties), 33 (Severability) and 34 (Counterparts) of the Credit Agreement
shall apply to this Second Supplemental Agreement, mutatis mutandis.
1.4 Designation
The Agent and the Borrower hereby designate this Second Supplemental
Agreement a Finance Document.
2. AMENDMENTS
The Credit Agreement is amended from the Effective Date as follows:-
(a) references to the "Agreed Base Case" are replaced by "Agreed Base
Case 2";
(b) in the definition of "Bank Debt Loan Charges" in clause 1.1
(Interpretation) of the Credit Agreement, the words "and including
principal and (to the extent not already included) interest elements
of payments in connection with Finance Lease Indebtedness" are added
after the words "Interest Rate Protection Agreements";
(c) in the definition of "Cash Interest Cover" in clause 1.1
(Interpretation) of the Credit Agreement, the words "and interest
element of payments in connection with Finance Lease Indebtedness" are
inserted after the word "period" in line 3;
(d) in the definition of "Total B Commitments" in clause 1.1
(Interpretation) of the Credit Agreement, the figure L.220,000,000
shall be reduced to L.175,000,000 and references in the Credit
Agreement to the amount of the facility being L.220,000,000 will be
replaced by "L.175,000,000";
(e) the existing repayment schedule in clause 6.2 of the Credit Agreement
is replaced by the following:
"The Borrower shall, on the dates set out below, repay the Tranche B
Loans by the following Repayment Amounts, being the percentage of the
Tranche B Loans set out below under the heading "Repayment
percentage".
<PAGE> 5
<TABLE>
<CAPTION>
REPAYMENT DATE REPAYMENT PERCENTAGE CUMULATIVE PERCENTAGE
-------------- -------------------- ---------------------
<S> <C> <C>
31 December 2000 5.00% 5%
31 March 2001 5.00% 10%
30 June 2001 5.00% 15%
30 September 2001 5.00% 20%
31 December 2001 5.00% 25%
31 March 2002 7.50% 32.5%
30 June 2002 7.50% 40%
30 September 2002 7.50% 47.5%
31 December 2002 7.50% 55%
31 March 2003 11.00% 66%
30 June 2003 11.00% 77%
30 September 2003 11.00% 88%
31 December 2003 12.00% 100%
</TABLE>
The Repayment Amount payable on the Final Maturity Date shall also include
any other amounts outstanding under the Finance Documents on that date;"
(f) in paragraph (b) of clause 4.3(b) (Conditions precedent to Tranche B
Utilisation) to the Credit Agreement, the figure "15,000,000 pound
sterling" is replaced by the figure "18,500,000 pound sterling";
(g) in paragraph (d) of clause 4.3(d) (Conditions precedent to Tranche B
Utilisation) to the Credit Agreement, the amounts of "$30,000,000" and
"69,500,000 pound sterling" are replaced by the amounts "$20,000,000"
and "117,000,000 pound sterling", respectively;
(f) clause 11.2(b)-(d) (Change of Margin) of the Credit Agreement is
replaced by:
"(b) In respect of Tranche B Loans, the Margin shall be 0.75
per cent. per annum";
(i) in clause 18.13 (Finance Leasing) of the Credit Agreement, the amount of
"15,000,000 pound sterling" is increased to "30,000,000 pound sterling";
(j) Part 2 of Schedule 2 to the Credit Agreement is replaced by the following:
<TABLE>
<CAPTION>
"BANKS COMMITMENTS
------ --------------------------
<S> <C>
NATIONAL WESTMINSTER BANK PLC 87,500,000 pound sterling
CIBC WOOD GUNDY PLC 87,500,000 pound sterling
--------------------------
Total B Commitments 175,000,000 pound sterling
=========================="
</TABLE>
(k) in Part 1 of Schedule 7 to the Credit Agreement "Tranche B Leverage
Ratio" the figure "4" is replaced by the figure "3" wherever it appears
under the heading "Covenant";
<PAGE> 6
4
(l) Part 2 of Schdule 7 to the Credit Agreement is replaced by the following:
COVERAGE OF BANK DEBT LOAN CHARGES
[CAPTION]
<TABLE>
QUARTER COVENANT QUARTER COVENANT
ENDED ENDED
<S> <C> <C> <C>
31/03/00 2 31/03/03 2
30/06/00 2 30/06/03 3.5
30/09/00 2 30/09/03 3.5
31/12/00 2 31/12/03 3.5
31/03/01 2
30/06/01 2
30/09/01 2
31/12/01 2
31/03/02 2
30/06/02 2
30/09/02 2
31/12/02 2
</TABLE>
and
(m) Part 3 of Sedule 7 to he Credit Agreement is replaced by the following:
CASH INTEREST COVER
<TABLE>
<CAPTION>
QUARTER COVENANT QUARTER COVENANT
ENDED ENDED
<S> <C> <C> <C>
31/12/98 4 31/03/02 2
30/03/99 4 30/06/02 1.5
30/06/99 4 30/09/02 1.5
31/09/99 4 31/12/02 1.5
31/12/99 4 31/03/03 1.65
31/03/00 2.5 30/06/03 1.65
30/06/00 2.5 30/09/03 1.65
30/09/00 3 31/12/03 1.65
</TABLE>
<PAGE> 7
5
Quarter Covenant
ended
30/06/01 1.65
30/09/01 1.65
31/12/01 1.65
The parties confirm that the Credit Agreement, except as amended by this
Agreement, remains in full force and effect.
3. CONDITIONS PRECEDENT
The obligations of the Finance Parties to the Obligors under this Second
Supplemental Agreement are subject to the condition precedent that the
Agent has notified the Borrower that it has received all of the documents
set out in Schedule 2 in form and substance satisfactory to the Agent,
which the Agent shall do promptly on receipt.
4. REPRESENTATIONS AND WARRANTIES
The factual statements set out in the Agreed Base Case 2 were true in all
material respects as at the date of the Agreed Base Case 2 and to the best
of each Obligor's knowledge (after due and proper enquiry) no fact the
omission of which makes the factual statements set out in the Agreed Base
Case 2 misleading in any material respect has been omitted.
5. GOVERNING LAW
This Second Supplemental Agreement is governed by English law.
This Second Supplemental Agreement has been entered into on the date stated at
the beginning of this Supplemental Agreement.
<PAGE> 8
6
SCHEDULE 1
BANKS
Banks
NATIONAL WESTMINSTER BANK PLC
CIBC WOOD GUNDY PLC
<PAGE> 9
7
SCHEDULE 2
CONDITIONS PRECEDENT DOCUMENTS
1. ALL OBLIGORS
A copy of the memorandum and articles of association and certificate of
incorporation of each Obligor (or confirmation from a director of the
relevant Obligor that the documents relating to that Obligor have not
changed from the documents previously received by the Agent).
2. CERTIFICATE
A certificate from the Borrower confirming that no Default is
outstanding or will result from the entry into of this Second
Supplemental Agreement.
3. LEGAL OPINION
A legal opinion of Allen & Overy, legal advisers to the Agent.
<PAGE> 10
8
SIGNATORIES
Borrower
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
By: N. MILLARD
Arrangers
CIBC WOOD GUNDY PLC
By: N. TRIANTIS
NATWEST MARKETS
(a division of National Westminster Bank Plc)
By: G. GRIFFITHS
Banks
CIBC WOOD GUNDY PLC
By: N. TRIANTIS
NATIONAL WESTMINSTER BANK PLC
By: G. GRIFFITHS
Guarantors
JEWEL HOLDINGS LIMITED
By: N. MILLARD
<PAGE> 11
9
Guarantors (continued)
DIAMOND CABLE (MANSFIELD) LIMITED
By: N. MILLARD
DIAMOND CABLE (NEWARK-ON-TRENT) LIMITED
By: N. MILLARD
DIAMOND CABLE (GRANTHAM) LIMITED
By: N. MILLARD
DIAMOND CABLE (MELTON MOWBRAY) LIMITED
By: N. MILLARD
DIAMOND CABLE (LINCOLN) LIMITED
By: N. MILLARD
DIAMOND CABLE (GRIMCLEE) LIMITED
By: N. MILLARD
DIAMOND CABLE ACQUISITIONS LIMITED
By: N. MILLARD
DIAMOND CABLE CONSTRUCTION LIMITED
By: N. MILLARD
DIAMOND CABLE CPE LIMITED
By: N. MILLARD
DIAMOND CABLE (BASSETLAW) LIMITED
By: N. MILLARD
<PAGE> 12
10
Guarantors (continued)
DIAMOND CABLE (RAVENSHEAD) LIMITED
By: N. MILLARD
DIAMOND VISUAL COMMUNICATIONS LIMITED
By: N. MILLARD
DIAMOND CABLE (LINCOLNSHIRE) LIMITED
By: N. MILLARD
EAST MIDLANDS CABLE HOLDINGS LIMITED
By: N. MILLARD
DIAMOND CABLE (VALE OF BELVOIR) LIMITED
By: N. MILLARD
DIAMOND CABLE (CHESTERFIELD) LIMITED
By: N. MILLARD
EAST MIDLANDS CABLE GROUP LIMITED
By: N. MILLARD
EAST MIDLANDS CABLE COMMUNICATIONS LIMITED
By: N. MILLARD
LCL CABLE (HOLDINGS) LIMITED
By: N. MILLARD
DIAMOND CABLE (LEICESTER) LIMITED
By: N. MILLARD
<PAGE> 13
11
Guarantors (continued)
LCL TELEPHONES LIMITED
By: N. MILLARD
DIAMOND CABLE (HINCKLEY) LIMITED
BY: N. MILLARD
DIAMOND CABLE (BURTON-UPON-TRENT) LIMITED
BY: N. MILLARD
Security Agent
NATIONAL WESTMINSTER BANK PLC
By: G. GRIFFITHS
Agent
NATIONAL WESTMINSTER BANK PLC
By: G. GRIFFITHS
Issuing Bank
NATIONAL WESTMINSTER BANK PLC
By: G. GRIFFITHS
<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
June 3, 1997
<PAGE> 1
Exhibit 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
______________________
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
</TABLE>
______________________
DIAMOND CABLE COMMUNICATIONS PLC
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
England None
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Diamond Plaza
Daleside Road
Nottingham, England NG2 3GG
(Address of principal executive offices) (Zip code)
</TABLE>
______________________
10 3/4% Senior Discount Notes due February 15, 2007
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
<TABLE>
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24
OF THE COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit
1 to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
- 2 -
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
- 3 -
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 14th day of April, 1997.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
--------------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
- 4 -
<PAGE> 5
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................... $4,404,522
Interest-bearing balances ........... 732,833
Securities:
Held-to-maturity securities ......... 789,964
Available-for-sale securities. ...... 2,005,509
Federal funds sold in domestic offices
of the bank:
Federal funds sold ................... 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income ............................ 28,728,602
LESS: Allowance for loan and
lease losses ...................... 584,525
LESS: Allocated transfer risk
reserve............................ 429
Loans and leases, net of unearned
income, allowance, and reserve 28,143,648
Assets held in trading accounts ...... 1,004,242
Premises and fixed assets (including
capitalized leases) ................. 605,668
Other real estate owned .............. 41,238
Investments in unconsolidated
subsidiaries and associated
companies ........................... 205,031
Customers' liability to this bank on
acceptances outstanding ............. 949,154
Intangible assets .................... 490,524
Other assets ......................... 1,305,839
------------
Total assets ......................... $44,043,010
------------
LIABILITIES
Deposits:
In domestic offices ................. $20,441,318
Noninterest-bearing ................. 8,158,472
Interest-bearing .................... 12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs .... 11,710,903
Noninterest-bearing ................. 46,182
Interest-bearing .................. 11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased ............. 1,565,288
Demand notes issued to the U.S.
Treasury ............................ 293,186
Trading liabilities .................. 826,856
Other borrowed money:
With original maturity of one year
or less ........................... 2,103,443
With original maturity of more than
one year .......................... 20,766
Bank's liability on acceptances exe-
cuted and outstanding ............... 951,116
Subordinated notes and debentures .... 1,020,400
Other liabilities .................... 1,522,884
------------
Total liabilities .................... 40,456,160
------------
EQUITY CAPITAL
Common stock ......................... 942,284
Surplus .............................. 525,666
Undivided profits and capital
reserves ............................ 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities .......................... (2,073)
Cumulative foreign currency transla-
tion adjustments .................... (8,403)
------------
Total equity capital ................. 3,586,850
------------
Total liabilities and equity
capital ............................ $44,043,010
============
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot )
Thomas A. Renyi ) Directors
Alan R. Griffith )
<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 JUNE __, 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 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 June __, 1997 (the "Prospectus"), of Diamond Cable
Communications Plc (the "Company"),
<PAGE> 2
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 10 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.
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 Depository Trust
Company (the "Book-Entry Transfer Facility"), may be tendered to the Book-Entry
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
requires, 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 Book-Entry 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
Depository 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.
-2-
<PAGE> 3
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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 2
- ------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF HOLDER(S) AGGREGATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT AT
(PLEASE FILL IN, IF BLANK) AT MATURITY OF OLD NOTE(S) MATURITY TENDERED*
- ------------------------------------------------------------------------------------------------------------------------
------------------------------ -----------------------------------
------------------------------ -----------------------------------
Total
- ------------------------------------------------------------------------------------------------------------------------
<FN>
* 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
1. Old Notes tendered hereby must be in denominations of principal amount at
maturity of $1,000 and any integral multiple thereof. See Instruction 1.
</TABLE>
___
/__/ 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 Depository 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 Message") 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 Depository 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 Depositary 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 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.
-5-
<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 the 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 Instruction 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)
.........................................................
(NAME OF FIRM)
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.
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, and (iii) Book-Entry Confirmation and all other documents
required by this letter are received by the Exchange Agent within five NYSE
trading days of the date of execution of the Notice of Guaranteed Delivery.
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 Depository Trust Company ("DTC"), a participant
whose name appears on a security position maintained by
-8-
<PAGE> 9
DTC or the owner of the Old Notes to execute and deliver this Letter or an
Agent's Message on his or her behalf.
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 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
-9-
<PAGE> 10
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
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-
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
10 3/4% SENIOR DISCOUNT NOTES DUE FEBRUARY 15, 2007
OF
DIAMOND CABLE COMMUNICATIONS PLC
As set forth in the Prospectus dated June __, 1997 (the "Prospectus") of
Diamond Cable Communications Plc (the "Company") and in the accompanying Letter
of Transmittal and instructions thereto (the "Letter of Transmittal"), this form
or one substantially equivalent hereto must be used to accept the Company's
Exchange Offer (the "Exchange Offer") to exchange all of its outstanding 10 3/4%
Senior Discount Notes due February 15, 2007 (the "Old Notes") for its 10 3/4%
Senior Discount Notes due February 15, 2007, which have been registered under
the Securities Act of 1933, as amended. If the Letter of Transmittal or any
other documents required thereby cannot be delivered to the Exchange Agent, or
the procedure for book-entry transfer cannot be completed, prior to 5:00 P.M.,
New York City time, on the Expiration Date (as defined in the Prospectus), this
form may be delivered by an Eligible Institution by hand or transmitted by
facsimile transmission, overnight courier or mail to the Exchange Agent as set
forth below. Capitalized terms used but not defined herein have the meaning
given to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____, 1997
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF OLD NOTES MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M. ON THE LAST BUSINESS DAY PRIOR TO 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
<PAGE> 2
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA A FACSIMILE,
OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Old Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the Letter
of Transmittal.
-2-
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the Letter of Transmittal
(which together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, ____________________ Old Notes pursuant to the guaranteed delivery
(amount of Old Notes)
procedures set forth in Instruction 1 of the Letter of Transmittal.
The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange Offer
may not be withdrawn after 5:00 p.m., New York City time, on the last business
day prior to the Expiration Date. Tenders of Old Notes may be withdrawn if the
Exchange Offer is terminated without any such Old Notes being purchased
thereunder or as otherwise provided in the Prospectus.
All authority thereto conferred or agreed to be conferred by Notice of
Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Principal Amount of Old Notes Name(s) of Holder(s)
- --------------------------------- --------------------------------------
--------------------------------------
Please Print or Type
Address
------------------------------
--------------------------------------
Area Code and Telephone No.
--------------------------------------
Signature(s)
-------------------------
--------------------------------------
Dated:
-------------------------------
The Depository Trust Company
Account No.
--------------------------
-3-
<PAGE> 4
This Notice of Guaranteed Delivery must be signed by (i) the Holder(s) of
Old Notes exactly as its (their) name(s) appear on a security position listing
maintained by DTC as the owner of Old Notes or (ii) by person(s) authorized to
become Holder(s) by documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
PLEASE PRINT NAME(S) AND ADDRESS(ES) OF PERSON SIGNING ABOVE
NAME(S) ---------------------------------------------------------
---------------------------------------------------------
CAPACITY: ---------------------------------------------------------
ADDRESS(ES) ---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
-4-
<PAGE> 5
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, 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 Securities Exchange
Act of 1934, as amended (the "Exchange Act"), hereby (a) represents that the
above named person(s) "own(s)" the Old Note tendered hereby within the meaning
of Rule 14e-4 under the Exchange Act, (b) represents that such tender of Old
Notes complies with Rule 14e-4 under the Exchange Act and (c) guarantees that
delivery to the Exchange Agent or a confirmation of the book-entry
transfer of such Old Notes into the Exchange Agent's account at the Depository
Trust Company, pursuant to the procedures for book-entry transfer set forth in
the Prospectus, with delivery of either a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) with any required
signatures and any other documents required by the Letter of
Transmittal or an Agent's Message, will be received by the Exchange Agent within
five New York Stock Exchange trading days after the Expiration Date.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL
OR AGENT'S MESSAGE AND OLD NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN
THE TIME PERIOD SET FORTH THEREIN AND THAT FAILURE TO DO SO COULD RESULT IN
FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm ______________________________ _______________________________
Authorized Signature
Address ___________________________________ Name __________________________
Please Print or Type
- ------------------------------------------
Zip Code
Title _________________________
Area Code and Telephone No.
__________________________________________ Date __________________________
Dated: __________________________, 1997
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<PAGE> 1
EXHIBIT 99.3
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
of
Diamond Cable Communications Plc
To The Depository Trust Company Participants:
We are enclosing herewith the materials listed below relating to the offer
by Diamond Cable Communications Plc (the "Company") to exchange its 10 3/4%
Senior Discount Notes due February 15, 2007 (the "New Notes"), pursuant to an
offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), for a like principal amount of its issued and outstanding 10
3/4% Senior Discount Notes due February 15, 2007 (the "Old Notes") upon the
terms and subject to the conditions set forth in the Company's Prospectus, dated
June _, 1997, and the related Letter of Transmittal (which together constitute
the "Exchange Offer"). 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 Depository Trust Company, may be tendered to the Book-Entry Depositary in
exchange for Book-Entry Interests in the Certificateless Depositary Interests in
the New Notes ("New Book-Entry Interests"). References below to New or Old Notes
include New or Old Book-Entry Interests.
Enclosed herewith are copies of the following documents:
1. Prospectus dated June __, 1997;
2. Letter of Transmittal;
3. Notice of Guaranteed Delivery;
4. Instruction to Book-Entry Transfer Participant from Owner (Annex A); and
5. Letter which may be sent to your clients for whose account you hold Old
Notes in your name or in the name of your nominee, to accompany the
instruction form referred to above, for obtaining such client's
instruction with regard to the Exchange Offer (Annex B).
<PAGE> 2
WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __, 1997, UNLESS EXTENDED.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
To participate in the Exchange Offer, a beneficial holder must cause a DTC
Participant to tender such holder's Old Notes to The Bank of New York's (the
"Exchange Agent") account maintained at the Depository Trust Company ("DTC") for
the benefit of the Exchange Agent through DTC's Automated Tender Offer Program
("ATOP"), including transmission of a computer-generated message that
acknowledges and agrees to be bound by the terms of the Letter of Transmittal.
By complying with DTC's ATOP procedures with respect to the Exchange Offer, the
DTC Participant confirms on behalf of itself and the beneficial owners of
tendered Old Notes all provisions of the Letter of Transmittal applicable to it
and such beneficial owners as fully as if it completed, executed and returned
the Letter of Transmittal to the Exchange Agent.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired in the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New Notes, whether or not such person is such holder, (ii) neither the
holder of the 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 the 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 of 1933, as amended. If the tendering holder is a broker-dealer
that will receive New Notes for its own account pursuant to the Exchange Offer,
you will represent on behalf of such broker-dealer 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 acknowledge on behalf of such
broker-dealer that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. By acknowledging
that it will deliver and by delivering a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes, such
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The enclosed Instruction to the Book-Entry Transfer Participant from Owner
contains an authorization by the beneficial owners of the Old Notes for you to
make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer or
to any other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Old Notes pursuant to the Exchange Offer. The Company
will pay or cause to be paid any transfer taxes payable on the transfer of Old
Notes to it, except as otherwise provided in Instruction 5 of the enclosed
Letter of Transmittal.
Additional copies of the enclosed material may be obtained from The Bank
of New York, 101 Barclay Street, New York, New York, Attn: Enrique Lopez.
Very truly yours,
The Bank of New York, as Book-Entry Depositary
-2-
<PAGE> 3
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF DIAMOND CABLE COMMUNICATIONS PLC OR THE BANK OF NEW YORK OR AUTHORIZE
YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH
THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS
CONTAINED THEREIN.
-3-
<PAGE> 4
ANNEX A
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
of
Diamond Cable Communications Plc
To Our Clients:
We are enclosing herewith a Prospectus, dated June _, 1997, of Diamond
Cable Communications Plc (the "Company") and a related Letter of Transmittal
(which together constitute the "Exchange Offer") relating to the offer by the
Company to exchange its 10 3/4% Senior Discount Notes due February 15, 2007 (the
"New Notes"), pursuant to an offering registered under the Securities Act of
1933, as amended (the "Securities Act"), for a like principal amount of its
issued and outstanding 10 3/4% Senior Discount Notes due February 15, 2007 (the
"Old Notes") upon the terms and subject to the conditions set forth in the
Exchange Offer. 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
Depository Trust Company, may be tendered to the Book-Entry Depositary in
exchange for Book-Entry Interests in the Certificateless Depositary Interests in
the New Notes ("New Book-Entry Interests"). References below to New or Old Notes
include New or Old Book-Entry Interests.
PLEASE NOTE THAT THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
__________, 1997, UNLESS EXTENDED.
The Offer is not conditioned upon any minimum number of Old Notes being
tendered.
We are the participant in the book-entry transfer facility of Old Notes
held by us for your account. A tender of such Old Notes can be made only by us
as the participant in the book-entry transfer facility and pursuant to your
instructions. The Letter of Transmittal is furnished to you for your information
only and cannot be used by you to tender Old Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Old Notes held by us for your account pursuant to the terms and conditions of
the Exchange Offer. We also request that you confirm that we may on your behalf
make the representations contained in the Letter of Transmittal that are to be
made with respect to you as beneficial owner.
Pursuant to the Letter of Transmittal, each holder of Old Notes will
represent to the Company that (i) the New Notes acquired in the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New Notes, (ii) the holder of the Old Notes has no 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, the holder
is not engaged in and does not intend to participate in a distribution of the
New Notes and (iv) the holder is not a "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act. If the tendering holder 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, we will represent on
behalf of such broker-dealer that the Old Notes to be exchanged for the New
Notes were acquired by it as a result of marketing- making activities or other
trading activities, and acknowledge on behalf of such broker-dealer that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. By acknowledging that it will
deliver and by delivering a
-1-
<PAGE> 5
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes, such broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
-2-
<PAGE> 6
ANNEX B
INSTRUCTION TO
BOOK-ENTRY TRANSFER PARTICIPANT FROM OWNER
OF
Diamond Cable Communications Plc
10 3/4% Senior Discount Notes due February 15, 2007
To Participant of the
Book-Entry Transfer Facility
The undersigned hereby acknowledges receipt of the Prospectus dated June _,
1997 (the "Prospectus") of Diamond Cable Communications Plc (the "Company"), and
the accompanying Letter of Transmittal (the "Letter of Transmittal"), that
together constitute the Company's offer (the "Exchange Offer"). Capitalized
terms used but not defined herein have the meanings ascribed to them in the
Prospectus and the Letter of Transmittal.
This will instruct you, the book-entry transfer facility participant, as to
the action to be taken by you relating to the Exchange Offer with respect to the
Old Notes held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (fill in amount):
$ _______________________________
of the 10 3/4% Senior Discount
Notes due February 15, 2007
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
___ To TENDER the following Old Notes held by you for the account of the
undersigned (insert principal amount of Old Notes to be tendered, (if any):
$ _______________________________
of the 10 3/4% Senior Discount
Notes due February 15, 2007
___ NOT to tender any Old Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Old Notes held by you for
the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as beneficial
owner, including but not limited to the representations, that (i) the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the undersigned, (ii) the undersigned has no arrangement
or understanding with any person to participate in the distribution of such New
Notes, (iii) if the undersigned is not a broker-dealer, or is a broker-dealer
but will not receive New Notes for its
-1-
<PAGE> 7
own account in exchange for Old Notes, the undersigned is not engaged in and
does not intend to participate in the distribution of such New Notes and (iv)
the undersigned is not an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act of 1933, as amended (the "Securities Act"). If the
undersigned 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, it
represents that such Old Notes were acquired as a result of market-making
activities or other trading activities, and it acknowledges that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
-2-
<PAGE> 8
SIGN HERE
Name of beneficial owner(s): __________________________________________________
Signature(s): _________________________________________________________________
Name(s) (please print): _______________________________________________________
Address: ______________________________________________________________________
Telephone Number: _____________________________________________________________
Taxpayer identification or Social Security Number: ____________________________
Date: _________________________________________________________________________
-3-
<PAGE> 1
EXHIBIT 99.4
June __, 1997
EXCHANGE AGENT AGREEMENT
The Bank of New York,
Corporate Trust Trustee Administration,
101 Barclay Street - 21st Floor,
New York, New York 10286.
Ladies and Gentlemen:
Diamond Cable Communications Plc (the "Company") proposes to make an offer
(the "Exchange Offer") to exchange its 10 3/4% Senior Discount Notes due
February 15, 2007 (the "Old Notes") for its 10 3/4% Senior Discount (the "New
Notes"). The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a prospectus, dated June o, 1997 (the
"Prospectus"), proposed to be distributed to all record holders of the Old
Notes. The Old Notes and the New Notes are collectively referred to herein as
the "Notes".
The Company hereby appoints The Bank of New York to act as exchange agent
(the "Exchange Agent") in connection with the Exchange Offer. References
hereinafter to "you" shall refer to The Bank of New York.
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 Depository Trust
Company (the "Book-Entry Transfer Facility"), may be tendered to the
Book-Entry Depositary in exchange for Book-Entry Interests in the Certificate
less Depositary Interests in the New Notes ("New Book-Entry Interests"). The
Book-Entry Depositary hereby appoints The Bank of New York to act
<PAGE> 2
The Bank of New York -2-
as exchange agent for the exchange of Book-Entry Interests. In this regard,
except as the context otherwise requires, 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,
provisions of the following discussion that apply to the Company also apply, as
appropriate, to the Book-Entry Depositary and references to the Exchange Agent
apply to The Bank of New York acting in such capacity for both the Company and
the Book-Entry Depositary.
The Exchange Offer is expected to be commenced by the Company on or about
June o, 1997. The Letter of Transmittal accompanying the Prospectus is to be
used by the holders of the Old Notes to accept the Exchange Offer, and contains
instructions with respect to the delivery of certificates for Old Notes
tendered.
The Exchange Offer shall expire at 5:00 P.M., New York City time, on
______________, 1997 or on such later date or time to which the Company may
extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the
right to extend the Exchange Offer from time to time and may extend the
Exchange Offer by giving oral (confirmed in writing) or written notice to you
before 9:00 A.M., New York City time, on the business day following the
previously scheduled Expiration Date.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the caption "The Exchange
Offer -- Certain Conditions". The Company will give oral (confirmed in
writing) or written notice of any amendment, termination or nonacceptance to
you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
<PAGE> 3
The Bank of New York -3-
1. You will perform such duties and only such duties as are specifically
set forth in the section of the Prospectus captioned "The Exchange Offer" or as
specifically set forth herein; provided, however, that in no way will your
general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old Notes at The
Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of
the Exchange Offer within two business days after the date of the Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into your account in
accordance with the Book-Entry Transfer Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and certificates
for Old Notes (or confirmation of book-entry transfer into your account at the
Book-Entry Transfer Facility) and any other documents delivered or mailed to
you by or for holders of the Old Notes to ascertain whether: (i) the Letters
of Transmittal and any such other documents are duly executed and properly
completed in accordance with instructions set forth therein and (ii) the Old
Notes have otherwise been properly tendered. In each case where the Letter of
Transmittal or any other document has been improperly completed or executed or
any of the certificates for Old Notes are not in proper form for transfer or
some other irregularly in connection with the acceptance of the Exchange Offer
exists, you will endeavor to inform the presenters of the need for fulfillment
of all requirements and to take any other action as may be necessary or
advisable to cause such irregularity to be corrected.
4. With the approval of the President, Senior Vice President, Executive
Vice President, or any Vice President of the Company (such approval, if given
orally, to be confirmed in writing) or any other party designated by such an
officer in writing, you are authorized to waive any irregularities in
connection with any tender of Old Notes pursuant to the Exchange Offer.
<PAGE> 4
The Bank of New York -4-
5. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange Offer
- -- Procedures for Tendering Old Notes", and Old Notes shall be considered
properly tendered to you only when tendered in accordance with the procedures
set forth therein.
Notwithstanding the provisions of this paragraph 5, Old Notes which the
President, Senior Vice President, Executive Vice President, or any Vice
President of the Company shall approve as having been properly tendered shall
be considered to be properly tendered (such approval, if given orally, shall be
confirmed in writing).
6. You shall advise the Company with respect to any Old Notes received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such New Securities.
7. You shall accept tenders:
(a) in cases where the Old Notes are registered in two or more names only
if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of his or her authority so to act is submitted; and
(c) from persons other than the registered holder of Old Notes provided
that customary transfer requirements, including any applicable transfer taxes,
are fulfilled.
You shall accept partial tenders of Old Notes where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Old Notes
to the transfer agent for split-up and return any untendered Old Notes to the
holder (or such other person as may be designated in the Letter of Transmittal)
as promptly as practicable after expiration or termination of the Exchange
Offer.
8. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify
<PAGE> 5
The Bank of New York -5-
you (such notice if given orally, to be confirmed in writing) of its acceptance,
promptly after the Expiration Date, of all Old Notes properly tendered and you,
on behalf of the Company, will exchange such Old Notes for New Notes and cause
such Old Notes to be cancelled. Delivery of New Notes will be made on behalf of
the Company by you at the rate of $1,000 principal amount of New Notes for each
$1,000 principal amount of the corresponding series of Old Notes tendered
promptly after notice (such notice if given orally, to be confirmed in writing)
of acceptance of said Old Notes by the Company; provided, however, that in all
cases, Old Notes tendered pursuant to the Exchange Offer will be exchanged only
after timely receipt by you of certificates for such Old Notes (or confirmation
of book-entry transfer into your account at the Book-Entry Transfer Facility), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other required
documents. You shall issue New Notes only in denominations of $1,000 or any
integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and
the Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer
may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old Notes tendered
if any of the conditions set forth in the Exchange Offer are not met. Notice
of any decision by the Company not to exchange any Old Notes tendered shall be
given (and confirmed in writing) by the Company to you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender,
the occurrence of certain other events set forth in the Prospectus under the
caption "The Exchange Offer -- Certain Conditions" or otherwise, you shall as
soon as practicable after the expiration or termination of the Exchange Offer
return those certificates for unaccepted Old Notes (or effect appropriate
book-entry transfer), together with any related required documents and the
Letters of Transmittal relating thereto
<PAGE> 6
The Bank of New York -6-
that are in your possession, to the persons who deposited them.
12. All certificates for reissued Old Notes, unaccepted Old Notes or for
New Notes shall be forwarded by (a) first-class certified mail, return receipt
requested under a blanket surety bond protecting you and the Company from loss
or liability arising out of the non-receipt or non-delivery of such
certificates or (b) by registered mail insured separately for the replacement
value of each of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons
or to engage or utilize any person to solicit tenders.
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other than those specifically set
forth herein or as may be subsequently agreed to in writing by you and the
Company;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any
of the certificates or the Old Notes represented thereby deposited with you
pursuant to the Exchange Offer, and will not be required to and will make no
representation as to the validity, value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal action hereunder which might
in your reasonable judgment involve any expense or liability, unless you shall
have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be protected in acting in reliance
upon any certificate, instrument, opinion, notice, letter, telegram or other
document or security delivered to you and reasonably believed by you to be
genuine and to have been signed by the proper party or parties;
<PAGE> 7
The Bank of New York -7-
(e) may reasonably act upon any tender, statement, request, comment,
agreement or other instrument whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as to the truth and
accuracy of any information contained therein, which you shall in good faith
believe to be genuine or to have been signed or represented by a proper person
or persons;
(f) may rely on and shall be protected in acting upon written or oral
instructions from any officer of the Company;
(g) may consult with your counsel with respect to any questions relating
to your duties and responsibilities and the advice or opinion of such counsel
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted to be taken by you hereunder in good faith
and in accordance with the advice or opinion of such counsel; and
(h) shall not advise any person tendering Old Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market value
or decline or appreciation in market value of any Old Notes.
15. You shall take such action as may from time to time be requested by
the Company or its counsel (and such other action as you may reasonably deem
appropriate) to furnish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as defined in the Prospectus) or such other
forms as may be approved from time to time by the Company, to all persons
requesting such documents and to accept and comply with telephone requests for
information relating to the Exchange Offer, provided that such information
shall relate only to the procedures for accepting (or withdrawing from) the
Exchange Offer. The Company will furnish you with copies of such documents at
your request. All other requests for information relating to the Exchange
Offer shall be directed to the Company, Attention: __________________.
16. You shall advise by facsimile transmission or telephone, and promptly
thereafter confirm in writing to _____________________ of the Company and such
other person
<PAGE> 8
The Bank of New York -8-
or persons as it may request, daily (and more frequently during the week
immediately preceding the Expiration Date and if otherwise requested) up to and
including the Expiration Date, as to the number of Old Notes which have been
tendered pursuant to the Exchange Offer and the items received by you pursuant
to this Agreement, separately reporting and giving cumulative totals as to items
properly received and items improperly received. In addition, you will also
inform, and cooperate in making available to, the Company or any such other
person or persons upon oral request made from time to time prior to the
Expiration Date of such other information as it or he or she reasonably
requests. Such cooperation shall include, without limitation, the granting by
you to the Company and such person as the Company may request of access to those
persons on your staff who are responsible for receiving tenders, in order to
ensure that immediately prior to the Expiration Date the Company shall have
received information in sufficient detail to enable it to decide whether to
extend the Exchange Offer. You shall prepare a final list of all persons whose
tenders were accepted, the aggregate principal amount of Old Notes tendered, the
aggregate principal amount of Old Notes accepted and deliver said list to the
Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
18. You hereby expressly waive any lien, encumbrance or right of set-off
whatsoever that you may have with respect to funds deposited with you for the
payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or
credit agreement with you or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on Schedule I attached hereto.
<PAGE> 9
The Bank of New York -9-
20. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange
Agent, which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you harmless in
your capacity as Exchange Agent hereunder against any loss, liability, cost or
expense, including attorneys' fees and expenses, arising out of or in
connection with any act, omission, delay or refusal made by you in reliance
upon any signature, endorsement, assignment, certificate, order, request,
notice, instruction or other instrument or document reasonably believed by you
to be valid, genuine and sufficient and in accepting any tender or effecting
any transfer of Old Notes reasonably believed by you in good faith to be
authorized, and in delaying or refusing in good faith to accept any tenders or
effect any transfer of Old Notes; provided, however, that the Company shall not
be liable for indemnification or otherwise for any loss, liability, cost or
expense to the extent arising out of your gross negligence or willful
misconduct. In no case shall the Company be liable under this indemnity with
respect to any claim against you unless the Company shall be notified by you,
by letter or cable or by facsimile confirmed by letter, of the written
assertion of a claim against you or of any other action commenced against you,
promptly after you shall have received any such written assertion or notice of
commencement of action. The Company shall be entitled to participate at its
own expense in the defense of any such claim or other action, and, if the
Company so elects, the Company shall assume the defense of any suit brought to
enforce any such claim. In the event that the Company shall assume the defense
of any such suit, the Company shall not be liable for the fees and expenses of
any additional counsel thereafter retained by you so long as the Company shall
retain counsel satisfactory to you to defend such suit.
<PAGE> 10
The Bank of New York -10-
22. You shall arrange to comply with all requirements under the tax laws
of the United States, including those relating to missing Tax Identification
Numbers, and shall file any appropriate reports with the Internal Revenue
Service. The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer Identification
Number or required certification. Such funds will be turned over to the
Internal Revenue Service in accordance with applicable regulations.
23. You shall deliver or cause to be delivered, in a timely manner to each
governmental authority to which any transfer taxes are payable in respect of
the exchange of Old Notes, your check in the amount of all transfer taxes so
payable, and the Company shall reimburse you for the amount of any and all
transfer taxes payable in respect of the exchange of Old Notes; provided,
however, that you shall reimburse the Company for amounts refunded to you in
respect of your payment of any such transfer taxes, at such time as such refund
is received by you.
24. This Agreement and your appointment as Exchange Agent hereunder shall
be construed and enforced in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within such state,
and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
26. In case any provision of this Agreement 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.
27. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, cancelled or waived, in whole or in part, except by a
written instrument
<PAGE> 11
The Bank of New York -11-
signed by a duly authorized representative of the party to be charged. This
Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including facsimile
or similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
Diamond Cable Communications Plc
Diamond Plaza
Daleside Road
Nottingham NG2 3GG
England
<TABLE>
<S> <C>
Facsimile: 44115-912-2363
Attention: Legal Director
</TABLE>
If to Book-Entry Depositary:
The Bank of New York,
as Book-Entry Depositary
Corporate Trust Department
101 Barclay Street, FL 21W
New York, New York 10286
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
29. Unless terminated earlier by the parties hereto, this Agreement shall
terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
<PAGE> 12
The Bank of New York -12-
Agreement. Upon any termination of this Agreement, you shall promptly deliver
to the Company any certificates for Notes, funds or property then held by you as
Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as of the date hereof.
<PAGE> 13
The Bank of New York -13-
Please acknowledge receipt of this Agreement and confirm the arrangements
herein provided by signing and returning the enclosed copy.
Diamond Cable Communications Plc
By: ____________________________
Name:
Title:
The Bank of New York as Book-Entry
Depositary
By: _____________________________
Name:
Title:
Accepted as the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By: ______________________________
Name:
Title:
