<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 1997
REGISTRATION NO. 33-83740
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST--EFFECTIVE AMENDMENT
NO.5 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIAMOND CABLE COMMUNICATIONS PLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
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 (Name, address and
of Registrant's principal telephone number of
executive offices) agent for service)
</TABLE>
COPIES TO:
SCOTT D. MILLER, ESQ.
SULLIVAN & CROMWELL
9A IRONMONGER LANE
LONDON EC2V 8EY
ENGLAND
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 14, 1997
DIAMOND CABLE COMMUNICATIONS PLC
13 1/4% SENIOR DISCOUNT NOTES DUE SEPTEMBER 30, 2004
11 3/4% SENIOR DISCOUNT NOTES DUE DECEMBER 15, 2005
Interest will not accrue on the 13 1/4% Senior Discount Notes due September
30, 2004 (the "1994 Senior Notes") prior to September 30, 1999. Interest on the
1994 Senior Notes will be payable on March 31 and September 30 of each year,
commencing March 31, 2000, at a rate of 13 1/4% per annum. See "Description of
1994 Senior Notes". The 1994 Senior Notes are redeemable, in whole or in part,
at the option of the Company at any time on or after September 30, 1999, at the
redemption prices set forth herein plus accrued interest to the date of
redemption. The 1994 Senior Notes are also redeemable in whole, but not in part,
at the option of the Company at any time at 100% of the principal amount plus
accrued interest to the date of redemption (or, prior to September 30, 1999, at
100% of Accreted Value) in the event of certain tax law changes requiring the
payment of additional amounts as described herein. The Company is required to
offer to repurchase all outstanding 1994 Senior Notes at 101% of principal
amount plus accrued interest to the date of repurchase (or, prior to September
30, 1999, at 101% of Accreted Value on the date of repurchase) after the
occurrence of a Change of Control. 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 1994 Senior Notes at 100% of principal amount plus
accrued interest to the date of repurchase (or, prior to December 15, 2000, at
100% of Accreted Value on the date of repurchase). See "Description of the 1994
Senior Notes -- Redemption". There can be no assurance that the Company will
have the financial resources necessary or otherwise be able to repurchase the
1994 Senior Notes under such circumstances.
Interest will not accrue on the 11 3/4% Senior Discount Notes due December
15, 2005 (the "1995 Senior Notes") prior to December 15, 2000. Interest on the
1995 Senior Notes will be payable on June 15 and December 15 of each year,
commencing June 15, 2001 at a rate of 11 3/4% per annum. See "Description of the
1995 Senior Notes" in the accompanying Prospectus. The 1995 Senior Notes are
redeemable, in whole or in part, at the option of the Company at any time on or
after December 15, 2000, at the redemption prices set forth herein plus accrued
interest to the date of redemption. The 1995 Senior Notes are also redeemable in
whole, but not in part, at the option of the Company at any time at 100% of the
principal amount plus accrued interest to the date of redemption (or, prior to
December 15, 2000, at 100% of Accreted Value) in the event of certain tax law
changes requiring the payment of additional amounts as described herein. Upon
the occurrence of a Change of Control the Company is required to offer to
repurchase all outstanding 1995 Senior Notes at 101% of principal amount plus
accrued interest to the date of repurchase (or, prior to December 15, 2000, at
101% of Accreted Value on the date of repurchase) after the occurrence of a
Change of Control. In addition, upon the occurrence of an Asset Disposition, the
Company may be obligated to make an Offer to Purchase all or a portion of the
outstanding 1995 Senior Notes at 100% of the principal amount plus accrued
interest to the date of repurchase (or, prior to December 15, 2000, at 100% of
Accreted Value on the date of repurchase). See "Description of the 1995 Senior
Notes -- Redemption". There can be no assurance that the Company will have the
financial resources necessary or otherwise be able to repurchase the 1995 Senior
Notes under such circumstances.
The Senior Notes constitute unsecured senior indebtedness of the Company.
Certain of the Company's subsidiaries have entered into a senior syndicated bank
lending facility of up to pounds sterling .175 million. Indebtedness under the
senior bank lending facility is effectively senior to the Senior Notes as such
indebtedness will be incurred by a subsidiary of the Company, guaranteed by
certain of the Company's other subsidiaries and secured by liens on the assets
of certain of the Company's subsidiaries and a pledge of the issued shares of
certain of the Company's subsidiaries other than Jewel Holdings Limited. At
December 31, 1996, the Company had approximately pounds sterling 325 million of
indebtedness outstanding, including approximately pounds sterling 117 million
and pounds sterling 197 million in accreted value of 1994 Senior Notes and the
1995 Senior Notes, respectively. On February 27, 1997, the Company issued
$420,500,000 in principal amount at maturity of its 10 3/4% Senior Discount
Notes due February 15, 2007 (the "1997 Notes") at an issue price of $594.48 per
$1,000 principal amount at maturity. Cash interest is not payable on the 1997
Notes prior to August 15, 2002. Thereafter, cash interest on the 1997 Notes is
payable at a rate of 10 3/4% per annum. The Company has not issued, and does not
have any current plans to issue, any significant indebtedness that will be
subordinated to the Senior Notes. The Company is a holding company which
conducts substantially all of its business through subsidiaries, all of which
are wholly-owned. The Senior Notes effectively rank junior to any indebtedness
of the Company's subsidiaries to the extent of the assets of such subsidiaries
and to any secured indebtedness of the Company to the extent of the assets
securing such indebtedness. The 1997 Notes rank pari passu with the 1994 and
1995 Senior Notes.
SEE "RISK FACTORS" BEGINNING ON PAGE __ OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SENIOR NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Prospectus is to be used by Goldman, Sachs & Co. in connection with
offers and sales of the Senior Notes related to market-making transactions at
negotiated prices related to prevailing market prices at the time of sale. The
Company will not receive any of the proceeds of such sale. Goldman, Sachs & Co.
may act as a principal or agent in such transactions. See "Plan of
Distribution".
GOLDMAN, SACHS & CO.
The date of this Prospectus is April __, 1997.
<PAGE> 3
NOTE REGARDING THIS PROSPECTUS
This Prospectus relates to two different series of Senior Notes issued by
the Company:
- The 13 1/4% SENIOR DISCOUNT NOTES DUE SEPTEMBER 30, 2004 (referred to
herein as the "1994 SENIOR NOTES"), and
- The 11 3/4% SENIOR DISCOUNT NOTES DUE DECEMBER 15, 2005 (referred to
herein as the "1995 SENIOR NOTES").
Prospective investors in the 1994 Senior Notes should refer to
"Summary--The 1994 Senior Notes" and "Description of 1994 Senior Notes" for a
description of the 1994 Senior Notes.
Prospective investors in the 1995 Senior Notes should refer to
"Summary--The 1995 Senior Notes" and "Description of the 1995 Senior Notes" for
a description of the 1995 Senior Notes.
References herein to the "Senior Notes" apply to both the 1994 Senior
Notes and the 1995 Senior Notes.
____________________________
Diamond Cable Communications Plc (the "Company") is a public limited
company incorporated under the laws of England and Wales. The Company is a
holding company which holds all of the shares of (i) Diamond Cable
Communications (UK) Limited ("DCL") (formerly Diamond Cable (Nottingham)
Limited) and (ii) the group of companies comprising LCL (as defined herein), in
both cases through an intermediate holding company, Jewel Holdings Limited
("Jewel"). 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 Senior Notes are listed on the Luxembourg Stock Exchange. For a
discussion of the trading market in the Senior Notes see "Risk Factors --
Trading Market for the Senior Notes".
This prospectus contains certain forward-looking statements, identified as
such, with respect to which the Company is seeking to utilize the safe harbor
provided by the Private Securities Litigation Reform Act of 1995. These
statements are accompanied by, and should be read in conjunction with,
explanations of important factors that could cause actual results to differ
materially from those in the forward-looking statements.
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The Company operates only in the United Kingdom and, accordingly, publishes
its financial statements in pounds sterling. In this Prospectus, references to
"pounds sterling", "L.", "pence" or "p" are to the lawful currency of the United
Kingdom and references to "U.S. dollars", "dollars", "$" or "c" are to the
lawful currency of the United States. Merely for convenience, this Prospectus
contains translations of certain pounds sterling amounts into U.S. dollars at
specified rates. These translations should not be construed as representations
that the pounds sterling amounts actually represent such U.S. dollar amounts or
could have been or could be converted into U.S. dollars at the rate indicated or
at any other rate. Unless otherwise indicated, the translations of pounds
sterling amounts into U.S. dollars have been made at $1.7123 per pounds sterling
1.00, the noon buying rate in The City of New York for cable transfers in pounds
sterling as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate") on December 31, 1996. See "Exchange Rates" for
information regarding the Noon Buying Rate for the past five fiscal years. On
April 11, 1997, the Noon Buying Rate was $1.6245 per pounds sterling 1.00.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Company has been incorporated under English law. Service of process
upon directors and officers of the Company, and certain of the experts named
herein, who reside outside the United States may be difficult to obtain within
the United States. Furthermore, since most directly owned assets of the Company
are outside the United States, any judgment obtained in the United States
against it may not be collectible within the United States. The Company has
been advised by its English counsel, Freshfields, that there is doubt as to the
enforceability of certain civil liabilities under U.S. Federal securities laws
in original actions in English courts. The Company has also been advised by its
English counsel, Freshfields, that subject to certain exceptions and time
limitations, English courts will treat a final and conclusive judgment of a
U.S. court for a liquidated amount as a debt enforceable by fresh proceedings
in the English courts. Such counsel has expressed no opinion, however, as to
whether the enforcement by an English court of any judgment would be in pounds
sterling or as of which date, if any, the determination of the applicable
exchange rate from U.S. dollars to pounds sterling would be made.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements included elsewhere in this
Prospectus. All information in this Prospectus with respect to the number of
homes in the Group's franchise areas is based either on CACI Information
Services reports (which use 1991 census data compiled by the U.K.'s Office of
Population Census and Surveys) or information published by the Independent
Television Commission ("ITC") and all information with respect to the number of
businesses is based on Company estimates. There can be no assurance that the
actual number of homes in a franchise area is not different from that reflected
in the 1991 census or the ITC data or that the estimated number of businesses
reflects the actual number of businesses in the relevant franchise areas.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THE GROUP
OVERVIEW
The Group operates a telecommunications and cable television business
focused on the East Midlands area of England. The Group is currently
constructing a broadband fiber-optic network to serve its fifteen contiguous
franchise areas, comprising approximately 1.2 million homes and an estimated
60,600 businesses. As of December 31, 1996, the Group's cable television and
telecommunications network had passed by civils construction approximately
453,500 homes and an estimated 23,900 businesses, of which portions of the
network passing approximately 347,200 homes and an estimated 17,900 businesses
had been activated. As of that date, the Group had approximately 104,500
residential telephone lines, 59,200 cable television subscribers and 18,900
business telephone lines. Through that date, pounds sterling 317 million had
been invested (at original cost) in the construction of the network and related
systems. For the years ended December 31, 1994, 1995 and 1996, the Group had
total revenues of approximately pounds sterling 7.3 million, pounds sterling
16.0 million and 37.6 million, and net losses of pounds sterling 8.7 million,
pounds sterling 27.6 million and 35.8 million, respectively. For certain
operating data as of December 31, 1996, see "-- Certain Operating Data".
The Group offers three basic services over its network infrastructure: (i)
residential telephone services allowing customers to place and receive local,
national and international calls and to use additional services such as
conference calling, call waiting, call forward, call barring and Internet
access, (ii) business telecommunications services which include the services
provided to residential customers as well as advanced telecommunications
services such as Centrex (which provides businesses, including those with
multiple sites, with virtual PABX and network services), direct dialing inward
(DDI), high speed data services and private circuits, and (iii) cable
television services offering more than 50 channels including movies, sports,
news and information, music, children's programming and general entertainment.
See "Business -- Business Telecommunications and Residential Telephone" and
"Business -- Cable Television".
HISTORY
The Company was founded in 1989 by Allan J. McDonald, a U.S. cable
operator, and Gary L. Davis, the Company's Managing Director. 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.
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CERTAIN OPERATING DATA
The following table sets forth certain data concerning the Group's
franchises at and for the years ended December 31, 1994, 1995 and 1996. The
combined operating data at and for the year ended December 31, 1995 reflects
the acquisition of LCL on a pro-forma basis as if it had been completed at the
beginning of 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1994 1995 1996
------- ------------------------------------ -------
DIAMOND LCL COMBINED
------- ------- --------
<S> <C> <C> <C> <C> <C>
Homes passed by civils construction(1)... 55,919 222,335 58,976 281,311 453,496
Homes activated(2)....................... 32,033 105,951 51,955 157,906 347,246
Homes marketed(3)........................ 31,330 77,657 48,950 126,607 252,601
CABLE TELEVISION
Basic service subscribers................ 8,936 20,261 10,488 30,749 59,242
Penetration rate of homes marketed(4).... 28.5% 26.1% 21.4% 24.3% 23.5%
Average monthly revenue per
subscriber(5).......................... L.14.71 L.16.80 L.18.89 L.17.62 L.18.03
Churn(6)................................. 28.5% 35.5% 31.0% 33.8% 40.9%
RESIDENTIAL TELEPHONE
Residential lines connected.............. 14,150 36,122 16,576 52,698 104,460
Penetration rate of homes marketed(4).... 45.2% 46.5% 33.9% 41.6% 41.4%
Average monthly revenue per line(7)(8)... L.18.83 L.18.68 L.22.19 L.19.88 L.18.40
Pro-forma average monthly revenue per
line(8)................................ L.18.83 L.18.11 L.21.35 L.19.22 L.18.64
Churn(6)................................. 13.8% 13.9% 17.2% 15.0% 20.6%
BUSINESS TELECOMMUNICATIONS
Business customers accounts.............. 979 1,627 772 2,399 3,935
Business lines connected................. 3,928 7,036 2,843 9,879 18,932
Private circuits(9)...................... 70 151 10 161 226
Average lines per business account(10)... 4.0 4.3 3.7 4.1 4.8
Average monthly revenue per line(8)(11).. 88.68 74.60 59.60 70.23 50.17
Pro-forma average monthly revenue per
line(8)................................ 88.68 72.02 56.88 67.70 51.25
</TABLE>
(1) Homes passed by civils construction is the number of homes that have had
ducting buried outside.
(2) Homes activated is the number of homes that are capable of receiving
cable service without further extension of transmission lines, apart from
the final connection to the home.
(3) Homes marketed is the number of homes activated for which the initial
marketing phase has been completed.
(4) Penetration rate of homes marketed is calculated by dividing the number
of homes receiving basic cable television or the number of residential
lines connected, as the case may be, on the given
6
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date by the total number of homes marketed for the given service as of such
date, expressed as a percentage.
(5) The average monthly revenue per cable television subscriber is calculated
by dividing total cable television subscriber revenues (excluding
installation revenues) for the period by the average number of cable
television subscribers (calculated as a simple average of the number of
basic service subscribers at the end of each month during the period) and
dividing that amount by 12.
(6) Churn is calculated by dividing net disconnections (total disconnections
less the number of disconnected accounts for which service is later
restored) in a period by the average number of subscribers in the period
(calculated as a simple average of the number of subscribers at the end of
each month during the period).
(7) The average monthly revenue per residential telephone line is calculated
by dividing (i) line and equipment rental, outgoing call charges and
incoming call charges for the period by (ii) the average number of
residential telephone lines (calculated as a simple average of the number
of subscribed lines at the end of each month during the period) and
dividing that amount by 12.
(8) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the
year to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995
but recorded in full against revenues in 1996. The rebates were calculated
in accordance with recently revised interconnect agreements with BT that
were made effective retroactively from April 1995. The pro-forma average
monthly revenue per line (for both residential telephone and business
telecommunications revenues) gives effect to the revised interconnect
agreements as if they had been in effect from April 1995 and allocates to
each period the portion of the rebates that relates to such period.
(9) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(10) Average lines per business account is calculated by dividing the number
of business lines connected on the given date by the number of business
customer accounts on such date.
(11) Average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12.
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THE 1994 SENIOR NOTES
Notes Offered..... 13 1/4% Senior Discount Notes due September 30, 2004 (the
"1994 Senior Notes").
Price............. Negotiated prices related to prevailing market prices at
the time of sale.
Maturity Date..... September 30, 2004.
Use of Proceeds... The Company will not receive any proceeds from secondary
sales of the 1994 Senior Notes.
Yield and Interest 13 1/4% per annum (computed on a semi-annual bond
equivalent basis) calculated from September 28, 1994. Cash
interest will not accrue on the 1994 Senior Notes prior to
September 30, 1999 (the "Cash Interest Date"). Thereafter,
cash interest on the 1994 Senior Notes will be payable, at a
rate of 13 1/4% per annum, semi-annually on each March 31
and September 30, commencing March 31, 2000. For U.S.
federal income tax purposes, purchasers of the 1994 Senior
Notes will be required to include amounts in gross income in
advance of the receipt of the cash payments to which the
income is attributable. See "Taxation -- United States --
Original Issue Discount".
Ranking........... The 1994 Senior Notes constitute senior unsecured
indebtedness of the Company. In August 1996, certain of the
Company's subsidiaries entered into a senior syndicated bank
facility (as modified in February and April, 1997)
permitting borrowing up to an aggregate amount of pound
sterling 175 million (the "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 1994 Senior Notes. The 1994 Senior Notes
effectively rank junior to any indebtedness of the Company's
subsidiaries to the extent of the assets of such
subsidiaries and to any secured indebtedness of the Company
to the extent of the assets securing such indebtedness.
Indebtedness under the Senior Bank Facility is effectively
senior to the 1994 Senior Notes as it will be incurred by a
subsidiary of the Company, guaranteed by certain of the
Company's other subsidiaries and secured by liens on the
assets of certain of the Company's subsidiaries, and a
pledge of the issued shares of certain of the Company's
subsidiaries. See "Risk Factors -- Holding Company
Structure; Liens on Assets".
</TABLE>
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<TABLE>
<S> <C>
Optional Redemption.... The 1994 Senior Notes are redeemable, in whole or in
part, at the option of the Company at any time on or
after the Cash Interest Date at the redemption prices
set forth herein, plus accrued and unpaid interest, if
any, to the date of redemption. See "Description of
1994 Senior Notes -- Redemption -- Optional
Redemption".
Tax Redemption......... In the event of certain changes affecting withholding
taxes applicable to certain payments on the 1994 Senior
Notes, the 1994 Senior Notes are redeemable, as a
whole, but not in part, at the option of the Company,
at any time at the Accreted Value thereof, or, if such
redemption is to occur on or after the Cash Interest
Date, at 100% of the principal amount at maturity
thereof, plus accrued and unpaid interest, if any, to
the date of redemption. See "Description of 1994 Senior
Notes -- Optional Tax Redemption".
Change of Control...... Upon a Change of Control, each holder of the 1994
Senior Notes will have the right to require the Company
to repurchase such holder's 1994 Senior Notes at 101%
of the Accreted Value thereof in the case of any such
repurchase prior to the Cash Interest Date or 101% of
the principal amount at maturity thereof plus accrued
and unpaid interest, if any, to the date of repurchase,
in the case of any such repurchase on or after the Cash
Interest Date. There can be no assurance that the
Company would have the financial resources necessary or
otherwise be able to repurchase the 1994 Senior Notes
upon a Change of Control. See "Description of 1994
Senior Notes -- Certain Covenants -- Change of Control"
and "Risk Factors -- Holding Company Structure; Liens
on Assets".
Original Issue
Discount............... The 1994 Senior Notes were initially sold at a price
that represented an original issue discount for U.S.
federal income tax purposes. Thus, although cash
interest is not payable on the 1994 Senior Notes prior
to the Cash Interest Date, original issue discount
(i.e., the difference between the principal and
interest payable on the 1994 Senior Notes and their
issue price) will accrete over the term of the 1994
Senior Notes and will be included as ordinary income
(including for periods ending prior to the Cash
Interest Date) for United States federal income tax
purposes in advance of receipt of the cash payments
to which the income is attributable. The amount
includible in income by a particular investor will
depend on the price paid by the investor for the
Senior Note. See "Taxation -- United States --
Original Issue Discount".
</TABLE>
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Certain Covenants...... The 1994 Senior Notes Indenture contains certain
covenants which, among other things, restrict the
ability of the Company and its Restricted Subsidiaries
(as defined) to (i) Incur additional Debt or issue
Disqualified Equity; (ii) pay dividends or make
distributions in respect of the Company's capital stock
or make certain other restricted payments; (iii) create
certain liens or enter into certain sale and leaseback
transactions; (iv) engage in certain transactions with
Affiliates or Related Persons; or (v) sell certain
assets. In addition, the 1994 Senior Notes Indenture
limits the ability of the Company to consolidate, merge
or sell all or substantially all of its assets. These
covenants are subject to a number of important
exceptions and qualifications, and there can be no
assurance that these covenants will protect the holders
of the 1994 Senior Notes from developments that may
adversely affect the Company's ability to meet its
obligations on the 1994 Senior Notes. See "Description
of 1994 Senior Notes".
Form of Notes.......... The 1994 Senior Notes have been issued initially as a
global security in bearer form without coupons, which
was issued in an aggregate principal amount at maturity
equal to 100% of the aggregate principal amount at
maturity of all 1994 Senior Notes issued under the 1994
Senior Notes Indenture and is held by The Bank of New
York, as Book-Entry Depositary. Beneficial interests in
the Global Senior Note are shown on, and transfers
thereof will be effected only through, records
maintained in book-entry form by DTC (with respect to
its participants). Ownership of the Book-Entry
Interests is limited to persons that have accounts with
DTC ("Participants") or persons that may hold interests
through Participants ("Indirect Participants"),
including Morgan Guaranty Trust Company of New York, as
operator of the Euroclear System ("Euroclear") and
Cedel Bank, societe anonyme ("Cedel"). Except as set
forth under "Description of 1994 Senior Notes",
Participants or Indirect Participants are not entitled
to receive physical delivery of 1994 Senior Notes in
definitive form or to have 1994 Senior Notes issued and
registered in their names and are not considered the
owners or holders thereof under the 1994 Senior Notes
Indenture.
Global Clearance
and Settlement......... Book-Entry Interests trade in DTC's Same-Day Funds
Settlement System. Any secondary market trading of
Book-Entry Interests is expected to occur through
Participants and settle in same-day funds. See
"Description of 1994 Senior Notes -- Settlement".
For additional information concerning the 1994 Senior Notes and the
definitions of certain capitalized terms used above, see "Description of 1994
Senior Notes".
10
<PAGE> 11
THE 1995 SENIOR NOTES
Notes Offered.......... 11 3/4% Senior Discount Notes due December 15, 2005
(the "1995 Senior Notes").
Price.................. Negotiated prices related to prevailing market prices
at the time of sale.
Maturity Date.......... December 15, 2005.
Use of Proceeds........ The Company will not receive any proceeds from
secondary sales of the 1995 Senior Notes.
Yield and Interest..... 11 3/4% per annum (computed on a semi-annual bond
equivalent basis) calculated from December 15, 1995.
Cash interest will not be payable on the 1995 Senior
Notes prior to December 15, 2000 (the "Cash Interest
Date"). Thereafter, cash interest on the 1995 Senior
Notes will be payable, at a rate of 11 3/4% per annum,
semi-annually on each June 15 and December 15,
commencing June 15, 2001. For U.S. federal income tax
purposes, purchasers of the 1995 Senior Notes will be
required to include amounts in gross income in advance
of the receipt of the cash payments to which the income
is attributable. See "Taxation -- United States --
Original Issue Discount".
Ranking................ The 1995 Senior Notes constitute senior unsecured
indebtedness of the Company. The Company has not
issued, and does not have any current plans to issue,
any significant indebtedness that will be subordinated
to the 1995 Senior Notes. The 1995 Senior Notes will
effectively rank junior to any indebtedness of the
Company's subsidiaries to the extent of the assets of
such subsidiaries and to any secured indebtedness of
the Company to the extent of the assets securing such
indebtedness. Indebtedness under the Senior Bank
Facility is expected to be effectively senior to the
1995 Senior Notes as it will be incurred by a
subsidiary of the Company, guaranteed by certain of the
Company's other subsidiaries and secured by liens on
the assets of certain of the Company's subsidiaries,
and a pledge of the issued shares of certain of the
Company's subsidiaries. See "Risk Factors -- Holding
Company Structure; Liens on Assets".
Optional Redemption.... The 1995 Senior Notes are redeemable, in whole or in
part, at the option of the Company at any time on or
after December 15, 2000 at the redemption prices set
forth herein, plus accrued and unpaid interest, if any,
to the date of redemption. See "Description of the 1995
Senior Notes -- Redemption -- Optional Redemption".
11
<PAGE> 12
Tax Redemption......... In the event of certain changes affecting withholding
taxes applicable to certain payments on the 1995 Senior
Notes, the 1995 Senior Notes are redeemable, as a
whole, but not in part, at the election of the Company,
at any time at the Accreted Value thereof, or, if such
redemption is to occur on or after the Cash Interest
Date, at 100% of the principal amount at maturity
thereof, plus accrued and unpaid interest, if any, to
the date of redemption. See "Description of the 1995
Senior Notes -- Redemption -- Optional Tax Redemption".
Change of Control...... Upon a Change of Control, each holder of the 1995
Senior Notes will have the right to require the Company
to repurchase such holder's 1995 Senior Notes at 101%
of the Accreted Value thereof in the case of any such
repurchase prior to the Cash Interest Date or 101% of
the principal amount at maturity thereof plus accrued
and unpaid interest, if any, to the date of repurchase,
in the case of any such repurchase on or after the Cash
Interest Date. There can be no assurance that the
Company would have the financial resources necessary or
otherwise be able to repurchase the 1995 Senior Notes
upon a Change of Control. See "Description of the 1995
Senior Notes -- Certain Covenants -- Change of Control"
and "Risk Factors -- Holding Company Structure; Liens
on Assets".
Equity Commitment...... The Indenture relating to the 1995 Senior Notes
provided that an event of default would occur under the
Indenture if the Company did not receive an aggregate
of $100 million or more in gross cash proceeds from the
issuance of new equity prior to June 30, 1996, subject
to certain exceptions. In accordance with this
provision, prior to June 30, 1996, the Company's
existing investors subscribed to new equity capital in
an amount of $100 million.
Original Issue
Discount............. The 1995 Senior 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 1995 Senior
Notes prior to the Cash Interest Date, original issue
discount (i.e., the difference between the principal
and interest payable on the 1995 Senior Notes and their
issue price) will accrete from the issue date of the
1995 Senior Notes and will be included as ordinary
income (including for periods ending prior to the Cash
Interest Date) for U.S. federal income tax purposes in
advance of receipt of the cash payments to which the
income is attributable. The amount includible in income
by a particular investor will depend on the price paid
by the investor for the 1995 Senior Notes. See
"Taxation -- United States -- Original Issue Discount".
12
<PAGE> 13
<TABLE>
<S> <C>
Certain Covenants.............. The 1995 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 1995 Senior
Notes Indenture limits the ability of the
Company to consolidate, merge or sell all or
substantially all of its assets. These
covenants are subject to a number of important
exceptions and qualifications, and there can be
no assurance that these covenants will protect
the holders of the 1995 Senior Notes from
developments that may adversely affect the
Company's ability to meet its obligations on
the 1995 Senior Notes. See "Description of the
1995 Senior Notes".
Form of Notes.................. The 1995 Senior Notes were issued initially as
a global security in bearer form without
coupons, which was issued in an aggregate
principal amount at maturity equal to 100% of
the aggregate principal amount at maturity of
all 1995 Senior Notes issued under the 1995
Senior Notes Indenture and is held by The Bank
of New York, as Book-Entry Depositary.
Beneficial interests in the Global Senior Note
will be shown on, and transfers thereof will be
effected only through, records maintained in
book-entry form by DTC (with respect to its
participants). Ownership of the Book-Entry
Interests is limited to persons that have
accounts with DTC ("Participants") or persons
that may hold interests through Participants
("Indirect Participants"), including Morgan
Guaranty Trust Company of New York, as operator
of the Euroclear System ("Euroclear") and Cedel
Bank, societe anonyme ("Cedel"). Except as set
forth under "Description of the 1995 Senior
Notes", Participants or Indirect Participants
are not entitled to receive physical delivery
of 1995 Senior Notes in definitive form or to
have 1995 Senior Notes issued and registered in
their names and are not considered the owners
or holders thereof under the 1995 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 1995 Senior Notes --
Settlement".
</TABLE>
For additional information concerning the 1995 Senior Notes and the
definitions of certain capitalized terms used above, see "Description of the
1995 Senior Notes".
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<PAGE> 14
SUMMARY FINANCIAL DATA
The summary consolidated financial data for the Group at and for the years
ended December 31, 1994, 1995 and 1996 set forth below should be read in
conjunction with, and are qualified in their entirety by reference to,
"Selected Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and the Audited Consolidated Financial
Statements and related Notes which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992 1993 1994 1995(1) 1996 1996(2)
---------- ----------- ----------- ---------- ---------- ---------
(POUND (POUND (POUND (POUND (POUND ($)
STERLING) STERLING) STERLING) STERLING) STERLING)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications....... 178 1,237 3,402 5,852 9,763 $16,717
Residential telephone............. 153 1,251 2,545 6,662 17,723 30,347
Cable television.................. 458 719 1,324 3,479 10,091 17,279
Other revenues.................... 11 20 35 -- -- --
------ ------ ------- ------- ------- --------
Total revenues.................... 800 3,227 7,306 15,993 37,577 64,343
Operating costs and expenses:
Telephone......................... (140) (1,097) (3,067) (5,454) (9,776) (16,739)
Programming....................... (184) (324) (701) (1,844) (6,041) (10,344)
Selling, general and
administrative.................... (917) (1,632) (4,562) (13,020) (22,391) (38,340)
Depreciation and amortization..... (1,530) (2,520) (4,038) (8,867) (21,380) (36,609)
------ ------ ------- ------- ------- --------
Total operating costs and expenses (2,771) (5,573) (12,368) (29,185) (59,588) (102,032)
------ ------ ------- ------- ------- --------
Operating loss.................... (1,971) (2,346) (5,062) (13,192) (22,011) (37,689)
Interest income................... -- -- 1,415 3,887 3,441 5,892
Interest expense, and amortization
of debt discount and expenses..... (53) (231) (3,836) (17,118) (40,334) (69,064)
Foreign exchange gains/(losses)
net............................... (1,314) (221) (1,196) 925 31,018 53,112
Unrealized losses on derivative
financial instruments............. -- -- -- (868) (7,944) (13,603)
Other expenses.................... -- -- -- (1,241) -- --
------ ------ ------- ------- ------- --------
Net loss.......................... (3,338) (2,798) (8,679) (27,607) (35,830) $(61,352)
====== ====== ======= ======= ======= ========
BALANCE SHEET DATA:
Property and equipment, net....... 8,678 18,021 35,127 163,721 277,301 $474,822
Total assets...................... 9,487 19,882 138,606 374,172 416,819 713,719
Total debt (3).................... 13,779 21,889 103,068 319,492 325,041 556,567
Shareholders' equity (4).......... (6,733) (5,660) 26,092 25,133 54,100 92,636
OTHER DATA:
EBITDA (5) (441) 174 (1,024) (6,434) (8,575) $(14,683)
Deficiency of earnings to fixed
charges (6)....................... (3,338) (2,798) (8,679) (27,607) (35,830) (61,352)
Capital expenditures.............. 7,799 11,880 21,252 136,314 130,140 222,839
</TABLE>
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of
$1.7123 = pound sterling 1.00, the Noon Buying Rate on December 31, 1996.
(3) Total debt for periods prior to December 31, 1994 consisted of advances
from shareholders and capital lease obligations. Total debt at December
31, 1994 consisted of the 1994 Senior Notes and capital lease obligations.
Total debt at December 31, 1995 and 1996 consisted of the 1994 Senior
14
<PAGE> 15
Notes, the Company's 11 3/4% Senior Discount Notes due December 15, 2005
(the "1995 Senior Notes"), capital lease obligations and the mortgage loan.
(4) The Company raised additional equity financing of (pound sterling)40.4
million, (pound sterling)27.0 million and (pound sterling)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 should not,
however, be considered as a substitute for net income as a measure of
operating results or for cash flows as a measure of liquidity.
(6) Represents the amount by which loss before income taxes and fixed charges
("earnings") failed to cover fixed charges. Fixed charges consist of
interest expense (including amortization of debt issuance costs and debt
discount) plus the portion of rental expense under operating leases which
has been deemed by the Company to be representative of the interest factor
(1/3 of rental expense). Because fixed charges exceeded earnings for all
periods presented, a ratio of earnings to fixed charges is not presented.
15
<PAGE> 16
RISK FACTORS
An investment in the Senior Notes is subject to a number of risks, which,
together with the other information set forth in this Prospectus, should be
considered carefully by prospective investors prior to any purchase of Senior
Notes.
REQUIREMENT FOR ADDITIONAL FUNDS; SENIOR BANK FACILITY
The further development and construction of the Group's cable television
and telecommunications network will require substantial capital investment.
Through December 31, 1996, approximately pound sterling 317 million has been
invested at original cost in the construction of the Group's network and
systems. As of that date, civils construction of the network had passed
approximately 477,000 premises (homes and businesses), and that portion of the
network that had been activated included approximately 365,000 premises. Under
the Group's milestone requirements, the Company is obligated to activate a
network passing an aggregate of 1,021,894 premises in its franchise areas,
although the Company expects that when completed, its activated network will
include approximately 1.2 million premises. The Company currently estimates that
the additional capital expenditures required for the Group to substantially
complete the network (including estimated subscriber connection expenses) will
be approximately pound sterling 570 million (of which L520 million relates to
capital expenditures occurring from December 31, 1996 through January 1, 2001),
although these amounts could vary significantly depending on the number of
customers actually connected to the network, the availability of construction
resources and a number of other factors described below. See "Business --
Milestones".
In order to help fund these capital requirements, in August 1996, certain
of the Company's subsidiaries entered into a senior bank lending agreement that
permitted borrowing up to an aggregate amount of pound sterling 340 million. In
February 1997, the senior bank facility was amended (as amended, the "Senior
Bank Facility") to reduce the aggregate amount available for borrowing to pound
sterling 220 million or less and to revise certain covenants and borrowing
conditions. Because the proceeds to the Company from the offering of the 1997
Notes exceeded $175 million, the Company has, under the terms of the Senior Bank
Facility, negotiated certain amendments to the Senior Bank Facility, including
among other things a reduction in the amount available for borrowing under the
facility to pound sterling 175 million. DCL will be able to draw on the Senior
Bank Facility if certain conditions are met, including conditions related to the
operating cash flow of, equity contributions to and certain financial ratios of
Jewel and its subsidiaries (together, the "Borrower Group") which are not
currently met. See "Description of Company Debt -- Senior Bank Facility".
Indebtedness under the Senior Bank Facility will be incurred by DCL, guaranteed
by the Borrower Group and secured by a lien on the assets of the Borrower Group
and a pledge of the issued shares of the Borrower Group other than Jewel but
including DCL and LCL. To date, no funds have been drawn under the facility.
Based on the estimated additional required investment, the Company believes
that its cash resources (including the net proceeds from the offering of the
1997 Notes), a proposed equity injection of L.25 million and cash
flows from operations will be sufficient to complete the construction planned
through the first quarter of 1998, at which time the Group estimates that
approximately 61.4% of the aggregate final milestones will have been constructed
and activated. Thereafter, the Company expects to be able to utilize amounts
available under the Senior Bank Facility. If such amounts are not available or
are insufficient, the Group would be required to obtain further debt or equity
financing.
However, the Group may not be able to borrow sufficient funds under the
Senior Bank Facility to meet its remaining funding requirements. In particular,
even after the initial conditions to borrowing have been met, the amount of
funds that may be borrowed will be limited to a specified multiple of the
Borrower Group's reported annualized cash flow (as defined in the Senior Bank
Facility). This reported annualized cash flow will depend on a number of
variables, including penetration of cable television and premium channels,
penetration of business telecommunications and residential telephone, average
revenues in each of these areas, churn, expenses such as programming costs and
interconnect charges, network construction and development expenditures and
financing costs. Adverse developments in any of these or other areas could
adversely affect the Borrower Group's reported annualized cash flow and reduce
amounts available under the Senior Bank Facility.
16
<PAGE> 17
To the extent that (i) the Group is unable to utilize fully the Senior
Bank Facility, (ii) the amounts required to complete the Group's planned build
out exceed its estimates or (iii) the Borrower Group's reported annualized cash
flow (as defined in the Senior Bank Facility) does not meet expectations, the
Group will require additional debt or other financing. There can be no
assurance that any such debt financing will be permitted under the terms of the
Group's debt instruments, which limit the incurrence of additional debt by the
Group, or that any such debt or other financing will be available on acceptable
commercial terms or at all. See "-- Potential Adverse Consequences of Financial
Leverage", "-- Holding Company Structure; Liens on Assets" and "Business --
Franchise Areas".
The foregoing information with regard to expected completion times, future
capital expenditures and the sufficiency of funding is forward looking in
nature. Due to factors identified in the preceding two paragraphs and below,
actual results may differ materially from the expected results. There can be no
assurance that (i) conditions precedent to advances or the availability of
funds under any of the Group's existing and anticipated debt instruments will
be satisfied when funds are required; (ii) the Group will be able to generate
sufficient cash from operations to meet any unfunded portion of its capital
requirements when required; (iii) the cost of constructing and activating the
network will not increase significantly; (iv) the Group will not acquire
additional franchise areas, which would require additional capital
expenditures; or (v) the Group will not incur losses from foreign currency
transactions or its exposure to foreign currency exchange rate fluctuations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Company Debt -- Senior Bank Facility".
To date, the Group has funded its capital expenditure needs primarily
through the proceeds from the issuance of its three series of Senior Discount
Notes, as well as equity investments. The inability of the Group to secure
additional financing could result in a failure to comply with the minimum build
milestones set forth in its licenses and could ultimately lead to the
revocation of such licenses. See "-- Requirement to Meet Build Milestones" and
"Certain Regulatory Matters -- Cable Telecommunications".
ABILITY TO MANAGE NETWORK DEVELOPMENT AND EXPANSION
The Company has undertaken a rapid acceleration in the build out of its
existing franchise areas. During 1996 and 1995, over 172,000 and 173,000 homes,
respectively, were passed by civils construction by the Company's cable
network, as compared with approximately 27,000 homes passed by civils
construction in 1994. The Company intends to continue the rapid growth and
development of network construction and activation in an effort to meet the
Group's regulatory milestones. The development of the Group's network will
depend on, among other things, the Group's ability to build out its system in a
timely manner at reasonable costs. The Group may encounter difficulty in
obtaining qualified contractors and may encounter cost overruns or delays in
construction. Although the Company believes it will be able to negotiate
construction contracts at competitive rates, construction costs could increase
significantly over the next few years in light of the demand for cable
construction services as the industry seeks to meet milestone requirements. As
with other U.K. cable operators, the Group is generally required to use
underground construction, which is more expensive and time consuming than
aerial construction. The Group cannot broadly employ mechanized construction
methods due to existing underground utility infrastructure, and is responsible
for the expense of restoring surface area after construction is completed.
Given the current high levels of cable construction in the U.K. and the
corresponding demand for materials, the Group has from time to time experienced
(and may in the future experience) shortages or price increases for critical
components such as fiber optic cable, ducting and cabinets.
The number of homes passed by the Group's civils cable network has
substantially exceeded homes activated and homes marketed since the Company
began to accelerate the construction of its network in 1995. The Company has
recently accelerated the activation of homes and the release of homes for
marketing. As a result, the Company has experienced and expects to continue to
experience a substantial increase in subscribers to its services, which has
placed significant strains on the operational resources and financial controls
of the Group. These strains have in certain cases affected the level of
customer service provided by the Company, and the time periods required between
activation, the commencement of marketing and the installation of services. The
Group's subscriber management system will need to be substantially upgraded in
order to handle the expected increase in subscribers. The Company is reviewing
its internal procedures and subscriber management system
17
<PAGE> 18
with a view to improving their reliability and reducing the number of
transactions required to be input into the system manually. There can be no
assurance, however, that the Group will successfully implement an improved
subscriber management system or that the Group will not continue to experience
difficulties with its existing system. Management of the Group's expected
growth will also require continued development of the Group's other operating
and financial controls and may place additional stress on the Company's
management and operational resources. If the Group is unable to manage its
expected rapid growth and development successfully, the Group's operating
results and financial condition could be materially adversely affected.
LIMITED HISTORY OF CABLE TELECOMMUNICATIONS AND CABLE TELEVISION IN THE U.K.;
CUSTOMER ACCEPTANCE
Cable telecommunications and cable television have a relatively limited
history in the U.K. The Group's future profitability depends in large measure
on continued acceptance of the Group as an attractive provider of telephone
services and in-home entertainment.
The Group has to date experienced significant annual cable television
subscriber churn. The Group's cable television subscriber churn during 1996 was
40.9%. The Group continues to focus on ways it can reduce churn. However, there
can be no assurance that such efforts will successfully reduce churn levels or
that the Group will not experience higher churn levels in the future, which
could have a material adverse effect on the Group's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview".
SIGNIFICANT COMPETITION
The Group faces significant competition from established competitors in
each of its business telecommunications, residential telephone and cable
television business areas. The Company believes that competition will continue
to intensify in each of these business areas.
BUSINESS TELECOMMUNICATIONS
The Group competes primarily with British Telecommunications plc ("BT")
and a number of other competitors, the largest of which is Mercury
Communications Limited ("Mercury"), in providing business telecommunications
services to businesses in its franchise areas. The Group competes largely on
the basis of quality of services offered and price. BT, the former state-owned
telephone monopoly and Mercury, which is currently a majority-owned subsidiary
of Cable & Wireless plc, each have resources substantially greater than those
of the Group. In addition, each of Mercury and BT has a national presence which
may permit it to offer telecommunications, data transmission and other services
on a nationwide basis to business telecommunications customers with nationwide
operations beyond those that the Group is currently able to offer on its own.
On October 22, 1996 it was announced that Mercury would be merged with three
U.K. regional cable companies, NYNEX CableComms Group plc, Bell Cablemedia plc
and Videotron Holdings plc, to create a new group to be known as Cable &
Wireless Communications. While the effects of the merger cannot be predicted,
the Company does not currently anticipate that the merger will have a material
effect on Mercury's competitive position in the Group's franchise areas. The
Company, however, expects that competition with Mercury and BT and other
service providers entering the business telecommunications market, such as
Energis Communications Limited ("Energis"), which operates a telecommunications
service using the national electricity transmission network infrastructure, and
international service providers, such as the AT&T group, will continue to
intensify. See "Business -- Competition -- Business Telecommunications".
RESIDENTIAL TELEPHONE
The Group's principal competitor in providing telephone services to
residential customers is BT, which has an established market presence, fully
built networks and resources substantially greater than those of the Group. As
the substantial majority of U.K. residential telephone customers are currently
customers of BT, the Group's growth in residential telephone services depends
upon BT customers changing to the Group's telephone system. The Company
believes that price is currently one of the most important factors influencing
the decision of U.K. customers to switch to a cable telephone service. As a
result, the Group currently seeks to provide its telephone subscribers with
monthly
18
<PAGE> 19
savings on the cost of calls compared to BT. BT regularly reviews its prices,
generally resulting in price reductions. The Group has generally reacted to
previous BT price reductions by reducing its rates in order to maintain its
competitive price advantage. The Company believes that BT will be required for
regulatory and competitive reasons to continue to reduce its prices in the
future. See "Business -- Competition -- Residential Telephone" and "Certain
Regulatory Matters -- Cable Telecommunications -- Price Regulation". There can
be no assurance that such price cuts will not adversely affect the residential
telephone operations of the Group or that the Group will be able to continue to
offer customers cost savings as compared to BT. The Group also competes, to a
lesser extent, with Mercury in providing residential telephone service.
In addition to BT and Mercury, the Group competes in the telephone
business with mobile telecommunications operators, international service
providers and other service providers, and competition is expected to intensify
in the future. For example, Ionica, a company with a license to offer
telecommunications services using radio technology, installed in 1996 a
telephone exchange in Nottingham as part of its national program. See "Business
- -- Competition -- Residential Telephone".
CABLE TELEVISION
The Group competes directly with television programming provided by
terrestrial (over-the-air) broadcast television stations and direct-to-home
("DTH") satellite services and may be subject to competition from satellite
master antenna television systems ("SMATV" systems). The Group's cable
television programming also competes to varying degrees with other
entertainment media, including home video (generally video rentals). See
"Business -- Competition -- Cable Television".
A number of recent developments are expected to increase competition in
the provision of multichannel television in the U.K. First, in addition to the
four existing terrestrial channels, an additional commercial terrestrial
channel (Channel 5) commenced broadcasting on March 30, 1997. Second, it has
been reported that BSkyB (as defined below) intends to introduce a digital DTH
satellite service, offering the possibility of over 200 television channels, by
the end of 1997. Third, licenses are anticipated to be awarded in spring 1997
for six frequency ranges capable of providing a total of 30 or so new digital
terrestrial television channels which may broadcast to between 60% and 90% of
the U.K. population. BSkyB, together with two of the U.K.'s largest independent
terrestrial television companies, Carlton Communications plc and Granada Group
plc, have applied, in competition with another applicant, for three of these
frequency ranges to operate digital terrestrial television services commencing
in 1998. According to BSkyB, this service would offer 15 television channels
that would be accessible through a television set-top decoder box without the
need for cable or satellite dish installation. While the effect of these
developments cannot yet be determined and may not be known for some time,
increases in the number of competing television service providers, in
particular providers with programming, financial and other resources greater
than those of the Group, or in the number of channels or the attractiveness of
the programming offered by digital terrestrial or DTH satellite services could
have an adverse effect upon the Group's ability to compete effectively. See
"Business -- Competition -- Cable Television" and "Certain Regulatory Matters
- -- Future Developments -- Digital Broadcasting". Further, the Group may face
competition in the future from programming provided by video-on-demand services
and from other services provided using new technologies. See "Certain
Regulatory Matters -- Cable Telecommunications -- Restrictions on National
PTOs".
POTENTIAL ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
The Group is highly leveraged. At December 31, 1996, the Group had
approximately L.317 million aggregate amount of long-term indebtedness
outstanding. On February 27, 1997 the Company issued $420.5 million in
principal amount at maturity of the 1997 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
19
<PAGE> 20
operating performance of the Group and the Group's ability to refinance its
indebtedness, when necessary. Each of these factors is to a large extent
subject to economic, financial, competitive, regulatory and other factors that
are beyond the Group's control. In addition, any future borrowings are likely
to contain covenants which may further limit the Group's operating and
financial flexibility. See "Description of Company Debt".
The degree of the Group's leverage could have important consequences to
holders of the Senior Notes, including (i) increasing the Group's vulnerability
to adverse general economic and industry conditions; (ii) limiting the Group's
ability to obtain additional financing to fund future working capital needs,
capital expenditures, acquisitions or other general corporate purposes,
including the build out of the franchises; (iii) requiring a substantial
portion of the Group's cash flow from operations to be dedicated to debt
service requirements, thereby reducing the funds available for operations and
future business opportunities; (iv) increasing the Group's exposure to
increases in interest rates given that certain of the Group's future borrowings
may be (and some monies drawn down under the Senior Bank Facility will be) at
variable rates of interest; and (v) increasing the Group's exposure to changes
in currency exchange rates given that a significant portion of the Group's
current borrowings are denominated in U.S. dollars. In addition, the Company
may under certain circumstances be obligated to offer to repurchase its
outstanding debt securities prior to maturity and there can be no assurance
that the Company will have the financial resources necessary or otherwise be
able to repurchase those securities in such circumstances.
HOLDING COMPANY STRUCTURE; LIENS ON ASSETS
The Company is a holding company that conducts substantially all of its
business through subsidiaries. The ability of the Company and its creditors,
including holders of the Senior Notes, to benefit in the distribution of any
assets of any of the Company's subsidiaries upon any liquidation of any such
subsidiary will be subject to the prior claims of the subsidiary's creditors,
including trade creditors and, to the extent that such subsidiary is not
directly owned by the Company, to the prior claims of any creditors of other
subsidiaries directly or indirectly owning such subsidiary. The ability of the
Company to pay interest on the Senior Notes or to repay the Senior Notes at
maturity or otherwise, will depend upon the cash flows of its subsidiaries and
the payment of funds by those subsidiaries to the Company in the form of
repayment of loans, dividends or otherwise. The Company's subsidiaries have no
obligation, contingent or otherwise, to pay amounts due pursuant to the Senior
Notes or to make funds available therefor. In addition, the creditors of the
Company's subsidiaries (including the lenders under the Senior Bank Facility)
have imposed restrictions on the rights of the Company to receive from its
subsidiaries repayment of or interest in respect of intercompany loans. Certain
of the Company's subsidiaries are prevented from paying dividends by capital
lease arrangements entered into by those subsidiaries. Further, applicable
English law limits the amount of dividends which may be paid by the Company's
subsidiaries to the extent they do not have profits available for distribution,
and other statutory and general law obligations affect the ability of directors
of the Company's subsidiaries to declare dividends and the ability of the
Company's subsidiaries to make payments to the Company on account of
intercompany loans. In addition, the ability of the Company and its creditors,
including holders of the Senior Notes, to benefit from distributions of assets
of the Company's subsidiaries may be limited to the extent that the outstanding
shares of any of its subsidiaries are pledged to secure other debt of the
Company or its subsidiaries. The indentures under which the three outstanding
series of Senior Notes have been issued limit, but do not prohibit, the
incurrence of additional indebtedness by the Company's subsidiaries. Such
subsidiaries are expected to incur substantial additional indebtedness in the
future, particularly in connection with the build out of the Group's network
infrastructure. See "-- Requirement for Additional Funds; Senior Bank
Facility".
A substantial portion of the Group's existing and future indebtedness
(other than the 1994 Senior Notes, the 1995 Senior Notes and the 1997 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
20
<PAGE> 21
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 December 31, 1996 of approximately pound
sterling 60.8 million and pound sterling 105.5 million, respectively, which
includes on a pro forma basis aggregate operating and net losses of pound
sterling 13.3 million and pound sterling 23.8 million respectively for LCL
incurred prior to its acquisition in September 1995. Although the Company
believes that the continued expansion of its network ultimately will provide the
Group with revenues that will exceed its operating expenses, the Company expects
to continue to incur additional net losses for the next several years and there
can be no assurance that the Group's operations will become profitable. The
Group's ability to achieve profitability will depend in large measure on its
ability to attract a sufficient number of subscribers to its services,
permitting its relatively fixed costs to decline in relation to the number of
subscribers and as a percentage of revenues. See "-- Limited History of Cable
Telecommunications and Cable Television in the U.K.; Customer Acceptance".
Failure to become profitable or generate sufficient positive operating cash
flows would impact the Group's ability to sustain operations and obtain required
additional funds. See "-- Requirement for Additional Funds; Senior Bank
Facility" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources".
POTENTIAL CHANGES IN GOVERNMENT REGULATION
The activities of cable television and telecommunications operators in the
U.K. are subject to significant regulation and supervision by various
regulatory bodies. See "Certain Regulatory Matters". Changes in laws,
regulations or government policy (or in the interpretation of existing laws or
regulations) affecting the Group, its competitors or the industry generally,
such as licensing requirements, price regulation, interconnection arrangements,
the imposition of universal service obligations, acceleration of the date
(which is scheduled for 2001, but is subject to review in 1998) on which BT,
Mercury and other public telephone operators ("PTOs") can convey broadcast
entertainment services over their existing national networks or a change in
policy allowing more than one cable television license in a franchise area,
could have a material adverse effect on the Group. Any such change could follow
a change of government in the U.K. or could occur in any event. It is the
stated policy of the Labour Party to review the restrictions on national PTOs,
should the Labour Party become the governing party. A general election has
been called for May 1, 1997. See "Certain Regulatory Matters -- Cable
Telecommunications -- Restrictions on National PTOs".
As the U.K. is a member of the European Union, the Company may be subject
to regulatory initiatives of the European Commission ("EC"). Changes in EC
directives, particularly to the extent that they introduce provisions requiring
the Group to provide access to its cable network infrastructure to other
service providers, could have a material adverse effect on its business.
LIMITATIONS ON ACCESS TO PROGRAMMING
The Company's ability to offer competitive cable television services is
dependent on its ability to obtain suitable programming at a reasonable cost.
While various sources of programming are available to cable system operators in
the U.K., British Sky Broadcasting Group plc and its wholly-owned subsidiary
British Sky Broadcasting Limited (collectively, "BSkyB") are the leading
suppliers of cable programming and the exclusive suppliers of certain
programming, including Sky Sports and the most popular premium movie channels
available in the U.K. BSkyB also competes with the Group by operating a DTH
satellite service that provides programming, including programming that is also
offered by the Group, to approximately 3.5 million subscribers in the U.K.
BSkyB's programming is important in attracting and retaining cable television
subscribers and, in the absence of more alternative programming sources, BSkyB
may be able to set and raise prices for its programming without significant
competitive pricing pressure. In 1995, 1996 and 1997, BSkyB implemented
significant increases in the per subscriber price for its important movie and
sports premium channels. In February
21
<PAGE> 22
1997, BSkyB, pursuant to a new rate card, introduced a separate charge to the
Group for a third premium sports channel, which it currently provides to its
DTH sports subscribers at no additional charge. The Group has decided to pass
on the separate charge for this service to subscribers to the other BSkyB
sports services unless the subscriber takes three BskyB premium channels. The
Group does not have a formal contract with BSkyB, and the Group is not
currently in discussions with BSkyB relating to a definitive written
programming supply contract. There can be no assurance that BSkyB will continue
to supply programming to the Group on reasonable commercial terms or at all.
Further, existing or potential arrangements between BSkyB and other cable
operators may hinder the development of alternative programming through
cooperative ventures among cable operators. Moreover, the Group has not entered
into written contracts with many of its other program suppliers. The loss of
BSkyB or other programming, a deterioration of the perceived quality of BSkyB
or other programming, or a material increase in the price that the Group is
required to pay for BSkyB or other programming could have a material adverse
effect on the Group. See "Business -- Cable Television -- Programming".
DEPENDENCE ON KEY PERSONNEL
The Group's business is managed by a small number of key executive
officers, the loss of certain of whom could have a material adverse effect on
the Group. The Company believes that its future success will depend in large
part on its continued ability to attract and retain highly skilled and
qualified personnel. The Group has entered into service or management contracts
providing for the services of certain of its key executive officers and
employees. The Company has not obtained life insurance policies covering such
key executive officers. See "Management".
REQUIREMENT TO MEET BUILD MILESTONES
The Group is obliged by the milestones in its telecommunications licenses
and its LDLs to construct and activate a network to pass an aggregate of
1,021,894 premises within prescribed time periods. At December 31, 1996, the
portion of the Group's network that had been activated was approximately
365,000 premises (homes and businesses). At December 31, 1995, the Group was
obligated to meet milestones specified in telecommunications licenses for eight
of the Group's franchise areas where building was due to have commenced.
Compliance with the milestones in these areas is in each case monitored by the
Office of Telecommunications ("OFTEL"). During June 1996, OFTEL informed the
Company that it did not agree with the Company's historical method for
calculating compliance with its milestone obligations. Based on OFTEL's method
of calculating premises passed, the Group failed to meet its year-end 1995
milestones for six of its eight telecommunications licenses. The Company has
renegotiated its milestone obligations with OFTEL, and at December 31, 1996,
the Group met all of its revised milestone obligations. See "Business --
Milestones" and "Certain Regulatory Matters -- Cable Telecommunications --
Network Construction and Service Obligations". In four of the seven franchise
areas in which the Group has been granted LDLs by the Independent Television
Commission (the "ITC"), the Group was originally required under the LDLs to
meet its first milestone obligations by year-end 1996. However, the Department
of Trade and Industry ("DTI") has not granted telecommunications licenses,
which are required before construction can commence, and the ITC formally
modified the Group's licenses to remove year-end 1996 milestones and otherwise
defer the annual milestones for those LDLs by 12 months. DCL has applied to the
DTI for a national telecommunications license, which it expects to be granted
shortly. Delays in obtaining the license may adversely affect the ability of
the Group to meet LDL milestones for 1997. Failure of the Group to meet the
construction milestones under its telecommunications licenses could result in
the commencement by the Director General of Telecommunications (the "Director
General") of proceedings to require compliance. Similarly, the ITC may commence
proceedings to require compliance with the build milestones in the LDLs. If the
Group were unable to comply, its licenses in respect of which milestones have
not been met could be revoked and awarded to other cable operators, which could
have a material adverse effect on the Group. Failure to comply with a build
milestone in the LDLs could also result in the ITC imposing a fine or
shortening the license period of the LDL. In addition, a failure to meet
certain build requirements may in certain circumstances preclude the Group from
making additional borrowings or could lead to an event of default under the
Senior Bank Facility, which could in turn lead to an event of default under the
Senior Notes and other indebtedness of the Group. See "-- Requirement for
Additional Funds; Senior Bank Facility", "Business -- Milestones" and "Certain
Regulatory Matters".
22
<PAGE> 23
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 Senior Notes, the 1995 Senior Notes and the 1997 Notes, is
denominated in dollars. The Group's revenues are generated in pounds sterling
while the interest and principal obligations with respect to this indebtedness
will be payable in dollars. While the Company's policy has been not to enter
into hedging contracts in respect of its foreign currency denominated assets
and liabilities, it has entered into a foreign currency forward purchase
contract. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Foreign Exchange." The Company may from time to time
in the future enter into similar foreign currency contracts based on its
assessment of market conditions. In addition, foreign currency translation
gains and losses arising upon translation of the U.S. dollar denominated
indebtedness under the 1994 Senior Notes, the 1995 Senior Notes and the 1997
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 and the 1997 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 1994 Senior Notes -- Certain Covenants" and
"Description of the 1995 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.
23
<PAGE> 24
LIMITED INSURANCE COVERAGE
The Group obtains insurance of a type and in amounts that the Company
believes is customary in the U.K. for similar companies. Consistent with this
practice, the Group does not insure the underground portion of its cable
network. Accordingly, any event or circumstance damaging a significant portion
of the system's cable network could result in substantial uninsured losses.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Notes were issued at an original issue discount for U.S. federal
income tax purposes. Consequently, purchasers of the Senior Notes generally will
be required to include amounts in gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments to which the income is
attributable. See "Taxation -- United States -- Original Issue Discount" for a
more detailed discussion of the U.S. federal income tax consequences for the
owners of the Senior Notes resulting from the purchase, ownership and
disposition of the Senior Notes.
If the Company goes into liquidation after the issuance of the Senior
Notes, the claim of a holder of the Senior Notes with respect to amounts owing
in respect thereof may be limited to an amount equal to the sum of (i) the
issue price of the Senior Notes and (ii) that portion of the original issue
discount which has accreted in respect of the period before the Company goes
into liquidation. Any original issue discount that was not accreted as of the
date on which the Company goes into liquidation may not be provable, and any
cash interest accruing under the Senior Notes in respect of any period after
the Company goes into liquidation would not be provable, in the liquidation of
the Company (although bankruptcy law provides for any surplus remaining after
payment of all other debts proved in the liquidation to be available towards
paying interest accrued on debts in respect of any period after the Company
went into liquidation).
TRADING MARKET FOR THE SENIOR NOTES
The Senior Notes are not listed or traded on any securities exchange in the
U.S. The market prices for the Senior Notes can be expected to fluctuate
depending upon prevailing interest rates, the market for similar securities and
other factors. No assurance can be given that a holder of Senior Notes will be
able to sell such Senior Notes in the future or that such sale will be at a
price equal to or higher than the price paid by the holder. Although Goldman,
Sachs & Co. have informed the Company that they currently intend to make a
market in the Senior Notes, they are not obligated to do so and any such
market-making may be interrupted or discontinued at any time without notice.
Accordingly, there can be no assurance as to the ongoing development or
liquidity of any market for the Senior Notes. If an active public market does
not develop or is interrupted, the market price and liquidity of the Senior
Notes may be adversely affected. Moreover, because Goldman, Sachs & Co. are
affiliated with the Company, they will be required to deliver a current
prospectus and otherwise comply with the registration requirements of the
Securities Act in connection with any secondary market sale of Senior Notes
which may affect their ability to continue market-making activities. See "Plan
of Distribution".
24
<PAGE> 25
SELECTED FINANCIAL DATA
The selected financial 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 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.
25
<PAGE> 26
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1992 1993 1994 1995(1) 1996 1996(2)
--------- ----------- ----------- ---------- ---------- ---------
(POUND (POUND (POUND (POUND (POUND
STERLING) STERLING) STERLING) STERLING) STERLING) ($)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications..... 178 1,237 3,402 5,852 9,763 $16,717
Residential telephone........... 153 1,251 2,545 6,662 17,723 30,347
Cable television................ 458 719 1,324 3,479 10,091 17,279
Other revenues.................. 11 20 35 -- -- --
------ ------- ------- ------- ------- --------
Total revenues.................. 800 3,227 7,306 15,993 37,577 64,343
Operating costs and expenses:
Telephone....................... (140) (1,097) (3,067) (5,454) (9,776) (16,739)
Programming..................... (184) (324) (701) (1,844) (6,041) (10,344)
Selling, general and
administrative.................. (917) (1,632) (4,562) (13,020) (22,391) (38,340)
Depreciation and amortization... (1,530) (2,520) (4,038) (8,867) (21,380) (36,609)
------- ------- ------- ------- ------- --------
Total operating costs and
expenses........................ (2,771) (5,573) (12,368) (29,185) (59,588) (102,032)
------- ------- ------- ------- ------- --------
Operating loss.................. (1,971) (2,346) (5,062) (13,192) (22,011) (37,689)
Interest income................. -- -- 1,415 3,887 3,441 5,892
Interest expense, and
amortization
of debt discount and expenses... (53) (231) (3,836) (17,118) (40,334) (69,064)
Foreign exchange gains/(losses)
net............................. (1,314) (221) (1,196) 925 31,018 53,112
Unrealized losses on derivative
financial instruments........... -- -- -- (868) (7,944) (13,603)
Other expenses.................. -- -- -- (1,241) -- --
------ ------- ------- ------- ------- --------
Net loss........................ (3,338) (2,798) (8,679) (27,607) (35,830) $(61,352)
======= ======= ======= ======= ======= ========
BALANCE SHEET DATA:
Property and equipment, net..... 8,678 18,021 35,127 163,721 277,301 $474,822
======= ======= ======= ======= ======= ========
Total assets.................... 9,487 19,882 138,606 374,172 416,819 713,719
Total debt (3).................. 13,779 21,889 103,068 319,492 325,041 556,567
Shareholders' equity (4)........ (6,733) (5,660) 26,092 25,133 54,100 92,636
OTHER DATA:
EBITDA (5) (441) 174 (1,024) (6,434) (8,575) $(14,683)
Deficiency of earnings to fixed
charges (6).................... (3,338) (2,798) (8,679) (27,607) (35,830) (61,352)
Capital expenditures........... 7,799 11,880 21,252 136,314 130,140 222,839
</TABLE>
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of
$1.7123 = pound sterling 1.00, the Noon Buying Rate on December 31, 1996.
(3) Total debt for periods prior to December 31, 1994 consisted of advances
from shareholders and capital lease obligations. Total debt at December
31, 1994 consisted of the 1994 Senior Notes and capital lease obligations.
Total debt at December 31, 1995 and 1996 consisted of the 1994 Senior
Notes, the Company's 11 3/4% Senior Discount Notes due December 15, 2005
(the "1995 Senior Notes"), capital lease obligations and the mortgage
loan.
(4) The Company raised additional equity financing of pound sterling 40.4
million, pound sterling 27.0 million and pound sterling 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 should not,
however, be considered as a substitute for net income as a measure of
operating results or for cash flows as a measure of liquidity.
(6) Represents the amount by which loss before income taxes and fixed charges
("earnings") failed to cover fixed charges. Fixed charges consist of
interest expense (including amortization of debt issuance costs and debt
discount) plus the portion of rental expense under operating leases which
has been deemed by the Company to be representative of the interest factor
(1/3 of rental expense). Because fixed charges exceeded earnings for all
periods presented, a ratio of earnings to fixed charges is not presented.
26
<PAGE> 27
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 (pound sterling) 1.00:
<TABLE>
<CAPTION>
YEAR AVERAGE(1) HIGH LOW PERIOD-END
<S> <C> <C> <C> <C>
1992........................ 1.76 2.00 1.51 1.52
1993........................ 1.49 1.59 1.42 1.48
1994........................ 1.54 1.64 1.46 1.57
1995........................ 1.58 1.64 1.53 1.55
1996........................ 1.57 1.71 1.49 1.57
1997 (through April 11, 1997) 1.64 1.70 1.59 1.62
</TABLE>
(1) The average of the Noon Buying Rates on the last day of each full month
during the period.
The Noon Buying Rate on April 11, 1997 was $1.6245 = (pound sterling)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".
27
<PAGE> 28
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Group
as of December 31, 1996 (giving effect to the issuance of the 1997 Notes on a
pro forma basis). This table should be read in conjunction with "Selected
Financial Data", the Group's Audited Consolidated Financial Statement and
related Notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
(in thousands)
--------------------
(pound
sterling) $
<S> <C> <C>
Long-term debt (2):
Mortgage.............. 2,477 4,241
1994 Senior Notes..... 117,062 200,445
1995 Senior Notes..... 197,356 337,933
1997 Notes............ 145,990 249,979
Total long-term debt.... 462,885 792,619
Shareholders' equity.... 54,100 92,635
Total capitalization.... 516,985 885,234
</TABLE>
(1) Based on the Noon Buying Rate in effect on December 31, 1996 of (pound
sterling)1.00 = $1.7123.
(2) Certain of the Company's subsidiaries entered into the Senior Bank
Facility which permits additional borrowings or the issuance of guarantees
of up to (pound sterling)175 million.
28
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Group should be read in conjunction with the
consolidated financial statements of Diamond and related Notes which are
included elsewhere in this Prospectus.
OVERVIEW
The Group has partially constructed, and is continuing to construct, a
fiber-optic cable telecommunications and television network in its franchise
areas. Through December 31, 1996, approximately pound sterling 317 million had
been invested (at original cost) in the construction of the Group's network and
related systems. As of December 31, 1996, approximately 477,000 of the premises
(homes and businesses) in the Group's franchise areas had been passed by civils
construction, of which 365,000 premises had been activated, representing
approximately 36% of the premises required to be activated under the Group's
aggregate final milestone obligations.
The development and the installation of the network in the Group's
franchise areas requires significant additional capital expenditure. These
expenditures, together with the associated operating expenses, will continue to
result in significant cash requirements, and during the build out period the
Company expects to continue to incur operating losses.
The Group earns substantially all of its telecommunications revenues from
monthly fees for line rental, toll usage and ancillary services (including
charges for additional services purchased at the customer's discretion). Cable
television revenues are earned primarily from monthly customer fees for basic
and premium services. The ability of the Group to generate sufficient revenues
to cover cash expenditures and become profitable will depend upon a number of
factors, including the Group's ability to attract customers, revenues per
customer, churn rates, construction costs and financing costs. These factors
are expected to be primarily influenced by the success of the Group's operating
and marketing strategies as well as market acceptance of cable telephone and
television services. In addition, the Group's profitability may be influenced
by, among other things, changes in the industry's regulatory environment. See
"Certain Regulatory Matters".
One important measure of the success of the Group's operating and
marketing strategy is the churn rate, which is a measure of the incidence of
service terminations among customers using a given service. Service may be
terminated either by the customer or by the Group (generally when the customer
is delinquent in payment). For cable television subscribers, the Group's
experience to date has been that the likelihood of churn for a given customer
is highest in the period shortly after the customer commences subscription for
the service. In addition, cable television churn is subject to seasonal
pressures tending to be highest in the early months of each year.
LIQUIDITY AND CAPITAL RESOURCES
The Group expended net cash to fund investing activities of pound sterling
71.9 million, pound sterling 155.5 million, and pound sterling 128.2 million, in
1994, 1995 and 1996, respectively. In 1995, the Company received net sale
proceeds of pound sterling 56.2 million from marketable securities and invested
net cash of pound sterling 108.8 million in the LCL Acquisition. Net cash
provided by financing activities was pound sterling 112.4 million and pound
sterling 212.2 million in 1994 and 1995, respectively, and was pound sterling
54.4 million in 1996, of which pound sterling 64.6 million was provided by the
issue of equity referred to below and pound sterling 9.1 million was used for
debt financing costs. The Group's investing activities (other than temporary
investments of the proceeds from equity and debt financings and the LCL
acquisition) consisted almost exclusively of the ongoing construction of the
network (pound sterling 19.1 million in 1994, pound sterling 102.9 million in
1995 and pound sterling 128.2 million in 1996). As noted above, during the third
quarter of 1995, the Group expended net cash of pound sterling 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 Senior Notes in December of 1995.
In 1994, the Group generated positive cash flows from operating activities of
pound sterling 496,000, and in 1995 and 1996 generated negative cash flows from
operating activities of pound sterling 4.1 million and pound sterling 1.3
million, respectively. The Group's cash and funding requirements historically
have been met principally through the issuance of the Senior Notes in September
1994
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<PAGE> 30
and December 1995, equity capital, advances from its shareholders, and from bank
and lease financing. In February 1997, the Company issued the 1997 Notes,
raising net proceeds of approximately $240 million. See "-- Description of
Company Debt -- Description of Senior Discount Notes".
The further development and construction of the Group's cable television
and telecommunications network will require substantial capital investment. The
Group is obligated by the milestones in its telecommunications licenses and the
new LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. See "Business -- Milestones".
The Company expects that the Group's residential cable network will extend
approximately 14,300 kilometers (plus 920 kilometers to interconnect the
residential build) and pass approximately 1.2 million homes once completed. The
network will be substantially completed by the end of 2001. The Company
currently estimates that the additional capital expenditures required for the
Group to substantially complete the network (including estimated subscriber
connection expenses) will be approximately pound sterling 570 million (of which
pound sterling 520 million relates to capital expenditures occurring from
December 31, 1996 through January 1, 2001), although these amounts could vary
significantly.
The Company believes that available cash reserves (including the proceeds
of the 1997 Notes offering), the proposed equity injection of L.25 million and
cash flows from operations will be sufficient to complete the planned
construction through the first quarter of 1998, at which time the Group
estimates that approximately 61.4% of the aggregate final milestones will have
been constructed and activated. Thereafter, the Company expects that the Group
will be able to utilize amounts under the Senior Bank Facility. If such amounts
are not available or are insufficient, the Group would be required to obtain
further debt or equity financing.
DCL will be able to draw on the Senior Bank Facility if certain conditions
are met, including conditions related to the operating cash flow of, equity
contributions to and certain financial ratios of the Borrower Group which are
not currently met. See "Description of Company Debt -- Senior Bank Facility".
Indebtedness under the Senior Bank Facility will be incurred by DCL, guaranteed
by the Borrower Group and secured by a lien on the assets of the Borrower Group
and a pledge of the issued shares of the Borrower Group other than Jewel but
including DCL and LCL.
However, the Group may not be able to borrow sufficient funds under the
Senior Bank Facility to meet its remaining funding requirements. In particular,
even after the initial conditions to borrowing have been met the amount of
funds that may be borrowed will be limited to a specified multiple of the
Borrower Group's reported annualized cash flow (as defined in the Senior Bank
Facility). This reported annualized cash flow will depend on a number of
variables, including penetration of cable television and premium channels,
penetration of business telecommunications and residential telephone, average
revenues in each of these areas, churn, expenses such as programming costs and
interconnect charges, network construction and development expenditures and
financing costs. Adverse developments in any of these or other areas could
adversely affect the Borrower Group's reported annualized cash flow and reduce
amounts available under the Senior Bank Facility.
To the extent that (i) the Group is unable to utilize fully the Senior
Bank Facility, (ii) the amounts required to complete the Group's planned build
out exceed its estimates or (iii) the Borrower Group's reported annualized cash
flow (as defined in the Senior Bank Facility) does not meet expectations, the
Group will require additional debt or other financing. There can be no
assurance that any such debt financing will be permitted under the terms of the
Group's debt instruments, which limit the incurrence of additional debt by the
Group, or that any such debt or other financing will be available on acceptable
commercial terms or at all.
The foregoing information with regard to expected completion times, future
capital expenditures and the sufficiency of funding is forward looking in
nature. Due to factors identified in the preceding two paragraphs and below,
actual results may differ materially from the expected results. There can be no
assurance that (i) conditions precedent to advances or the availability of
funds under any of the Group's existing and anticipated debt instruments will
be satisfied when funds are required; (ii) the Group will be able to generate
sufficient cash from operations to meet any unfunded portion of its capital
30
<PAGE> 31
requirements when required; (iii) the cost of constructing and activating
the network will not increase significantly; (iv) the Group will not
acquire additional franchise areas, which would require additional capital
- -expenditures; or (v) the Group will not incur losses from foreign currency
transactions or its exposure to foreign currency exchange rate fluctuations. See
"Description of Company Debt -- Senior Bank Facility".
To date, the Group has funded its capital expenditure needs primarily
through the proceeds from the issuance of the 1994 Senior Notes, 1995 Senior
Notes and 1997 Notes as well as equity investments. The inability of the Group
to secure additional financing could result in a failure to comply with the
minimum build milestones set forth in its licenses and could ultimately lead to
the revocation of such licenses. See "Certain Regulatory Matters -- Cable
Telecommunications".
The Group's revenues are denominated in pounds sterling, while its
obligations to pay interest and principal on the 1994 Senior Notes, 1995 Senior
Notes and 1997 Notes are denominated in U.S. dollars. Therefore, the Company
and the Group are subject to currency exchange risks that may adversely affect
their ability to meet their obligations, including obligations under
outstanding debt instruments, as they become due.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1996
The Group experienced significant increases in its subscribers, revenues
and expenses during the three years ended December 31, 1996. In general, such
increases were attributable to the Group's continued network construction and
marketing of new homes and businesses and the acquisition of LCL. During the
three-year period from December 31, 1993 to December 31, 1996 homes passed by
civils construction increased by 424,797 homes (1480%), homes activated
increased by 323,506 homes (1360%) and homes marketed increased by 229,637
homes (1000%). The number of homes that had been passed by civils construction
at December 31, 1996 exceeded homes activated by 106,250 compared to a
difference of 123,405 homes at December 31, 1995. The difference between homes
passed by civils construction and homes activated is a result of the fast pace
of civils construction coupled with the lead time between civils construction
and activation.
REVENUE
The Group's total revenues were pound sterling 7.3 million in 1994, pound
sterling 16.0 million in 1995 and pound sterling 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 pound sterling 2.25 million
and pound sterling 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 pound sterling 1,351,000 based on draft final
rates for the twelve month period from April 1, 1995 and interim rates for the
nine month period from April 1, 1996. This amount has been provided by reducing
residential telephone and business telecommunications revenues in 1996 by pound
sterling 776,000 and pound sterling 575,000 respectively. The total amount of
rebates to be received by the Company will be determined by the parties once BT
has furnished to the Company a proposed calculation and supporting data and
OFTEL has determined the final rates applicable. The Company has estimated that
the amount of the rebate due to the Company from BT will exceed the amount of
the rebates to be provided by the Company to BT. Pending final determination of
rebates, the Company has recognized a reduction in interconnect charges in the
same period during which the related reduction in revenues is being recognized.
Accordingly, a reduction in telephone expenses of pound sterling 1,351,000 has
been recorded in 1996.
The analysis of revenue and average revenue per line is provided below on
the basis of revenues as reported as well as on a pro-forma basis adjusting for
the incoming termination rebates in the appropriate periods as if the revised
interconnect agreements and the draft final and interim rates had been in
effect since April 1995.
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<PAGE> 32
Business Telecommunications. Business telecommunications revenue was pound
sterling 3.4 million in 1994, pound sterling 5.9 million in 1995 and pound
sterling 9.8 million in 1996. Adjusting for rebates on the pro-forma basis
described above, revenues were pound sterling 5.7 million and pound sterling
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 pound
sterling 0.5 million and pound sterling 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 pound
sterling 88.68 in 1994 to pound sterling 74.60 in 1995 (pound sterling 72.02 on
a pro-forma basis) and pound sterling 49.81 (pound sterling 51.03 on a pro-forma
basis) in 1996. This decline continued the trend over the past several quarters
and was due to a combination of (i) Diamond's success in marketing Centrex
services which has the effect of increasing the average number of lines held by
existing and new customers taking those services (Diamond operated 6,011 Centrex
lines at December 31, 1996 compared to 1,393 Centrex lines at December 31,
1995), (ii) a reduction in certain tariffs in response to price reductions by
the competition, particularly BT, Diamond's principal competitor for business
telecommunications services, and (iii) the installation for existing customers
of an increasing number of lines utilized for incoming calls in addition to
existing lines dedicated solely to outgoing calls.
Residential Telephone. Residential telephone revenues were pound sterling
2.5 million in 1994, pound sterling 6.7 million (pro-forma pound sterling 6.4
million) in 1995 and pound sterling 17.7 million (pro-forma pound sterling 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 pound sterling 1.1 million and pound sterling 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 pound sterling 18.83 in 1994, pound sterling
18.68 in 1995 and pound sterling 17.59 in 1996. On a pro-forma basis, Diamond's
average monthly revenues per line decreased slightly from pound sterling 18.11
in 1995 to pound sterling 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 pound sterling
1.3 million in 1994 to pound sterling 3.5 million in 1995 and pound sterling
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 pound
sterling 14.71 for 1994 to pound sterling 16.80 for 1995 and pound sterling
17.70 for 1996, and (iii) the inclusion of cable television revenue of pound
sterling 0.6 million and pound sterling 3.1 million for the LCL operation for
the last quarter of 1995 and the full year 1996, respectively. The increase in
average revenue per subscriber is primarily due to increases in cable television
pricing.
The Group's churn rate was 40.9% for 1996 as compared to a pro forma
combined churn rate of 33.8% in 1995. The Company believes that the increase in
churn was due in part to the Group's announcement of increases in premium
subscription rates which led certain longer-term customers who had previously
benefitted from grandfathered rates, to disconnect service, as well as to the
application of a stricter disconnect policy relating to nonpayment implemented
in June 1996 in the LCL areas, which resulted in an increase in customer
disconnections, particularly in the third quarter of 1996. With the aim of
reducing churn among new subscribers, the Group has begun to require payment of
an installation fee in connection with the subscription for new residential
services and is evaluating other means to reduce its churn in the future.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges payable
to BT and Mercury, increased from pound sterling 3.1 million in 1994 to pound
sterling 5.5 million in 1995 and pound sterling 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 pound sterling 5.0 million
and pound sterling 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
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<PAGE> 33
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 pound sterling 0.7 million in 1994 to pound sterling
1.8 million in 1995 and pound sterling 6.0 million in 1996. As a percentage of
cable television revenues, these direct costs were 53% in 1994, 53% in 1995 and
60% for 1996. The percentage increase in 1996 compared to 1995 stemmed from an
increase in rates charged by programming suppliers, and increases in the number
of channels provided as part of program packages which were not fully offset by
increases in the subscriber rates charged to existing subscribers by Diamond.
Significant price increases made by BSkyB, the largest supplier of programming
to the Group, took effect on January 1, 1996. As from October 1996, the Company
increased its prices for premium programming, and it increased the price of its
basic subscriber package in November 1996. The Company also introduced two
lower-priced basic subscriber packages during November 1996 available to
subscribers in two of the Company's franchise areas only.
Selling, general and administrative expenses increased by 185% from 1994 to
1995 and by 72% from 1995 to 1996. The increases were due to a combination of
increased sales commissions and higher administration costs associated with the
expansion of the Group's business and the inclusion of expenses related to LCL
during the last quarter of 1995 and the full year 1996. In February 1997, the
Group began employing residential salespeople directly and paying them on the
basis of a salary plus sales commissions.
Depreciation and amortization expenses increased by 120% from 1994 to 1995
and by 141% from 1995 to 1996. This increase was attributable to the increasing
size of the Company's network as well as the LCL acquisition.
INTEREST INCOME/EXPENSES
Interest expense was pound sterling 3.8 million, pound sterling 17.1
million and pound sterling 40.3 million for 1994, 1995 and 1996, respectively.
The 1996 increase is due primarily to the accretion of the discount on the 1994
Senior Notes and 1995 Senior Notes of pound sterling 38.2 million during 1996
(compared to pound sterling 14.3 million during 1995 and pound sterling 3.2
million in 1994), as well as other interest expense of pound sterling 1.2
million in 1996. In addition, amortization of debt financing costs was pound
sterling 0.9 million in 1996 (compared to pound sterling 0.3 million in 1995 and
pound sterling 0.1 million in 1994). Interest received was pound sterling 3.4
million in 1996, through temporary investment of the proceeds of the 1995 Senior
Notes.
FOREIGN EXCHANGE
A substantial portion of the Group's existing debt obligations are
denominated in U.S. dollars, while the Group's revenues and accounts are
generated and stated in pounds sterling. Foreign currency translation gains and
losses, except for unrealized gains and losses on available-for-sale securities,
are reported as part of the profit or loss of the Group. In the year ended
December 31, 1994, the Company recognized an unrealized foreign exchange loss of
pound sterling 0.7 million on the translation of its dollar-denominated
indebtedness, a realized loss of pound sterling 0.9 million relating to the
conversion of dollars to pound sterling, offset by an unrealized gain of pound
sterling 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 pound
sterling 0.6 million, an unrealized loss on its short-term securities of pound
sterling 0.3 million and a net realized foreign exchange gain of pound sterling
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 Senior Notes and the 1995 Senior Notes of pound sterling
31.5 million, an unrealized gain on its short-term securities of pound sterling
0.1 million and a net realized foreign exchange loss of pound sterling 0.4
million relating to its operations.
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<PAGE> 34
LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
Losses on derivative financial instruments include an unrealized loss of
pound sterling 0.9 million in 1995, and an unrealized profit of pound sterling
0.2 million in 1996 on the mark-to-market valuation of an interest rate swap
commitment.
The Company entered into a foreign exchange forward contract on November 1,
1996 for settlement on May 6, 1997 to sell pound sterling 200 million at a rate
of $1.6289 to pound sterling 1. On January 31, 1997 an offsetting agreement was
entered into at a rate of $1.6014 to pound sterling 1. The offsetting contracts
were settled on February 6, 1997 with a payment of approximately pound sterling
3.4 million to the Company. Because of changes in prevailing rates, the Company
recorded for the year ended December 31, 1996, an unrealized loss of
approximately pound sterling 8.1 million on the pounds sterling sell forward
contract 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 pound sterling 11.5 million on the two
offsetting forward contracts, reflecting the reversal of the pound sterling 8.1
million loss referred to above and the approximately pound sterling 3.4 million
cash payment on settlement of the contracts. Gain or loss on the translation of
other foreign currency denominated obligations for that period will depend upon
the prevailing rates at the end of the first quarter. The Company may from time
to time in the future enter into similar foreign currency contracts based on its
assessment of foreign currency market conditions and their effect on the Group's
operations and financial condition. Therefore, changes in currency exchange
rates may continue to have a material effect on the results of operations of the
Group and may materially affect the Company and the Group's ability to satisfy
their obligations, including obligations under outstanding debt instruments, as
they become due.
NET LOSS
As a result of the foregoing factors, the Group had net losses of pound
sterling 8.7 million, pound sterling 27.6 million and pound sterling 35.8
million in 1994, 1995 and 1996, respectively.
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<PAGE> 35
BUSINESS
The Group offers three basic services over its network infrastructure: (i)
residential telephone services allowing customers to place and receive local,
national and international calls and to use additional services such as
conference calling, call waiting, call forward, call barring and Internet
access, (ii) business telecommunications services which include the services
provided to residential customers as well as advanced telecommunications
services such as Centrex (which provides businesses, including those with
multiple sites, with virtual PABX and network services), direct dialing inward
(DDI), high speed data services and private circuits, and (iii) cable
television services offering more than 50 channels including movies, sports,
news and information, music, children's programming and general entertainment.
See "-- Business Telecommunications and Residential Telephone" and "-- Cable
Television".
CERTAIN OPERATING DATA
The following table sets forth certain data concerning the Group's
franchises at and for the years ended December 31, 1994, 1995 and 1996. The
combined operating data at and for the year ended December 31, 1995 reflects
the acquisition of LCL on a pro-forma basis as if it had been completed at the
beginning of 1995.
<TABLE>
<CAPTION>
---------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------
1994 1995 1996
------- ------ -------
DIAMOND LCL COMBINED
------- --- --------
<S> <C> <C> <C> <C> <C>
Homes passed by civils construction(1)... 55,919 222,335 58,976 281,311 453,496
Homes activated(2)....................... 32,033 105,951 51,955 157,906 347,246
Homes marketed(3)........................ 31,330 77,657 48,950 126,607 252,601
CABLE TELEVISION
Basic service subscribers................ 8,936 20,261 10,488 30,749 59,242
Penetration rate of homes marketed(4).... 28.5% 26.1% 21.4% 24.3% 23.5%
Average monthly revenue per subscriber(5) L.14.71 L.16.80 L.18.89 L.17.62 L.18.03
Churn(6)................................. 28.5% 35.5% 31.0% 33.8% 40.9%
RESIDENTIAL TELEPHONE
Residential lines connected.............. 14,150 36,122 16,576 52,698 104,460
Penetration rate of homes marketed(4).... 45.2% 46.5% 33.9% 41.6% 41.4%
Average monthly revenue per line(7)(8)... L.18.83 L.18.68 L.22.19 L.19.88 L.18.40
Pro-forma average monthly revenue per
line(8)................................ L.18.83 L.18.11 L.21.35 L.19.22 L.18.64
Churn(6)................................. 13.8% 13.9% 17.2% 15.0% 20.6%
BUSINESS TELECOMMUNICATIONS
Business customers accounts.............. 979 1,627 772 2,399 3,935
Business lines connected................. 3,928 7,036 2,843 9,879 18,932
Private circuits(9)...................... 70 151 10 161 226
Average lines per business account(10)... 4.0 4.3 3.7 4.1 4.8
Average monthly revenue per line(8)(11).. L.88.68 L.74.60 L.59.60 L.70.23 L.50.17
Pro-forma average monthly revenue per
line(8).................................. L.88.68 L.72.02 L.56.88 L.67.70 L.51.25
</TABLE>
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<PAGE> 36
(1) Homes passed by civils construction is the number of homes that have had
ducting buried outside.
(2) Homes activated is the number of homes that are capable of receiving
cable service without further extension of transmission lines, apart from
the final connection to the home.
(3) Homes marketed is the number of homes activated for which the initial
marketing phase has been completed.
(4) Penetration rate of homes marketed is calculated by dividing the number
of homes receiving basic cable television or the number of residential
lines connected, as the case may be, on the given date by the total number
of homes marketed for the given service as of such date, expressed as a
percentage.
(5) The average monthly revenue per cable television subscriber is calculated
by dividing total cable television subscriber revenues (excluding
installation revenues) for the period by the average number of cable
television subscribers (calculated as a simple average of the number of
basic service subscribers at the end of each month during the period) and
dividing that amount by 12.
(6) Churn is calculated by dividing net disconnections (total disconnections
less the number of disconnected accounts for which service is later
restored) in a period by the average number of subscribers in the period
(calculated as a simple average of the number of subscribers at the end of
each month during the period).
(7) The average monthly revenue per residential telephone line is calculated
by dividing (i) line and equipment rental, outgoing call charges and
incoming call charges for the period by (ii) the average number of
residential telephone lines (calculated as a simple average of the number
of subscribed lines at the end of each month during the period) and
dividing that amount by 12.
(8) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the
year to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995
but recorded in full against revenues in 1996. The rebates were calculated
in accordance with recently revised interconnect agreements with BT that
were made effective retroactively from April 1995. The pro-forma average
monthly revenue per line (for both residential telephone and business
telecommunications revenues) gives effect to the revised interconnect
agreements as if they had been in effect from April 1995 and allocates to
each period the portion of the rebates that relates to such period.
(9) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(10) Average lines per business account is calculated by dividing the number
of business lines connected on the given date by the number of business
customer accounts on such date.
(11) Average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by 12.
INDUSTRY OVERVIEW
Following the initial granting of licenses in 1984, development of the
cable television and telecommunications industry in the U.K. proceeded slowly.
This occurred for a number of reasons, including high construction costs (due
in large part to the fact that cable networks in the U.K. generally
36
<PAGE> 37
must be buried underground), limitations on the cable companies' ability
to offer telephone services, the lack of access to attractive programming and
the lack of access to capital.
Fundamental changes in the U.K. regulatory framework in 1990 and 1991,
combined with increased availability of programming, have resulted in
significant investment in the cable industry since that time. In 1991, the
Secretary of State completed the liberalization review of the U.K.
telecommunications market (the "Duopoly Review"), which resulted in major
policy changes designed, among other things, to foster competition in the local
telephone loop, where BT held almost all of the market share. Pursuant to such
policy changes (i) new entrants (including foreign companies) could apply to
the government to operate new telecommunications networks over fixed links,
(ii) cable operators were permitted to provide voice telephony services and to
switch their own telephone customers' calls, instead of acting as agents of BT
or Mercury, and (iii) cable operators were permitted to form expanded
telecommunications networks by interconnecting their systems with one another.
See "Certain Regulatory Matters -- Cable Telecommunications -- Duopoly Review"
and "Certain Regulatory Matters -- Cable Telecommunications -- Interconnect
Arrangements".
To further encourage cable companies to construct cable television and
telephone networks, current U.K. government policy restricts the ability of BT
and Mercury to use their telephone networks for conveying broadcast
entertainment to homes in cable franchise areas until at least 1998. U.K.
regulatory policy has also been to award only a single cable television license
for each franchise area. As a result of these government policies, cable
operators currently hold the only licenses to provide both cable television and
telecommunications services within their franchises. By operating a single
fiber-optic network infrastructure to provide both cable television and
telecommunications services, the cable operators can achieve significant
economies in designing, constructing, marketing and operating their networks.
BT cannot offer broadcast entertainment on its dedicated telecommunications
network and achieve similar economies of scope in existing cable franchise
areas, and BT has stated that these government policies have limited its
ability to develop and implement a national fiber-optic local access network in
the U.K. See "Certain Regulatory Matters -- Cable Telecommunications --
Restrictions on National PTOs".
Further, the extensive use of fiber optics and digital switches, the use
of synchronous digital hierarchy ("SDH") and other advanced technologies, have
enabled cable operators to offer advanced telecommunications services. In
addition, the availability of programming has improved substantially since the
1980s. As a result of the foregoing factors, significant investment in U.K.
cable television followed the conclusion of the Duopoly Review. In particular,
several North American cable operators and telephone companies initiated
significant investment in the U.K. cable industry. In addition, cable companies
in the U.K. began to access capital markets to finance construction. The U.K.
cable industry has also begun to consolidate as evidenced by the 1995 merger of
SBC CableComms and TeleWest Communications and the announcement on October 22,
1996 that NYNEX CableComms Group plc, Videotron Holdings Plc, Mercury and Bell
Cablemedia plc intend to merge.
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.
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<PAGE> 38
BUSINESS TELECOMMUNICATIONS
The Group has achieved its share of the business telecommunications market
in the areas which its network has passed by providing high-quality services at
competitive prices. The Group had 3,935 business telecommunications customer
accounts at December 31, 1996 including connections to a number of important
corporate and governmental entities such as The Boots Company, Imperial
Tobacco, Cargill, CCN, the Nottinghamshire County Council, the Nottingham City
Council, Leicestershire County Council, Leicester City Council, Ashfield
District Council, North East Lincolnshire District Council, Lincoln City
Council, the Nottinghamshire Constabulary (including the local 999 emergency
number), the Leicestershire Constabulary and the Lincolnshire Constabulary, the
U.K. Inland Revenue national headquarters and their main sites in Leicester,
Nottingham, Lincoln and Mansfield, the Nottingham Health Care N.H.S. Trust, the
Nottingham City Hospital N.H.S. Trust, Nottingham Trent University, Leicester
University, Lincoln University, BBC Radio Nottingham, Radio Trent, the
Nottingham Building Society, Vision Express Group, Knoll Pharmaceuticals,
Pedigree Pet Foods and the Northcliff Newspaper Group (four regional newspapers
including Nottingham's Evening Post and the Leicester Mercury).
The focus of the business marketing effort in the Group's franchise areas
has been to attract large and medium-sized corporate and governmental
customers, which generate high volumes of traffic and revenue. At December 31,
1996, the Group provided 18,932 business lines to its 3,935 business accounts
giving the Group an average of approximately 4.8 lines per business account. In
many cases these customers have transferred all or a portion of their telephone
lines to the Group's service from those of the Group's principal competitors. A
number of these customers have been specifically targeted, and in some cases
the network has been built out to pass these customers. The Company plans to
continue this strategy of focusing a portion of the Group's network build and
marketing effort on town centers and industrial estates in its other franchise
areas in order to capitalize on business telecommunications opportunities. The
Company believes that its success in attracting these important customers has
fostered a positive image in the community and enhanced the Group's credibility
with other business customers.
The Group currently offers a range of special business services,
including:
- Custom Calling Features. The Group offers business customers
three-way conference calling and fully itemized and analyzed monthly
billing at no extra fee. At an extra charge, the Group provides
services similar to those offered to residential customers including
call waiting, call forward and alarm calls. Additionally, billing
data on high density 3.5" floppy disks is made available to
customers.
- Centrex. Centrex allows the customer to use the facilities of
the Group's central exchange instead of purchasing its own PABX
(electronic switchboard), and allows the customer to link
geographically separated sites within the Group's network with common
numbering, features and facilities. Centrex offers significant
advantages over networking PABXs including reduced call charges and
data calls using ISDN instead of point-to-point data circuits.
- DDI (Direct Dialing Inward). Direct Dialing Inward offers
multiple unique numbers at a customer's premises via a smaller number
of access lines.
- Private Circuits. Private (leased) circuits permit the
subscriber to rent a circuit between two points, for example between
two office buildings, at fixed rates. This permits the rapid
exchange of data between subscriber owned computers or exchanges
without passing through the public network. The subscriber can
choose from among different circuit capacities, such as 64 KBit/s for
low speed applications, and 2, 8, 34 and higher MBit/s speeds for
other computer, moving image, multiplexed voice and other high
capacity data applications such as main frame computer lines, video
conferencing and local area networks (LANs) between local offices.
- Digital Services. The Group offers digital connection to the
public network using DASS2 (Digital Access Signalling System) and
Q931 (European specification). The
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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 it has begun test marketing and expects
to make available during the second quarter of 1997. In addition, the Group is
currently conducting trials on a fully managed data service based upon frame
relay technology.
In the business telecommunications area, the Group generally competes on
the basis of the quality of services provided rather than on price, although
the Company believes that its charges for services to business customers are
competitive with those of BT, Mercury and other operators.
The Company believes the Group has achieved favorable penetration in the
business telecommunications market due to three factors. First, the Group's
strategy in business telecommunications is to target large and medium-sized
corporate and governmental customers, which generate the most revenue and the
Company has given priority to building out its network to such customers.
Second, the Group's fiber-optic network infrastructure provides customers with
several advantages including superior service reliability (due to the
self-healing loop architecture), greater system capacity and the ability to
provide an extensive range of digital services. Third, the Group provides a
high level of customer service including custom tailored network services and
frequent communication with major customers. The Company believes that this
combination of quality service and attractive rates has enabled the Group to
achieve a substantial share of the market of large and medium-sized business
telecommunications customers in the areas it has marketed.
Telephone subscribers changing to the Group historically have had to
change their telephone numbers. As a result certain business customers have
been reluctant to switch carriers because they would lose their existing
telephone numbers. In response to this, Diamond has provided its business
customers with the opportunity to use the Group's telephone service for their
outgoing telephone calls, which carry higher revenues than incoming calls, and
for their specialized telecommunications needs, while retaining their existing
service provider (and their existing telephone number) for incoming telephone
calls. For a description of certain developments relating to number
portability, see "-- Competition -- Business Telecommunications" and "Certain
Regulatory Matters -- Cable Telecommunications -- Number Portability".
RESIDENTIAL TELEPHONE
The Group had residential telephone line penetration of 41.4% of homes
marketed at December 31, 1996. The Company believes the Group is achieving
these residential telephone penetration rates due to (i) Diamond's
well-recognized brand name and (ii) the Group's competitive rates (including
free voice calls between the Group's residential customers in the same local
and adjacent calling areas during off peak evening and weekend hours). In the
residential telephone area, the Group generally competes on the following
basis:
Reliability. The Group's fiber-optic network infrastructure provides
reliable, high-quality transmission across a modern network. In addition, the
Company believes that the Group's early concentration on attracting prominent
business and governmental customers has enhanced its credibility with
residential customers.
Special Services. By switching its own traffic, the Group is able to
offer a variety of special services to residential customers. All residential
customers receive three-way conference calling capabilities and fully itemized
monthly billing at no extra fee. The Group provides three-way conference
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calling free of charge in order to stimulate additional call and/or termination
charges. Additional "Custom Calling Features" offered by the Group for an extra
charge include: call waiting, call barring (prevents unauthorized outgoing or
incoming calls) and call diversion (i.e., call forward). The Group's network
architecture provides a flexible platform for the Group to offer a wide range
of additional telephony services as they become available in the future. These
services are expected to include voice mail and distinctive telephone rings for
different members of a household.
Cost Savings. The Group seeks to provide residential telephone customers
with savings on the cost of line rental and usage charges compared to BT. In
order to encourage customers to subscribe to both television and telephone
services, the monthly line rental charge for customers who subscribe to both
services is offered at a discount to the monthly charge for customers who
subscribe to telephone service only. Further discounts are available if a
customer remains a subscriber to both services for an extended period of time.
Free Evening and Weekend Voice Calls. The Group allows free voice calls
between the Group's residential customers and by the Group's residential
customers to the Group's business customers located within the same local and
adjacent calling areas during off-peak evening and weekend hours. The
incremental cost of these calls to the Group is negligible because they do not
require interconnection with another operator. The Company believes that this
service has encouraged its subscribers to recommend its services to other
potential subscribers, particularly friends and family members, and is believed
by the Company to increase calling traffic generally. The Company believes this
word-of-mouth marketing reinforces its well-recognized brand name.
The Company regularly evaluates its pricing strategy and intends to remain
price competitive in its residential telephone business. The Company believes
competitive pricing is particularly important initially as it introduces
services and seeks to gain market share. However, over time the Company expects
customer service to become a more important component of its marketing
strategy.
The Group recently launched an Internet access service, Diamond Cable
Online, in its operating area. This service, available to both Diamond
telephone subscribers and others, is the result of an alliance with Cable
Online Ltd., a subsidiary of International CableTel Ltd., and provides users
with access to the Internet and World Wide Web. The Group expects to offer
expanded Internet services, including ISDN and leased line connections, during
the second quarter of 1997. The Group is also test marketing voice mail
services which it intends to make available to residential telephone customers
during the second quarter of 1997.
CABLE TELEVISION
PROGRAMMING
The Company currently offers a wide range of cable television programming,
including satellite and broadcast channels, tape delivered channels and FM
radio. This range includes more than 50 television channels, many of which are
available 24 hours a day. Local programming is provided only on a limited basis
and may be offered on a larger scale in the future. In addition, the Company
has carried pay-per-view events. The Company also offers a digital music
service providing 30 channels of continuous music.
The Company believes that the availability of a wide variety of quality
programming is one of the most important factors influencing a consumer's
decision to subscribe for and retain cable television service. Consequently,
the Group devotes considerable resources to obtaining access to a wide range of
programming that it believes will be appealing to both existing and potential
subscribers of its basic and premium services. The Group may from time to time
pursue investments in programming providers.
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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
Diamond Vision/Cable 7 Local programming
Bloomberg Information TV(3) News and financial information service
GENERAL INTEREST
BBC1 U.K. terrestrial television
BBC2 U.K. terrestrial television
ITV U.K. terrestrial television
Channel 4 U.K. terrestrial television
Bravo(1) Classic movies and television series
NBC Super Channel U.S. and world news and entertainment
QVC - The Shopping Channel(4) Home shopping
Sky One(2) Drama, films and serials
Sky 2(2)(5) Drama, films and serials
Discovery Channel(6) Science and education programming
The Challenge Channel(7) Game show programming
The Learning Channel(6) Education and documentary programming
The History Channel(4) History programming
Travel Channel(3) Travel programming
TNT(8) Movies and other entertainment
U.K. Gold Classic U.K. television programming
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
</TABLE>
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<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ----------- -----------
<S> <C>
CHILDREN
The Disney Channel(2)(12) Children's entertainment
Cartoon Network(8) Children's cartoons
TCC(7) Children's entertainment
Nickelodeon(5) Children's entertainment
MUSIC
VH-1 Music videos
CMT Europe Country music videos
MTV Europe Music videos
Performance(9) Classical music and opera
The Box Music videos selected by customer requests
Landscape(9) Classical music accompanying scenic videos
MCM Euromusique Music videos
SPORTS
Eurosport International sporting events
Sky Sports(2)(12) U.K. and international sports
Sky Sports2(2)(12) U.K. and international sports
Sky Sports3(2)(12) U.K. and international sports
INTERNATIONAL
Zee TV(12) Asian sub-continent related programming
Asia NET Asian programming
Namaste(14) Asian programming
ATM(14) Asian programming
SAT 1 German language programming
TV5 French language programming
CNE Chinese news and entertainment
</TABLE>
(1) European Business News and Bravo share a single channel.
(2) Programming acquired from BSkyB and governed by the BSkyB rate card.
(3) The Travel Channel and Bloomberg share a single channel.
(4) Sky Soap, Sky Travel, QVC, the History Channel and the Christian Channel
share a single channel.
(5) Sky 2 and Nickelodeon share a single channel.
(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.
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(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 13.99 pound sterling per month (after a 1
pound sterling direct debit discount) for its basic cable television service
(49 or 50 channels, depending on the franchise area, and one converter box that
provides cable service to one television) and offers additional premium pay
services. In two of its franchise areas, Nottingham and Mansfield the Company
has introduced a "Connect Pack", an entry-level package of 13 channels of
television plus telephone line rental for 12.98 pound sterling (5.99 pound
sterling) for cable television and 6.99 pound sterling 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
9.99 pound sterling per month (after a 1 pound sterling per month direct
debit discount). This package provides subscribers access to premium channels
without having to purchase a full basic package. The Company also believes that
these programming packages will encourage existing subscribers to remain as
cable television customers by providing a less costly alternative to a full
programming package. Generally, there is no charge to the subscriber for service
or repair of the cable television network or customer premises equipment.
The Group obtains most of its programming from suppliers pursuant to
informal arrangements that are typically contemplated to run from three to five
years. The arrangements generally provide for payments by the Group based on
the number of subscribers to the service. Some programming, such as that
provided by the BBC and other terrestrial broadcasters, is provided to the
Group without charge.
BSKYB PROGRAMMING
BSkyB currently provides the Group with 12 channels on a non-exclusive
basis and also offers this programming (together with additional programming)
directly to its DTH satellite customers, in competition with the Group and
other cable operators. BSkyB is the leading supplier of cable programming in
the U.K. and the exclusive supplier of certain programming. Its programming is
generally popular in the U.K. and is important in terms of attracting and
retaining cable television subscribers. In the absence of more alternative
programming sources, BSkyB may be able to set and raise prices for its
programming without significant competitive pricing pressure. In addition,
BSkyB distributes 18 other programming channels on behalf of other providers
(including some providers partly owned by BSkyB).
The Group pays a monthly fee to BSkyB for programming based on the number
of the Group's subscribers taking the various BSkyB channels at the end of each
month. The fees vary by channel. The aggregate amount payable by the Group to
BSkyB during the year ended December 31, 1996 was 3.6 pound sterling 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
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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.
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Other interactive services that may be offered by the Group in the future
include video games that would be transmitted periodically (or possibly upon
subscriber request) to a special converter box at a subscriber's home where
they would be available for use by the subscriber (as with a traditional video
game) and video-on-demand services that would enable individual subscribers to
request specific programming from the service provider's inventory for viewing
at a specific time. See "-- Competition -- Cable Television". Additional
services could include video telephone services and video conferencing, access
to on-line databases and interactive transactional services. However, there can
be no assurance that the Group will be able to develop and deliver any of these
products on a timely and competitive basis.
Digital technology allows operators to provide more channels, through
digital compression, and higher quality pictures and sound. The Group believes
that its network leaves it well placed to provide digital television services
if in the Company's view providing these services in its franchise areas
becomes commercially attractive. However, the Group has no immediate plans to
introduce digital television services.
The Group currently receives negligible revenues from advertising, and
does not expect to receive any significant advertising revenues until its
subscriber base has expanded significantly. The Company believes that there may
be potential for meaningful advertising revenues in the future due to the
relatively limited alternative outlets for local advertising in the Group's
franchise areas.
SALES AND MARKETING
Cable television and residential telephone services are marketed to the
residential customer on an integrated basis. Until February 1997, the
residential sales teams were comprised of approximately 150 residential
specialists employed by independent sub-contracting companies supervised by the
Company and paid on a commission basis. Since February 1997, DCL has begun to
employ residential salespeople directly. These employees are now paid on the
basis of a salary plus commissions.
During construction of the Group's network, a customer relations program
is in place, beginning with a "Sorry to Disturb You" pre-construction notice
providing general information about the Company's services and describing the
construction process, followed by a "Thank You for Your Patience" packet
containing an apology for the inconvenience caused during construction,
complete information on the cable television and telephone services offered by
the Company, and ending with an after-sale satisfaction survey. This approach
is designed to inform potential customers of construction status, to minimize
inconvenience during construction and to foster a loyal customer base.
COMPETITION
The Group's business telecommunications, residential telephone and cable
television businesses compete with various companies using a variety of
technologies.
BUSINESS TELECOMMUNICATIONS
The Group competes primarily with BT and Mercury in providing business
telecommunications services. The Group competes primarily in the business
telecommunications area on the basis of quality of service and to a lesser
extent price. The Company believes the Group's call charges are competitive
with those of BT and Mercury.
The Company believes that the Group's ability to compete effectively with
BT had been adversely affected, particularly with respect to businesses,
because there had historically been no telephone number portability in the U.K.
(i.e., a new customer could not transfer its BT telephone number to the Group's
system). The Company believes that this discouraged some customers from
changing from BT to the Group's service because of the costs and inconvenience
associated with changing numbers. In response to this, the Company provided its
customers with the opportunity to use its services for all outgoing telephone
traffic, while continuing to use other providers for incoming traffic. For a
discussion of certain regulatory developments regarding the introduction of
number portability in the U.K. See "Certain Regulatory Matters -- Cable
Telecommunications -- Number Portability". The Company believes that number
portability will offer little improvement to the Group's results in residential
areas but could
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<PAGE> 46
offer marginal increased sales in the small business area where number
recognition and number advertising for the two and three line customer is an
issue. Overall, the Company believes that number portability will be relatively
neutral in its effect on the Group's business.
Both BT and Mercury have resources substantially greater than those of the
Group, and each has a national presence which may permit it to offer
telecommunications, data transmission and other services on a national basis to
business telecommunications customers with national operations beyond those
that the Group is currently able to offer on its own. The Company expects that
competition with Mercury and BT and other service providers, including the AT&T
group, entering the business telecommunications market will continue to
intensify.
Energis has nearly completed construction of a national network along
existing electrical power pylons and has launched telephony services. To date,
Energis has not marketed residential telephony lines and generally has
concentrated on the larger business telecommunications market. Energis' service
offering, along with indirect service from ACC and other, smaller, long
distance operators, and the emergence of International Simple Reseller
companies have increased competition in the long distance and international
telecommunications markets. It is also possible that utilities, such as rail or
water companies, will seek to use their existing infrastructures to construct
telecommunications networks that will compete with the Group's
telecommunications business.
RESIDENTIAL TELEPHONE
BT, with the large majority of the residential telephone market in the
U.K., is the Group's principal competitor in providing residential telephone
services. BT has a fully built national telephone network and, due to its
extensive experience in the marketing and operation of telecommunications
services in the U.K. and its large financial resources, it is a formidable
competitor to the Group. However, BT's ability to respond to price competition
from local cable operators is restricted by its license obligation not to show
undue preference to, or unduly discriminate against, different classes of
customers throughout the U.K. This effectively obligates BT to price all of its
services equally to the same classes of customer throughout the U.K., although
BT may provide discounts to high volume users. However, as the U.K.
telecommunications market becomes more competitive, there can be no assurance
that BT will not be given greater pricing flexibility in the future.
The Group seeks to compete with BT in the residential market primarily by
emphasizing the competitive cost and, to a lesser extent, quality of service
advantages of its cable telephone services. For example, the Group currently
seeks to provide its telephone subscribers with monthly savings on the cost of
calls compared to BT. To date, the Group generally has been able to price its
cable telephone call charges below those of BT; however, there can be no
assurance that the Group will be able to continue to do so in the future. BT
currently is subject to regulatory controls over the prices it may charge
customers, which last until July 31, 1997. OFTEL has issued proposals for
revised price controls to be in effect until 2001. See "Certain Regulatory
Matters -- Cable Telecommunications -- Price Regulation". These current
controls impose significant downward pricing pressure on charges in the U.K.
telephone service market. As a result, BT has implemented significant price
reductions for certain categories of calls and has implemented a new price
initiative concerning per second pricing, which has led to further price
reductions for certain users. In the past, the Group has generally reduced
certain of its rates following BT's price reductions in an effort to maintain
its price competitiveness versus BT. OFTEL's proposals for revised price
controls until 2001 indicate that BT will be required by its telecommunications
license to reduce the average level of its prices further in each of the next
few years. The impact of BT's price reductions on the financial performance of
the Group has been partially offset by reduced interconnection costs charged by
BT for the conveyance of calls. There can be no assurance, however, that any
such price cuts will not adversely impact the financial performance of the
Group's telephone operations.
BT has also started to market its services more aggressively to maintain
its market position over other service providers. For example, BT recently
began providing voice mail services on a national basis and caller ID services
in digital switch areas, and has implemented on a national basis other services
currently offered by the Group in its franchises, such as itemized billing and
time-based charges. BT has also implemented extensive marketing campaigns to
win back customers from cable operators.
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The introduction of international facilities licensing in 1996 has
increased competition for international traffic, and the Group's telephone
subscribers can obtain access to these alternative international service
providers.
In both the business telecommunications and residential telephone areas,
the Group faces additional competition from (or may in the future compete with)
Mercury and mobile telecommunications providers such as Vodafone, Cellnet,
Mercury One2One and Orange and also faces competition from radio based
telecommunications providers such as Ionica.
CABLE TELEVISION
As a result of the ITC's practice of not granting more than one cable
television license within a franchise area, the Group does not compete with
other cable operators for subscribers within its franchise areas. The Group
does, however, compete with programming provided by terrestrial stations, DTH
satellite services, video cassette rental stores and SMATV systems and may in
the future compete with programming provided by video-on-demand and other
entertainment services provided by national PTOs and others.
The principal current (and potential) competitors for the Group's cable
television business are the following:
Broadcast. Television viewing in the U.K. has long been one of the most
popular forms of entertainment, and daily viewing time in the U.K. averages
over 230 minutes per person (Source: BARB). Until 1989, four broadcast channels
were the only source of television programming. Although the national
television channels in the U.K. generally are perceived as providing
high-quality programming, the Company believes that most viewers prefer a wider
variety of television programming. The market share of cable television and
satellite service programming is approximately one-third of all viewing in
homes with cable television and satellite services (Source: BARB). In addition,
the Company believes that the penetration of cable and DTH satellite services
and the widespread use of VCRs, indicates a willingness on the part of many
consumers in the U.K. to pay for additional programming.
In addition to the four existing terrestrial channels, an additional
commercial terrestrial channel (Channel 5) is expected to commence broadcasting
before March 30, 1997.
The Company believes that its primary competitive advantages over existing
terrestrial television are significantly more programming options, access in
the future to advanced interactive services and, in some areas, improved
television reception. The Company believes that terrestrial television benefits
from its position as the traditional source of low cost television in the U.K.
Under the Broadcasting Act 1996, the ITC has been given responsibility for
the licensing and future regulation of digital terrestrial television which, on
introduction, is expected to provide an additional 30 or more new terrestrial
channels serving between 60% and 90% of the U.K. population. Forty percent of
the channels will be reserved for digital broadcasting by the existing
terrestrial broadcasters. In January 1997, BSkyB, Carlton Communications and
Granada Group announced they had formed a joint venture and applied (in
competition with another applicant) to the ITC for three frequency ranges to
provide 15 digital terrestrial television channels, which will broadcast
programming that may include BSkyB programming currently available only through
DTH satellite or cable television as well as programming from the BBC. Digital
terrestrial television would broadcast from land-based transmitters and could
be received by consumers with conventional aerials. A digital decoder box would
be needed to view the new channels, which would have digital picture and sound
quality. The introduction of digital terrestrial, as well as digital satellite,
television will provide additional competition for the Group. See "Certain
Regulatory Matters -- Future Developments -- Digital Broadcasting".
The Group believes that its network has been designed such that the Group
would be well placed to provide digital television services if providing these
services in its franchise areas were to become commercially attractive.
However, the Group has no immediate plans to introduce digital television
services.
47
<PAGE> 48
DTH Satellite. DTH satellite television service providers obtain
programming from a variety of sources (including some of those used by the
Group) and transmit the programming signal up to a satellite which then
retransmits the signal down to customers. In order to receive a satellite
service, the customer must have an outdoor reception dish.
DTH satellite services are widely available in the U.K., and the number of
DTH satellite subscribers has increased from 500,000 in 1989 to approximately
3.5 million at December 31, 1996. BSkyB is the leading supplier of satellite
programming in the U.K. See "-- Cable Television -- Programming". The Sky
Multi-Channels package provided by BSkyB currently offers subscribers
approximately thirty channels.
In the multichannel television market, BSkyB is the Group's principal
competitor as well as one of its most important sources of programming. The
Group provides to its subscribers all of the channels included in the Sky
Multi-Channels package. There can be no assurance that BSkyB will continue to
provide programming to the Group on acceptable terms. However, as other
programming sources become available, the Company believes that the Group may
become less dependent on programming from BSkyB. See "-- Cable Television --
Programming".
The Company believes that DTH satellite services will continue to be
significant competitors in the future. However, the Company believes that cable
television has a number of competitive advantages over DTH satellite service,
including the following: (a) the significant up-front or ongoing costs for the
purchase or rental of a satellite dish and related equipment required for DTH
(normally starting from approximately 150 (pound sterling) for the purchase of a
satellite dish and related equipment, including typical installation charges of
approximately 50 (pound sterling), or approximately 12.50 (pound sterling) per
month for rental of a dish and related equipment); (b) the perception that
satellite dishes are unsightly; (c) the long-term contracts (one-year) generally
required for DTH satellite services; and (d) the ability of cable networks to
offer telephone services and in the future to offer interactive and integrated
entertainment, telecommunications and information services in addition to
television programming.
The Company believes that the principal competitive advantage of DTH
satellite service is the monthly service charges for basic services and premium
services which are lower than those for comparable services provided by the
Group. BSkyB has announced its intention to introduce a digital DTH satellite
service (offering the possibility of over 200 television channels) by the end
of 1997. The Company believes that DTH satellite services may become more
competitive with cable service if digital compression technology is
successfully introduced in the U.K. such that satellite services can provide
more channels and direct specific programming to particular subscribers.
Other Competitors. The Group also faces competition from video cassette
rentals and SMATV systems (which receive signals from either broadcast or
satellite sources and then distribute them by cable to a discrete group of
subscribers). Currently, no video-on-demand service is commercially available
in the U.K. (although BT has conducted residential trials). However, the
successful introduction of a video-on-demand service in the Group's franchise
areas, particularly by a national PTO, would result in the Group's services
being subject to increased competition. See "Certain Regulatory Matters --
Restrictions on National PTOs". SMATV systems can compete with cable television
within a franchise area, but currently there are no SMATV systems licensed to
provide service to more than 1,000 homes in the Group's franchise areas.
New Technologies. The extent to which new media and technologies will
compete with cable television systems in the future cannot be predicted and
such media or technologies may become dominant in the future and render cable
television systems less profitable or even obsolete. Certain operators
currently are deploying digital compression technology in the U.S. If digital
compression technology is deployed successfully in the U.K., it will enable the
Group, as well as its terrestrial and digital DTH satellite competitors, to
increase significantly the number of channels they are currently able to offer
to their customers. An increase in the number of channels offered by
terrestrial and DTH satellite services at competitive costs could affect the
Group's current competitive position.
48
<PAGE> 49
FRANCHISE AREAS
The Group has been granted cable television licenses to provide cable
television services in fifteen franchise areas that form a contiguous cluster
of approximately 1,229,900 equity homes. The Group has been granted
telecommunications licenses in eight of its fifteen franchises. In addition,
DCL has applied for a national telecommunications license which will enable the
provision of business and residential telecommunications in the Group's seven
remaining franchises and elsewhere in the U.K. The table below sets forth the
number of homes in the individual franchises areas according to CACI
Information Services (for the franchises governed by telecommunications
licenses and the Burton-upon-Trent and Hinckley LDLs) and the ITC (for the
other LDLs).
<TABLE>
<CAPTION>
OWNERSHIP EQUITY HOMES
--------- ------------
<S> <C> <C>
TELECOMMUNICATIONS LICENSES
Nottingham....................... 100% 270,000
Mansfield........................ 100% 85,000
Newark-on-Trent.................. 100% 42,000
Grantham......................... 100% 22,000
Melton Mowbray................... 100% 19,000
Lincoln.......................... 100% 52,000
Grimsby and Cleethorpes.......... 100% 64,000
Leicester and Loughborough....... 100% 203,000
LDLS(1)
Burton-upon-Trent................ 100% 94,000
Hinckley......................... 100% 45,000
Ravenshead....................... 100% 2,900
Bassetlaw........................ 100% 41,000
Lincolnshire and South Humberside 100% 174,000
Chesterfield..................... 100% 107,000
Vale of Belvoir.................. 100% 9,000
---------
Total............................ 1,229,900
</TABLE> =========
(1) The Group has been granted an LDL for each of these franchise areas and
is awaiting the grant of the necessary telecommunications license. It is
expected that these franchises will be covered by the national
telecommunications license.
Diamond's original franchise areas comprise a substantial regional market
centered around the City of Nottingham. In addition, the LCL franchises and the
Ravenshead, Bassetlaw, Lincolnshire and South Humberside, Chesterfield and Vale
of Belvoir franchise areas are contiguous to the original Diamond franchises.
All of the Group's franchises are concentrated in a single region and the Group
owns a 100% interest in the licenses associated with each franchise. The
Company believes that the Group's regional focus provides it with a number of
advantages, including the ability to (a) achieve significant cost benefits in
designing, constructing and managing a single network infrastructure and
providing telecommunications services over an extensive area, (b) be more
responsive to customer needs than its national competitors, thereby increasing
customer loyalty and (c) increase its name recognition.
Under present rules, the telecommunications licenses covering these
franchises last for 23 years from the date from which the cable system first
becomes operative. Thereafter, these licenses are not extendable and
application must be made for a new license. The telecommunications license for
the Nottingham franchise, which was the first to become operative, expires in
2013. The telecommunications licenses currently held by the Group all
incorporate construction milestones which are reviewed by OFTEL. LDLs include
milestones that are reviewed by the ITC. See "-- Milestones". For further
descriptions of the Group's licenses, see "Certain Regulatory Matters".
49
<PAGE> 50
The Company may from time to time seek to acquire one or more new or
existing franchises either in public tenders by the ITC or by private purchases
from third parties. The Company anticipates that it will generally seek to
acquire franchises that are contiguous to the Group's existing franchises and
therefore can effectively be integrated into the Group's existing operations.
No agreement for any specific material acquisition has been reached or is
currently pending. The Group currently operates solely in the U.K. and
currently expects that any future acquisitions would be of franchises or
businesses in the U.K.
An LDL enables an operator to provide cable television and (when held in
conjunction with a telecommunications license) telecommunications services,
utilizing not only cable networks but also microwave distribution systems. See
"Certain Regulatory Matters". When such licenses are applied for by one
operator, they are then generally advertised for competitive auction by the
ITC. No license has been awarded for certain other geographic areas that are
contiguous to the Group's franchise areas. The Group may bid for additional
LDLs, if the bid price (including the estimated additional capital costs to
complete the network) for the additional franchise areas provide an attractive
return, in order to further improve the Group's operating leverage and increase
asset value. If the Group were to be awarded any of the LDLs it may bid for in
the future, the areas would be constructed in parallel with the existing
franchises, but it is expected that the completion of the network for the
enlarged area would be later than that planned for the existing area. In
addition, to complete construction of an enlarged franchise area, the Group
would be required to expend additional funds which, depending on the size of
the franchise area, could be significant. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
In addition, the Group operates a master antenna television service to
approximately 16,000 council properties in Nottingham. This service is provided
by the primary cable television network without the necessity to build and
operate a separate master antenna service system.
CONSTRUCTION
As of December 31, 1996, approximately 477,000 of the premises in the
Group's franchise areas had been passed by civils construction and a portion of
the network passing approximately 365,000 premises had been activated. The
number of premises activated represents 36% of the Group's aggregate milestone
requirements. Construction has now commenced in eight of the Group's franchise
areas. While the projected rate of construction is governed principally by the
applicable regulatory milestones, the path of construction in the Diamond
franchises has, to date, been driven in part by the Company's strategy of
targeting large business telecommunications customers. As a result, Diamond
often concentrated the build out of its network to business telecommunications
customers who were being solicited or to areas with a higher density of
potential business telecommunications customers.
The Group has undertaken a rapid acceleration in the build out of its
existing franchise areas. During 1996 and 1995 over 172,000 and 173,000 homes
respectively were passed by civils construction as compared with approximately
27,000 homes passed during all of 1994. The Company intends to continue the
rapid growth and development of network construction and activation to meet the
Group's regulatory milestones. The Group may encounter difficulty in obtaining
qualified contractors and may encounter cost overruns or delays in
construction. As with other U.K. cable operators, the Group is generally
required to use underground construction and cannot broadly employ mechanized
construction methods due to existing underground utility infrastructure. The
number of homes passed by the Group's civils construction substantially
exceeded homes activated and homes marketed at December 31, 1996. At that date,
approximately 23% of the network passed by civils construction had not been
activated (as measured by homes activated as a percentage of homes passed by
civils construction). At that date, approximately 27% of the homes activated by
the Group's network had not yet been marketed. The Company expects to
accelerate the release of homes for marketing as more homes are activated and
as the percentage of homes activated but not marketed is reduced. This may
place additional stress on the Company's management and operational resources.
If the Group is unable to manage its expected rapid growth and development
successfully, the Group's operating results and financial condition could be
materially adversely affected.
Diamond originally relied on its own construction team for the build out
of its network. Since 1994, the Group has primarily used outside contractors,
but believes that maintaining some in-house
50
<PAGE> 51
construction capability enables it to reduce the costs of construction and
to manage its build out better. In particular, the in-house construction team
provides a benchmark against which to measure fees from outside contractors and
provides a reliable construction team for building out particularly difficult
areas. Approximately 16% of the network constructed during 1996 was constructed
using the Group's in-house team.
Cable operators have the benefit of and must comply with the New Roads and
Street Works Act 1991 (the "Street Works Act") which permits them to construct
on public highways on the same basis as public utilities. This has, to some
extent, reduced construction delays. See "Certain Regulatory Matters -- Cable
Telecommunications -- Network Construction and Service Obligations".
For a discussion of the Company's plans to fund construction see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
MILESTONES
The Group is obliged by the milestones in its telecommunications licenses
and LDLs to construct a network to pass an aggregate of 1,021,894 premises
within prescribed time periods. See "Certain Regulatory Matters -- Cable
Telecommunications -- Network Construction and Service Obligations".
Both Diamond and LCL failed to meet their original regulatory milestones.
Diamond had failed to meet the milestones in its original licenses due
principally to the unavailability of sufficient funding in periods prior to the
acquisition in May 1994 by European Cable Capital Partners, L.P. ("ECCP") of a
majority stake in Diamond and the decision to allocate resources to the building
out of the Nottingham franchise. Having obtained revisions to its licenses,
Diamond raised approximately $143 million at the end of September 1994 through
the issuance of the 1994 Senior Notes and, after a slight delay due to
construction planning and the hiring of contractors, began to accelerate the
pace of the build out of its network.
At December 31, 1995, the Group was obligated to meet specified milestones
in eight of the Group's franchise areas where building was due to have
commenced. Compliance with the milestones in these areas is in each case
monitored by OFTEL. During June 1996, OFTEL informed the Company that it did
not agree with the Company's historical method for calculating compliance with
its milestone obligations and that the number of premises passed should be
based only on the number of premises activated (the number of premises that can
be connected to the cable network without further extension of transmission
lines, apart from the final drop to the home). In calculating premises passed,
the Company had historically included premises passed by civils construction
(premises with ducting buried outside) but not yet activated. Based on OFTEL's
method of calculating premises passed, the Group failed to meet its year-end
1995 milestones in six of its eight franchise areas. In three of these
franchise areas -- Grantham, Newark-on-Trent and Melton Mowbray, the 1995
year-end milestones represented the final milestones required under each
license.
The Group has renegotiated its eight telecommunications license milestone
obligations with OFTEL. In five franchise areas where the final milestone has
not yet fallen due, the Director General of OFTEL has formally modified the
interim but not the final milestone obligations under the licenses to provide
new quarterly milestones which the Group had met as at December 31, 1996. In
the other three franchise areas, OFTEL did not make any formal modification to
the existing licenses, and the final milestones in these three franchise areas
have now been met.
In four of the seven franchise areas covered by LDLs, the Group was
originally required to meet its first milestone obligations by the end of 1996.
However, due to delays by the DTI in the granting of telecommunications
licenses covering these franchises, which are required before construction can
commence, the ITC has formally modified the Group's licenses to remove
milestones that fell due at year-end 1996 and otherwise shift the annual
milestones for those licenses back by 12 months. DCL has applied to the DTI for
a national telecommunications license which it expects to be granted shortly.
Delays in obtaining this license may adversely affect the Group's ability to
meet LDL milestones for 1997.
51
<PAGE> 52
The following table sets forth the milestones that are incorporated into
the Group's telecommunications licenses and LDLs. Since the actual milestones
that the Group is required to meet are specified individually for each of the
franchises, the Group could meet the aggregate milestones but still fail to
meet one or more individual franchise milestones and therefore subject a
telecommunications license or LDL to the risk of revocation or termination.
<TABLE>
<CAPTION> AFTER
GROUP FRANCHISE AREAS 1994 1995 1996 1997 1998 1999 2000 2000
- ------------------------ ------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS LICENSE
MILESTONES(1)
Nottingham....................... 45,000 80,000 132,000 190,000 230,000 230,000 230,000 230,000
Mansfield........................ 15,000 35,000 42,000 66,000 66,000 66,000 66,000 66,000
Newark-on-Trent.................. 3,000 13,500 13,500 13,500 13,500 13,500 13,500 13,500
Grantham......................... 3,000 14,000 14,000 14,000 14,000 14,000 14,000 14,000
Melton Mowbray................... 3,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Lincoln.......................... 3,000 20,000 18,000 43,000 43,000 43,000 43,000 43,000
Grimsby and Cleethorpes.......... 3,000 25,000 35,000 57,000 63,000 63,000 63,000 63,000
Leicester and Loughborough....... 40,620 53,620 76,000 100,000 149,000 200,670 200,670 200,670
LDL MILESTONES
Ravenshead....................... -- -- -- 2,500 2,500 2,500 2,500 2,500
Bassetlaw........................ -- -- -- 1,000 10,000 19,000 28,000 32,800
Lincolnshire and South Humberside -- -- -- 5,000 25,000 45,000 70,000 144,000
Chesterfield..................... -- -- -- 8,000 28,000 60,000 80,000 89,000
Vale of Belvoir.................. -- -- -- 1,000 2,000 3,000 4,545 4,545
Burton-upon-Trent................ -- -- -- 10,000 29,000 45,000 66,000 77,675
Hinckley......................... -- -- -- 8,000 16,000 23,000 31,204 31,204
------- ------- ------- ------- ------- ------- ------- ---------
Aggregate Cumulative Totals...... 115,620 251,120 340,500 529,000 701,000 837,670 922,419 1,021,894
======= ======= ======= ======= ======= ======= ======= =========
Aggregate Annual Totals.......... 115,620 135,500 89,380 188,500 172,000 136,670 84,749
</TABLE>
(1) Although reflected above on an annual basis, the Group's
telecommunications license milestones are measured on a quarterly basis.
The table below sets forth by franchise and date the number of premises
activated.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1996 1996 1996 1996
------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nottingham 57,697 79,866 98,504 110,548 123,910 139,286
Mansfield 11,686 11,686 20,863 32,755 40,474 46,916
Newark-on-Trent 5,634 7,420 7,420 8,392 12,707 13,509
Grantham 0 0 0 3,503 11,515 14,894
Melton Mowbray 0 0 0 0 9,819 10,045
Lincoln 0 5,177 5,177 12,459 16,887 20,131
Grimsby and Cleethorpes 7,806 8,057 13,386 21,604 30,699 37,130
Leicester and Loughborough 51,409 57,366 61,007 67,766 77,017 83,280
------- ------- ------- ------- ------- -------
Cumulative Total 134,232 169,572 206,357 257,027 323,028 365,191
======= ======= ======= ======= ======= =======
</TABLE>
The Group is potentially subject to enforcement orders from the Director
General for failure to meet its telecommunications license milestones, which
could lead to revocation of the relevant licenses. Similarly, in the event that
the Group failed to meet the milestones for any of its LDLs, the ITC would have
power to shorten the LDL period, impose fines or commence proceedings leading
to revocation. In addition, under the Senior Banking Facility, failure to meet
the Group's milestone obligations could under certain circumstances prevent
further borrowing or result in an event of default. See "Certain Regulatory
Matters -- Cable Telecommunications -- Network Construction and Service
Obligations". The Group has not been subject to date to any enforcement action
by OFTEL or the ITC due to missed milestones; however, there can be no
assurance that OFTEL or the ITC will not take such action in the future.
52
<PAGE> 53
SOURCES OF SUPPLY
The Group obtains services and equipment for the construction and
operation of its cable systems from numerous independent suppliers. As the
Group has grown and its construction and purchasing needs have increased, the
Group has sought to use its increased buying power to obtain more favorable
pricing and contract terms.
With certain exceptions, the Company believes that the Group can purchase
the services and equipment it needs to operate its business from more than one
source. However if a supplier of a product that involves significant lead time
for production and delivery were to be unwilling or unable to supply the Group,
the Group could suffer delays in the operation of its business, which could
have an adverse effect on the Group. Further, in the case of certain supplies,
limited competition in the provision of these materials has subjected (and may
in the future subject) the Group to price increases higher than those
experienced with other supplies.
For certain products, the Group depends on a single supplier. Diamond has
obtained exclusively from GPT certain telephone equipment, namely its switches,
primary multiplexers and certain telephone transmission equipment. LCL has
obtained such equipment from Nortel Limited. The Group obtains all of its cable
television transmission equipment and set top converters from Scientific
Atlanta. Scientific Atlanta, GPT and Nortel Limited are among the largest
providers of cable television and telephone equipment in their respective
markets. While the Group to date has experienced no significant difficulty in
receiving products from these companies, the failure or inability of any of
these companies to continue to supply the Group with these products in the
future would have a material adverse effect on the Group.
The Group has not experienced significant difficulty in obtaining timely
deliveries of equipment and services. In order to reduce warehousing expenses,
maximize inventory control and minimize the possibility that the Group will not
have the required inventory to proceed with construction in a timely manner,
the Group recently centralized its warehouse operations. Due to the high level
of construction in the U.K. cable industry, delays may be encountered in
obtaining certain supplies such as fiber optic cable; however the Group is
making efforts to avoid such delays.
NETWORK ARCHITECTURE
The network being constructed by the Group comprises an overlay of a cable
television network and a telecommunications network. Portions of the network
currently in the ground utilize conventional tree and branch architecture and
the other portions utilize optical fiber node architecture with nodes serving
up to 2,500 homes. Both of these portions of the network may need to be
upgraded to achieve higher capability and reliability. This upgrading is not
expected to require significant additional capital expenditure.
The Group is now constructing a cable system in which optical fiber is
employed to areas serving approximately 500 homes for both cable television and
telecommunications services. The geography of the Group's franchise areas and
the location of the cable television network's headends and the
telecommunications network's switches dictate to some degree the physical
construction of the cable television and telecommunications network. The
Nottingham central network control office will control and monitor all other
locations which will be interconnected to Nottingham supertrunking fiber
network.
Five switches are currently in operation in Nottingham, which is presently
interconnected with three other switches, Mansfield, Lincoln and Grimsby.
Leicester is presently interconnected with 2mb circuits to Nottingham. Two
switches in Leicester are in service, with a third recently commissioned. The
Company expects that an additional four switches will be commissioned during
the build out.
In addition to the existing switches, six remote concentrator units
("RCUs") are being interconnected to the Nottingham headend. The Company
expects that an additional eight RCUs will be added during the build program.
There are presently three cable television headend locations. The Nottingham
location will monitor all headend locations. The interconnects are all fiber
optics with two-way capability and status monitoring.
53
<PAGE> 54
The cable television headends consist of Scientific Atlanta and Magnavox
fiber transmitters, fiber receivers, satellite receivers, signal processors,
modulators, encoding equipment and network status monitoring and Panasonic
automated tape distribution equipment. The cable television network is being
constructed with Scientific Atlanta transmission equipment and set top
converters. The Network's downstream upper frequency capability is 750 MHz.
From the headends, fiber is deployed to each node for feeder distribution and
from the node, coaxial cable is installed to the distribution points. The upper
side of the downstream bandwidth will be 750 MHz. From the headends, fiber is
deployed to nodes for feeder distribution, and from the nodes, coaxial cable is
installed to the distribution points. The Group has begun the deployment of 750
MHz Scientific Atlanta set top converters, with capacity for 75 channels, as of
February 1997.
The telephone switches are GPT System X and Nortel DMS-100 platforms. The
telecommunications network near the switch is fed directly by copper. Outside
the copper service area, the telecommunications network uses Nortel or GPT SDH
multiplexing equipment in a fiber self-healing loop configuration operating at
155 Mb/s ("STM 1"). Four nodes of 500 homes will be served off of each 2,000
home fiber ring. GPT and ASCOM 120 line primary multiplexers are located in the
same street cabinet with the SDH multiplexers, and from there copper is fed
down to approximately 30 homes per street cabinet. As the telephone network
grows more distant from the switch, additional SDH rings operating at 622 Mb/s
("STM 4") will support four STM 1 rings. The telecommunications network has
been designed so that as penetration and traffic intensifies, ring splitting
will enable additional capacity to be carried. All network equipment, both
cable television and telephone, is powered by battery backed-up power supplies.
Telecommunications and cable television services are transmitted to the
home through the same "Siamese" drop cable. The "Siamese" cable consists of two
twisted pair telephone cables and a cable television coaxial drop cable
manufactured in the same cable housing/insulation package so that both services
are installed at the same time. From a subscriber's home, the telephone cable
is run through the street cabinet up to the 500 home hub cabinet where calls
are processed through a primary multiplexer which handles many calls and
transmits them to the telephone switching equipment. The calls are then routed,
if possible, to their final destination via the lowest cost routing, be it BT,
Mercury, Energis, Global One or the Group's own network.
The duct system is constructed with 89mm diameter duct with a 2.4mm wall
thickness. Trunk cable routes usually contain multiple fiber and coaxial cables
within four to six ducts. Distribution cable routes carry the drop cable to the
subscriber premises and usually contain one or two ducts. A subscriber drop is
placed inside either 25mm or 50mm duct which is buried in its approach to a
residence to reduce cable drop cuts and other maintenance.
The network will support 100% cable television penetration and 100%
telephone penetration based upon cabinet space but only 50% telephone
penetration based upon transmission equipment with hardware expandability to
96%.
The Company believes that the Group's network architecture design, with
respect to both telecommunications and cable television, will facilitate the
transition to greater fiber distribution. It should allow for efficient
utilization of primary multiplexers and eliminate the need for expensive
digital cross connects to maximize switch port utilization. The Company
believes that the network design has taken into account the need to be flexible
with respect to both node and hub sizes and future developments that may lead
to integration between the telecommunications and the cable television
networks.
The existing Diamond and LCL networks will be integrated in phases. The
initial objective has been to physically connect the two networks through a
fiber interconnect and this has been achieved with 2mb circuits, which are in
place. The main purpose of the interconnect is for the central network control
office (located in Nottingham) to have the ability to control the central
Nortel switch in Leicester, mainly for telephone purposes. This interconnect
will also enable Nottingham to monitor the Leicester cable television headend
and transfer data of route forwarding information between the two locations.
54
<PAGE> 55
The physical connection point will be in Loughborough which is located
between Nottingham and Leicester and is the desired location for the third
switch for the LCL franchise areas.
Once the two networks physically have been joined and the interfacing is
complete, maintenance and monitoring of call traffic will be possible, followed
by integration of the wholesale and then the retail billing processes.
EMPLOYEES
As of December 31, 1996, the Group had 706 employees, including 581
employees in operations and 125 employees in civils construction. With effect
from February 1997, DCL has begun to directly employ residential salespeople,
which will increase the number of its employees. Previously salespeople had
been employed by independent companies engaged by the Group on a subcontracting
basis. The Group has not entered into any collective bargaining agreement with
employees and the Company currently believes that the Group's labor relations
are good.
LEGAL PROCEEDINGS
No member of the Group is a party to any material legal proceedings, and
the Company is not currently aware of any threatened material legal proceedings.
PROPERTIES
At December 31, 1996, the Group leased or rented 20 properties for
administrative and sales offices, hub, switch and head-end sites, warehouse and
equipment sites. At that date, the Group leased an aggregate of approximately
173,000 square feet of real property, of which approximately 103,700 square
feet consisted of external equipment and warehouse storage space. The Group owns
its 44,000 square foot head office and headend/switch site in Nottingham, which
was constructed in 1995 at a cost of approximately L.3 million. The Group also
owns a switch site property of 4,688 square feet located at Shepshed.
55
<PAGE> 56
CERTAIN REGULATORY MATTERS
GENERAL
Cable television and cable telephone service industries in the U.K. are
governed by legislation under the Telecommunications Act, the Broadcasting Act
1990, which replaced the CBA, and the Broadcasting Act 1996. The operator of a
cable television and cable telephone franchise in the U.K. covering more than
1,000 homes requires the following two principal licenses for each franchise
area:
(a) a telecommunications license, granted under the Telecommunications
Act by the Secretary of State and supervised by the DTI and OFTEL, which
authorizes the installation and operation of the telecommunications network
used to provide cable television and cable telephone services, and
(b) a cable television license, which authorizes the provision of
broadcasting services within a defined geographical area and which may be
either:
(i) a Prescribed Diffusion Service License ("PDSL"), granted
under the CBA prior to 1991, which allows an operator to provide cable
television and other entertainment services by means of a cable
network, or
(ii) an LDL granted since January 1, 1991 under the Broadcasting
Act 1990, which allows an operator to deliver television and other
programming services by means of a licensed telecommunications network
including a cable network.
Each type of license described above contains various conditions, and in
the event of the breach of such conditions, the Director General or the ITC, as
appropriate, could issue an enforcement order and ultimately commence
proceedings to require compliance or to revoke such licenses.
Under the Broadcasting Act 1990, cable operators may elect to replace
certain PDSLs with LDLs with similar terms.
The regulatory environment in the U.K. has generally encouraged the
development of the cable telecommunications and the cable television industry
by, among other things, licensing only one operator for each cable franchise
area and restricting the national PTOs from using existing telecommunications
networks to carry broadcast entertainment.
The Labour Party has stated that it would review the existing regulatory
structure if it came into power. See "-- Cable Telecommunications --
Restrictions on National PTOs".
CABLE TELEVISION
The Broadcasting Act 1990
The Broadcasting Act 1990 established the ITC to license and regulate
commercial television services (terrestrial and satellite) and the Radio
Authority to regulate radio services. The ITC's functions are, among other
things, to grant licenses for television broadcasting activities and to
regulate the commercial television sector by issuing codes on programming,
advertising and sponsorship, monitoring programming content and enforcing
compliance with the Broadcasting Act and cable television license conditions.
The ITC has the power to vary cable television licenses and impose fines and
revoke such licenses in the event of a breach of the license conditions. The
ITC also enforces ownership restrictions on those who hold or may hold an
interest in licenses issued under the Broadcasting Act. See "-- Cable
Television Licenses -- Ownership Restrictions".
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CABLE TELEVISION LICENSES
General. As of December 31, 1996, cable television licenses had been
granted for franchise areas covering approximately 16.5 million out of
approximately 22 million total homes in the U.K. The ITC has indicated that it
will grant only one cable television license for each geographical area for the
foreseeable future. The ITC also has indicated that certain areas, for which
cable television licenses have yet to be awarded, may be advertised at the
request of applicants. Such licenses (LDLs) are generally awarded after
competitive bids. Before awarding an LDL, the ITC must be satisfied as to
certain matters, including the technical specification of the proposed system;
that the applicant has sufficient funding to run the franchise; and that the
applicant is a fit and proper person to be awarded a license. The ITC will
award the LDL to the highest bidder unless there are exceptional circumstances,
including that the coverage proposed to be achieved by another applicant is
substantially greater than that indicated in the technical plan of the highest
bidder, such that it is appropriate to award the license to that other
applicant. In addition, all applicants must undertake to pay a percentage of
qualifying revenue ("PQR") to the ITC in each year of the license.
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.
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A cable television license is transferable only with the consent of the
ITC, and several of the Group's cable television licenses have recently been
transferred to DCL from various of the Group's wholly owned subsidiaries with
that consent.
The Group also holds two licenses to provide television program services
under the Broadcasting Act 1990. The license for the Leicester Community
Channel came into force on June 29, 1992 and the license for Diamond Vision on
August 29, 1995. Both licenses are for a period of 10 years.
Ownership Restrictions. The ITC has a general duty to ensure that cable
television licenses are held by "fit and proper" persons and may exercise
control over who may hold a license where financial assistance is provided to,
or influence is exercised over, a licenseholder which may produce results which
it considers adverse to the public interest. The Broadcasting Act 1990 also
contains specific restrictions on the types of entities which may hold cable
television licenses or significant interests therein. Cable television licenses
may not be held by a local authority, an advertising agency, a religious or
political body (or one of its officers) or any entity controlled by them.
Ownership restrictions also apply to ownership of different licensed services
(including local delivery services, television, satellite and radio services
and newspapers), or associates of entities operating such services. See "--
Media Ownership". While PDSLs in most respects continue to be regulated under
the Broadcasting Act 1990 and the Broadcasting Act 1996 as if the CBA remained
in force, the ownership restrictions for PDSLs and LDLs are substantially
similar.
There is currently no restriction on the number of cable television
licenses which may be held by any person.
CABLE TELECOMMUNICATIONS
The Telecommunications Act
The Telecommunications Act provides a licensing and regulatory framework
for telecommunications activities in the U.K. and established OFTEL under the
Director General as an independent regulatory authority. Telecommunications
policy is overseen by the DTI. The DTI on behalf of the Secretary of State also
has primary licensing authority under the Telecommunications Act, although it
may delegate that authority to the Director General. The functions of the
Director General are, among other things, to monitor and enforce compliance
with telecommunications license conditions, establish and administer standards
for telecommunications equipment and contractors, and investigate complaints
and exercise certain functions concurrently with other regulators to promote or
ensure competition in telecommunications markets. The Director General may
modify telecommunications licenses either with the agreement of the licensee
following a statutory period of public consultation or following a report by
the MMC. The Director General is also empowered to issue enforcement orders
requiring compliance with telecommunication license conditions which have been
breached (see below).
Telecommunications Licenses
The Group holds eight telecommunications licenses and has applied for a
national telecommunications license to cover those areas for which it does not
presently hold a telecommunications license, including the areas for which it
has been granted LDLs. The national telecommunications license is intended to
cover the Group's LDL franchises, but the Group has the option of relying on
its original applications for individual telecommunications licenses for those
areas. However, no assurance can be given that a national telecommunications
license will be granted to the Group. In addition, the Group holds temporary
telecommunications licenses granted under section 7 of the Telecommunications
Act on September 16, 1994 and December 21, 1994 to interconnect
telecommunications systems run by Diamond Cable (Newark on Trent) Limited and
Diamond Cable (Lincoln) Limited, and to run telecommunications systems in the
Coalville area of Leicestershire, respectively. These temporary licenses may be
revoked by the Secretary of State on one month's notice. A telecommunications
license authorizes a cable operator to install and operate the physical network
used to provide cable television and cable telecommunications services. It also
authorizes the operator to connect its system to other television and
telecommunications systems,
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including those operated by the PTOs, the terrestrial broadcasting authorities
and satellite broadcasting systems. Although the telecommunications license
granted to a cable operator is for a particular area, it is not exclusive and,
as a result, a cable telephone operator is subject to competition with respect
to the provision of telephone services from national PTOs such as BT and
Mercury and other telephone service providers in its franchise area. See
"Business -- Competition -- Business Telecommunications" and "Business --
Competition -- Residential Telephone". Following the Duopoly Review, the
Government has granted a telecommunications license to any applicant provided
the applicant has satisfied certain requirements, including with respect to
financial viability and, in some cases, service commitments. See "-- Duopoly
Review".
A cable operator's telecommunications license contains conditions
regulating the manner in which the licensee operates its telecommunications
system, provides telecommunications services, connects its systems to others
and generally operates its business. A cable operator's telecommunications
license also contains a number of detailed provisions relating to the technical
aspects of the licensed system (e.g., numbering, metering and the use of
standard technical interfaces) and the manner in which the licensee conducts
its business (e.g., publication of certain prices, terms and conditions). In
addition, a cable operator's telecommunications license contains prohibitions
on undue preference and discrimination in providing service and unfair
cross-subsidy of other services. The cable operator's telecommunications
license also requires the licensee to comply with certain codes of practice and
to provide any information which the Director General may require for the
purposes of carrying out his statutory functions. Failure to comply with an
enforcement order in respect of a breach of a telecommunications license
condition might give rise to revocation, an injunction by the Director General
or to a third party's right to damages.
On July 18, 1996, the Director General issued a statement (following
public consultation) setting out OFTEL's proposals for the introduction into
BT's license of a new condition, which would prohibit any abuse of its dominant
position and any agreement or concerted practice between BT and other entities
restricting or distorting competition in the telecommunications market. The
proposed condition formed part of a package with revised price controls
proposed for BT and came into effect on December 31, 1996. BT challenged the
introduction into its license of the fair trading condition, and on December
20, 1996, the High Court entered judgment against BT.
The fees payable for the telecommunications license consist of an initial
fee payable on the grant of the license and annual fees thereafter. The annual
fees are based on a proportion of the costs of the Director General in
exercising his functions under the Telecommunications Act and in certain cases
a proportion of costs of the MMC incurred in relation to license modification
references under the Telecommunications Act.
A telecommunications license is not transferable. However, certain changes
in ownership of an entity holding a license are allowed, subject to compliance
with a notification requirement.
Network Construction and Service Obligations
Where a cable operator holds a PDSL or an LDL replacing a PDSL (see " --
General"), the milestones are contained in the corresponding telecommunications
license and are reviewable by OFTEL.
Where, on the other hand, a cable operator holds a new LDL which is not a
conversion from a PDSL, the milestones are contained in the LDL and are
reviewable by the ITC.
Each of the Group's existing telecommunications licenses prescribes
milestones which require the Group to construct its network to pass a specified
number of premises within prescribed time periods. The milestones may be varied
by the Director General if he considers that the variation would enable the
licensee to meet the final milestone more easily. The final milestones can be
modified only following a public consultation period and with the approval of
the Director General. If the milestones prescribed by a telecommunications
license are not met, the Director General may take enforcement action which, if
not complied with, could result in the revocation of such license. Similarly,
the LDLs which the Group has acquired contain build milestones which may be
varied by the ITC. See "Business -- Construction" and "Business -- Milestones".
The Company understands
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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 telecommunications licenses were
granted for an initial period of 23 years, and one was granted for an initial
period of 15 years, both periods commencing on the date specified by the
Secretary of State (which, in practice, is the date on which the cable system
first becomes operative). The 15-year telecommunications license was
subsequently amended to a 23-year license. The Company expects that the Group's
anticipated national telecommunications license will be for a 23-year term.
Upon expiration, a telecommunications license cannot be extended and
application must be made for a new license.
A telecommunications license may be revoked if the licensee fails to pay
the license fees when due, fails to comply with an enforcement order, upon the
occurrence of certain insolvency-related events or if the cable television
license relating to the licensee's system is revoked. A telecommunications
license may also be revoked if, among other things, the licensee fails to give
the required notification to the DTI of changes in shareholdings and changes in
control and agreements affecting control of the licensee, or if the DTI
concludes that any such change would be against the interests of national
security or the U.K. Government's international relations.
Duopoly Review
In 1991, the U.K. Government concluded in its Duopoly Review that the
termination of the duopoly policy (which permitted only BT and Mercury to
operate local, national or international fixed-link networks in the U.K. to
provide public telephone services) might increase competition and
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benefit consumers in the U.K. telecommunications market. As a result, the U.K.
Government revised its policy and determined that application for licenses
would be considered from any person seeking to operate new telecommunications
networks over fixed links within the U.K. Such licenses normally would be
granted subject to the general statutory duties of the DTI and the Director
General to ensure the provision of telecommunications services, to satisfy all
reasonable demands for them and the ability of a person providing the services
to finance their operations.
The Duopoly Review also recommended specific amendments to license
conditions that are particularly important to cable operators. Until the
Duopoly Review, for a cable operator to provide telephone services it had to
enter an agreement with BT or Mercury with respect to the terms and conditions
(including price) under which the operator would provide telephone services,
obtain a determination from the Director General that services could be
provided and operate its network as agent for either BT or Mercury. Since the
Duopoly Review, cable operators have been permitted to provide all forms of
wired telecommunications services in their own right, including the ability to
switch their own traffic. The Duopoly Review also recommended changes to and
further study of arrangements relating to interconnection, number portability
and equal access (discussed below).
As a result of the Duopoly Review, the Group applied for and received
modified telecommunications licenses to enable the Group to provide wired
telecommunications services in its own right.
Interconnect Arrangements
The ability of cable operators to provide viable voice and other
telecommunications services is dependent on their ability to interconnect
cost-effectively with other PTO's telecommunications networks in order to
complete calls that originate from a customer on their cable network but that
terminate off their network or that originate from a customer off their cable
network and terminate on their network. Since the Duopoly Review, cable
operators with contiguous franchises have been able to connect their networks
without regard to whether they are under common ownership without using the
services of BT or Mercury.
The DTI is able to consider applications by cable operators to join more
distant franchises, and Diamond has a license to link two of its franchises
which are not adjacent to one another. Once DCL has obtained a national
telecommunications license it will be able to link non-contiguous franchises
without the need to apply to the DTI.
PTOs are required under their telecommunications licenses to enter into
interconnection agreements with other PTOs such as the Group (if requested to
do so by such a PTO), and the Group has interconnection agreements with BT,
Mercury, Energis and Global One. The BT agreements may be terminated by either
party upon two years' notice, the Mercury agreement may be terminated by either
party upon three years' notice, the Energis Agreements may be terminated by
either party on six months' notice and the Global One agreement may be
terminated by either party upon one month's notice after an initial term of one
year. If the Group is unable to negotiate acceptable pricing terms with BT,
Mercury, Energis or Global One in connection with any continuation or extension
of these agreements or scheduled reviews of these agreements, the Group may
request that the Director General determine such terms. A recent case has
established that it is possible for a regulated company to challenge in the
U.K. courts a determination by the Director General of terms of interconnection
agreements. The Director General also has the power to make determinations in
respect of certain obligations of any party under an interconnection agreement.
OFTEL currently determines standard interconnect charges. The first
interim charge determination covered the period from April 1, 1995 to March 31,
1996. Interim charges are based on forecast financial statements (on a fully
allocated costs basis). OFTEL is currently assessing final charges based on
BT's final financial statements for that period. A draft determination was
published by OFTEL in February 1997. Final charges may involve a readjustment
of charges made under the interim determination where appropriate. At the end
of 1996, OFTEL completed another consultation process and published interim
charges for the period from April 1, 1996 to March 31, 1997. As a result of
these revised charges, the Group will receive outgoing interconnect charge
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rebates, and must pay incoming termination rebates for periods from April 1,
1995. The Company has estimated that the rebate due to the Group will exceed
the rebates to be paid by the Group. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations for
the Three Years Ended December 31, 1996 -- Revenue".
On March 20, 1996, the Director General published a consultation paper in
which OFTEL proposed basing interconnection charges on forward looking
incremental costs. It is proposed that this would take effect from August 1997,
subject to a network price cap. This would impose a Retail Price Index ("RPI")
minus X cap on interconnect prices. Within that cap it is proposed that OFTEL
would impose floors and ceilings for interconnection services, which would
control BT's prices for its various interconnection services.
In June 1996, the Director General published a statement in which he made
it clear he is proposing to replace the annual determination of charges with a
system of network controls for those services which are not competitive, using
baskets of interconnection services, each subject to a charge cap formula of
RPI minus X. Charges for those services which are expected to become
competitive during the next price control period, i.e. from August 1997 until
the middle of 2001, will not be included in the network baskets, but will be
governed by safeguard caps of RPI plus 0%. Charges for those services which are
expected to become competitive before August 1997 or which are determined by
the Director General to be competitive during the control period, will be free
of network controls. The value of "X" has not as yet been decided. Neither have
the "floors and ceilings" of prices within the baskets. Further work on these
areas and on the model by which the Director General is to base charges on
incremental costs is to be carried out in early 1997. The current proposals are
subject to public consultation, which ends on February 13, 1997. OFTEL has said
it will publish a further informal consultative document in March 1997 and its
final proposals with license modifications for formal consultation in May 1997.
If BT agrees to them, these modifications to BT's license will become
effective on August 1, 1997. If BT were to fail to agree, there may be a
reference to the MMC. In the period before recommendations of the MMC were
implemented, the current interconnection regime would continue.
Price Regulation
Although to date the Group has for the most part been able to price its
cable telephone call charges below those of BT, there can be no assurance that
it will be able to continue to do so in the future. BT currently is subject to
controls over the prices it may charge customers for network services,
including a requirement that the overall basket of charges may not be changed
by more than an amount equal to the percentage change in the RPI less 7.5% (and
BT may, as a result, have to decrease prices). In particular, BT may not
increase charges for certain services by more than the amount of the percentage
change in the RPI.
OFTEL's latest proposals for control of BT's retail prices have been
incorporated in BT's license. The retail price controls will continue until
2001 and are stated to be the last such controls. The controls will only be put
in place where consumer protection is required, that is, for low to
medium-spending residential customers and small businesses. The current RPI
minus 7.5% price cap will be replaced with effect from August 1997 with a cap
of RPI minus 4.5% on the narrower basket of services described above. Safeguard
caps of RPI plus 0% will be imposed on certain services. See "Business --
Competition -- Residential Telephone".
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
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operators. The proposals for price controls will mean further modification of
interconnect prices in 1997.
The telephone service prices charged by the Group and other service
providers other than BT currently are not regulated by the Director General,
although undue preference, undue discrimination, linked sales and cross-subsidy
regulations within each of its franchise areas do apply to the Group.
Equal Access
At present, most residential customers rent an exchange line from BT and
the only way in which a residential BT customer can choose to route calls over
the Mercury trunk network is by dialing a special access code or by purchasing
a special telephone instrument with which (by pressing a special button) it is
possible to select the Mercury network. The stated policy of the U.K.
Government in the Duopoly Review was to introduce true equal access, whereby
local telephone systems with a market share of 25% or more will have to offer
access to each available fixed link trunk system without discrimination between
systems. BT's and Mercury's and cable operators' licenses have been amended to
enable the Director General to require them to make available equal access,
either by pre-selection or on a call-by-call basis, subject to, among other
things, a cost-benefit study indicating that the gains will outweigh the likely
costs. Many cable operators opposed the Duopoly Review in this respect because
equal access would reduce one of the current attractions of a cable operator's
telephone system. True open access might enable cable companies to offer equal
access benefits to their customers on attractive terms. Modifications made to
each of the Group's telecommunications licenses also provide that the relevant
licensee may be required by the Director General to make equal access available
once the Group first provides 25% of the available exchange lines in any local
exchange area of BT or in the relevant franchise area. The timing and terms of
the introduction of equal access are unclear. The EC is currently consulting on
proposals to introduce carrier pre-selection in the long term. There can be no
assurance that the implementation of true equal access in the future will not
adversely affect the ability of cable operators to market their telephone
services.
Number Portability
Telephone subscribers changing their telephone service to a cable operator
have historically had to change their telephone numbers. As a result certain
business customers have been reluctant to switch carriers because they would
lose their existing telephone numbers. In response to this, Diamond has
provided its business customers with the opportunity to use the Group's
telephone service for their outgoing telephone calls, which generally carry
higher revenues than incoming calls, and for their specialized
telecommunications needs, while retaining their existing service provider (and
their existing telephone number) for incoming telephone calls.
In January 1994, the Director General announced that OFTEL was working on
directives to require BT to introduce number portability for the cable
operators who had provided OFTEL with the necessary information as to where and
when they could provide portability to BT. The Director General's statement
indicated that number portability may be introduced in the geographic areas
where it is technically feasible in the foreseeable future. BT rejected a
framework proposed by OFTEL for determining the charges payable for number
portability in the event of a dispute between BT and other operators. In April
1995, the Director General referred the matter to the MMC to establish whether
the failure of BT to reach agreements with other operators on the commercial
terms and conditions for number portability was against the public interest,
and if so, whether the adverse effects could be remedied or prevented by
modifications to the conditions of BT's telecommunications license. On December
14, 1995, the Director General announced the MMC's conclusions, including that
the absence of number portability operated against the public interest, that
the absence of number portability was an obstacle to operators' (including
cable operators) ability to win customers from BT, that the introduction of
number portability will strengthen competition, and that BT's
telecommunications license should be modified (following a statutory
consultation period) to enable the allocation of BT's costs incurred in this
regard between BT and other operators (including cable operators), with BT
bearing the greater share. The MMC also noted that there is general agreement
in the industry that reciprocity should continue to be an essential
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element in the introduction of number portability, and that the arrangements to
be made for allocating portability costs need to take account of the fact that
BT will not always be the exporting operator. BT's telecommunications license
has been modified accordingly, and the telecommunications licenses of the other
national PTOs are expected to be modified later in 1997, following
consultation.
Restrictions on National PTOs
The Duopoly Review maintained restrictions upon BT and other national PTOs
from conveying or providing entertainment services (such as the cable
television services currently provided by the Group) over their national
telecommunications networks. The U.K. government stated that the restrictions
upon the conveyance of such services nationally (for example, on behalf of
other service providers) may be reviewed in 1998, but the restrictions
regarding provision by the national PTOs themselves were not intended to be
reviewed until 2001. The Duopoly Review policy did not prevent the national
PTOs from providing cable television services of the kind currently provided by
the Group, but it did require that such services be provided through separate
systems by separate subsidiaries of the national PTOs under separate licenses
similar to those held by the Group. The ITC's policy of granting one cable
television license for each geographic area has ensured that no national PTO
subsidiaries compete with the Group in the provision of cable television
services in the same area. BT currently owns and operates one broadband cable
franchise in the U.K., in Westminster, central London and was the highest
bidder for the Milton Keynes franchise, which has yet to be awarded. Since
April 1, 1994, cable television services may be provided locally by the
national PTOs without requiring separate subsidiaries, although all other
licensing requirements, including the need for the national PTO to obtain an
LDL to provide cable services within each locality, will remain applicable to
both national PTOs and to other cable operators such as the Group. In November
1994, the DTI stated that if national PTOs (including BT and Mercury)
successfully bid for a new cable television license, the DTI would be prepared
to issue a telecommunications license to enable any such national PTO to convey
entertainment services over its own systems within the relevant franchise area.
Following a consultative document issued in March 1996, the U.K.
Government announced on June 6, 1996, that it was ending the duopoly between BT
and Mercury as international carriers from the U.K. A license holder may now
provide international services from the U.K. on telecommunications facilities
owned and controlled by the company providing the service, and will be able to
offer services on any route it chooses. A large number of international
facilities licenses have been granted.
The DTI also reiterated the U.K. Government's commitment to the Duopoly
Review restrictions on national PTOs such as BT with regard to the conveyance
and provision of cable television services, while noting that national PTOs
could bid for new franchise areas and provide video-on-demand services to
individual residential customers.
On September 29, 1993, the ITC issued a statement in which it concluded
that national PTOs such as BT could provide a "video-on-demand" service
nationally over their telecommunications networks without requiring further
regulatory changes in respect of the conveyance of such services (although the
programming itself might require a license). A "video-on-demand" service was
defined by the ITC as a service in which individual programs are transmitted to
only one household at a time in response to a particular request. As such, a
"video-on-demand" service in this context does not embody cable television
services of the kind provided by the Group for simultaneous reception in
multiple residential households. The ITC noted that its conclusions were shared
by other regulatory bodies (i.e., the DTI and OFTEL), but that its conclusions,
if disputed, could only be definitively resolved in the courts.
Currently, no video-on-demand service is commercially available from any
PTO. However, BT ran a pilot program for this service to the homes of a limited
number of BT employees and is understood to have run an interactive TV,
including video-on-demand, commercial pilot program. Mercury has also announced
that it is considering a video-on-demand pilot program. The existing
restrictions on the provision of broadcast entertainment services by national
PTOs have been the subject of continued political debate. In July 1994, the
House of Commons Trade and Industry
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Select Committee issued a report on optical fiber networks in which it
recommended, among other things, (i) that national PTOs be permitted to apply
to provide broadcast entertainment on a franchise by franchise basis, subject
to all existing franchises being exclusive for seven years from the grant of
the original licenses, (ii) that all restrictions on national PTOs conveying or
providing entertainment be lifted by the end of 2002, provided that the PTOs
permit fair and open access to their networks and (iii) that national PTOs
(amongst others) be entitled to bid for cable television franchises in
unfranchised areas by the end of 1995. The Committee's recommendations are not
binding and need not necessarily lead to a change in government policy. The
DTI, OFTEL and the ITC have stated that lifting these restrictions would limit
competition by jeopardizing the investment programs of cable operators and the
DTI has subsequently reaffirmed that the U.K. Government would not pursue the
Committee's recommendations. Should the Labour Party be elected to Government
it may review the restrictions on national PTOs, and in a speech by the Labour
Party leader on October 3, 1995, it was proposed that a Labour government might
increase BT's regulatory freedom. A general election has been called for May
1997.
FUTURE DEVELOPMENTS
Digital Broadcasting
The Broadcasting Act 1996 introduced provisions for the licensing of
digital terrestrial broadcasting and introduced a "must carry" requirement on
cable companies where both program provider and cable operator use digital
technology to ensure the universal availability of designated public service
channels. Must carry obligations concerning public service channels already
apply to holders of PDSLs.
The Broadcasting Act 1996 permits the initial availability of six
television multiplexes, or frequency bands giving substantial national
terrestrial coverage, each with the ability to carry several television
channels. The new legislation includes provisions for the ITC's licensing of
"multiplex providers", who would initially be allocated, in aggregate, the six
multiplexes for 12-year license periods. Each multiplex provider will contract
with broadcasters for the transmission of the broadcasters' television services
via its allocated frequency. All existing terrestrial broadcasters, including
Channel 5, would be offered half a multiplex and the BBC would be awarded its
own multiplex, with competition between other operators for the remaining
capacity. The ITC announced on October 31, 1996 that it would accept
applications for licenses to provide terrestrial digital television services.
On January 31, 1997, the deadline for applications, the ITC had received two
competing applications for three of the multiplexes. One of the applicants is a
joint venture by BSkyB, Carlton Communications plc and Granada Group plc. The
ITC has indicated it will award the licenses in Spring 1997, following a six
week public consultation period.
In addition, on August 23, 1996 regulations came into force to implement
in the U.K. the European Advanced Television Services Directive. The
regulations apply in relation to conditional access to digital television
services broadcast to viewers in the EEC, irrespective of the means of
transmission, and therefore apply whether digital television services are
transmitted by cable, satellite or terrestrial means. The regulations provide
that licenses for industrial 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
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signal. In addition, conditional access operators are required to cooperate
with cable operators so that cable operators are able to transcontrol and
rebroadcast television services using their own conditional access system
without incurring unnecessary or unreasonable expense. The class license also
contains fair trading provisions.
In December 1996 OFTEL published a consultation paper and draft guidelines
on the regulation of conditional access services for digital television. The
initial consultation period expired on January 24, 1997. Final guidelines have
not yet been published.
Media Ownership
The Broadcasting Act 1996 amends the media ownership rules contained in
the Broadcasting Act 1990. It relaxes the earlier rules limiting ownership
between terrestrial television, satellite and cable broadcasters, except for
those broadcasters which are already more than 20% owned by a newspaper with
more than 20% national newspaper circulation. Qualifying terrestrial
broadcasters are now allowed to have controlling interests in cable and
satellite companies, provided their total interests do not exceed 15% of the
total television market (defined by audience share including public service
broadcasters) and qualifying cable companies will be able to control
terrestrial television companies, subject to the 15% total television market
limit and certain restrictions on the number of terrestrial licenses held.
Newspaper groups with less than 20% national newspaper circulation are now able
to control television broadcasters constituting up to 15% of the total
television market, subject to a limit on the number of terrestrial licenses
held, unless the ITC decides that such control would be against the public
interest. Newspaper companies, the license holders of Channel 3 and Channel 5
and satellite and cable broadcasters, are to have the ability to control any
number of digital terrestrial television licenses, in addition to any analogue
licenses.
Previous U.K. Government proposals have also contemplated a more
integrated system of media ownership and control in the longer term, to take
account of the increasing number of broadcasters and technological convergence,
and involving regulation of the media-market as a whole. The Company can give
no assurance as to whether these proposals for regulation will be enacted or,
if they were enacted, as to what their content would be or what effect they
might have on the Group's business.
BSM Services
In August 1995 OFTEL issued a consultative document which addressed the
potential development of broadband switched mass-market ("BSM") services in the
U.K. and related regulatory issues. BSM services involve the delivery of
video-quality images over a switched system, at prices intended to encourage
the development of a mass market. The consultative document suggested that
dominant operators (potentially including cable operators) should be required
to provide, on transparent and non-discriminatory terms, broadband conveyance
(including switching) as a network business to service providers which could
have direct commercial relationships with individual customers. Requirements
for accounting separation and the possible need for some form of price control
were also considered. OFTEL suggested that BT is likely, at an early stage, to
be considered a dominant operator, possibly when it starts to roll out BSM
services aimed at covering a significant portion of the U.K., either nationally
or in a specific regional market. OFTEL suggested that such regulation should
only be applied to the cable sector when it becomes dominant, either nationally
or in a specific regional market and is able to compete on equal terms with BT
and any other BSM services distributor. In the meantime the document recognized
the importance of encouraging continuing local investment in the cable
industry's infrastructure. The document also raised the question whether
license obligations on cable operators to provide cable television services
where their systems have been installed should not apply to BSM services (other
than the broadcast entertainment services for which they have exclusive cable
distribution rights in their franchise areas) until they become dominant in
their relevant markets. The stated purpose of the consultative document was to
raise issues in order to stimulate debate to assist in the development of the
kind of regulatory regime that will best promote the new services. The August
1995 consultative document was followed by a consultative document in February
1996 and by a statement by the Director General in June 1996, both of which
were concerned with promoting
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<PAGE> 67
competition in the current market for services such as on-line information,
electronic data interchange and voice messaging.
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COMPANY ORGANIZATION
The Company owns all of the share capital of Jewel, which in turn owns
100% of the share capital of DCL and (directly or indirectly) the companies
comprising LCL. DCL was incorporated in 1989. Following a reorganization in
1996, DCL provides, among other things, telecommunications and cable television
services to all of the Group's customers and owns, builds and operates the
entire cable and communications system throughout the area of the Group
franchises. As such, DCL holds PDSLs for Nottingham, Leicester and
Loughborough, Melton Mowbray, Mansfield, Lincoln, Grimsby and Cleethorpes,
Grantham and Newark-on-Trent and LDLs for Lincolnshire and South Humberside,
Chesterfield, Vale of Belvoir, Ravenshead, Bassetlaw, Burton-upon-Trent and
Hinckley.
DCL also holds a Telecommunications Act License for Nottingham. DCL has
applied for a National Telecommunications Act License in all other areas
excluding those presently covered by the PDSLs, where Telecommunications Act
Licenses are already currently held by other Diamond subsidiaries, namely,
Diamond Cable (Melton Mowbray) Limited, Diamond Cable (Mansfield) Limited,
Diamond Cable (Lincoln) Limited, Diamond Cable (Grimclee) Limited, Diamond
Cable (Grantham) Limited, Diamond Cable (Newark-on-Trent) Limited and Diamond
Cable (Leicester) Limited. These companies are (directly or indirectly) wholly
owned subsidiaries of the Company. They will continue to run the systems in
their areas.
DCL was founded by the late Allan J. McDonald and by Gary L. Davis, the
Company's former Managing Director. Mr. McDonald co-owned a group of cable
television companies in the Southeast United States and Bermuda. Immediately
prior to the acquisition by ECCP, approximately 99.6% of DCL's equity was held
by trusts in which Mr. McDonald's immediate family are beneficiaries (the
"McDonald Interests"), while the remaining 0.4% was held by CGT Family
Corporation ("CGT"), in which Mr. Davis and his family are shareholders. Mr.
McDonald and his family had up to that time provided nearly all DCL's capital.
In May 1994, the McDonald Interests sold a 79.6% stake in DCL to ECCP,
which is a partnership in which various investment funds managed by Goldman,
Sachs & Co. or its affiliates (together, the "Goldman Sachs Affiliates") own an
83.3% interest. The two other partners in ECCP are affiliates of Robert T.
Goad, the Company's Chief Executive Officer, and Ralph H. Booth II. Messrs.
Goad and Booth are founders and principals in ECE Management International,
which provides management services to the Company. See "Management --
Management Agreement". Mr. Goad has actively operated and held ownership
interests in U.K. cable systems since 1989, prior to which time he acquired and
developed cable systems in the United States. See "Management". Mr. Booth is
president of Booth American Company, a family-owned U.S. media company
operating cable systems and various radio interests.
Diamond Cable Communications Plc was incorporated on August 31, 1994. On
September 1, 1994, in preparation for the offering of the 1994 Senior Notes,
DCL shareholders exchanged DCL shares for shares of the Company in proportion
to their DCL holdings. In August 1995, the Company exchanged all of its shares
in DCL for shares of Jewel, as a result of which Jewel became an intermediate
holding company.
In addition, in October 1994 and February 1995 Investor Investments AB
("Investor Investments"), a subsidiary of Investor AB, and Creative Artists
Agency, Inc. ("CAA"), respectively, became shareholders. 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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SHAREHOLDERS
The following table sets forth, as of March 1, 1997, certain information
regarding beneficial ownership of the Company's ordinary shares of 2.5 pence
each ("Shares") held by (i) each person known by the Company to beneficially
own more than 5% of any class of the Company's outstanding voting securities
and (ii) all directors and executive officers of the Company individually and
as a group.
<TABLE>
<CAPTION>
SHARES
----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1)
- ------------------------------------ ---------- ----------
<S> <C> <C>
European Cable Capital Partners, L.P.(2).......... 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
Gary L. Davis(6).................................. 689,000 1.2%
All directors and executive officers of the
Company as a group(7)............................. 3,680,099 6.2%
</TABLE>
_______________________
(1) The percentage of Shares owned has been calculated based on the
59,138,791 Shares which are outstanding, plus, in the case of Mr. Davis,
654,000 Shares issuable upon the exercise of currently exercisable Share
options. See "Management -- Executive Compensation". Except as specified
with regard to Mr. Davis, the number of Shares outstanding does not
include 1,872,000 Shares issuable upon the exercise of options which 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
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Allan J. McDonald, Jr. Grantor Trust. Pursuant to the Shareholders
Agreement (discussed below), the McDonald Interests have the right to
appoint one member of the board of directors of the Company. Otherwise,
the McDonald Interests maintain no active role in the management or
operation of the Company.
(4) Booth English Cable, Inc. indirectly maintains an interest in Shares
through the 9.1% interest maintained by Booth English Cable, Inc. in ECCP
and directly maintains a 0.9% interest in Shares held by Booth English
Cable, Inc.
(5) Mr. Goad indirectly maintains an interest in Shares through the 7.6%
interest maintained by Columbia Management, Inc. in ECCP.
(6) The number of Shares in the table consists of 35,000 Shares held by CGT
and 654,000 Shares issuable pursuant to options granted to CGT. See
"Management Executive Compensation".
(7) Includes the interests held by Mr. Goad and Mr. Davis, but does not
include 2,187,556 Shares of the John L. McDonald Grantor Trust of which
John L. McDonald is the beneficiary.
The authorized share capital of the Company consists of L.1,750,001.50
divided into 70,000,000 Shares with voting rights, of which 59,138,791 Shares
are outstanding, and six non-voting deferred shares of 25 pence each, all of
which are outstanding. Five of the non-voting deferred shares are held by
AmSouth Bank of Alabama, as trustee for the McDonald Interests ("AmSouth"), and
one is beneficially owned by CGT, a company in which Mr. Davis and his family
are interested. The non-voting deferred shares entitle the holders thereof only
to the repayment of the amounts paid up on such shares after payment to the
holders of Shares of L.100,000 for each Share. The holders of non-voting
deferred shares will not be entitled to the payment of any dividend or other
distribution.
SHAREHOLDERS AGREEMENT
The Shareholders Agreement, dated September 1, 1994, among ECCP, AmSouth,
as trustee for the McDonald Interests, CGT, GS Capital Partners, William W.
McDonald and the Company, regulates the relationship between certain of the
shareholders. Pursuant to provisions of the Company's Articles of Association,
the Shareholders Agreement grants ECCP the right to appoint up to four
directors, one of whom may exercise voting control at meetings of the
directors, and the McDonald Interests the right to appoint one director. 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".
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RELATIONSHIP AGREEMENTS
Investor Investments and DCI entered into 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".
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MANAGEMENT
Certain information concerning the directors and senior management of the
Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Lord Francis Pym 75 Director and
Non-Executive Chairman
Robert T. Goad 42 Director, Chief
Executive Officer
Gary L. Davis 52 Director
Richard A. Friedman 39 Director
John L. McDonald 22 Director
Thomas Nilsson 48 Director
Muneer A. Satter 36 Director
John L. Thornton 43 Director
Nicholas R. Millard 46 Chief Financial Officer
J.A. Duncan Craig 41 Chief Accounting Officer
</TABLE>
(All of Diamond Plaza, Daleside Road, Nottingham NG2 3GG England)
Lord Pym has been a Director and Non-Executive Chairman since February
1995. He is a Member of the House of Lords and a former Member of Parliament
and served, among other things, as Secretary of State for Defence from 1979 to
1981 and Foreign and Commonwealth Secretary from 1982 to 1983. He was President
of the Atlantic Treaty Association from 1985 to 1988. Lord Pym is also a
director of Christie Brockbank Shipton Ltd., St. Andrews (Ecumenical Trust)
Ltd. and The Landscape Foundation.
Mr. Goad has been a Director and Chief Executive Officer since May 1994
and served as Chief Financial Officer from May 1994 until July 1995. Mr. Goad
is a founder of and principal in ECE Management International, LLC ("ECE
Management International") and has been President of Columbia Management since
1984.
Mr. Davis has been a Director and, until March 12, 1997, was Managing
Director since he co-founded the Company in 1989. From 1970 to 1989, Mr. Davis
practiced law in the United States, specializing from 1979 to 1989 in the cable
television industry and governmental regulations. Mr. Davis is also a director
of Nottingham Development Enterprise Limited and a director of the Cable
Communications Association.
Mr. Friedman has been a Director since May 1994. Mr. Friedman is a
managing director of Goldman, Sachs & Co. and head of that firm's Principal
Investment Area. Mr. Friedman joined Goldman Sachs in 1981. From 1987 to 1991,
Mr. Friedman was head of the firm's Media Group. Mr. Friedman is a member of
the firm's Partnership Committee, Risk Committee, Investment Committee and Real
Estate Principal Investment Committee. Mr. Friedman is Chairman of AMF Group,
Inc. and on the Advisory Committees or Boards of Directors of Globe
Manufacturing Co., Marcus Cable Company, L.P., and Polo Ralph Lauren
Enterprises, L.P.
Mr. McDonald has been a Director since October 1996. He is the McDonald
Interests' appointee under the Shareholders Agreement, dated September 1, 1994,
among ECCP, AmSouth, as trustee for the McDonald Interests, CGT, GS Capital
Partners, William W. McDonald and the Company (the "Shareholders Agreement")
and holds a number of other directorships in connection with other McDonald
investments.
Mr. Nilsson has been a Director since February 1995. Mr. Nilsson is
Managing Director of Investor U.K. Limited, London and was Managing Director of
AB Export Invest from 1985 to 1994. He is also a Board Member of
European Acquisition Capital, TV4 AB, WM Data, Svenska Dagbladet, Compagnie
Immobel de Belgique, STORA Finance, Tufton Oceanic Investments Ltd., Industri
Kapital Limited and Memex I&C AB.
Mr. Satter has been a Director since May 1994. Mr. Satter is a managing
director of Goldman Sachs International and co-head of that firm's European
Principal Investment Area. Mr. Satter joined Goldman Sachs in 1988. Mr. Satter
is also on the Advisory Committee or Board of Directors of Bran + Luebbe GmbH
and Empe Holdings GmbH.
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<PAGE> 73
Mr. Thornton has been a Director since May 1994. Mr. Thornton is a
managing director of Goldman, Sachs & Co. Mr. Thornton joined Goldman Sachs in
1980, is a member of the Executive Committee of The Goldman Sachs Group, L.P.,
and is responsible for Goldman, Sachs & Co.'s business in Asia. Mr. Thornton is
also chairman of Laura Ashley plc and a director of Ford Motor Company, British
Sky Broadcasting Group plc and Pacific Century Group.
Mr. Millard has been Chief Financial Officer since July 1995. Prior to
joining the Company, Mr. Millard was Group Financial Controller and a Director
of the Industrial Division of Brent International Plc. Mr. Millard is a
Chartered Accountant with experience at Arthur Andersen.
Mr. Craig has been Chief Accounting Officer since August 1990. Prior to
joining the Company, Mr. Craig was Finance Director of Video Magic Leisure
Group plc, a retail video distribution company which became a publicly quoted
company in 1989. Mr. Craig is a Chartered Accountant with experience at KPMG
and Price Waterhouse.
Certain information concerning certain other key employees of the Company
is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Mark L. Harris 42 Technical Services Director
John W. McAuley 49 Marketing Director
Susan L. Milner 40 Customer Services Director
Stephen D. Rowles 43 Executive Director
Peter C. Savage 38 Human Resources and
Administration Director
Katherine B. Wolfsohn 35 Legal Director
</TABLE>
Mr. Harris joined the Company in August 1994 as Technical Services
Director. Prior to joining the Company, Mr. Harris held various senior
management positions in the United States at Communications Services Inc.,
Tele-Communications Inc., Vista Cable Vision and Intercontinental Cable
Services. Mr. Harris is a member of the National Society of Professional
Engineers (U.S.) with over 20 years experience in communications engineering
management.
Mr. McAuley joined the Company in August 1995 as Marketing Director. Prior
to joining the Company, Mr. McAuley had six years experience at IBM where he
held various marketing management positions. Mr. McAuley has previous
experience in Cadware Incorporated, a PC software development company where he
held the post of Vice President of Marketing, Hudson Technologies, a PC
software publisher where he held a similar position and at Philip Morris where
he held a number of senior management/director level appointments in the
marketing field over a 12-year period.
Ms. Milner joined the Company in November 1992 and became Customer
Services Manager in 1993 and Customer Services Director in 1996. Ms. Milner had
six years experience with BT where she held positions in telephone operations.
Mr. Rowles has been Telecommunications Director since January 1992. Prior
to joining the Company, Mr. Rowles was a founder of RPL Telecommunications plc,
a PABX equipment and systems vendor, and served there as a Director from 1982
through 1991.
Mr. Savage joined the Company in June 1993 as Human Resources Director.
Prior to joining the Company Mr. Savage held positions in British Coal as
Personnel Manager for the Southern Region and as Deputy to the Head
of Employment Policy Branch. Mr. Savage is a member of the Institute of
Personnel and Development.
Ms. Wolfsohn joined the Company in November 1996 as Legal Director. Prior
to joining the Company, Ms. Wolfsohn was Legal Director and Company Secretary
at Bell Cablemedia plc for two years. Ms. Wolfsohn had seven years previous
experience in the corporate department of Linklaters & Paines in London and
qualified as a solicitor in Melbourne, Australia in 1986.
BOARD OF DIRECTORS
The Company's Articles of Association (the "Articles") provide that unless
otherwise determined by ordinary resolution, the number of directors (other
than alternate directors) shall be not less than two but shall not be subject
to any limit. Presently, the Board of Directors comprises eight members.
The Shareholders Agreement grants ECCP the right pursuant to the Articles
to appoint up to four members of the Company's board of directors, one of whom
may exercise voting control at meetings of the directors. The McDonald
Interests are given the right to appoint one director. Under the Relationship
Agreements between ECCP and Investor Investments and ECCP and DCI Capital
Partners ("DCI") dated October 12, 1994 and June 21, 1996 respectively (the
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<PAGE> 74
"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 pound
sterling 3.44 per Share and pound sterling 4.11 per Share, respectively.
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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) and during the years ended
December 31, 1995 and 1996 for Nicholas R. Millard and during the year ended
December 31, 1996 for J.A. Duncan Craig. No other executive officer of the
Group received compensation in excess of $100,000 for 1994, 1995 or 1996. See
"-- Employment Agreements and Other Arrangements" below for a description of
certain other transactions involving Mr. Davis. In addition, the following
table sets forth the compensation by the Group during the years ended December
31, 1994, 1995 and 1996 for Stephen D. Rowles and for Mark Harris for the years
ended December 31, 1995 and 1996, who, while not executive officers of the
Group, would have been among the most highly compensated executive officers
during 1995 and 1996 had they been such.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-----------------------------------------------
OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS (#)
- --------------------------- ----- -------- --------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Gary L. Davis,
Managing Director(3)........ 1996 $256,845 $111,300 $37,715 --
1995 $233,025 $77,675 $31,547 --
1994 $164,691 $39,162 $49,297 872,000
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").
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<PAGE> 76
See "-- Employment Agreements and Other Arrangements". Mr. Millard's "Other
Annual Compensation" for 1996 includes $13,356 for home rental, $11,972 for
the provision of a car, $908 for health insurance, $9,246 in pension
contributions and $594 for other living expenses, and for 1995 includes
$6,059 for home rental, $6,181 for the provision of a car, $343 for health
insurance, $3,495 in pension contributions and $145 for other living
expenses. Mr. Craig's "Other Annual Compensation" for 1996 includes $10,430
for the provision of a car, $809 for health insurance and $4,537 in pension
contributions. Mr. Rowles' "Other Annual Compensation" for 1996 includes
$10,606 for the provision of a car, $647 for health insurance, $343 for
other living expenses and $6,164 in pension contributions, for 1995
includes $9,427 for the provision of a car, $660 for health insurance and
$4,194 in pension contributions, and for 1994 includes $6,192 for the
provision of a car, $605 for health insurance and $4,230 in pension
contributions. Mr. Harris' "Other Annual Compensation" for 1996 includes
$20,385 for the provision of two cars, $4,101 for school fees, $810 for
health insurance, $10,274 for home rental and $342 for other living
expenses and for 1995 includes $19,747 for the provision of two cars,
$2,455 for school fees and $823 for health insurance.
(3) Mr. Davis retired from his day-to-day responsibilities as Managing
Director of the Company effective March 12, 1997 but remains a Director.
SENIOR MANAGEMENT OPTION SCHEME
The Company adopted a Senior Management Option Scheme on October 27, 1994
which has not been approved by the U.K. Inland Revenue. Under the scheme, the
Board of Directors may, for a period of 10 years, grant options over Shares
with an exercise price of L.3.44 or such other price as the Board of Directors
may determine, to executives or other individuals associated with the Group
selected by the Board of Directors. Options granted on or before April 30, 1995
can be exercised as to 50% of the shares subject to the option on or after June
30, 1998 and as to the other 50% on or after June 30, 1999, in each case, until
the seventh anniversary of the date of grant of the option. Options granted
after April 30, 1995 can only be exercised as to 50% on or after the fourth
anniversary of the date of grant, and as to the remaining 50%, on or after the
fifth anniversary of the date of grant, in each case, until the seventh
anniversary of the date of grant of the option. Options may be exercised early
in certain circumstances if the option holder ceases to be a director or
employee of the Group or if there is a change in control of the Group.
Options over a total of 728,000 Shares were granted to directors, senior
management and certain principals of ECE Management on February 23, 1995 and
July 19, 1995 under the Senior Management Option Scheme with an exercise price
of L.3.44. Of these 218,000 were granted to Gary Davis and 10,000 to Lord Pym.
On October 24, 1995, options over a total of 490,000 shares were granted
to directors, senior management and certain principals of ECE Management under
the Senior Management Option Scheme with an exercise price of L.4.11 per share.
Options were granted on January 5, 1995 to CGT, in which Mr. Davis and his
family are shareholders, over 654,000 Shares with an exercise price of L.3.44
and are exercisable at any time up to January 5, 2002. These options were not
granted under the Senior Management Option Scheme but are subject to some of
the provisions of the Senior Management Option Scheme.
According to the rules of the Senior Management Option Scheme, the
aggregate number of shares which have been or may be issued pursuant to options
granted under the Senior Management Option Scheme and options granted under any
other option scheme of the Company may not exceed 10% of the Company's then
current issued share capital.
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<PAGE> 77
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 the Group's cable network, the operation and administration of
the Group'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 Robert T. 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
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<PAGE> 79
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 Senior
Notes offering and received underwriting commissions of approximately
$6,750,000. In connection with the offering of the 1994 Senior Notes, Goldman,
Sachs & Co. received underwriting commissions of approximately $4,875,000.
Goldman, Sachs & Co. acted as advisor in connection with Diamond's acquisition
of LCL and received an advisory fee for their services amounting to
L.1,091,000. Goldman Sachs International acted as agent and financial advisor
in connection with the negotiation of Senior Bank Facility for which it has
charged fees of approximately 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 & Co. and a
Director of the Company, is also a director of BSkyB, a principal supplier of
programming to the Group and a principal competitor of the Group. See "Business
- -- Cable Television" and "Business -- Competition -- Cable Television".
Robert T. Goad, a Director and the Chief Executive Officer of the Company,
is also a shareholder in ICTL, which has significant cable interests in the
U.K.
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<PAGE> 80
DESCRIPTION OF COMPANY DEBT
SENIOR BANK FACILITY
In August 1996 certain of the Company's subsidiaries entered into a L.340
million senior bank loan and guarantee facility. Contemporaneously with the
offering of the 1997 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 1997 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. To date, no funds
have been drawn under the facility.
Indebtedness under the Senior Bank Facility will be incurred by DCL,
guaranteed by certain of the Company's other subsidiaries and secured by a lien
on the assets of the Borrower Group and a pledge of the issued shares of
certain of the Company's subsidiaries other than Jewel but including DCL and
LCL.
DCL will be able to draw on the amended facility provided certain
conditions are met, including (i) that the Borrower Group must be in compliance
with its obligations in respect of the aggregate build milestones for all
franchise areas as set forth in its telecommunications licenses and/or LDLs, as
described herein under the caption "Business -- Milestones", and that each
member of the Borrower Group must be in compliance with all of its other license
obligations, (ii) the receipt by the Company of additional equity of 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 Borrower Group and intra-Group indebtedness of the
Borrower Group to the Company which, in the case of (ii) and (iii) above, 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)
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<PAGE> 81
any other obligation in respect of such license, the breach of which (x)
results in a Notice Event or (y) is reasonably likely to have a material
adverse effect on the financial condition of the Borrower Group taken as a
whole or on the Group's telecommunication systems; and (iii) certain change of
control events, including certain persons or entities ceasing to control
specified percentages of the total voting and economic power of the Borrower
Group.
Borrowings will bear interest at adjusted sterling LIBOR plus 0.75%.
Quarterly repayment of outstanding principal amounts is required beginning in
the fourth quarter of 2000, with final payment in 2003. See "Risk Factors --
Requirement for Additional Funds; Senior Bank Facility".
The Senior Bank Facility will restrict the amount of funds that the
Borrower Group can transfer to the Company in order for the Company to service
its debt obligations, including under the Senior Notes. This amount is set in
pounds sterling based on a specified exchange rate. Therefore, a weakening of
the pound sterling against the dollar below this specified rate would reduce
the dollar-equivalent amount of funds that could be transferred to the Company
to service its obligations under the Senior Notes, the 1994 Senior Notes and
the 1995 Senior Notes.
OTHER COMPANY DEBT
As of December 31, 1996, the Group had outstanding long-term indebtedness
under capital leases in an aggregate principal amount of approximately L.8.2
million. The most significant of these capital leases are for
telecommunications and cable television distribution equipment.
DCL has a number of capital leases with GPT for System X local exchange
telephone switches and other telecommunications equipment. Most of these
agreements have a primary rental period of five years. Rent is payable
quarterly, and some of the agreements provide for fixed rate finance, others
for financing by reference to LIBOR from time to time. As at December 31,
1996, the capital outstanding under the GPT leases was approximately L.0.6
million.
In addition, DCL has entered into capital leases with Nortel Limited for
multiple user exchanges and other telecommunications equipment. These leases
are for a seven-year primary period and rent is payable monthly, calculated
according to a LIBOR based formula. As at December 31, 1996, the capital
outstanding under the Nortel Limited leases was approximately L.1.6 million.
DCL has the right to prepay its obligations under the Nortel Limited leases on
payment of a termination sum calculated by reference to a prescribed formula.
DCL has five-year lease purchase finance agreements with IBM for computer
equipment, the last of which expires in December 1999. As at December 31,
1996, the capital outstanding under the IBM agreement was approximately
L.0.2 million.
LCL entered into two capital leases with Nortel Limited for transmission
and digital exchange equipment which have been transferred to DCL. These leases
are for a seven-year primary lease period expiring in August 2002 and the rent
is payable quarterly on a LIBOR based formula. As at December 31, 1996, the
capital outstanding under the Nortel Limited leases was approximately L.5.5
million. DCL has the right to prepay its obligations under the Nortel leases on
payment of a prescribed termination sum. LCL also entered into capital leases
for computer systems with IBM which have been transferred to DCL and several
hire purchase agreements with various finance companies for motor vehicles. As
at December 31, 1996, the capital outstanding under the IBM leases was
approximately L.0.2 million and the capital outstanding under the various hire
purchase agreements was approximately L.0.1 million.
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<PAGE> 82
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 December 31, 1996 in other liabilities at its
fair value of L.1.2 million. See Note 17 to Notes to the Consolidated Financial
Statements.
On February 27, 1997, the Company issued $420.5 million in principal amount
at maturity of its 10 3/4% Senior Discount Notes due February 15, 2007 (the
"1997 Notes") at an issue price of $594.48 per $1,000 principal amount at
maturity. Net proceeds received by the Company amounted to approximately L.149
million after issuance costs of approximately L.5 million. Cash interest is not
payable on the 1997 Notes prior to August 15, 2002. Thereafter, cash interest on
the 1997 Notes is payable at a rate of 10 3/4% per annum.
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DESCRIPTION OF 1994 SENIOR NOTES
The 1994 Senior Notes have been issued under an Indenture, dated as of
September 28, 1994, as amended by the First Supplemental Indenture, dated as of
May 31, 1996 (collectively, the "1994 Senior Notes Indenture"), between the
Company and The Bank of New York, as trustee (the "Trustee"). A copy of the
form of the 1994 Senior Notes Indenture has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary of certain provisions of the 1994 Senior Notes Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the 1994 Senior Notes Indenture,
including the definitions of certain terms therein and those terms made a part
of the 1994 Senior Notes Indenture by reference to the Trust Indenture Act, as
in effect on the date of the 1994 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 1994 Senior Notes Indenture.
GENERAL
The 1994 Senior Notes constitute general unsubordinated obligations of the
Company, limited to $285,101,000 aggregate principal amount at maturity and
will mature on September 30, 2004. The 1994 Senior Notes have been issued in an
aggregate principal amount at maturity to generate gross proceeds of
approximately $150 million. The 1994 Senior Notes will accrete at a rate of 13
1/4%, compounded semiannually, to their aggregate principal amount by September
30, 1999 (the "Cash Interest Date"). Cash interest will not accrue on the 1994
Senior Notes prior to the Cash Interest Date. Thereafter, cash interest on the
1994 Senior Notes will be payable, at a rate of 13 1/4% per annum,
semi-annually in arrears on each March 31 and September 30 (each, an "Interest
Payment Date"), commencing March 31, 2000, to the Book-Entry Depositary (as
hereinafter defined) in the case of the Global Senior Note (as hereinafter
defined) and to holders of Definitive Registered Notes (as hereinafter
defined), if any, on the March 15 or September 15, as the case may be,
immediately preceding such Interest Payment Date. Cash interest will accrue
from the most recent Interest Payment Date to which interest has been paid or
duly provided for or, if no interest has been paid or duly provided for, from
the Cash Interest Date. Cash interest will be computed on the basis of a
360-day year of twelve 30-day months. For additional information concerning
payments on the 1994 Senior Notes, see "-- Description of Book-Entry System --
Payments on the Global Senior Note" and "-- Form of 1994 Senior Notes".
In August 1996, certain of the Company's subsidiaries entered into the
Senior Banking 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 1994 Senior
Notes. The 1994 Senior Notes effectively rank junior to any indebtedness of the
Company's subsidiaries to the extent of the assets of such subsidiaries and to
any secured indebtedness of the Company to the extent of the assets securing
such indebtedness. Indebtedness under the Senior Bank Facility will effectively
be senior to the 1994 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 1994
Senior Notes Indenture does not contain any provisions that permit the holders
of the 1994 Senior Notes to require that the Company repurchase or redeem the
1994 Senior Notes or otherwise protect the holders of 1994 Senior Notes in the
event of a takeover, recapitalization or similar restructuring or in the event
of another highly leveraged transaction.
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The 1994 Senior Notes are listed on the Luxembourg Stock Exchange.
FORM OF 1994 SENIOR NOTES
The 1994 Senior Notes are represented by a global security in bearer form,
without coupons attached (the "Global Senior Note"), which was issued in a
denomination equal to the outstanding principal amount at maturity of 1994
Senior Notes represented thereby. The Global Senior Note was deposited with The
Bank of New York, as book-entry depositary (the "Book-Entry Depositary"),
pursuant to the terms of a Deposit Agreement, dated as of September 28, 1994
between the Company, for the limited purposes set forth therein, the Book-Entry
Depositary and the owners from time to time of Book-Entry Interests (the
"Deposit Agreement"). See "-- Description of Book-Entry System".
Under the terms of the Deposit Agreement, owners of Book-Entry Interests
will receive Definitive Registered Notes (i) if DTC notifies the Book-Entry
Depositary that it is unwilling or unable to act as depositary or ceases to be
a clearing agency registered under the Securities Exchange Act of 1934, as
amended, and, in either case, a successor depositary is not appointed by the
Global Depositary at the request of the Company within 120 days, (ii) in the
event of an Event of Default under the 1994 Senior Notes Indenture upon request
of the owner of a Book-Entry Interest, (iii) at any time if the Company in its
sole discretion determines that the Global Senior Note (in whole but not in
part) should be exchanged for Definitive Registered Notes, (iv) if such owner
of a Book-Entry Interest requests such exchange in writing delivered to DTC and
through DTC to the Book-Entry Depositary or (v) if the Book-Entry Depositary is
at any time unwilling or unable to continue as Book-Entry Depositary and a
successor Book-Entry Depositary is not appointed by the Company within 120
days. In no event will definitive 1994 Senior Notes in bearer form be issued.
Any Definitive Registered Notes will be issued in registered form in
denominations of $1,000 principal amount at maturity. Any Definitive Registered
Notes will be registered in such name or names as the Book-Entry Depositary
shall instruct the Trustee based on the instructions of DTC. It is expected
that such instructions will be based upon directions received by DTC from its
participants ("Participants") with respect to ownership of Book-Entry
Interests. To the extent permitted by law, the Company, the Trustee and any
paying agent shall be entitled to treat the person in whose name any Definitive
Registered Note is registered, as the absolute owner thereof. While the Global
Senior Note is outstanding, holders of Definitive Registered Notes may exchange
their Definitive Registered Notes for Book-Entry Interests by surrendering
their Definitive Registered Notes to the Book-Entry Depositary. The amount of
the Global Senior Notes (and the Book-Entry Interests) will be increased or
decreased to reflect exchanges or issues of Definitive Registered Notes. The
Book-Entry Depositary will request the Trustee to make the appropriate
adjustments to the Global Senior Note underlying the Book-Entry Interests to
reflect any such issues or adjustments. The 1994 Senior Notes Indenture
governing the 1994 Senior Notes contains provisions relating to the maintenance
by a registrar of a register reflecting ownership of Definitive Registered
Notes, if any, and other provisions customary for a registered debt security.
Payment of principal and interest on each Definitive Registered Note will be
made to the holder appearing on the register at the close of business on the
record date at his address shown on the register on the record date.
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON THE DEFINITIVE REGISTERED NOTES AS SET FORTH UNDER "TAXATION UNITED
KINGDOM". A HOLDER OF DEFINITIVE REGISTERED NOTES WILL, TO THE EXTENT DESCRIBED
BELOW UNDER "-- PAYMENT OF ADDITIONAL AMOUNTS", BE ENTITLED TO RECEIVE
ADDITIONAL AMOUNTS WITH RESPECT TO SUCH DEFINITIVE REGISTERED NOTES. ADDITIONAL
AMOUNTS WILL NOT BE PAYABLE IF SUCH DEFINITIVE REGISTERED NOTES WERE ISSUED AT
THE REQUEST OF A HOLDER (INCLUDING FOLLOWING AN EVENT OF DEFAULT) AND AT THE
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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 1994 Senior
Notes".
Any person receiving Definitive Registered Notes other than at its own
request will not be obligated to pay or otherwise bear the cost of any tax or
governmental charge or any cost or expense of the Book-Entry Depositary,
relating to insurance, postage, transportation or any similar charge, which
will be solely the responsibility of the Company.
Principal of, premium, if any, and interest on any Definitive Registered
Notes will be payable at the corporate trust office or agency of the Trustee in
The City of New York maintained for such purposes. In addition, interest on
Definitive Registered Notes may be paid by check mailed to the person entitled
thereto as shown on the register for the Definitive Registered Notes. No
service charge will be made for any registration of transfer or exchange of any
Definitive Registered Notes.
REDEMPTION
OPTIONAL REDEMPTION
The 1994 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
1994 Senior Notes. Such redemption will be at the redemption prices (expressed
as percentages of principal amount at maturity) set forth below, plus accrued
and unpaid interest to the redemption date, if redeemed during the 12-month
period beginning September 30 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
1999..................... 107.125%
2000..................... 105.344%
2001..................... 103.563%
2002..................... 101.781%
2003..................... 100.000%
</TABLE>
PURCHASE OBLIGATION
The Company is not required to make any mandatory redemption or sinking
fund payments in respect of the 1994 Senior Notes. However, (i) upon the
occurrence of a Change of Control (as defined below), the Company will be
obligated to make an Offer to Purchase all outstanding 1994 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
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<PAGE> 86
maturity thereof, plus accrued interest thereon, if any, to the date of
purchase, if such purchase is on or after the Cash Interest Date, and (ii) upon
the occurrence of an Asset Disposition, the Company may be obligated to make an
Offer to Purchase all or a portion of the outstanding 1994 Senior Notes at a
price of 100% of the Accreted Value thereof (determined at the date of
purchase), if such purchase is prior to the Cash Interest Date, or 100% of the
principal amount at maturity thereof, plus accrued and unpaid interest, if any,
to the date of purchase, if such purchase is on or after the Cash Interest
Date. See "-- Certain Covenants -- Change of Control" and "-- Certain Covenants
- -- Limitation on Certain Asset Dispositions", respectively.
SELECTION; EFFECT OF REDEMPTION NOTICE
In the case of a partial redemption, selection of the 1994 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 1994 Senior Notes called for redemption will cease to
accrete (if such redemption occurs prior to the Cash Interest Date), interest
on 1994 Senior Notes called for redemption will cease to accrue (if such
redemption occurs on or after the Cash Interest Date) from and after the date
fixed for redemption (unless the Company defaults in providing the funds for
such redemption) and such 1994 Senior Notes will then cease to be outstanding.
OPTIONAL TAX REDEMPTION
The 1994 Senior Notes are subject to redemption upon not less than 30 nor
more than 60 days' notice by mail, as a whole, but not in part, at the election
of the Company at any time at a redemption price equal to 100% of the Accreted
Value thereof (determined at the date of redemption) if such purchase is prior
to the Cash Interest Date, or 100% of the principal amount at maturity thereof
(together in the case of any such redemption with accrued interest to the date
of redemption if such redemption is on or after the Cash Interest Date), if (a)
the Company is required to issue Definitive Registered 1994 Senior Notes after
using all reasonable efforts to avoid having to issue such Definitive
Registered 1994 Senior Notes and the Company is or would be so required in the
absence of any applicable tax treaty on the next succeeding Interest Payment
Date to pay Additional Amounts with respect to the 1994 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 1994 Senior Notes, any Additional Amount as a result of any change in the
laws (or any rules or regulations thereunder) of the United Kingdom or any
political subdivision or taxing authority thereof or therein (or, in the case
of Additional Amounts payable by a successor Person to the Company, of the
jurisdiction in which such successor Person is organized or any political
subdivision or taxing authority thereof or therein) or any change in any
official interpretation or application of such laws or rules or regulations or
any execution of or amendment to any treaty affecting taxation to which the
United Kingdom or such political subdivision or taxing authority (or such other
jurisdiction or political subdivision or taxing authority) is a party, if the
change becomes effective on or after the date of the 1994 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 1994 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.
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<PAGE> 87
PAYMENT OF ADDITIONAL AMOUNTS
All payments made by the Company on the 1994 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 1994 Senior Notes, the Company will pay such additional amounts
("Additional Amounts") as may be necessary so that the net amount received by
each holder (including Additional Amounts) after such withholding or deduction
will not be less than the amount the Holder would have received if such Taxes
had not been withheld or deducted; provided that the foregoing obligation to
pay Additional Amounts does not apply to (a) any Taxes which would not have
been so imposed but for the existence of any present or former connection
between such Holder and the United Kingdom (other than the mere receipt of such
payment or the ownership or holding outside of the United Kingdom of such
Senior Note); (b) any estate, inheritance, gift, sales, excise, transfer,
personal property tax or similar tax, assessment or governmental charge; or (c)
any Taxes payable otherwise than by deduction or withholding from payments of
principal (or premium, if any, on) or interest on such Senior Note; nor will
Additional Amounts be paid (i) if the payment could have been made by or
through another paying agent without such deduction or withholding, (ii) if the
payment could have been made without such deduction or withholding had the
holder of the Senior Note (whether in Global or Definitive Registered form) or,
if different, the beneficiary of the payment complied with a timely request of
the Company, or any other Person through whom payment may be made, addressed or
otherwise provided to such holder or beneficiary to provide information,
documents or other evidence concerning the nationality, residence, identity or
connection with the taxing jurisdiction of such holder or beneficiary which is
required or imposed by a statute, treaty, regulation or administrative practice
of the taxing jurisdiction as a precondition to exemption from all or part of
such tax, (iii) with respect to any payment of principal of (or premium if any,
on) or interest on such Senior Note to any holder who is a fiduciary or
partnership or Person other than the sole beneficial owner of such payment, to
the extent such payment would be required by the laws of the U.K. (or any
political subdivision or taxing authority thereof or therein) to be included in
the income for tax purposes of a beneficiary or settlor with respect to such
fiduciary or a member of such partnership or a beneficial owner who would not
have been entitled to the Additional Amounts had it been the holder of such a
Senior Note, or (iv) if the payment is in respect of a Definitive Registered
Note issued at the request of the owner of a Book-Entry Interest (including
following an Event of Default) and at the time the payment is made Definitive
Registered Notes have not been issued in exchange for the entire principal
amount at maturity of the 1994 Senior Notes. The foregoing provisions shall
survive any termination or discharge of the 1994 Senior Notes Indenture and
shall apply mutatis mutandis to any withholding or deduction for or on account
of any present or future taxes, assessments or governmental charges of whatever
nature of any jurisdiction in which any successor Person to the Company is
organized, or any political subdivision or taxing authority thereof or therein.
CERTAIN COVENANTS
The 1994 Senior Notes Indenture contains, among others, the following
additional covenants:
LIMITATION ON CONSOLIDATED DEBT AND DISQUALIFIED EQUITY
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur any Debt or issue any Disqualified Equity unless, immediately after
giving effect to the Incurrence of such Debt or the issuance of such
Disqualified Equity and the receipt and application of the proceeds thereof,
the Annualized Consolidated Debt to Cash Flow Ratio of the Restricted Group at
the time of the Incurrence of such Debt or the issuance of such Disqualified
Equity, as the case may be, for which
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quarterly financial statements are available, calculated on a pro forma basis
(as if such Debt had been Incurred or such Disqualified Equity had been issued
at the beginning of such quarter) would be less than 7.0 to 1.
Notwithstanding the foregoing paragraph, the Company may, and may permit
any Restricted Subsidiary to, Incur or issue the following: (i) Debt
outstanding from time to time under the Senior Bank Facility (up to L.160
million) less any amount permanently repaid thereunder and Debt Incurred to
finance the acquisition and construction of the Company's proposed combined
head office and headend/switch site; (ii) Debt of the Company and/or any
Restricted Subsidiary outstanding on the date of the 1994 Senior Notes
Indenture, (iii) Debt or Disqualified Equity to the extent that the proceeds
are used to finance working capital for, or the construction or acquisition of,
property or assets in each case to be used in a Cable Business; (iv) Debt
Incurred or Disqualified Equity issued to finance a Cable Acquisition or
provide working capital for or financing for the construction of property or
assets to be used in the business so acquired; (v) Debt consisting of Interest
Rate Protection Obligations or Currency Hedging Agreements incurred in the
ordinary course of business; (vi) performance bonds or surety bonds or similar
instruments provided in the ordinary course of business; (vii) Debt owed by the
Company to any Wholly-Owned Restricted Subsidiary (so long as such Debt is held
by a Wholly-Owned Restricted Subsidiary and such Debt is subordinated in right
of payment to the 1994 Senior Notes) or Debt owed by or Disqualified Equity
issued by a Restricted Subsidiary to the Company or a Wholly-Owned Restricted
Subsidiary of the Company (provided that such Debt or Disqualified Equity is at
all times held by the Company or a Wholly-Owned Restricted Subsidiary);
provided, however, that upon either (a) the transfer or other disposition by
such Wholly-Owned Restricted Subsidiary or the Company of any such Debt or
Disqualified Equity to a Person other than the Company or another Wholly-Owned
Restricted Subsidiary or (b) the issuance, sale, lease, transfer or other
disposition of shares of Equity Securities (including by consolidation or
merger) of such Wholly-Owned Restricted Subsidiary to a Person other than the
Company or another such Wholly-Owned Restricted Subsidiary, such Debt shall be
deemed to have been Incurred or such Disqualified Equity shall be deemed to
have been issued at the time of such transfer or other disposition; (viii) Debt
incurred or Disqualified Equity issued to renew, extend, refinance or refund
any Debt or Disqualified Equity permitted in Clauses (i) through (iv) above or
the Securities in an amount not to exceed the outstanding principal amount (or,
if less, Accreted Value) of the Debt or the aggregate liquidation preference of
the Disqualified Equity so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms of the
Debt or Disqualified Equity refinanced plus the expenses of the Company
incurred in connection with such refinancing; provided that (a) in the case of
any refinancing or refunding of Debt which is pari passu to the Securities, the
refinancing or refunding Debt is made pari passu to the Securities or
subordinated to the Securities, and, in the case of any refinancing or
refunding of Debt which is subordinated to the Securities or of Disqualified
Equity, the refinancing or refunding Debt is subordinated to the Securities to
the same extent as the Debt being refinanced or refunded or is Disqualified
Equity; and (b) in either case, the refinancing or refunding Debt or
Disqualified Equity by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt or Disqualified Equity is Incurred or
issued, as the case may be, does not have a Weighted Average Life that is lower
than that of the Debt or Disqualified Equity being refinanced or refunded; and
(ix) Debt or Disqualified Equity not otherwise permitted to be Incurred or
issued under Clauses (i) through (viii) above, which, together with any other
outstanding Debt Incurred or Disqualified Equity issued pursuant to this Clause
(ix), has an aggregate principal amount (or liquidation preference) not in
excess of L.10 million at any time outstanding.
LIMITATION ON RESTRICTED PAYMENTS
The Company (i) shall not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities or otherwise) in respect of its Equity Securities or to
the holders thereof in general (including pursuant to a merger or consolidation
of the Company, but excluding any dividends or distributions payable solely in
its Equity Securities (other than Disqualified Equity) or in options, warrants
or other rights to acquire its Equity Securities (other than Disqualified
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Equity)); (ii) shall not, and shall not permit any Restricted Subsidiary of the
Company to, directly or indirectly, purchase, redeem or otherwise acquire or
retire for value (a) any Equity Securities of the Company or any Related Person
of the Company or (b) any options, warrants or rights to purchase or acquire
Equity Securities of the Company or any Related Person of the Company (except
options, warrants or rights to purchase or acquire such Equity Securities held
by any current or former officer or director of the Company or ECE Management in
an aggregate amount not exceeding L.5 million); (iii) shall not make, or permit
any Restricted Subsidiary of the Company to make any Investment in, or Incur an
obligation to Guarantee any obligation of, any Affiliate or Related Person of
the Company, other than the Company or a Wholly-Owned Restricted Subsidiary of
the Company; (iv) shall not, and shall not permit any Restricted Subsidiary of
the Company to, redeem, defease, repurchase or otherwise retire or acquire for
value prior to any scheduled maturity, repayment or sinking fund payment, Debt
of the Company which explicitly by its terms is subordinate in right of payment
to the 1994 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 1994
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 1994 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 1994 Senior Notes falls through the last
day of the last full fiscal quarter immediately preceding such Restricted
Payment for which quarterly financial statements of the Company are available;
and (b) 100% of the aggregate cash net proceeds after the issue date of the 1994
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 1994 Senior Notes. The
foregoing provision shall not be violated by reason of (i) the payment of any
dividend within 60 days after declaration thereof if at the declaration date
such payment would have complied with the foregoing provision; (ii) any
refinancing or refunding of any Debt otherwise permitted under clause (viii)
described in the second paragraph under the caption "Limitation on Consolidated
Debt and Disqualified Equity"; (iii) investments by the Company or any
Restricted Subsidiary in an amount not to exceed in the aggregate L.5 million in
a Person which is engaged in a Cable Business or a business incidental thereto;
and (iv) investments in Non-Restricted Subsidiaries made with the cash proceeds
of a substantially concurrent (1) capital contribution to the Company or (2)
issue or sale of Equity Securities (other than Disqualified Equity) of the
Company.
LIMITATION ON LIENS
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur or suffer to exist any Lien upon any of its properties or assets, now
owned or hereafter acquired, to secure any Debt without making or causing such
Restricted Subsidiary to make effective provision for securing the 1994 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
1994 Senior Notes, prior to such Debt and to such property and assets for so
long as such Debt shall be so secured. The foregoing restrictions do not apply
to Liens existing at the date of the 1994 Senior Notes Indenture or to: (i)
Liens securing only the 1994 Senior Notes; (ii) Liens in favor of the Company
or any Wholly-Owned Restricted Subsidiary; (iii) Liens to secure the Senior
Bank Facility; (iv) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company (and not incurred in anticipation of such merger or
consolidation); (v) Liens on property existing immediately prior to the time of
acquisition thereof (and not in anticipation of the financing of such
acquisition); (vi) Liens to secure Debt Incurred under the provisions described
in Clauses (iii), (iv) or (v) of the second paragraph under the caption "--
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Limitation on Consolidated Debt and Disqualified Equity"; (viii) Liens for
taxes or assessments or other governmental charges or levies which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in accordance with generally accepted accounting
principles shall have been made; (viii) Liens to secure obligations under
workmen's compensation laws or similar legislation, including Liens with
respect to judgments which are not currently dischargeable; and (ix) Liens to
secure Debt Incurred to extend, renew, refinance or refund (or successive
extensions, renewals, refinancings or refundings), in whole or in part, Debt
secured by any Lien referred to in the foregoing Clauses (i) through (viii) so
long as such Lien does not extend to any other property. In addition to the
foregoing, the Company and its Restricted Subsidiaries may incur a Lien to
secure any Debt or enter into a Sale and Leaseback Transaction, without equally
and ratably securing the 1994 Senior Notes, if the sum of (i) the amount of
Debt secured by a Lien entered into after the date of the 1994 Senior Notes
Indenture and otherwise prohibited by the 1994 Senior Notes Indenture and (ii)
the Attributable Value of all Sale and Leaseback Transactions entered into
after the date of the 1994 Senior Notes Indenture and otherwise prohibited by
the 1994 Senior Notes Indenture does not exceed L.10 million.
ANTI-LAYERING
The 1994 Senior Notes Indenture provides that the Company's Restricted
Subsidiaries will not Incur any Debt that is by its terms subordinate or junior
in right of payment to any other Debt of such Restricted Subsidiaries.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, enter into any Sale and Leaseback Transaction unless (i) the
Company or such Restricted Subsidiary were entitled to incur a Lien to secure
Debt in an amount at least equal to the Attributable Value of such Sale and
Leaseback Transaction or (ii) all of the conditions contained in the provisions
described under "Limitation on Certain Asset Dispositions" (including the
provisions concerning the application of Net Available Proceeds) would be
satisfied with respect to such Sale and Leaseback Transaction if all of the
consideration received in such Sale and Leaseback Transaction were treated as
Net Available Proceeds.
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO RESTRICTED GROUP
The Company may not, and may not permit any Restricted Subsidiary to
suffer to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make any
other distributions in respect of its Equity Securities or pay any Debt or
other obligation owed to the Company or any other Restricted Subsidiary of the
Company; (ii) to make loans or advances to the Company or any other Restricted
Subsidiary of the Company; or (iii) to make any investment in, or to transfer
any of its property or assets to, the Company or any Restricted Subsidiary of
the Company. Notwithstanding the foregoing, the Company may, and may permit any
Subsidiary to, suffer to exist any such encumbrance or restriction on the
ability of any Subsidiary of the Company if and to the extent such encumbrance
or restriction exists on the date of the 1994 Senior Notes Indenture or is (a)
provided for in the Senior Bank Facility documents; (b) existed prior to the
time any Person became a Subsidiary of the Company and such restriction or
encumbrance was not incurred in anticipation of such Person becoming a
Subsidiary of the Company; (c) exists by reason of a customary merger or
acquisition agreement for the purchase or acquisition of the stock or assets of
the Company or any of its Restricted Subsidiaries by another Person; (d)
contained in an operating lease for real property and is effective only upon
the occurrence and during the continuance of a default in the payment of rent;
(e) the result of applicable corporate law or regulation relating to the
payment of dividends or distributions; (f) pursuant to an agreement pursuant to
which Debt meeting the requirements of Clauses (iii), (iv) or (v) of the second
paragraph under the caption "-- Limitation on Consolidated Debt and
Disqualified
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<PAGE> 91
Equity" is incurred; provided, however, that the provisions contained in such
agreement relating to such encumbrance or restriction are no more restrictive
in any material respect than those contained in the terms of the Senior Bank
Facility; or (g) pursuant to an agreement effecting a renewal, extension,
refinancing or refunding of Debt Incurred pursuant to an agreement referred to
in Clause (a) or (b) above; provided, however, that the provisions contained in
such agreement relating to such encumbrance or restriction are no more
restrictive than the provisions contained in the agreement the subject thereof,
as determined in good faith by the Board of Directors and evidenced by a Board
Resolution.
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Except as permitted in the following paragraph, the Company shall not, and
shall not permit any Restricted Subsidiary to, conduct any business or enter
into any transaction with any Affiliate or Related Person of the Company,
unless such transaction is on terms which are in the Company's good faith
judgment at least as favorable as those available in a comparable arm's-length
transaction with a Person which is not an Affiliate or Related Person. Any such
transaction (or series of related transactions) in which such Affiliate or
Related Person receives in excess of L.1.0 million in any twelve month period
shall be approved by a majority of the disinterested directors of the Board of
Directors of the Company. Any such transaction involving in excess of L.5
million (or series of related transactions involving in excess of L.5 million),
or as to which there are no disinterested directors, is subject to the further
requirement that the Company obtain an opinion of an internationally recognized
expert with experience in appraising the terms and conditions of the relevant
type of transaction (or series of related transactions) stating that the
transaction or series of related transactions is fair (from a financial point
of view) to the Company or such Restricted Subsidiary.
The above requirements shall not be applicable to (i) any transaction
among the Company and its Wholly-Owned Subsidiaries; (ii) any existing
management agreement with ECE Management or any successor or assign; or (iii)
any transaction in which investment banking or other financial advisory
services are provided to the Company or any Subsidiary by Goldman, Sachs & Co.
or any of its Affiliates that is, in the Company's good faith judgment, at
rates competitive with those available from other advisers negotiated at arms
length and approved by disinterested directors.
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Disposition unless (a) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such
Asset Disposition at least equal to the fair market value of the shares or
assets sold or otherwise disposed of; and (b) at least 85% of such
consideration consists of cash or cash equivalents. To the extent the Net
Available Proceeds of any Asset Disposition are not required to be applied to
repay amounts outstanding under the Senior Bank Facility or any Debt of a
Restricted Subsidiary, or are not so applied, the Company or such Restricted
Subsidiary, as the case may be, may apply such Net Available Proceeds within
365 days of the receipt thereof, to an investment in properties and assets that
will be used in a Cable Business (or in Equity Securities of any such Person
that will become a Restricted Subsidiary as a result of such investment to the
extent that such Person owns properties and assets that will be used in a Cable
Business) of the Company or any Restricted Subsidiary ("Replacement Assets").
Notwithstanding the foregoing, the Company may retain up to L.1.0 million of
Net Available Proceeds from any Asset Disposition for any purpose. Any Net
Available Proceeds from any Asset Disposition that are neither used to repay
amounts outstanding under the Senior Bank Facility or any Debt of a Restricted
Subsidiary nor invested in Replacement Assets within such 365-day period
(exclusive of the up to L.1.0 million referred to in the preceding sentence)
shall constitute "Excess Proceeds" subject to the provisions described in the
following paragraph.
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When the aggregate amount of Excess Proceeds equals or exceeds L.5.0
million the Company shall make within 30 days of the determination thereof an
Offer to Purchase to all holders of the 1994 Senior Notes, 1994 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 1994 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 1994 Senior Notes validly tendered and
not withdrawn by holders thereof exceeds the amount of 1994 Senior Notes which
can be purchased with the Excess Proceeds, 1994 Senior Notes to be purchased
will be selected on a pro rata basis.
Notwithstanding the two immediately preceding paragraphs, the Company and
the Restricted Subsidiaries will be permitted to consummate an Asset
Disposition without complying with such paragraphs to the extent (i) at least
85% of the consideration for such Asset Disposition constitutes Replacement
Assets (or Equity Securities of any such Person that will become a Restricted
Subsidiary as a result of such transaction to the extent that such Person owns
properties and assets that will be used in a Cable Business) and (ii) such
Asset Disposition is for fair market value; provided that any consideration not
constituting Replacement Assets or Equity Securities as described in Clause (i)
received by the Company or any Restricted Subsidiaries in connection with any
Asset Disposition permitted to be consummated under this paragraph shall
constitute Net Available Proceeds subject to the provisions of the two
preceding paragraphs.
The determination of "fair market value" for purposes of the preceding
paragraph and the third preceding paragraph will be made (a) in the case of
Asset Dispositions in which Net Available Proceeds exceed L.1 million, by the
Board of Directors of the Company and evidenced by a Board Resolution and (b)
in the case of Asset Dispositions in which Net Available Proceeds exceed L.10
million, based upon the opinion of an internationally recognized investment
banking firm.
CHANGE OF CONTROL
Within 60 days following the date of the consummation of a transaction
resulting in a Change of Control, the Company shall commence an Offer to
Purchase all Outstanding 1994 Senior Notes at a purchase price equal to 101%
of, on or prior to the Cash Interest Date, their Accreted Value and on and
after the Cash Interest Date their principal amount at maturity plus in such
case accrued but unpaid interest to the date of purchase. The Company will
cause notice of any Change of Control to be mailed to holders of the 1994
Senior Notes not less than 10 days after the date on which the Company first
becomes aware of the consummation of a transaction resulting in a Change of
Control. A "Change of Control" will be deemed to have occurred in the event
that, after the date of the 1994 Senior Notes Indenture, either (a) any Person
or any Persons (other than a Permitted Holder) acting together which would
constitute a group (for purposes of Section 13(d) of the Exchange Act, or any
successor provision thereto) (a "Group"), together with any Affiliates or
Related Persons thereof shall beneficially own (as defined in Rule 13d-3 under
the Exchange Act, or any successor provision thereto) at least 45% of the
Equity Securities of the Company entitled to vote generally in the election of
directors of the Company; or (b) any Person or Group (other than a Permitted
Holder), together with any Affiliates or Related Persons thereof, shall succeed
in having a sufficient number of its nominees elected to the Board of Directors
of the Company such that such nominees, when added to any existing director
remaining on the Board of Directors of the Company after such election who is
an Affiliate or Related Person of such 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.
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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 1994
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 1994 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 1994 Senior Notes. In the absence of such a
repayment or refinancing, the Company may be precluded from offering to
repurchase the 1994 Senior Notes by the applicable provisions of such other
agreements. The failure of the Company to offer to repurchase the 1994 Senior
Notes upon a Change of Control would constitute an Event of Default under the
1994 Senior Notes Indenture. Moreover, there can be no assurance that the
Company will have the financial resources necessary to effect any repurchase of
1994 Senior Notes upon a Change of Control.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company shall not, in a single transaction or through a series of
related transactions, (i) consolidate with or merge into any other Person; (ii)
permit any other Person to consolidate with or merge into the Company; (iii)
directly or indirectly transfer, assign, convey, sell, lease or otherwise
dispose of all or substantially all of its properties and assets as an
entirety; or (iv) permit any of its Subsidiaries to enter into any such
transaction or transactions if such transaction or transactions, in the
aggregate, would result in a sale, assignment, transfer, lease or disposal of
all or substantially all of the properties and assets of the Company and its
Subsidiaries on a consolidated basis to any other Person or group of affiliated
Person unless: (1) immediately before and after giving effect to such
transaction and treating any Debt and Disqualified Equity which becomes an
obligation of the Company or a Subsidiary of the Company as a result of such
transaction as having been Incurred or issued, as applicable, by the Company or
such Subsidiary at the time of the transaction, no Event of Default or event
that with notice or lapse of time, or both, would constitute an Event of
Default shall have occurred and be continuing; (2) in the event the Company
shall consolidate with or merge into another Person or shall directly or
indirectly transfer, assign, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety, the Person
formed by such consolidation or into which the Company is merged or the Person
which acquires by transfer, assignment, conveyance, sale, lease or other
disposition all or substantially all of the properties and assets of the
Company as an entirety shall be a corporation, partnership or trust, shall be
organized and validly existing under the laws of England and Wales or of the
United States of America, any State thereof or the District of Columbia and
shall expressly assume by an indenture supplemental hereto executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of (and premium, if any), interest and
Additional Amounts on all the 1994 Senior Notes and the performance of every
covenant of the 1994 Senior Notes Indenture on the part of the Company to be
performed or observed; (3) the Company or the successor to the Company will
have an Annualized Consolidated Debt to Cash Flow Ratio at the time of such
transaction (determined on a pro forma basis giving effect to the proposed
transaction) equal to or less than the Annualized Consolidated Debt to Cash
Flow Ratio of the Company without giving effect to the proposed transaction and
a ratio of Consolidated Operating Cash Flow to Consolidated Interest Expense
for the two fiscal quarters next preceding such transaction (determined on a
pro forma basis giving effect to the transaction) equal to or greater than such
ratio without giving effect to such transaction; (4) if, as a result of any
such transaction, property or assets of the Company or any Subsidiary of the
Company would become subject to a Lien prohibited by the provisions of the 1994
Senior Notes Indenture described under "Limitation on Liens" above, and the
Company or the successor entity to the Company shall have secured the 1994
Senior Notes as required by that covenant; (5) such transaction would not
result in the loss of a Material License (which for this purpose will be
determined on a pro forma basis, giving effect to such transaction); and (6)
the Company or the surviving entity shall have delivered to the Trustee an
officers' certificate and an opinion of counsel each stating that such
consolidation, merger, transfer, lease or disposition and the supplemental
indenture comply with the 1994 Senior Notes Indenture.
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EVENTS OF DEFAULT
The following are Events of Default under the 1994 Senior Notes Indenture:
(a) failure by the Company to pay principal of (or premium, if any, on) any
Senior Note when due; (b) failure to pay any interest or Additional Amounts on
any Senior Note when due, continued for 30 days; (c) default in the payment of
principal and interest on 1994 Senior Notes required to be purchased pursuant
to an Offer to Purchase as described under the captions "-- Certain Covenants
- -- Change of Control" and "-- Certain Covenants -- Limitation on Certain Asset
Dispositions"; (d) failure to perform or comply with the provisions described
under "-- Certain Covenants -- Mergers, Consolidations, and Certain Sales of
Assets"; (e) failure by the Company to perform any other covenant under the
1994 Senior Notes Indenture or the 1994 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 1994 Senior Notes; (f) default
under the terms of any instrument evidencing or securing Debt by the Company or
any Significant Restricted Subsidiary which results in the acceleration of the
payment of principal amount in excess of L.5 million or which shall constitute
the failure to pay any portion in excess of L.5 million of principal or similar
amount when due and payable after the expiration of any applicable grace
period; (g) the rendering of a final judgment or judgments against the Company
or any Significant Restricted Subsidiary in an amount in excess of L.5 million
which remains undischarged or unstayed for a period of 60 days after the date
on which the right to appeal has expired; and (h) certain events of bankruptcy,
insolvency or reorganization affecting the Company or any Significant
Restricted Subsidiary.
Subject to the provisions of the 1994 Senior Notes Indenture relating to
the duties of the Trustee in case an Event of Default (as defined) shall occur
and be continuing, the Trustee is under no obligation to exercise any of its
rights or powers under the 1994 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 1994 Senior Notes have the right to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
If an Event of Default (other than an Event of Default described in Clause
(h)) occurs and is continuing, then either the Trustee or the holders of at
least 25% in aggregate principal amount of the Outstanding 1994 Senior Notes
may accelerate the maturity of all 1994 Senior Notes; provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the holders of 66 2/3% in aggregate principal amount of Outstanding 1994 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 1994 Senior Notes Indenture. If an
Event of Default specified in Clause (h) above occurs, the Outstanding 1994
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 1994 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 1994 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 1994 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
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Purchase, the Purchase Date) expressed in or established pursuant to the terms
of such Senior Note and 1994 Senior Notes Indenture.
The Company is required to furnish to the Trustee annually a statement as
to the performance by them of certain of their obligations under the 1994
Senior Notes Indenture and as to any default in such performance.
DEFEASANCE
The 1994 Senior Notes Indenture provides that (A) if applicable, the
Company will be discharged from any and all obligations in respect of the
Outstanding 1994 Senior Notes other than certain obligations to transfer the
1994 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 1994 Senior Notes Indenture and the 1994 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 1994 Senior Notes. With respect to Clause
(B), the obligations under the 1994 Senior Notes Indenture other than with
respect to certain covenants and Event of Default will remain in full force and
effect. Such trust may only be established if, among other things (i) with
respect to Clause (A), the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or there has been a change
in law, which in the opinion of counsel provides that holders of the 1994
Senior Notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to U.S. federal income tax on the same amount, in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred; or, with respect to Clause (B), the Company has
delivered to the Trustee an opinion of counsel (which may be based on an
Internal Revenue Service ruling) to the effect that the holders of the 1994
Senior Notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of such deposit and defeasance and will be subject to U.S.
federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred;
(ii) no Event of Default or event that with the passing of time or the giving
of notice, or both, shall constitute an Event of Default shall have occurred or
be continuing; (iii) the Company has delivered to the Trustee an opinion of
counsel to the effect that such deposit shall not cause the Trustee or the
trust so created to be subject to the Investment Company Act of 1940; and (iv)
certain other customary conditions precedent are satisfied.
GOVERNING LAW
The 1994 Senior Notes Indenture and the 1994 Senior Notes are governed by
the laws of the State of New York.
MODIFICATION AND WAIVER
From time to time the Company, when authorized by resolutions of the
Board, and the Trustee, without the consent of the holders of the 1994 Senior
Notes, may amend, waive or supplement the 1994 Senior Notes Indenture or the
1994 Senior Notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, maintaining the
qualification of the 1994 Senior Notes Indenture under the Trust Indenture Act
or making any change that does not adversely affect the rights of any holder.
Modifications and amendments of the 1994 Senior Notes Indenture may be
made by the Company and the Trustee with the consent of the Holders of 66 2/3%
in aggregate principal amount of the Outstanding 1994 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
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Additional Amounts on, any Senior Note, (b) reduce the principal amount of, (or
the premium) or interest or Additional Amounts on, any Senior Note, (c) change
the place, currency or manner of payment of principal of (or premium) or
interest or Additional Amounts on, any Senior Note, (d) impair the right to
institute suit for the enforcement of any payment on or after the Stated
Maturity thereof (or Redemption Date, in the case of redemption, or Purchase
Date, in the case of an Offer to Purchase) (e) reduce the above-stated
percentage of Outstanding 1994 Senior Notes necessary to modify or amend the
1994 Senior Notes Indenture, (f) reduce the percentage of principal amount of
Outstanding 1994 Senior Notes necessary for waiver of compliance with certain
provisions of the 1994 Senior Notes Indenture or for waiver of certain
defaults, (g) modify certain provisions of the 1994 Senior Notes Indenture
relating to the modification of the 1994 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 1994
Senior Notes required as described under the caption "-- Certain Covenants --
Limitation on Certain Asset Dispositions" and "-- Certain Covenants -- Change
of Control" in a manner materially adverse to the holders thereof.
The holders of not less than a majority in aggregate principal amount of
the Outstanding 1994 Senior Notes, on behalf of all holders of 1994 Senior
Notes, may waive compliance by the Company with certain restrictive provisions
and covenants of the 1994 Senior Notes Indenture. Subject to certain rights of
the Trustee, as provided in the 1994 Senior Notes Indenture, the holders of not
less than a majority in aggregate principal amount of the Outstanding 1994
Senior Notes, on behalf of all holders of 1994 Senior Notes, may waive any past
default under the 1994 Senior Notes Indenture, except a default in the payment
of principal, premium or interest or Additional Amounts or in respect of a
covenant or provision that cannot be modified or amended without the consent of
the holder of each Outstanding Senior Note.
REPORTS
The Company shall deliver to the Trustee, within 15 days after it files
them with the Commission, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribed) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act within the time periods prescribed under such rules and
regulations. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act or otherwise report on an annual and quarterly basis on forms provided for
such annual and quarterly reporting pursuant to rules and regulations
promulgated by the Commission, the 1994 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 1994 Senior Notes
Indenture does not require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the 1994 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.
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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 1994 Senior Notes, the 1994 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 1994 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 1994 Senior Notes. Such waiver
and release may not be effective to waive liabilities under English law or
under the U.S. federal securities laws and it is the view of the Commission
that such waiver and release is against public policy.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
1994 Senior Notes Indenture. Reference is made to the 1994 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 1994 Senior Notes Indenture
means accounting principles as are generally accepted in the United States as
consistently applied by the Company at the date of such computation.
"Accreted Value" means, as of any date of determination prior to the Cash
Interest Date, the sum of (a) the initial offering price of each Senior Note
and (b) the portion of the excess of the principal amount of each Senior Note
over such initial offering price which shall have been amortized by the Company
through such date, such amount to be so amortized on a daily basis and
compounded semiannually on each March 31 and September 30, at the rate of
13 1/4% per annum from the date of issuance of the 1994 Senior Notes through the
date of determination computed on the basis of a 360-day year of twelve 30-day
months.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Consolidated Debt to Cash Flow Ratio" for any Person means at
any time the ratio of (i) Total Consolidated Debt of such Person as of the end
of the most recent fiscal quarter for which financial statements are available
to (ii) Consolidated Operating Cash Flow of such Person for the two most recent
fiscal quarters multiplied by two.
"Asset Acquisition" means (i) any capital contribution (including without
limitation by means of transfers of cash or other property to others or
payments for property or services for the account or use of others) by the
Company or any Restricted Subsidiary in any other Person, or any acquisition or
purchase of equity interests in any other Person by the Company or any
Restricted Subsidiary, in either case pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary or (ii) any acquisition by the Company or any
Restricted Subsidiary of the assets of any Person which constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside of the ordinary course of business.
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"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Company or any of its Restricted Subsidiaries (including by
way of consolidation or merger) resulting in Net Available Proceeds in excess
of L.250,000 of (i) shares or other ownership interest of a Subsidiary of the
Company, (ii) substantially all of the assets of the Company or any Subsidiary
representing a division or line of business, or (iii) other assets or rights
outside of the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable, and at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the initial term thereof as determined in
accordance with generally accepted accounting principles, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capital Lease
Obligation with like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any such lease for
any such period shall be the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges.
In the case of any lease which is terminable by the lessee upon the
payment of a penalty, such net amount shall also include the amount of such
penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Cable Acquisition" means an Asset Acquisition of properties or assets to
be used in a Cable Business or of equity interests in any Person that becomes a
Restricted Subsidiary or, subject to the covenant "-- Certain Covenants --
Limitation on Restricted Payments," a Non-Restricted Subsidiary as a result of
such Asset Acquisition, provided (i) such Person's assets and properties
consist principally of properties or assets that will be used in a Cable
Business; (ii) the Company has the ability to manage or select the management
of, and direct the day-to-day operations of, such Cable Business; and (iii)
such Cable Business, if a cable licensee, has a franchise area any border of
which is located within 50 miles of any border of a franchise area of the
Company's existing cable licenses.
"Cable Business" means any business operating a cable television and/or
telephone and/or telecommunications system or any business reasonably related
thereto, including, without limitation, the production or provision of
programming as well as any business conducted by the Company or any Restricted
Subsidiary on the date on which the Securities are first issued.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property which is required to be classified
and accounted for as a capital lease or a liability on the face of a balance
sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person as charged in arriving
at Consolidated Net Income for such period.
"Consolidated Interest Expense" of any Person means for any period the
interest expense (without deducting interest income) of such Person for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers
acceptances or similar
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facilities; (iii) fees with respect to interest rate swap or similar agreements
or foreign currency hedge, exchange or similar agreements; (iv) Preferred Stock
dividends (other than in respect of Preferred Stock held by such Person a
Wholly-Owned Subsidiary of such Person) declared and payable in such period in
cash; and (v) the portion of any rental obligation allocable to interest
expense under generally accepted accounting principles.
"Consolidated Net Income" of any Person means for any period the net
income (or loss) of such Person for such period determined on a consolidated
basis in accordance with generally accepted accounting principles; provided
that there shall be excluded therefrom (a) the net income (or loss) of any
Person acquired by such Person in a pooling-of-interests transaction for any
period prior to the date of such transaction, (b) the net income (but not the
net loss) of any Restricted Subsidiary of such Person which is subject to
restrictions which prevent the payment of dividends or the making of
distributions (by loans, advances, intercompany transfers or otherwise) to such
Person to the extent of such restrictions, (c) the net income (or loss) of any
Person that is not a Consolidated Subsidiary of such Person except to the
extent of the amount of dividends or other distributions actually paid to a
member of the Restricted Group by such other Person during such period, (d)
gains or losses on Asset Dispositions and (e) all extraordinary gains and
extraordinary losses.
"Consolidated Operating Cash Flow" of any Person means for any period (a)
the sum of (i) Consolidated Net Income for such period; (ii) Consolidated
Interest Expense for such period; (iii) Consolidated Income Tax Expense for
such period; (iv) the consolidated depreciation and amortization expense
included in the consolidated income statement of such Person for such period;
and (v) other non-cash charges (other than trading and operating items in the
ordinary course of business) deducted from consolidated revenues in determining
Consolidated Net Income for such period (including any foreign currency
translation losses), minus (b) non-cash items (other than trading and operating
items in the ordinary course of business) increasing consolidated revenues in
determining Consolidated Net Income for such period (including any foreign
currency translation gains).
"Consolidated Subsidiaries" of any Person means all Subsidiaries and other
equity investees of such Person that would be accounted for on a consolidated
basis in such Person's financial statements in accordance with generally
accepted accounting principles.
"Currency Hedging Agreements" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in currency values to the extent relating to (i) Debt and/or (ii) obligations
to purchase assets, properties or services incurred in the ordinary course of
business and not for speculative purposes; provided that such Currency Hedging
Agreements do not increase the Debt or other obligations of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payments thereunder.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations Incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every Capital Lease Obligation of such Person, (vi) every net
obligation under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person at the time of
determination and (vii) every obligation of the type referred to in Clauses (i)
through (vi) of another Person and all dividends of another Person the payment
of which, in either case, such
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Person has Guaranteed or is responsible or liable for, directly or indirectly,
as obligor, Guarantor or otherwise; provided that Trade Obligations are
excluded from the definition of Debt.
"Disqualified Equity" of any Person means any Equity Securities of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final stated maturity of the 1994
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 Obligations" of any Person means any interest
rate swap agreement or other similar interest rate financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates and pursuant to which such Person is obligated or may become obligated to
make payments; provided that where such agreement or arrangement hedges Debt,
it is with respect to a notional principal amount that does not exceed the
principal amount of the Debt to which such Interest Rate Protection Obligations
relate.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to (any other Person by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Equity Securities, bonds, notes, debentures or other securities
or evidence of Debt issued by any other Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on
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or with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Material License" means a direct or indirect ownership interest in a
license to operate a cable television or a cable telephone system held by the
Company or any of its Restricted Subsidiaries which license at the time of
determination covers a number of Equity Homes which equals or exceeds 10% of
the aggregate number of Equity Homes covered by all of the licenses to operate
cable television or cable telephone systems in which the Company or its
Restricted Subsidiaries hold a direct or indirect ownership interest at such
time.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash and readily marketable cash equivalents received (including by way of sale
or discounting of a note, instalment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and
expenses incurred and all federal, state, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Subsidiaries on any Debt which is secured
by a Lien on such assets or on shares of the Person owning such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must be repaid out of the proceeds from such Asset Disposition under the
terms of such Debt or Lien, in order to obtain a necessary consent to such
Asset Disposition or by applicable law, and (iii) all distributions and other
payments made to minority interest holders in Subsidiaries of such Person or
joint ventures as a result of such Asset Disposition.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
none of the Company, nor any of its Restricted Subsidiaries (a) provides credit
support (including any undertaking, agreement or instrument which would
constitute Debt); (b) is directly or indirectly liable; or (c) constitutes the
lender; and (ii) no default with respect to which (including any rights which
the holders thereof may have to take enforcement action against a
Non-Restricted Subsidiary) would permit (upon notice, lapse of time or both)
any holders of any other Debt of the Company or any of its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Non-Restricted Subsidiary" of a Person means a Subsidiary of such Person
that (i) at the time of its designation as a Non-Restricted Subsidiary has not
acquired any assets (unless the acquisition of such assets constitutes a
Restricted Payment permitted by the "-- Certain Covenants -- Limitation on
Restricted Payments" covenant), at any previous time, directly or indirectly
from such Person or any of its Subsidiaries and (ii) has no Debt other than
Debt that is, with respect to such Person, Non-Recourse Debt (unless the extent
to which such Person is the lender for, or is responsible for such Debt,
constitutes a Restricted Payment permitted by the "-- Certain Covenants --
Limitation on Restricted Payments" covenant); provided, however, that at the
time of such designation, after giving pro forma effect to such designation,
the Annualized Consolidated Debt to Cash Flow Ratio of such Person is equal to
or less than the Annualized Consolidated Debt to Cash Flow Ratio of such Person
immediately preceding such designation; provided, further, that if the
Annualized Consolidated Debt to Cash Flow Ratio of the Company immediately
preceding such designation is 7.0:1.0 or less, the Annualized Consolidated Debt
to Cash Flow Ratio of the Company after giving pro forma effect to such
designation may be up to 0.5:1.0 greater than such ratio immediately preceding
such designation. No Restricted Subsidiary may be redesignated as a
Non-Restricted Subsidiary unless at the time of such redesignation the
provisions in clauses (i) and (ii) in this definition are currently met and the
Board of Directors of such Person has passed a certified resolution, delivered
to the Trustee, to such effect.
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"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 1994
Senior Notes specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to this 1994 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 1994 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 1994 Senior Notes pursuant to the Offer to Purchase. The
Offer shall also state:
(1) the Section of the 1994 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 1994 Senior
Notes offered to be purchased by the Company pursuant to the Offer to
Purchase (including, if less than 100%, the manner by which such has been
determined pursuant to the Section hereof requiring the Offer to Purchase)
(the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of 1994 Senior Notes accepted for payment (as
specified pursuant to this 1994 Senior Notes Indenture) (the "Purchase
Price");
(5) that the holder may tender all or any portion of the 1994 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;
(6) the place or places where 1994 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;
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(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
1994 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 1994 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 1994 Senior Notes and (b) if 1994 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
1994 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 1994 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 1994 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 1994 Senior Notes Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Public Offering" means a firm commitment underwritten public offering
pursuant to a registration statement filed under the United States Securities
Act of 1933, as amended, or pursuant to listing particulars of the London Stock
Exchange.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Common Stock of such Person or (b) 5%
or more of the Voting Interest of such Person.
"Restricted Group" means the Company together with its Restricted
Subsidiaries.
"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
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more than 365 days after the acquisition thereof or the completion of
construction or commencement of operation thereof to such lender or investor or
to any Person to whom funds have been or are to be advanced by such lender or
investor on the security of such property or asset. The stated maturity of such
arrangement shall be the date of the last payment of rent or any other amount
due under such arrangement prior to the first date on which such arrangement
may be terminated by the lessee without payment of a penalty.
"Significant" means, with respect to any Subsidiary or Restricted
Subsidiary, a Subsidiary or Restricted Subsidiary that qualifies as a
"significant subsidiary" under Rule 1-01 of the Commission's Regulation S-X.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Interest of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Total Consolidated Debt" means, at any date of determination, an amount
equal to the aggregate amount of all Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of determination, determined on a
consolidated basis.
"Trade Buyer" means any Person which is (or a controlled Affiliate of any
Person which is) engaged principally in a cable or telecommunications business;
provided, however, that Trade Buyer shall not include any Subsidiary of the
Company or any Person that is on the date of the 1994 Senior Notes Indenture an
Affiliate of the Company.
"Trade Obligation" means (i) obligations to pay the purchase price of
assets or services purchased in the ordinary course of business including,
without limitation, obligations incurred in respect of any documentary letter
of credit or bill of exchange issued in respect of any such purchase; (ii)
obligations in respect of any bill of exchange or promissory note drawn, or
accepted, issued or endorsed in the ordinary course of business, including,
without limitation, indebtedness in respect of any monies raised by way of
sale, discounting or otherwise in respect of any such bill or note; and (iii)
obligations in respect of any Guarantee of any obligation of the type specified
in Clause (i) or (ii) above, except to the extent that such obligation is
treated as indebtedness under generally accepted accounting principles.
"Trade Sale" means a sale by the Company to a Trade Buyer of all or
substantially all of the assets of the Company or the acquisition by a Trade
Buyer of 50% or more of the aggregate Voting Interest in the Company, in each
case in compliance with the requirements described under "-- Certain Covenants
- -- Limitation on Certain Asset Dispositions" and "-- Certain Covenants --
Change of Control."
"Trading Day" with respect to a securities exchange or automated quotation
system means a day on which such exchange or system is open for a full day of
trading.
"Voting Interest" of any Person means Equity Securities of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Disqualified Equity, the quotient obtained by dividing
(i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payments of
such Debt or redemption or repurchase payments on such Disqualified Equity and
the amount of
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such principal payments or redemption or repurchase payments, by (ii) the sum
of all such principal value or redemption or repurchase payments.
"Wholly-Owned" means with respect to any Subsidiary or Restricted
Subsidiary of any Person means a Subsidiary (or a Restricted Subsidiary) of
such Person all of the outstanding Equity Securities or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly-Owned Subsidiaries (or
Restricted Subsidiaries) of such Person or by such Person and one or more
Wholly-Owned Subsidiaries (or Restricted Subsidiaries) of such Person.
DESCRIPTION OF BOOK-ENTRY SYSTEM
GENERAL
The Book-Entry Depositary holds the Global Senior Note for the benefit of
DTC and its Participants, as hereinafter described. Pursuant to the terms of
the Deposit Agreement, the Global Senior Note may be transferred only to a
successor of the Book-Entry Depositary. Beneficial interests in the Global
Senior Note are shown on, and transfers thereof are effected only through,
records maintained in book-entry form by DTC (with respect to its Participants'
interests) and its Participants. Such beneficial interests are referred to
herein as "Book-Entry Interests." Ownership of the Book-Entry Interests is
limited to Participants and indirect participants ("Indirect Participants").
Procedures with respect to the ownership of Book-Entry Interests are set forth
below.
Upon receipt of the Global Senior Note, the Book-Entry Depositary issued a
certificateless depositary interest (which represents a 100% interest in the
underlying Global Senior Note) to DTC by recording such interest in the
Book-Entry Depositary's books and records in the name of Cede & Co., as nominee
of DTC. Upon such issuance, DTC credited, on its book-entry registration and
transfer system, the Participants' accounts with the respective interests owned
by such Participants. The accounts to credited were designated by the
Underwriters. Ownership of Book-Entry Interests is shown on, and the transfer
of such interests is effected only through, records maintained by DTC and by
Participants (with respect to interests of Indirect Participants). The laws of
some countries and some states in the United States may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge the Book-Entry Interests.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Senior Note, the Book-Entry Depositary or such nominee, as the case may
be, will be considered the sole holder of such Global Senior Note for all
purposes under the 1994 Senior Notes Indenture. Except as set forth above under
"-- Form of 1994 Senior Notes," Participants or Indirect Participants are not
be entitled to have 1994 Senior Notes or Book-Entry Interests registered in
their names, will not receive or be entitled to receive physical delivery of
1994 Senior Notes or Book-Entry Interests in definitive form and are not be
considered the owners or holders thereof under the 1994 Senior Notes Indenture.
Accordingly, each person owning a Book-Entry Interest must rely on the
procedures of the Book-Entry Depositary and DTC and, if such person is not a
Participant in DTC, on the procedures of the Participant in DTC through which
such person owns its interest, to exercise any rights and remedies of a holder
under the 1994 Senior Notes Indenture. See "-- Actions by Owners of Book-Entry
Interests" below. If any definitive 1994 Senior Notes are issued to
Participants or Indirect Participants, they will be issued in registered form
("Definitive Registered Notes"), as described under "-- Form of 1994 Senior
Notes." Unless and until Book-Entry Interests are exchanged for Definitive
Registered Notes (as described under "-- Form of 1994 Senior Notes" above), the
depositary interest held by DTC may not be transferred except as a whole by DTC
to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or
by DTC or any such nominee to a successor of DTC or a nominee of such
successor.
PAYMENTS ON THE GLOBAL SENIOR NOTE
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Payments of any amounts owing in respect of the Global Senior Note will be
made through one or more paying agents appointed under the 1994 Senior Notes
Indenture (which initially will include the Trustee) to the Book-Entry
Depositary, as the holder of the Global Senior Note. All such amounts will be
payable in United States dollars. Upon receipt of any such amounts, the
Book-Entry Depositary will pay the amount so received to DTC, which will
distribute such payments to its Participants. Payments of all such amounts will
be made without deduction or withholding for or on account of any present or
future taxes, duties, assessments or governmental charges of whatever nature
except as may be required by law, and if any such deduction or withholding is
required to be made by any law or regulation of the United Kingdom then, to the
extent described under "Payment of Additional Amounts" above, such Additional
Amounts will be paid as may be necessary in order that the net amounts received
by any holder of the Global Senior Note or owner of Book-Entry Interests after
such deduction or withholding will equal the net amounts that such holder or
owner would have otherwise received in respect of the Global Senior Note or
Book-Entry Interest, as the case may be, absent such withholding or deduction.
DTC, upon receipt of any such payment, will immediately credit Participants'
accounts with payments in amounts proportionate to their respective ownership
of Book-Entry Interests, as shown on the records of DTC. The Company expects
that payments by Participants to owners of Book-Entry Interests held through
such Participants will be governed by standing customer instructions and
customary practices, as is now the case with the securities held for the
account of customers in bearer form or registered in "street name" and will be
the responsibility of such Participants.
Because the provisions of the 1994 Senior Notes Indenture treat the holder
of the Global Senior Note as the owner of the 1994 Senior Notes represented
thereby for the purpose of receiving amounts owing in respect of the 1994
Senior Notes, the Company has no responsibility or liability for the payment of
amounts owing in respect of the depositary interest held by DTC to owners of
Book-Entry Interests representing interests in the Global Senior Note. Payments
by DTC Participants to owners of Book-Entry Interests held through such
Participants are the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name".
None of the Company, the Trustee, the Book-Entry Depositary or any agent
of the Company or the Trustee or the Book-Entry Depositary have any
responsibility or liability for any aspect of the records relating to or
payments made on account of Book-Entry Interests or for maintaining,
supervising or reviewing any records relating to such Book-Entry Interests.
REDEMPTION
In the event the Global Senior Note (or any portion thereof) is redeemed,
the Book-Entry Depositary will redeem, from the amount received by it in
respect of the redemption of the Global Senior Note, an equal amount of the
Book-Entry Interests. The redemption price payable in connection with the
redemption of Book-Entry Interests will be equal to the amount received by the
Book-Entry Depositary in connection with the redemption of the Global Senior
Note (or any portion thereof). The Company understands that under existing DTC
practices, if less than all of the 1994 Senior Notes are to be redeemed at any
time, DTC will credit Participants' accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as DTC deems
fair and appropriate; provided that no beneficial interests of less than $1,000
principal amount at maturity may be redeemed in part.
TRANSFERS
All transfers of Book-Entry Interests are recorded in accordance with the
book-entry system maintained by DTC, pursuant to customary procedures
established by DTC and its Participants. Investors may, at their option, obtain
Definitive Registered Notes as set forth under "-- Form of 1994 Senior Notes"
above. While the Global Senior Note is outstanding, holders of Definitive
Registered Notes may exchange their Definitive Registered Notes for Book-Entry
Interests by
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surrendering their Definitive Registered Notes to the Book-Entry Depositary.
The amount of the Book-Entry Interests will be increased or decreased to
reflect such transfers or exchanges. The Book-Entry Depositary will request the
Trustee to make the appropriate adjustments to the Global Senior Note or
exchange the Global Senior Note for a new Global Senior Note in an appropriate
principal amount at maturity to reflect any such transfers or exchanges.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
As soon as practicable after receipt by the Book-Entry Depositary of
notice of any solicitation of consents or request for a waiver or other action
by the holders of 1994 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 1994 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 1994
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
1994 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 1994 Senior Notes Indenture.
REPORTS
The Book-Entry Depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to the Company, the
1994 Senior Notes or the Book-Entry Interests.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
by written notice to the Company, the Trustee and DTC, such resignation to
become effective upon the appointment of a successor book-entry depositary, in
which case the Global Senior Note shall be delivered to that successor. If no
such successor has been so appointed within 120 days, the Book-Entry Depositary
may request the Company to issue Definitive Registered Notes as described
above.
CHARGES OF BOOK-ENTRY DEPOSITARY
The Company has agreed to indemnify the Book-Entry Depositary against
certain liabilities incurred by it and pay the charges of the Book-Entry
Depositary as agreed between the Company and the Book-Entry Depositary.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement may be amended by the Company and the Book-Entry
Depositary without notice to or consent of DTC or any owner of Book-Entry
Interest: (a) to cure any ambiguity, defect or inconsistency, provided that
such amendment or supplement does not adversely affect the rights of DTC or any
holder of Book-Entry Interests, (b) to evidence the succession of another
person to the Company (when a similar amendment with respect to the 1994 Senior
Notes Indenture is being executed) and the assumption by any such successor of
the covenants of the
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Company herein, (c) to evidence or provide for a successor Book-Entry
Depositary, (d) to make any amendment, change or supplement that does not
adversely affect DTC or any owner of Book-Entry Interests, (e) to add to the
covenants of the Company or the Book-Entry Depositary, or (f) to comply with
the United States Federal securities laws. No amendment that adversely affects
DTC may be made to the Deposit Agreement without the consent of DTC. Upon the
issuance of Definitive Registered Notes in exchange for Book-Entry Interests
constituting the entire principal amount at maturity of 1994 Senior Notes, the
Deposit Agreement will terminate. The Deposit Agreement may be terminated upon
the resignation of the Book-Entry Depositary if no successor has been appointed
within 120 days as set forth under "-- Resignation of Book-Entry Depositary."
INFORMATION CONCERNING DTC
The Company understands as follows with respect to DTC:
DTC is a limited purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC was created to hold securities of its
Participants and to facilitate the clearance and settlement of transactions
among its Participants in such securities through electronic book-entry changes
in accounts of the Participants, thereby eliminating the need for physical
movement of securities certificates. DTC Participants include securities
brokers and dealers (including the Underwriters), banks, trust companies,
clearing corporations and certain other organizations, some of whom (and/or
their representatives) own DTC. Access to the DTC book-entry system is also
available to others, such as banks, brokers dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an owner of a
Book-Entry Interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain Persons take physical
delivery of securities in definitive form. Consequently, the ability to
transfer Book-Entry Interests to such Persons may be limited. In addition,
beneficial owners of Book-Entry Interests through the DTC system will receive
distributions attributable to the Global Senior Note only through DTC
Participants.
SETTLEMENT
The Book-Entry Interests trade in DTC's Same-Day Funds Settlement System.
Any secondary market trading activity in the Book-Entry Interests is expected
to accrue through DTC's Participants, and the securities custody accounts of
investors will be credited with their holdings against payment in same-day
funds on the settlement date.
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DESCRIPTION OF THE 1995 SENIOR NOTES
The 1995 Senior Notes have been issued under an Indenture dated as of
December 15, 1995 (the "1995 Senior Notes Indenture"), between the Company and
The Bank of New York, as trustee (the "Trustee"). A copy of the form of the
1995 Senior Notes Indenture has been filed as an exhibit to the Registration
Statement (File No. 33-98374) of which this Prospectus is a part. The following
summary of certain provisions of the 1995 Senior Notes Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the 1995 Senior Notes Indenture,
including the definitions of certain terms therein and those terms made a part
of the 1995 Senior Notes Indenture by reference to the Trust Indenture Act, as
in effect on the date of the 1995 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 1995 Senior Notes Indenture.
GENERAL
The 1995 Senior Notes constitute general unsubordinated obligations of the
Company, limited to $530,955,000 aggregate principal amount at maturity and
will mature on December 15, 2005. The 1995 Senior Notes will accrete at a rate
of 11 3/4% per annum, compounded semiannually, to their aggregate principal
amount by December 15, 2000 (the "Cash Interest Date"). Cash interest will not
be payable on the 1995 Senior Notes prior to the Cash Interest Date.
Thereafter, cash interest on the 1995 Senior Notes will be payable, at a rate
of 11 3/4% per annum, semi-annually in arrears on each June 15 and December 15
(each, an "Interest Payment Date"), commencing June 15, 2001, to the Book-Entry
Depositary (as hereinafter defined) in the case of the Global Senior Note (as
hereinafter defined) and to holders of Definitive Registered Notes (as
hereinafter defined), if any, on the June 1 or December 1, as the case may be,
immediately preceding such Interest Payment Date. Cash interest will accrue
from the most recent Interest Payment Date to which interest has been paid or
duly provided for or, if no interest has been paid or duly provided for, from
the Cash Interest Date. Cash interest will be computed on the basis of a
360-day year of twelve 30-day months. For additional information concerning
payments on the 1995 Senior Notes, see "--Description of Book-Entry System --
Payments on the Global Senior Note" and "-- Form of 1995 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 1995 Senior Notes. The 1995 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 1995 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 1995
Senior Notes Indenture does not contain any provisions that permit the holders
of the 1995 Senior Notes to require that the Company repurchase or redeem the
1995 Senior Notes or otherwise protect the holders of 1995 Senior Notes in the
event of a takeover, recapitalization or similar restructuring or in the event
of any other highly leveraged transaction.
The 1995 Senior Notes are listed on the Luxembourg Stock Exchange. There
can be no assurance that any trading market in the 1995 Senior Notes will
develop.
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FORM OF THE 1995 SENIOR NOTES
The 1995 Senior Notes are represented by a global security in bearer form,
without coupons attached (the "Global Senior Note"), which was issued in a
denomination equal to the outstanding principal amount at maturity of 1995
Senior Notes represented thereby. The Global Senior Note has been deposited
with The Bank of New York, as book-entry depositary (the "Book-Entry
Depositary"), pursuant to the terms of a Deposit Agreement, to be dated as of
December 15, 1995 between the Company, for the limited purposes set forth
therein, the Book-Entry Depositary and the owners from time to time of
Book-Entry Interests (the "Deposit Agreement"). See "-- Description of
Book-Entry System".
Under the terms of the Deposit Agreement, owners of Book-Entry Interests
will receive Definitive Registered Notes (i) if DTC notifies the Book-Entry
Depositary that it is unwilling or unable to act as depositary or ceases to be
a clearing agency registered under the Securities Exchange Act of 1934, as
amended, and, in either case, a successor depositary is not appointed by the
Global Depositary at the request of the Company within 120 days, (ii) in the
event of an Event of Default under the 1995 Senior Notes Indenture upon request
of the owner of a Book-Entry Interest, (iii) at any time if the Company in its
sole discretion determines that the Global Senior Note (in whole but not in
part) should be exchanged for Definitive Registered Notes, (iv) if such owner
of a Book-Entry Interest requests such exchange in writing delivered to DTC and
through DTC to the Book-Entry Depositary or (v) if the Book-Entry Depositary is
at any time unwilling or unable to continue as Book-Entry Depositary and a
successor Book-Entry Depositary is not appointed by the Company within 120
days. In no event will definitive 1995 Senior Notes in bearer form be issued.
Any Definitive Registered Notes will be issued in registered form in
denominations of $1,000 principal amount or multiples thereof at maturity. Any
Definitive Registered Notes will be registered in such name or names as the
Book-Entry Depositary shall instruct the Trustee based on the instructions of
DTC. It is expected that such instructions will be based upon directions
received by DTC from its participants ("Participants") with respect to
ownership of Book-Entry Interests. To the extent permitted by law, the Company,
the Trustee and any paying agent shall be entitled to treat the person in whose
name any Definitive Registered Note is registered, as the absolute owner
thereof. While the Global Senior Note is outstanding, holders of Definitive
Registered Notes may exchange their Definitive Registered Notes for Book-Entry
Interests by surrendering their Definitive Registered Notes to the Book-Entry
Depositary. The amount of the Global Senior Notes (and the Book-Entry
Interests) will be increased or decreased to reflect exchanges or issues of
Definitive Registered Notes. The Book-Entry Depositary will request the Trustee
to make the appropriate adjustments to the Global Senior Note underlying the
Book-Entry Interests to reflect any such issues or adjustments. The 1995 Senior
Notes Indenture contains provisions relating to the maintenance by a registrar
of a register reflecting ownership of Definitive Registered Notes, if any, and
other provisions customary for a registered debt security. Payment of principal
and interest on each Definitive Registered Note will be made to the holder
appearing on the register at the close of business on the record date at his
address shown on the register on the record date.
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON THE DEFINITIVE REGISTERED NOTES AS SET FORTH UNDER "TAXATION
- --UNITED KINGDOM". A HOLDER OF DEFINITIVE REGISTERED NOTES WILL, TO THE EXTENT
DESCRIBED BELOW UNDER "-- PAYMENT OF ADDITIONAL AMOUNTS", BE ENTITLED TO
RECEIVE ADDITIONAL AMOUNTS WITH RESPECT TO SUCH DEFINITIVE REGISTERED NOTES.
ADDITIONAL AMOUNTS WILL NOT BE PAYABLE IF SUCH DEFINITIVE REGISTERED NOTES WERE
ISSUED AT THE REQUEST OF A HOLDER (INCLUDING FOLLOWING AN EVENT OF DEFAULT) AND
AT THE TIME OF THE PAYMENT IN QUESTION DEFINITIVE REGISTERED NOTES HAVE NOT
BEEN ISSUED IN EXCHANGE FOR THE ENTIRE PRINCIPAL AMOUNT AT MATURITY OF NOTES.
However, a U.S.
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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 1995 Senior Notes".
Any person receiving Definitive Registered Notes other than at its own
request will not be obligated to pay or otherwise bear the cost of any tax or
governmental charge or any cost or expense of the Book-Entry Depositary,
relating to insurance, postage, transportation or any similar charge, which
will be solely the responsibility of the Company.
Principal of, premium, if any, and interest on any Definitive Registered
Notes will be payable at the corporate trust office or agency of the Trustee in
The City of New York maintained for such purposes and at the specified office
of the Paying Agent in Luxembourg (against surrender of the relevant Definitive
Registered Note, in the case of payments of principal). In addition, interest
on Definitive Registered Notes may be paid by check mailed to the person
entitled thereto as shown on the register for the Definitive Registered Notes.
No service charge will be made for any registration of transfer or exchange of
any Definitive Registered Notes.
The Company has undertaken to procure that while the 1995 Senior Notes are
outstanding and listed on the Luxembourg Stock Exchange, it will maintain a
paying agent and a transfer agent in Luxembourg through which payment of
principal of, or premium or interest on, the 1995 Senior Notes may be made and
through which the registration of transfer of 1995 Senior Notes may be
effected.
The initial paying agent and transfer agent appointed by the Company in
Luxembourg is Banque Internationale a Luxembourg S.A., 69 route d'Esch, L-1470
Luxembourg.
REDEMPTION
OPTIONAL REDEMPTION
The 1995 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
1995 Senior Notes. Such redemption will be at the redemption prices (expressed
as percentages of principal amount at maturity) set forth below, plus accrued
and unpaid interest to the redemption date, if redeemed during the 12-month
period beginning December 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
<S> <C>
2000............... 104.406%
2001............... 102.938%
2002............... 101.469%
2003 and thereafter 100.0%
</TABLE>
PURCHASE OBLIGATION
The Company is not required to make any mandatory redemption or sinking
fund payments in respect of the 1995 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 1995 Senior
Notes at a price of 101%
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of the Accreted Value thereof (determined at the date of purchase), if such
purchase is prior to the Cash Interest Date, or 101% of the principal amount at
maturity thereof, plus accrued interest thereon, if any, to the date of
purchase, if such purchase is on or after the Cash Interest Date. In addition,
upon the occurrence of an Asset Disposition, the Company may be obligated to
make an Offer to Purchase all or a portion of the outstanding 1995 Senior Notes
at a price of 100% of the Accreted Value thereof (determined at the date of
purchase), if such purchase is prior to the Cash Interest Date, or 100% of the
principal amount at maturity thereof, plus accrued and unpaid interest, if any,
to the date of purchase, if such purchase is on or after the Cash Interest
Date. See "-- Certain Covenants -- Change of Control" and "-- Certain Covenants
- -- Limitation on Certain Asset Dispositions", respectively.
SELECTION; EFFECT OF REDEMPTION NOTICE
In the case of a partial redemption, selection of the 1995 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 1995 Senior Notes called for redemption will cease to
accrete (if such redemption occurs prior to the Cash Interest Date), interest
on 1995 Senior Notes called for redemption will cease to accrue (if such
redemption occurs on or after the Cash Interest Date) from and after the date
fixed for redemption (unless the Company defaults in providing the funds for
such redemption) and such 1995 Senior Notes will then cease to be outstanding.
OPTIONAL TAX REDEMPTION
The 1995 Senior Notes will be subject to redemption upon not less than 30
nor more than 60 days' notice by mail, as a whole, but not in part, at the
election of the Company at any time at a redemption price equal to 100% of the
Accreted Value thereof (determined at the date of redemption) if such purchase
is prior to the Cash Interest Date, or 100% of the principal amount at maturity
thereof (together in the case of any such redemption with accrued interest to
the date of redemption if such redemption is on or after the Cash Interest
Date), if (a) the Company is required to issue Definitive Registered Senior
Notes after using all reasonable efforts to avoid having to issue such
Definitive Registered Senior Notes and the Company is or would be so required
in the absence of any applicable tax treaty on the next succeeding Interest
Payment Date to pay Additional Amounts with respect to the 1995 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 1995 Senior Notes, any Additional Amount as a result of any amendment to or
change in the laws (or any rules or regulations thereunder) of the United
Kingdom or any political subdivision or taxing authority thereof or therein
(or, in the case of Additional Amounts payable by a successor Person to the
Company, of the jurisdiction in which such successor Person is organized or any
political subdivision or taxing authority thereof or therein) or any amendment
or change in any official interpretation or application of such laws or rules
or regulations or any execution of or amendment to any treaty affecting
taxation to which the United Kingdom or such political subdivision or taxing
authority (or such other jurisdiction or political subdivision or taxing
authority) is a party, if the amendment or change becomes effective on or after
the date of the 1995 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 1995
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.
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PAYMENT OF ADDITIONAL AMOUNTS
All payments made by the Company on the 1995 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 1995 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 New
Senior Note); (b) any estate, inheritance, gift, sales, excise, transfer,
personal property tax or similar tax, assessment or governmental charge; or (c)
any Taxes payable otherwise than by deduction or withholding from payments of
principal of (or premium, if any, on) or interest on such New Senior Note; nor
will Additional Amounts be paid (i) if the payment could have been made by or
through another paying agent without such deduction or withholding, (ii) if the
payment could have been made without such deduction or withholding had the
holder of the New Senior Note or, if different, the beneficiary of the payment
complied with a request of the Company made upon reasonable notice prior to
such payment, or any other Person through whom payment may be made, addressed
or otherwise provided to such holder or beneficiary to provide information,
documents or other evidence concerning the nationality, residence, identity or
connection with the taxing jurisdiction of such holder or beneficiary which is
required or imposed by a statute, treaty, regulation or administrative practice
of the taxing jurisdiction as a precondition to exemption from all or part of
such tax, (iii) with respect to any payment of principal of (or premium if any,
on) or interest on such New Senior Note to any holder who is a fiduciary or
partnership or Person other than the sole beneficial owner of such payment, to
the extent such payment would be required by the laws of the U.K. (or any
political subdivision or taxing authority thereof or therein) to be included in
the income for tax purposes of a beneficiary or settlor with respect to such
fiduciary or a member of such partnership or a beneficial owner who would not
have been entitled to the Additional Amounts had such beneficiary, settlor,
member or beneficial owner been the holder of such a New Senior Note, or (iv)
if the payment is in respect of a Definitive Registered Note issued at the
request of a holder of a Book-Entry Interest (including following an Event of
Default) and at the time the payment is made Definitive Registered Notes have
not been issued in exchange for the entire principal amount at maturity of the
1995 Senior Notes. The foregoing provisions shall survive any termination or
discharge of the 1995 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 1995 Senior Notes Indenture contains, among others, the following
additional covenants:
LIMITATION ON CONSOLIDATED DEBT AND DISQUALIFIED EQUITY
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur any Debt or issue any Disqualified Equity unless, immediately after
giving effect to the Incurrence of such Debt
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or the issuance of such Disqualified Equity and the receipt and application of
the proceeds thereof, the Annualized Consolidated Debt to Cash Flow Ratio of
the Restricted Group for the quarter next preceding the Incurrence of such Debt
or the issuance of such Disqualified Equity, as the case may be, for which
quarterly financial statements are available, calculated on a pro forma basis
(as if such Debt had been Incurred or such Disqualified Equity had been issued
at the beginning of such quarter) would be less than 7.0 to 1.
Notwithstanding the foregoing paragraph, the Company may, and may permit
any Restricted Subsidiary to, Incur or issue the following: (i) Debt up to the
maximum amount available under the Proposed Senior Bank Facility; (ii) Debt of
the Company and/or any Restricted Subsidiary outstanding on the date of the
1995 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 1995
Senior Notes (in the event that the 1995 Senior Notes are redeemed in part
pursuant to the provisions described under "-- Redemption" above) in an amount
not to exceed the outstanding principal amount (or, if less, Accreted Value) of
the Debt or the aggregate liquidation preference of the Disqualified Equity so
refinanced plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Debt or Disqualified Equity
refinanced, or the amount of any premium reasonably determined by the Company
to be necessary to accomplish such refinancing by means of a tender offer or
privately negotiated repurchase plus the expenses of the Company Incurred in
connection with such refinancing; provided that (a) in the case of any
refinancing or refunding of Debt which is pari passu to the 1995 Senior Notes,
the refinancing or refunding Debt is made pari passu to the 1995 Senior Notes
or subordinated to the 1995 Senior Notes, and, in the case of any refinancing
or refunding of Debt which is subordinated to the 1995 Senior Notes or of
Disqualified Equity, the refinancing or refunding Debt is subordinated to the
1995 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.
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LIMITATION ON RESTRICTED PAYMENTS
The Company (i) shall not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities or otherwise) in respect of any class of its Equity
Securities or to the holders of any class of its Equity Securities (including
pursuant to a merger or consolidation of the Company, but excluding any
dividends or distributions payable solely in its Equity Securities (other than
Disqualified Equity) or in options, warrants or other rights to acquire its
Equity Securities (other than Disqualified Equity)), (ii) shall not, and shall
not permit any Restricted Subsidiary of the Company to, directly or indirectly,
purchase, redeem or otherwise acquire or retire for value (a) any Equity
Securities of the Company or any Related Person of the Company or (b) any
options, warrants or rights to purchase or acquire Equity Securities of the
Company or any Related Person of the Company (except options, warrants or
rights to purchase or acquire such Equity Securities held by any current or
former officer or director of the Company or ECE Management in an aggregate
amount not exceeding L.5 million), (iii) shall not make, or permit any
Restricted Subsidiary of the Company to make any Investment in, or Incur an
obligation to Guarantee any obligation of, any Affiliate or Related Person of
the Company, other than the Company or a Wholly-Owned Restricted Subsidiary of
the Company; and (iv) shall not, and shall not permit any Restricted Subsidiary
to, redeem, defease, repurchase or otherwise retire or acquire for value prior
to any scheduled maturity, repayment or sinking fund payment, Debt of the
Company which explicitly by its terms is subordinate in right of payment to the
1995 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 1995
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 1995 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 1995 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
1995 Senior Notes, from the issuance of Equity Securities (other than
Disqualified Equity and the equity referred to in clause (f) under "-- Events
of Default" below) of the Company and options, warrants or other rights on
Equity Securities (other than Disqualified Equity) of the Company (other than
to a Restricted Subsidiary) after the issue date of the 1995 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 1995 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
1995 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 1995 Senior Notes Indenture or to: (i)
Liens securing only the 1995 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
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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 1995
Senior Notes, if the sum of (i) the amount of Debt secured by a Lien entered
into after the date of the 1995 Senior Notes Indenture and otherwise prohibited
by the 1995 Senior Notes Indenture and (ii) the Attributable Value of all Sale
and Leaseback Transactions entered into after the date of the 1995 Senior Notes
Indenture and otherwise prohibited by the 1995 Senior Notes Indenture does not
exceed 5% of the Company's Consolidated Tangible Assets.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, enter into any Sale and Leaseback Transaction unless (i) the
Company or such Restricted Subsidiary were entitled to incur a Lien to secure
Debt in an amount at least equal to the Attributable Value of such Sale and
Leaseback Transaction and the terms of such transaction have been approved by
the Board of Directors of the Company or (ii) all of the conditions contained
in the provisions described under "-- Limitation on Certain Asset Dispositions"
(including the provisions concerning the application of Net Available Proceeds)
would be satisfied with respect to such Sale and Leaseback Transaction if all
of the consideration received in such Sale and Leaseback Transaction were
treated as Net Available Proceeds.
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO RESTRICTED GROUP
The Company may not, and may not permit any Restricted Subsidiary to,
suffer to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make any
other distributions in respect of its Equity Securities or pay any Debt or
other obligation owed to the Company or any other Restricted Subsidiary of the
Company; (ii) to make loans or advances to the Company or any other Restricted
Subsidiary of the Company; or (iii) to transfer any of its property or assets
to, the Company or any Restricted Subsidiary of the Company. Notwithstanding
the foregoing, the Company may, and may permit any Subsidiary to, suffer to
exist any such encumbrance or restriction on the ability of any Subsidiary of
the Company if and to the extent such encumbrance or restriction exists on the
date of the 1995 Senior Notes Indenture or is (a) provided for in the Proposed
Senior Bank Facility documents; (b) existed prior to the time any Person became
a Subsidiary of the Company and such restriction or encumbrance was not
incurred in anticipation of such Person becoming a Subsidiary of the Company;
(c) exists by reason of a customary merger or acquisition agreement for the
purchase or acquisition of the stock or assets of the Company or any of its
Restricted Subsidiaries by another Person; (d) contained in an operating lease
for real property and is effective only upon the occurrence and during the
continuance of a default in the payment of rent; (e) the result of applicable
corporate law or regulation relating to the payment of dividends or
distributions; (f) pursuant to an agreement pursuant to which Debt meeting the
requirements of clauses (iii), (iv), (v) or (ix) of the second
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paragraph under the caption "-- Limitation on Consolidated Debt and
Disqualified Equity" is Incurred; provided, however, that the provisions
contained in such agreement relating to such encumbrance or restriction are no
more restrictive than those contained in the terms of the Proposed Senior Bank
Facility; or (g) pursuant to an agreement effecting a renewal, extension,
refinancing or refunding of Debt Incurred pursuant to an agreement referred to
in clause (a) or (b) above; provided, however, that the provisions contained in
such agreement relating to such encumbrance or restriction are no more
restrictive than the provisions contained in the agreement the subject thereof,
as determined in good faith by the Board of Directors and evidenced by a Board
Resolution.
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Except as permitted in the following paragraph, the Company shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction or
conduct any business with any Affiliate or Related Person of the Company,
unless such transaction is effected or such business is conducted on terms
which are in the Company's good faith judgment at least as favorable as those
that could be obtained in a comparable arm's length transaction with a Person
that is not an Affiliate or Related Person. Any such transaction (or series of
related transactions) in which such Affiliate or Related Person receives in
excess of L.1.0 million in any twelve-month period shall be approved as being
in the Company's best interests by a majority of the disinterested directors of
the Board of Directors of the Company. Any such transaction involving in excess
of L.5.0 million (or series of related transactions involving in excess of
L.5.0 million), or as to which there are no disinterested directors, is subject
to the further requirement that the Company obtain an opinion of an
internationally recognized expert with experience in appraising the terms and
conditions of the relevant type of transaction (or series of related
transactions) stating that the transaction or series of related transactions is
fair (from a financial point of view) to the Company or such Restricted
Subsidiary.
The above requirements shall not be applicable to (i) any transaction
among the Company and its Wholly-Owned Subsidiaries; (ii) any existing
management agreement with ECE Management or any successor or assign; or (iii)
any transaction in which investment banking or other financial advisory
services are provided to the Company or any Subsidiary by Goldman, Sachs & Co.
or any of its Affiliates that is, in the Company's good faith judgment, on
arm's length terms.
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The Company will not, and will not permit any Restricted Subsidiary to,
make any Asset Disposition unless (a) the Company or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such
Asset Disposition at least equal to the fair market value of the shares or
assets sold or otherwise disposed of; and (b) at least 90% of such
consideration consists of cash or Cash Equivalents. To the extent the Net
Available Proceeds of any Asset Disposition are not required to be applied to
repay amounts outstanding under the Proposed Senior Bank Facility or any Debt
of a Restricted Subsidiary, or are not so applied, the Company or such
Restricted Subsidiary, as the case may be, may apply such Net Available
Proceeds within 365 days of the receipt thereof, to an investment in properties
and assets that will be used in a Cable Business (or in Equity Securities of
any such Person that will become a Restricted Subsidiary as a result of such
investment to the extent that such Person owns properties and assets that will
be used in a Cable Business) of the Company or any Restricted Subsidiary
("Replacement Assets"). Notwithstanding the foregoing, the Company may retain
the Net Available Proceeds from any Asset Disposition, the Net Available
Proceeds of which do not exceed L.1.0 million for any purpose. Any Net
Available Proceeds from any Asset Disposition that are neither used to repay
amounts outstanding under the Proposed Senior Bank Facility or any Debt of a
Restricted Subsidiary nor invested in Replacement Assets within such 365-day
period (exclusive of the up to L.1.0 million referred to in the preceding
sentence) shall constitute "Excess Proceeds" subject to the provisions
described in the following paragraph.
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When the aggregate amount of Excess Proceeds equals or exceeds L.10.0
million the Company shall make to all holders of the 1995 Senior Notes within
30 days of the determination thereof an Offer to Purchase 1995 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 1995 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 1995 Senior Notes validly tendered and
not withdrawn by holders thereof exceeds the amount of 1995 Senior Notes which
can be purchased with the Excess Proceeds, 1995 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 1995 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 1995 Senior Notes. A
"Change of Control" will be deemed to have occurred in the event that, after
the date of the 1995 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 Proposed Senior Bank
Facility) may contain provisions restricting the ability of the Company to
repurchase 1995 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 1995 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 1995 Senior Notes. In
the absence of such a repayment or refinancing, the
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Company may be precluded from offering to repurchase the 1995 Senior Notes by
the applicable provisions of such other agreements. The failure of the Company
to offer to repurchase the 1995 Senior Notes upon a Change of Control would
constitute an Event of Default under the 1995 Senior Notes Indenture. Moreover,
there can be no assurance that the Company will have the financial resources
necessary to effect any repurchase of 1995 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 1995 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 1995 Senior Notes and
the performance of every covenant of the 1995 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
1995 Senior Notes Indenture described under "-- Limitation on Liens" above, and
the Company or the successor entity to the Company shall have secured the 1995
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 1995 Senior
Notes Indenture.
EVENTS OF DEFAULT
The following are Events of Default under the 1995 Senior Notes Indenture:
(a) failure by the Company to pay principal of (or premium, if any, on) any New
Senior Note at its Maturity; (b)
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failure to pay any interest or Additional Amounts on any New Senior Note when
due, continued for 30 days; (c) default in the payment of principal and
interest on 1995 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 1995 Senior Notes Indenture or the 1995 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 1995 Senior Notes; (f) failure
by the Company to have received after the date of the 1995 Senior Notes
Indenture but prior to June 30, 1996 an aggregate of $100 million or more in
gross cash proceeds from the issuance of new equity, provided however that if
the Company has at June 30, 1996 an effective registration statement under the
Securities Act for the issuance and sale of such equity, no Event of Default
shall occur unless the Company does not receive such proceeds within 20
business days thereafter; (g) default under the terms of any instrument
evidencing or securing Debt by the Company or any Significant Restricted
Subsidiary which results in the acceleration of the payment of principal amount
in excess of L.5 million or which shall constitute the failure to pay any
portion in excess of L.5 million of principal or similar amount when due and
payable after the expiration of any applicable grace period; (h) the rendering
of a final judgment or judgments against the Company or any Significant
Restricted Subsidiary in an amount in excess of L.5 million which remains
undischarged or unstayed for a period of 60 days after the date on which the
right to appeal has expired; and (i) certain events of bankruptcy, insolvency
or reorganization affecting the Company or any Significant Restricted
Subsidiary.
Subject to the provisions of the 1995 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 1995 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 1995 Senior Notes have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee.
If an Event of Default (other than an Event of Default described in Clause
(i) above) occurs and is continuing, then either the Trustee or the holders of
at least 25% in aggregate principal amount of the Outstanding 1995 Senior Notes
may accelerate the maturity of all 1995 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 1995
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 1995 Senior
Notes Indenture. If an Event of Default specified in Clause (i) above occurs,
the Outstanding 1995 Senior Notes will ipso facto become immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder. For information as to waiver of defaults, see "-- Modification and
Waiver".
No holder of any New Senior Note shall have any right to institute any
proceeding with respect to the 1995 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 1995 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 1995 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 New Senior Note
for enforcement of payment of the principal of and premium, if any, or interest
on such New Senior Note on or after the respective due dates (or, in the case
of a redemption, the Redemption Dates or, in the case of
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an Offer to Purchase, the Purchase Date) expressed in or established pursuant
to the terms of such New Senior Note and 1995 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 1995 Senior
Notes Indenture and as to any default in such performance.
DEFEASANCE
The 1995 Senior Notes Indenture provides that (A) if applicable, the
Company will be discharged from any and all obligations in respect of the
Outstanding 1995 Senior Notes other than certain obligations to transfer the
1995 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 1995 Senior Notes Indenture and the 1995 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 1995 Senior Notes. With respect to Clause
(B), the obligations under the 1995 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 1995
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 1995 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 1995
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 1995 Senior Notes
Indenture described under "-- Payment of Additional Amounts" above were
applicable to such payments; (ii) no Event of Default or event that with the
passing of time or the giving of notice, or both, shall constitute an Event of
Default shall have occurred or be continuing on the date of such deposit or,
insofar as an Event of Default described in clause (i) under "-- Events of
Default," at any time during the period ending on the 121st day after the date
of such deposit; (iii) the Company has delivered to the Trustee an opinion of
counsel to the effect that such deposit shall not cause the Trustee or the
trust so created to be subject to the Investment Company Act of 1940; and (iv)
certain other customary conditions precedent are satisfied.
GOVERNING LAW
The 1995 Senior Notes Indenture and the 1995 Senior Notes are governed by
the laws of the State of New York.
MODIFICATION AND WAIVER
From time to time the Company, when authorized by resolutions of the Board
of Directors, and the Trustee, without the consent of the holders of the 1995
Senior Notes, may amend, waive
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or supplement the 1995 Senior Notes Indenture or the 1995 Senior Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, maintaining the qualification of the 1995 Senior
Notes Indenture under the Trust 1995 Senior Notes Indenture Act or making any
change that does not adversely affect the rights of any holder.
Modifications and amendments of the 1995 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 1995 Senior Notes;
provided, however, that no such modification or amendment may, without the
consent of the holder of each Outstanding New Senior Note affected thereby, (a)
change the Stated Maturity of the principal of or any installment of interest
or Additional Amounts on, any New Senior Note, (b) reduce the principal amount
of, (or the premium) or interest or Additional Amounts on, any New Senior Note,
(c) change the place or currency of payment of principal of (or premium) or
interest or Additional Amounts on, any New Senior Note, (d) impair the right to
institute suit for the enforcement of any payment on or after the Stated
Maturity thereof (or Redemption Date, in the case of redemption, or Purchase
Date, in the case of an Offer to Purchase), (e) reduce the above-stated
percentage of Outstanding 1995 Senior Notes necessary to modify or amend the
1995 Senior Notes Indenture, (f) reduce the percentage of principal amount of
Outstanding 1995 Senior Notes necessary for waiver of compliance with certain
provisions of the 1995 Senior Notes Indenture or for waiver of certain
defaults, (g) modify certain provisions of the 1995 Senior Notes Indenture
relating to the modification of the 1995 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 1995
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 1995 Senior Notes, on behalf of all holders of 1995 Senior
Notes, may waive compliance by the Company with certain restrictive provisions
and covenants of the 1995 Senior Notes Indenture. Subject to certain rights of
the Trustee, as provided in the 1995 Senior Notes Indenture, the holders of not
less than a majority in aggregate principal amount of the Outstanding 1995
Senior Notes, on behalf of all holders of 1995 Senior Notes, may waive any past
default under the 1995 Senior Notes Indenture, except a default in the payment
of principal, premium or interest or in respect of a covenant or provision that
cannot be modified or amended without the consent of the holder of each
Outstanding New Senior Note.
REPORTS
The Company shall deliver to the Trustee, within 15 days after it files
them with the Commission, copies of its annual report and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribed) which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act within the time periods prescribed under such rules and
regulations. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act or otherwise report on an annual and quarterly basis on forms provided for
such annual and quarterly reporting pursuant to rules and regulations
promulgated by the Commission, the 1995 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.
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THE TRUSTEE
The duties and responsibilities of the Trustee are those provided by the
Trust Indenture Act. Notwithstanding the foregoing, the 1995 Senior Notes
Indenture does not require the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
under the 1995 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 1995 Senior Notes, the 1995 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 1995 Senior Notes by accepting a New Senior Note waives and
releases all such liability; provided that such waiver will not release any
person from liability for fraud or criminal acts. The waiver and release are
part of the consideration for issuance of the 1995 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 1995 Senior Notes Indenture. Reference is made to the 1995 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 1995 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 1995 Senior Notes
Indenture.
"Accreted Value" means, as of any date of determination prior to the Cash
Interest Date, the sum of (a) the initial offering price of each New Senior
Note and (b) the portion of the excess of the principal amount of each New
Senior Note over such initial offering price which shall have been amortized by
the Company through such date, such amount to be so amortized on a daily basis
and compounded semiannually on each June 15 and December 15, at the rate of 11
3/4% per annum from the date of issuance of the 1995 Senior Notes through the
date of determination computed on the basis of a 360-day year of twelve 30-day
months.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Consolidated Debt to Cash Flow Ratio" for any Person means for
any fiscal quarter the ratio of (i) Total Consolidated Debt of such Person as
of the end of such fiscal quarter to (ii) Consolidated Operating Cash Flow of
such Person for such fiscal quarter multiplied by four.
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"Asset Acquisition" means (i) any capital contribution (including without
limitation by means of transfers of cash or other property to others or
payments for property or services for the account or use of others) by the
Company or any Restricted Subsidiary in any other Person (including, for the
avoidance of doubt, a prospective licensee that subsequently acquires a license
to operate a cable television and/or telephone and/or telecommunications
system), or any acquisition or purchase of equity interests in any other Person
by the Company or any Restricted Subsidiary, in either case pursuant to which
such Person shall become a Restricted Subsidiary or shall be merged with or
into the Company or any Restricted Subsidiary or (ii) any acquisition by the
Company or any Restricted Subsidiary of the assets of any Person which
constitute substantially all of an operating unit or line of business of such
Person or which is otherwise outside of the ordinary course of business.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Company or any of its Restricted Subsidiaries (including by
way of consolidation or merger) resulting in Net Available Proceeds in excess
of L.250,000 of (i) shares or other ownership interest of a Subsidiary of the
Company, (ii) substantially all of the assets of the Company or any Subsidiary
representing a division or line of business, or (iii) other assets or rights
outside of the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable, and at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the initial term thereof as determined in
accordance with generally accepted accounting principles, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capital Lease
Obligation with like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any such lease for
any such period shall be the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges. In the case of any lease which is terminable by the lessee
upon the payment of a penalty, such net amount shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Cable Acquisition" means an Asset Acquisition of properties or assets to
be used in a Cable Business or of equity interests in any Person that becomes a
Restricted Subsidiary or, subject to the covenant described under "--Certain
Covenants -- Limitation on Restricted Payments" above, a Non-Restricted
Subsidiary as a result of such Asset Acquisition, provided that such Person's
assets and properties consist principally of properties or assets that will be
used in a Cable Business.
"Cable Business" means any business operating a cable television and/or
telephone and/or telecommunications system or any business reasonably related
thereto, including, without limitation, the production or provision of
programming as well as any business conducted by the Company or any Restricted
Subsidiary on the date on which the 1995 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
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instrumentality thereof (provided that the full faith and credit of the
relevant Approved Jurisdiction is pledged in support thereof); (ii)
certificates of deposit or acceptances of any financial institution that has
combined capital and surplus and undivided profits of not less than $50,000,000
(or the equivalent thereof in another currency) and has a long term debt rating
of at least "AA" by Standard & Poor's Corporation or at least "Aa3" by Moody's
Investor Service or if not rated by either of those rating agencies the
equivalent rating from another Approved Rating Agency; (iii) commercial paper
issued by a corporation organized under the laws of any Approved Jurisdiction
and rated at least A-1 by Standard & Poor's Corporation or at least P-1 by
Moody's Investor Service or if not rated by either of those rating agencies the
equivalent rating from another Approved Rating Agency; (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the government of an
Approved Jurisdiction; and (v) any other investment, instrument or cash
balance, provided, that in each of clauses (i) through (v) above such
instrument shall be considered a Cash Equivalent within the meaning of this
definition only to the extent that such instrument would have been classified
as a "cash equivalent" in accordance with the accounting principles applied to
the Company's audited consolidated balance sheet as of December 31, 1994.
"Approved Jurisdiction" means the United States of America, Canada, the United
Kingdom and any other member nation of the Organization for 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 1995
Senior Notes and that shall have been approved by the Trustee upon the written
request of the Company from time to time.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person as charged in arriving
at Consolidated Net Income for such period.
"Consolidated Interest Expense" of any Person means for any period the
interest expense (without deducting interest income) of such Person for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers
acceptances or similar facilities; (iii) fees with respect to interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements; (iv) Preferred Stock dividends (other than in respect of Preferred
Stock held by such Person or a Wholly-Owned Subsidiary of such Person) declared
and payable in such period in cash; and (v) the portion of any rental
obligation allocable to interest expense under generally accepted accounting
principles.
"Consolidated Net Income" of any Person means for any period the net
income (or loss) of such Person for such period determined on a consolidated
basis in accordance with generally accepted accounting principles; provided
that there shall be excluded therefrom (a) the net income (or loss) of any
Person acquired by such Person or a subsidiary of such Person in a transaction
accounted for under the pooling-of-interests method for any period prior to the
date of such transaction, (b) the net income (but not the net loss) of any
Restricted Subsidiary of such Person which is subject to restrictions which
prevent the payment of dividends or the making of distributions (by loans,
advances, intercompany transfers or otherwise) to such Person to the extent of
such restrictions, (c) the net income (or loss) of any Person that is not a
Consolidated Subsidiary of such Person except to the extent of the amount of
dividends or other distributions actually paid to a member of the Restricted
Group by such other Person during such period, (d) gains or losses on Asset
Dispositions and (e) all extraordinary gains and extraordinary losses.
"Consolidated Operating Cash Flow" of any Person means for any period (a)
the sum of (i) Consolidated Net Income for such period; (ii) Consolidated
Interest Expense for such period; (iii) Consolidated Income Tax Expense for
such period; (iv) the depreciation and amortization expense included in the
consolidated income statement of such Person for such period; and (v) other
non-cash charges (other than trading and operating items in the ordinary course
of business) deducted
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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 1995 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.
"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 1995
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
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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.
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"Net Available Proceeds" from any Asset Disposition by any Person means
cash and readily marketable cash equivalents received (including by way of sale
or discounting of a note, instalment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and
expenses incurred and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Subsidiaries on any
Debt which is secured by a Lien on such assets or on shares of the Person
owning such assets in accordance with the terms of any Lien upon or with
respect to such assets or which must be repaid out of the proceeds from such
Asset Disposition under the terms of such Debt or Lien, in order to obtain a
necessary consent to such Asset Disposition or by applicable law, and (iii) all
distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition provided that minority holders receive distributions and payments
that are in the Company's good faith judgment comparable in kind to that
received by the Company or a Restricted Subsidiary.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
none of the Company, nor any of its Restricted Subsidiaries (a) provides credit
support (including any undertaking, agreement or instrument which would
constitute Debt); (b) is directly or indirectly liable; or (c) constitutes the
lender; and (ii) no default with respect to which (including any rights which
the holders thereof may have to take enforcement action against a
Non-Restricted Subsidiary) would permit (upon notice, lapse of time or both)
any holders of any other Debt of the Company or any of its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Non-Restricted Subsidiary" of a Person means a Subsidiary of such Person
that (i) at the time of its designation as a Non-Restricted Subsidiary has not
acquired any assets (unless the acquisition of such assets constitutes a
Restricted Payment permitted by the "-- Certain Covenants -- Limitation on
Restricted Payments" covenant), at any previous time, directly or indirectly
from such Person or any of its Subsidiaries and (ii) has no Debt other than
Debt that is, with respect to such Person, Non-Recourse Debt (unless the extent
to which such Person is the lender for, or is responsible for such Debt,
constitutes a Restricted Payment permitted by the "-- Certain Covenants --
Limitation on Restricted Payments" covenant); provided, however, that at the
time 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 1995
Senior Notes specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to this 1995 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 1995 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
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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 1995 Senior Notes pursuant to the Offer to Purchase. The Offer shall
also state:
(1) the Section of the 1995 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 1995 Senior Notes
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than all Outstanding 1995 Senior Notes, the manner by which
such has been determined pursuant to the Section hereof requiring the Offer to
Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of 1995 Senior Notes accepted for payment (as
specified pursuant to the 1995 Senior Notes Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the 1995 Senior
Notes registered in the name of such holder and that any portion of a New
Senior Note tendered must be tendered in an integral multiple of $1,000
principal amount at maturity;
(6) the place or places where 1995 Senior Notes are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any New Senior Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each New Senior Note being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on and after
the Purchase Date;
(9) that each holder electing to tender a New Senior Note pursuant to the
Offer to Purchase will be required to surrender such New Senior Note at the
place or places specified in the Offer prior to the close of business on the
Expiration Date (such New Senior Note, if a Registered New Senior Note, being,
if the Company or the Trustee so requires, duly endorsed by, or accompanied by
a written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the holder thereof or his attorney duly authorized in
writing);
(10) that holders will be entitled to withdraw all or any portion of 1995
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
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holder, the principal amount of the New Senior Note the holder tendered, the
certificate number of the New Senior Note the holder tendered and a statement
that such holder is withdrawing all or a portion of his tender;
(11) that (a) if 1995 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 1995
Senior Notes and (b) if 1995 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 1995 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 1995 Senior
Notes in denominations of $1,000 or integral multiples thereof shall be
purchased); and
(12) that in case of any holder whose New Senior Note is purchased only
in part, the Company shall execute, and the Trustee shall authenticate and
deliver to the holder of such New Senior Note without service charge, a new New
Senior Note or 1995 Senior Notes of the same type, of any authorized
denomination as requested by such holder, in an aggregate principal amount
equal to and in exchange for the unpurchased portion of the New Senior Note so
tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Holder" means European Cable Capital Partners L.P., a limited
partnership organized under the laws of Delaware, and any of its partners
existing on the date of the 1995 Senior Notes Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Common Equity of such Person or (b) 5%
or more of the Voting Interest of such Person.
"Restricted Group" means the Company together with its Restricted
Subsidiaries.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than a Non-Restricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which
has been or is being sold or transferred by such Person more than 365 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"Significant" means, with respect to any Subsidiary or Restricted
Subsidiary, a Subsidiary or Restricted Subsidiary that qualifies as a
"significant subsidiary" under Rule 1-01 of the Commission's Regulation S-X.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Interest of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other
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Person (other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and power to
direct the policies, management and affairs thereof.
"Total Consolidated Debt" means, at any date of determination, an amount
equal to the aggregate amount of all Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of determination, determined on a
consolidated basis.
"Trade Obligation" means (i) obligations to pay the purchase price of
assets or services purchased in the ordinary course of business including,
without limitation, obligations incurred in respect of any documentary letter
of credit or bill of exchange issued in respect of any such purchase; (ii)
obligations in respect of any bill of exchange or promissory note drawn, or
accepted, issued or endorsed in the ordinary course of business, including,
without limitation, indebtedness in respect of any monies raised by way of
sale, discounting or otherwise in respect of any such bill or note; and (iii)
obligations in respect of any Guarantee of any obligation of the type specified
in Clause (i) or (ii) above, except to the extent that such obligation is
treated as indebtedness under generally accepted accounting principles.
"Voting Interest" of any Person means Equity Securities of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Disqualified Equity, the quotient obtained by dividing
(i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payments of
such Debt or redemption or repurchase payments on such Disqualified Equity and
the amount of such principal payments or redemption or repurchase payments, by
(ii) the sum of all such principal value or redemption or repurchase payments.
"Wholly-Owned" means with respect to any Subsidiary or Restricted
Subsidiary of any Person means a Subsidiary (or a Restricted Subsidiary) of
such Person all of the outstanding Equity Securities or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly-Owned Subsidiaries (or
Restricted Subsidiaries) of such Person or by such Person and one or more
Wholly-Owned Subsidiaries (or Restricted Subsidiaries) of such Person.
DESCRIPTION OF BOOK-ENTRY SYSTEM
GENERAL
The Book-Entry Depositary holds the Global Senior Note for the benefit of
DTC and its Participants, as hereinafter described. Pursuant to the terms of
the Deposit Agreement, the Global Senior Note may be transferred only to a
successor of the Book-Entry Depositary. Beneficial interests in the Global
Senior Note are be shown on, and transfers thereof are effected only through,
records maintained in book-entry form by DTC (with respect to its Participants'
interests) and its Participants. Such beneficial interests are referred to
herein as "Book-Entry Interests." Ownership of the Book-Entry Interests will be
limited to Participants and indirect participants ("Indirect Participants"),
including Euroclear and Cedel. Procedures with respect to the ownership of
Book-Entry Interests are set forth below.
Upon receipt of the Global Senior Note, the Book-Entry Depositary issued a
certificateless depositary interest (which represents a 100% interest in the
underlying Global Senior Note) to DTC by recording such interest in the
Book-Entry Depositary's books and records in the name of Cede & Co., as nominee
of DTC. Upon such issuance, DTC credited, on its book-entry registration and
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transfer system, the Participants' accounts with the respective interests owned
by such Participants. Ownership of Book-Entry Interests is shown on, and the
transfer of such interests will be effected only through, records maintained by
DTC and by Participants (with respect to interests of Indirect Participants,
including Euroclear and Cedel). The laws of some countries and some states in
the United States may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to own, transfer or pledge the Book-Entry
Interests.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Senior Note, the Book-Entry Depositary or such nominee, as the case may
be, will be considered the sole holder of such Global Senior Note for all
purposes under the 1995 Senior Notes Indenture. Except as set forth above under
"-- Form of 1995 Senior Notes," Participants or Indirect Participants are not
entitled to have 1995 Senior Notes or Book-Entry Interests registered in their
names, will not receive or be entitled to receive physical delivery of 1995
Senior Notes or Book-Entry Interests in definitive form and will not be
considered the owners or holders thereof under the 1995 Senior Notes Indenture.
Accordingly, each person owning a Book-Entry Interest must rely on the
procedures of the Book-Entry Depositary and DTC and, if such person is not a
Participant in DTC, on the procedures of the Participant in DTC (being, in the
case of participants in Euroclear and Cedel, the procedures of Euroclear and
Cedel) through which such person owns its interest, to exercise any rights and
remedies of a holder under the 1995 Senior Notes Indenture. See "-- Actions by
Owners of Book-Entry Interests" below. If any definitive 1995 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 1995 Senior Notes." Unless and until Book-Entry Interests are exchanged for
Definitive Registered Notes (as described under "-- Form of the 1995 Senior
Notes" above), the depositary interest held by DTC may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any such nominee to a successor of DTC or a
nominee of such successor.
PAYMENTS ON THE GLOBAL SENIOR NOTE
Payments of any amounts owing in respect of the Global Senior Note will be
made through one or more paying agents appointed under the 1995 Senior Notes
Indenture (which initially will include the Trustee) to the Book-Entry
Depositary, as the holder of the Global Senior Note. All such amounts will be
payable in United States dollars. Upon receipt of any such amounts, the
Book-Entry Depositary will pay the amount so received to DTC, which will
distribute such payments to its Participants. Payments of all such amounts will
be made without deduction or withholding for or on account of any present or
future taxes, duties, assessments or governmental charges of whatever nature
except as may be required by law, and if any such deduction or withholding is
required to be made by any law or regulation of the United Kingdom then, to the
extent described under "-- Payment of Additional Amounts" above, such
Additional Amounts will be paid as may be necessary in order that the net
amounts received by any holder of the Global Senior Note or owner of Book-Entry
Interests after such deduction or withholding will equal the net amounts that
such holder or owner would have otherwise received in respect of the Global
Senior Note or Book-Entry Interest, as the case may be, absent such withholding
or deduction. DTC, upon receipt of any such payment, will immediately credit
Participants' accounts with payments in amounts proportionate to their
respective ownership of Book-Entry Interests, as shown on the records of DTC.
The Company expects that payments by Participants to owners of Book-Entry
Interests held through such Participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the account of customers in bearer form or registered in "street name"
and will be the responsibility of such Participants. In the event that DTC no
longer immediately credits participants' accounts with payments, the Company
will endeavor to cause payments of interest and principal to be made by wire
transfer to any owners of Book-Entry Interests whose aggregate ownership
exceeds $20 million in principal amount at maturity who so request.
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Because the provisions of the 1995 Senior Notes Indenture treat the holder
of the Global Senior Note as the owner of the 1995 Senior Notes represented
thereby for the purpose of receiving amounts owing in respect of the 1995
Senior Notes, the Company has no responsibility or liability for the payment of
amounts owing in respect of the depositary interest held by DTC to owners of
Book-Entry Interests representing interests in the Global Senior Note. Payments
by DTC Participants to owners of Book-Entry Interests held through such
Participants are the responsibility of such Participants, as is now the case
with securities held for the accounts of customers registered in "street name".
None of the Company, the Trustee, the Book-Entry Depositary or any agent of the
Company or the Trustee or the Book-Entry Depositary have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Book-Entry Interests or for maintaining, supervising or reviewing any
records relating to such Book-Entry Interests.
REDEMPTION
In the event the Global Senior Note (or any portion thereof) is redeemed,
the Book-Entry Depositary will redeem, from the amount received by it in
respect of the redemption of the Global Senior Note, an equal amount of the
Book-Entry Interests. The redemption price payable in connection with the
redemption of Book-Entry Interests will be equal to the amount received by the
Book-Entry Depositary in connection with the redemption of the Global Senior
Note (or any portion thereof). The Company understands that under existing DTC
practices, if less than all of the 1995 Senior Notes are to be redeemed at any
time, DTC will credit Participants' accounts on a proportionate basis (with
adjustments to prevent fractions) or by lot or on such other basis as DTC deems
fair and appropriate; provided that no beneficial interests of less than $1,000
principal amount at maturity may be redeemed in part.
TRANSFERS
All transfers of Book-Entry Interests are recorded in accordance with the
book-entry system maintained by DTC, pursuant to customary procedures
established by DTC and its Participants. Investors may, at their option, obtain
Definitive Registered Notes as set forth under "-- Form of the 1995 Senior
Notes". While the Global Senior Note is outstanding, holders of Definitive
Registered Notes may exchange their Definitive Registered Notes for Book-Entry
Interests by surrendering their Definitive Registered Notes to the Book-Entry
Depositary. The amount of the Book-Entry Interests will be increased or
decreased to reflect such transfers or exchanges. The Book-Entry Depositary
will request the Trustee to make the appropriate adjustments to the Global
Senior Note or exchange the Global Senior Note for a new Global Senior Note in
an appropriate principal amount at maturity to reflect any such transfers or
exchanges.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
As soon as practicable after receipt by the Book-Entry Depositary of
notice of any solicitation of consents or request for a waiver or other action
by the holders of 1995 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 1995 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 1995
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
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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 1995 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 1995 Senior Notes Indenture.
REPORTS
The Book-Entry Depositary will immediately send to DTC a copy of any
notices, reports and other communications received relating to the Company, the
1995 Senior Notes or the Book-Entry Interests. All notices regarding the 1995
Senior Notes will, so long as the rules of the Luxembourg Stock Exchange
require, be published in a daily newspaper of general circulation in
Luxembourg, which is expected to be the Luxemburger Wort.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
by written notice to the Company, the Trustee and DTC, such resignation to
become effective upon the appointment of a successor book-entry depositary, in
which case the Global Senior Note shall be delivered to that successor. If no
such successor has been so appointed within 120 days, the Book-Entry Depositary
may request the Company to issue Definitive Registered Notes as described
above.
CHARGES OF BOOK-ENTRY DEPOSITARY
The Company will agree to indemnify the Book-Entry Depositary against
certain liabilities incurred by it and pay the charges of the Book-Entry
Depositary as agreed between the Company and the Book-Entry Depositary.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement may be amended by the Company and the Book-Entry
Depositary without notice to or consent of DTC or any owner of Book-Entry
Interest: (a) to cure any ambiguity, defect or inconsistency, provided that
such amendment or supplement does not adversely affect the rights of DTC or any
holder of Book-Entry Interests, (b) to evidence the succession of another
person to the Company (when a similar amendment with respect to the 1995 Senior
Notes Indenture is being executed) and the assumption by any such successor of
the covenants of the Company herein, (c) to evidence or provide for a successor
Book-Entry Depositary, (d) to make any amendment, change or supplement that
does not adversely affect DTC or any owner of Book-Entry Interests, (e) to add
to the covenants of the Company or the Book-Entry Depositary, or (f) to comply
with the United States Federal securities laws. No amendment that adversely
affects DTC may be made to the Deposit Agreement without the consent of DTC.
Upon the issuance of Definitive Registered Notes in exchange for Book-Entry
Interests constituting the entire principal amount at maturity of 1995 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
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for physical movement of securities certificates. DTC Participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. Access to the DTC book-entry system is
also available to others, such as banks, brokers dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of an owner of a
Book-Entry Interest to pledge such interest to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interest, may be limited by the lack of a definitive certificate for such
interest. The laws of some states require that certain Persons take physical
delivery of securities in definitive form. Consequently, the ability to
transfer Book-Entry Interests to such Persons may be limited. In addition,
beneficial owners of Book-Entry Interests through the DTC system will receive
distributions attributable to the Global Senior Note only through DTC
Participants.
SETTLEMENT
The Book-Entry Interests will trade in DTC's Next-Day Funds Settlement
System. Any secondary market trading activity in the Book-Entry Interests is
expected to accrue through DTC's Participants, and the securities custody
accounts of investors will be credited with their holdings against payment in
next-day funds on the settlement date.
CLEARANCE THROUGH CEDEL AND EUROCLEAR
The 1995 Senior Notes have been accepted for clearance by Cedel and
Euroclear under the common code 6217478. The ISIN is US252567AB82.
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TAXATION
The following summary of certain U.K. and U.S. federal income tax
consequences of the acquisition, ownership and disposition of the Senior Notes
by a "U.S. Holder", as defined below, is the opinion of Sullivan & Cromwell
with respect to U.S. federal income taxes and is based upon the opinion of
Freshfields with respect to U.K. taxes.
The statements regarding U.S. and U.K. tax laws and practices set forth
below, including the statements regarding the U.S./U.K. double taxation
convention relating to income and capital gains (the "Treaty") (i) are based on
the laws as in force and as applied in practice on the date of this Prospectus
and are subject to changes to those laws and practices, and any relevant
judicial decision, subsequent to the date of this Prospectus and (ii) assume
that the Senior Notes will be issued, and transfers thereof and payments
thereon will be made, in accordance with the applicable Indenture and the
Deposit Agreement.
For purposes of the Treaty, and the U.S. Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), U.S. Holders of Book-Entry Interests
will be treated as owners of the Senior Notes underlying such Book-Entry
Interests and, except as noted below, the tax consequences of owning Book-Entry
Interests will be the same as those applicable to ownership of Senior Notes.
As used herein, the term "U.S. Holder" means a beneficial owner of a
Senior Note that is, for U.S. federal income tax purposes: (i) a citizen or
resident of the U.S., (ii) a domestic corporation or (iii) otherwise subject to
U.S. federal income taxation on a net income basis in respect of the Senior
Note.
PROSPECTIVE PURCHASERS OF SENIOR NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE U.S., U.K. OR OTHER TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF SENIOR NOTES, INCLUDING THE EFFECT OF ANY STATE OR
LOCAL TAX LAWS.
UNITED KINGDOM
The following summary describes certain U.K. tax matters with respect to
ownership of the Senior Notes.
PAYMENTS ON THE SENIOR NOTES
The Company will not be required to deduct or withhold on account of U.K.
income tax from payments of principal or, for so long as the Senior Notes are
represented by a Global Senior Note and are listed on the Luxembourg Stock
Exchange or some other stock exchange recognized by the U.K. Inland Revenue,
from payments of interest where:
(a) the payment of interest is made by a paying agent outside the
U.K.; or
(b) the payment of interest is made by or through a person who is in
the U.K. but the person beneficially entitled to the interest is not
resident in the U.K. and beneficially owns the Senior Notes from which the
interest derives and either the person by or through whom the payment is
made has received a declaration in a form prescribed by regulations)
confirming that these requirements are satisfied or the Inland Revenue has
issued a notice to that person stating that they consider them satisfied.
In other cases, and in particular where paid in respect of Definitive
Registered Notes, interest will (subject to what is said below) be paid after
deduction of income tax at the lower rate (for the
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tax year 1996/7, 20%). A U.S. Holder of a Senior Note who is entitled to the
protection of the Treaty will normally be eligible to recover in full any U.K.
tax withheld from payments of interest to which such Holder is beneficially
entitled by making a claim under the Treaty on the appropriate form.
Alternatively, a claim may be made by a U.S. Holder in advance of a payment of
interest. If the claim is accepted by the Inland Revenue, they will authorize
subsequent payments to that U.S. Holder to be made without withholding for U.K.
tax.
For so long as the Senior Notes are represented by a Global Senior Note
and are listed on a recognized stock exchange, where any person in the United
Kingdom, in the course of a trade or profession:
(i) acts as custodian of a Senior Note in respect of which he receives any
interest or interest is paid at his direction or with his consent, or
(ii) collects or secures payment of or receives interest on a Senior Note
for another person.
(except in any case by means only of clearing a check or arranging for the
clearing of a check) that person is liable to account for United Kingdom income
tax at the lower rate (20 per cent. for the tax year 1996/7) on such interest
and is entitled to deduct an amount in respect thereof unless an exemption from
such liability is applicable including, for example, where the Senior Note and
the interest is beneficially owned by a person not resident in the United
Kingdom and applicable administrative and procedural requirements are
satisfied, including the making of declarations as to status and eligibility.
Except for any income tax deducted as described above (and except in the
case of non-United Kingdom resident trustees of a trust having an ordinarily
resident or resident beneficiary) a U.S. Holder will not be liable to United
Kingdom tax on interest on a Senior Note unless it is chargeable to income tax
or corporation tax on a branch or agency in the United Kingdom through which it
carries on a trade, profession or vocation and in connection with which the
interest is received or to which the Senior Notes are attributable. There are
certain exemptions for interest received by certain specified categories of
agent (such as some brokers and investment managers).
SALE OR DISPOSITION (INCLUDING REDEMPTION)
For U.K. tax purposes, a disposal (including redemption) of a Senior Note
will generally not be subject to U.K. tax unless the holder is either resident
or (if an individual) ordinarily resident for tax purposes in the U.K. or
carries on a trade, profession or vocation in the U.K. through a branch or
agency to which the Senior Note is attributable.
ANNUAL TAX CHARGES
Provisions of the Finance Act 1993 which could impose an annual charge on
corporate holders of Senior Notes by reference to exchange rate fluctuations,
and provisions of the Finance Act 1996 which could apply so as to charge
corporate holders to corporation tax on income on any profits (and give relief
for permitted losses) by reference to accounting periods on either an
authorized accruals or mark to market basis, will not apply to corporate US
Holders without a branch or agency in the U.K.
UNITED KINGDOM STAMP DUTY AND STAMP DUTY RESERVE TAX
No U.K. stamp duty or stamp duty reserve tax is payable on the issue of
the applicable Global Senior Note or on the issue or transfer of a Senior Note
in definitive form or on its redemption. No 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
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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.
UNITED STATES
The following summary of the principal U.S. federal income tax consequences
of ownership and disposition of the Senior Notes deals only with Senior Notes
held as capital assets. It does not discuss all of the tax consequences that may
be relevant to a holder in light of its particular circumstances or to special
classes of holders, such as securities dealers, banks, tax-exempt organizations,
life insurance companies, persons that hold Senior Notes that are part of a
straddle or conversion transaction, persons that are not U.S. Holders, or
persons whose functional currency is not the U.S. dollar. The summary is based
on the Code, its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, all as currently in effect
and all subject to change at any time, perhaps with retroactive effect.
ORIGINAL ISSUE DISCOUNT
The Senior Notes were issued with original issue discount ("OID") because
the "issue price" of the Senior Notes was less than their "stated redemption
price at maturity" by more than a de minimis amount. The "issue price" of the
Senior Notes equals the first price at which a substantial amount of the Senior
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 Senior Notes other than payments of "qualified
stated interest." A "qualified stated interest" payment is generally any one of
a series of stated interest payments that, among other requirements, are
unconditionally payable at least annually. Because the Senior Notes will not pay
interest prior to the Cash Interest Date, none of the interest on the Senior
Notes will be "qualified stated interest." Therefore, all payments made under
the Senior Notes will be included in the "stated redemption price at maturity"
and the total OID on a Senior Note equals the difference between the sum of all
payments provided under the Senior Note and its issue price.
A U.S. Holder of a Senior Note must include OID in income calculated in
accordance with a constant-yield method before the receipt of cash attributable
to such income. Under the constant-yield method, interest is accrued at a
constant rate based on the Senior Notes' yield to maturity, which is the
discount rate that, when used in computing the present value of all payments to
be made under the Senior Notes, produces an amount equal to their issue price.
The amount of OID includible in income by a U.S. Holder of a Senior Note is the
sum of the daily portions of OID with respect to the Senior Note for each day
during the taxable year or portion of the taxable year on which the U.S. Holder
holds such Senior Note ("accrued OID"). The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion of the OID
allocable to that accrual period. Accrual periods with respect to a Senior Note
may be of any length selected by the U.S. Holder and may vary in length over
the term of the Senior Note as long as (i) no accrual period is longer than one
year and (ii) each scheduled payment of interest or principal on the Senior
Note occurs on either the final or first day of an accrual period. The amount
of OID allocable to an accrual period will equal the product of the Senior
Note's "adjusted issue price" at
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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 the final accrual period is the difference between the
amount payable at the maturity of the Senior Note and the Senior Note's adjusted
issue price as of the beginning of the final accrual period.
The "adjusted issue price" of a Senior Note at the beginning of any accrual
period will be the issue price of the Senior Note increased by the amount of
accrued OID for each prior accrual period and decreased by the amount of any
payments made on the Senior Note. Because OID will accrue and be includible in
income at least annually and no payments will be made under the Senior Notes
until 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 Note.
OID accrued with respect to the Senior Notes constitutes income from
sources outside the United States, but generally will be "passive" or, in the
case of certain U.S. Holders, "financial services" income, which is treated
separately from other types of income for purposes of computing the foreign tax
credit allowable to a U.S. Holder.
ACQUISITION PREMIUM
A U.S. Holder that purchases a Senior Note for an amount less than or
equal to the sum of all amounts payable on the Senior Note after the purchase
date but in excess of its "adjusted issue price" (any such excess being
"acquisition premium") is permitted to reduce the daily portions of OID by a
fraction, the numerator of which is the excess of the U.S. Holder's adjusted
basis in the Senior Note immediately after its purchase over the "adjusted
issue price" of the Senior Note, and the denominator of which is the excess of
the sum of all amounts payable on the Senior Note after the purchase date over
the Senior Note's adjusted issue price.
MARKET DISCOUNT
A Senior Note will be treated as purchased at a market discount (a "Market
Discount Note") if the Senior Note's "revised issue price", exceeds the amount
for which the U.S. Holder purchased the Senior Note by at least 1/4 of 1
percent of such Senior Note's "revised issue price" multiplied by the number of
complete years to the Senior Note's maturity. If such excess is not sufficient
to cause the Senior Note to be a Market Discount Note, then such excess
constitutes "de minimis market discount". The Code provides that, for these
purposes, the "revised issue price" of a Senior Note generally equals its issue
price, increased by the amount of any OID that has accrued on the Senior Note.
Any gain recognized on the maturity or disposition of a Market Discount
Note will be treated as ordinary income to the extent that such gain does not
exceed the accrued market discount on such Senior Note. Alternatively, a U.S.
Holder of a Market Discount Note may elect to include market discount in income
currently over the life of the Senior Note. Such an election shall apply to
all debt instruments with market discount acquired by the electing U.S. Holder
on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Internal
Revenue Service.
Market discount on a Market Discount Note will accrue on a straight-line
basis unless the U.S. Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Senior Note
with respect to which it is made and may not be revoked. A U.S.
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Holder of a Market Discount Note that does not elect to include market discount
in income currently generally will be required to defer deductions for interest
on borrowings allocable to such Senior Note in an amount not exceeding the
accrued market discount on such Senior Note until the maturity or disposition
of such Senior Note.
SALE, EXCHANGE OR RETIREMENT OF THE SENIOR NOTES
Upon the sale, exchange or retirement of a Senior Note, a U.S. Holder will
generally recognize taxable gain or loss equal to the difference between the
amount realized on the sale, exchange or retirement and such Holder's adjusted
tax basis in the Senior Note. A U.S. Holder's adjusted tax basis in a Senior
Note will generally equal the cost of the Senior Note to such Holder, increased
by the amounts of any OID, market discount or de minimis market discount
previously included in income by the Holder with respect to such Senior Note
and reduced by any payments on the Senior Notes received by the Holder.
Except to the extent described above under "-- Market Discount", gain or
loss realized on the sale, exchange or retirement of a Senior Note will be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Note has been held for more than one year. Gain, if any, will generally be
U.S. source gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, premium and interest on a Senior Note and on the proceeds of the
sale of a Senior Note before maturity to, and the accrual of OID with respect
to, a non-corporate U.S. Holder, and "backup withholding" at a rate of 31% will
apply to such payments and to payments of OID if the U.S. Holder fails to
provide an accurate taxpayer identification number or to report all interest
and dividends required to be shown on its federal income tax returns.
The amount of any backup withholding from a payment to a U.S. Holder will
be allowed as a credit against such Holder's U.S. federal income tax liability
and may entitle such Holder to a refund, provided that the required information
is furnished to the Internal Revenue Service.
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PLAN OF DISTRIBUTION
This Prospectus is to be used by Goldman, Sachs & Co. ("Goldman Sachs") in
connection with offers and sales related to market-making transactions in the
Senior Notes effected from time to time. Goldman Sachs may act as principal or
agent in such transactions, including as agent for the counterparty when acting
as principal or as agent for both counterparties, and may receive compensation
in the form of discounts and commissions, including from both counterparties
when it acts as agent for both. Such sales will be made at prevailing market
prices at the time of sale, at prices related thereto or at negotiated prices.
The Goldman Sachs Affiliates hold an 83.3% interest in ECCP, a Delaware
limited partnership which owns 66.7% of the outstanding ordinary shares of the
Company. In addition, the Goldman Sachs Affiliates directly hold another 4.2%
of the outstanding ordinary shares of the Company. For other information
regarding the involvement of Goldman Sachs and its affiliates in connection
with the Company, see "Risk Factors -- Control of the Group; Potential
Conflicts of Interest", "Company Organization", "Shareholders" and "Certain
Transactions". Goldman Sachs or their affiliates have acted as financial
advisor to the Company from time to time pursuant to an exclusive assignment
and receive separate fees for the provision of such services. Goldman Sachs
International served as advisor to the Company in its acquisition of LCL and is
acting as agent and financial advisor in connection with the Senior Bank
Facility. Richard Friedman, a managing director of Goldman Sachs, Muneer
Satter, a managing director of Goldman Sachs International, and John Thornton,
a managing director of Goldman Sachs, are Directors of the Company.
The Company has been advised by Goldman Sachs that, subject to applicable
laws and regulations, Goldman Sachs currently intend to make a market in the
Senior Notes. However, they are not obligated to do so and any such
market-making may be interrupted or discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. There can be no assurance that an
active trading market will develop or be sustained. See "Risk Factors --
Trading Market for the Senior Notes".
The Company has agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act of 1933.
Goldman Sachs have informed the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority without
prior written approval of such transactions by the customer.
VALIDITY OF THE SENIOR NOTES
The validity of the 1994 Senior Notes and of the 1995 Senior Notes has
been passed upon for the Company by Sullivan & Cromwell, U.S. counsel to the
Company, as to New York law, and Freshfields, English counsel to the Company,
as to English law.
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.
141
<PAGE> 142
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.
142
<PAGE> 143
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.
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).
143
<PAGE> 144
OFTEL: The Office of Telecommunications, the monitoring body established
following the enactment of the Telecommunications Act, headed by the Director
General.
Pay-per-view: An individual television programming service whereby payment
is made for individually selected television programs as opposed to a monthly
subscription for a whole channel or group of channels.
PDSL: A prescribed diffusion service license granted under the CBA prior
to 1991 which allows an operator to provide cable television services by means
of a cable network.
Penetration rate: The measurement of the take-up of services. Penetration
rate of homes marketed is calculated by dividing the number of homes receiving
basic cable television or the number of residential telephone lines connected,
as the case may be, on the given date by the total number of homes marketed for
the given service as of such date, expressed as a percentage.
Premium service: Cable programming service available only for additional
subscription over and above the basic service.
PTO: A public telephone operator that is a provider of telecommunications
services designated under the Telecommunications Act and subject to certain
obligations such as to interconnect its network with other PTO networks.
Single fiber optic network infrastructure: A network comprising an overlay
of fiber optic cables (for the provision of cable television and
telecommunications services) which are laid simultaneously in the same duct.
SMATV: Satellite Master Antenna Television, a television delivery system
to multiple dwellings units that utilizes one large satellite dish to receive
signals and a small distribution network to distribute signals by cable to
individual homes.
Street Works Act: The New Roads and Street Works Act 1991.
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.
144
<PAGE> 145
AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission
(the "Commission") registration statements on Form S-1 under the Securities
Act (together with all amendments and exhibits thereto, the "Registration
Statements") with respect to the 1994 Senior Notes (No. 33-83740) and the 1995
Senior Notes (No. 33-98374). This Prospectus does not contain all of the
information set forth in the Registration Statements, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the applicable Registration
Statement. The Registration Statements and other information filed by the
Company with the Commission are available for inspection and copying at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Northeast Regional Office, 7 World Trade Center, 13th Floor, New
York, New York 10048; and Midwest Regional Office, Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also will be available from the Public Reference Branch of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and fulfills its
obligations with respect to such requirements by filing periodic reports with
the Commission. Reference is made to the Company's 1995 Annual Report on Form
10-K which has been filed with the Commission and is available for inspection
and copying as described above.
The Company will furnish the Trustee with annual reports, which will
include a description of operations and annual audited consolidated financial
statements prepared in conformity with U.S. GAAP. The Company will agree to
furnish the Trustee with quarterly reports, which will include unaudited
quarterly consolidated financial information, prepared in conformity with U.S.
GAAP.
Such annual reports may be obtained, upon written request, from the
Trustee at its Corporate Trust Office located at 101 Barclay Street, New York,
New York 10286. Such reports and other information may also be inspected and
copied at prescribed rates at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
145
<PAGE> 146
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Diamond Cable Communications Plc:
Independent Auditors' Report ........................................ F-2
Consolidated Statements of Operations for each of the years
in the three year period ended December 31, 1996 .................... F-3
Consolidated Balance Sheets at December 31, 1995 and 1996 ........... F-4
Consolidated Statements of Shareholders' Equity for each of the years
in the three year period ended December 31, 1996 .................... F-5
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1996 ........................... F-6
Notes to the Consolidated Financial Statements ...................... F-7
</TABLE>
F-1
<PAGE> 147
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> 148
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1994 1995 1996 1996
---- ---- ---- ----
(note 1)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
REVENUE
Business telecommunications..................... 3,402 5,852 9,763 $ 16,717
Residential telephone .......................... 2,545 6,662 17,723 30,347
Cable television ............................... 1,324 3,479 10,091 17,279
Other revenues ................................. 35 -- -- --
------- ------- ------- --------
7,306 15,993 37,577 64,343
------- ------- ------- --------
OPERATING COSTS AND EXPENSES
Telephone ...................................... (3,067) (5,454) (9,776) (16,739)
Programming .................................... (701) (1,844) (6,041) (10,344)
Selling, general and administrative ............ (4,562) (13,020) (22,391) (38,340)
Depreciation and amortization .................. (4,038) (8,867) (21,380) (36,609)
------- ------- ------- --------
(12,368) (29,185) (59,588) (102,032)
------- ------- ------- --------
OPERATING LOSS .................................. (5,062) (13,192) (22,011) (37,689)
Interest income ................................. 1,415 3,887 3,441 5,892
Interest expense and amortization of
debt discount and expenses ..................... (3,836) (17,118) (40,334) (69,064)
Foreign exchange (losses)/gains, net (note 17) .. (1,196) 925 31,018 53,112
Unrealized losses on derivative financial
instruments (note 3) ........................... -- (868) (7,944) (13,603)
Other expenses (note 4) ......................... -- (1,241) -- --
------- ------- ------- --------
Loss before income taxes ........................ (8,679) (27,607) (35,830) (61,352)
Income taxes (note 5) ........................... -- -- -- --
------- ------- ------- --------
NET LOSS......................................... (8,679) (27,607) (35,830) $(61,352)
======= ======= ======= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-3
<PAGE> 149
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
----------------------
1995 1996 1996
---- ---- ----
(note 1)
pound pound
sterling sterling
(in thousands except share data)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents (note 6)............. 93,308 18,311 $31,354
Trade receivables (net of allowance for
doubtful accounts of pound sterling 773 and
pound sterling 1,691 at December 31, 1995
and 1996 respectively (note 7)) .............. 3,583 6,389 10,940
Other assets .................................. 5,358 3,904 6,685
Deferred financing costs (less accumulated
amortization of pound sterling 382 and
pound sterling 1,325 at December 31, 1995
and 1996 respectively)........................ 12,016 19,573 33,515
Property and equipment, net (note 8)........... 163,721 277,301 474,822
Goodwill (less accumulated amortization of
pound sterling 1,212 and pound sterling
6,064 at December 31, 1995 and 1996
respectively) (note 9)....................... 95,748 90,896 155,641
Franchise costs (less accumulated amortization
of pound sterling 69 and pound sterling 91
at December 31, 1995 and 1996 respectively).. 438 445 762
------- ------- --------
TOTAL ASSETS.................................. 374,172 416,819 $713,719
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable............................. 18,627 18,528 $31,726
Other liabilities ........................... 10,920 19,150 32,790
Senior discount notes (note 10) ............. 307,729 314,418 538,378
Capital lease obligations (note 11) ......... 9,263 8,146 13,948
Mortgage loan (note 12) ..................... 2,500 2,477 4,241
Shareholders' equity (note 13)
Ordinary shares: 70,000,000 authorized;
43,754,175 shares issued at December 31,
1995, 59,138,791 shares issued at
December 31, 1996 .......................... 1,094 1,478 2,531
Non-voting deferred shares: (i)
6 shares authorized and issued at
December 31, 1995 and 1996.................. -- -- --
Additional paid-in-capital ................. 70,186 134,466 230,246
Unrealized loss on securities .............. (330) (197) (337)
Accumulated deficit ........................ (45,817) (81,647) (139,804)
------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY... 374,172 416,819 $713,719
======= ======= ========
</TABLE>
(i) On September 4, 1995, the six A shares were automatically converted into
six non-voting deferred shares in accordance with the Articles of the
Company.
See accompanying Notes to the Consolidated Financial Statements
F-4
<PAGE> 150
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Non-voting
Ordinary shares deferred shares(i) Additional Unrealized Accum- Total
pound pound Paid-in- loss on ulated Shareholders'
Number sterling Number sterling capital securities Deficit Equity
(pound sterling in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994...... 400 -- -- -- 3,871 -- (9,531) (5,660)
Shares issued and capital
contributions (net of
expenses) ..................... 576,462 144 6 -- 33,787 -- -- 33,931
Bonus shares issued ............ 2,324,801 581 -- -- (581) -- -- --
Share split 10:1 ............... 26,114,967 -- -- -- -- -- -- --
Shares issued and capital
contributions (net of
expenses) ..................... 2,298,728 57 -- -- 6,443 -- -- 6,500
Bonus shares issued ............ 587,874 15 -- -- (15) -- -- --
Net loss ....................... -- -- -- -- -- -- (8,679) (8,679)
----------- ----- ---- --- ------ ----- ------- -------
BALANCE AT DECEMBER 31, 1994.... 31,903,232 797 6 -- 43,505 -- (18,210) 26,092
=========== ===== ==== === ====== ===== ======= =======
BALANCE AT JANUARY 1, 1995...... 31,903,232 797 6 -- 43,505 -- (18,210) 26,092
Shares issued and capital
contributions (net of expenses) 9,437,428 236 -- -- 26,742 -- -- 26,978
Bonus shares issued............. 2,413,515 61 -- -- (61) -- -- --
Unrealized loss on securities... -- -- -- -- -- (330) -- (330)
Net loss........................ -- -- -- -- -- -- (27,607) (27,607)
----------- ----- ---- --- ------ ----- ------- -------
BALANCE AT DECEMBER 31, 1995.... 43,754,175 1,094 6 -- 70,186 (330) (45,817) 25,133
=========== ===== ==== === ====== ===== ======= =======
BALANCE AT JANUARY 1, 1996...... 43,754,175 1,094 6 -- 70,186 (330) (45,817) 25,133
Shares issued and capital
contributions (net of expenses) 15,384,616 384 -- -- 64,280 -- -- 64,664
Unrealized gain on securities... -- -- -- -- -- 133 -- 133
Net loss........................ -- -- -- -- -- -- (35,830) (35,830)
----------- ----- ---- --- ------ ----- ------- -------
BALANCE AT DECEMBER 31, 1996.... 59,138,791 1,478 6 -- 134,466 (197) (81,647) 54,100
=========== ===== ==== === ====== ===== ======= =======
</TABLE>
(i) On September 4, 1995, the six A shares were automatically converted into
six non-voting deferred shares in accordance with the Articles of the
Company.
F-5
<PAGE> 151
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1994 1995 1996 1996
---- ---- ---- ----
(note 1)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... (8,679) (27,607) (35,830) $(61,352)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization .................... 4,038 8,867 21,380 36,609
Foreign exchange (gains)/losses .................. 306 (613) (31,468) (53,883)
Profit on disposition of assets .................. (11) (11) (11) (19)
Provision for losses on accounts receivable ...... 121 407 918 1,572
Amortization of deferred financing costs ......... 70 312 943 1,615
Accretion of senior note discount ................ 3,248 14,335 38,157 65,336
Accretion of investment income ................... (525) 524 -- --
Profit on disposition of investments ............. -- (2,733) -- --
Change in operating assets and liabilities:
Change in trade receivables ..................... (869) (1,577) (3,724) (6,376)
Change in other assets .......................... (1,479) (2,175) 1,300 2,226
Change in accounts payable ...................... 1,960 4,532 (1,680) (2,877)
Change in other liabilities ..................... 2,316 1,626 8,667 14,841
------- ------- ------- --------
Net cash provided by/(used in) operating activities 496 (4,113) (1,348) (2,308)
------- ------- ------- --------
Cash flows from investing activities:
Cash invested in property and equipment .......... (19,061) (102,899) (128,246) (219,595)
Cash invested in marketable securities ........... (53,042) (17,445) -- --
Proceeds from disposition of assets .............. 162 72 65 111
Proceeds from disposition of investments ......... -- 73,644 -- --
Cash paid for franchises ......................... -- (45) (29) (50)
Payment for purchases of LCL (net of cash acquired) -- (108,844) -- --
------- ------- ------- --------
Net cash used in investing activities ............. (71,941) (155,517) (128,210) (219,534)
------- ------- ------- --------
Cash flows from financing activities:
Proceeds of issue of debt ........................ 95,117 194,881 -- --
Debt financing costs (note 14) ................... (4,474) (7,924) (9,096) (15,575)
New loans ........................................ -- 94,000 -- --
Repayment of loans ............................... -- (94,119) (23) (39)
Cash repaid to shareholders ...................... (18,713) -- -- --
Capital element of capital lease obligations ..... (878) (841) (1,117) (1,913)
Issue of shares and capital
contributions (net of expenses) ................. 40,431 26,978 64,664 110,724
Net increase/(decrease) in short-term borrowings 1,002 (773) -- --
------- ------- ------- --------
Net cash provided by financing activities ......... 112,485 212,202 54,428 93,197
------- ------- ------- --------
Net increase/(decrease) in cash ................... 41,040 52,572 (75,130) (128,645)
Cash and cash equivalents at beginning of year .... 26 41,066 93,308 159,771
Effect of exchange rate changes on cash and
cash equivalents ................................. -- (330) 133 228
------- ------- ------- --------
Cash and cash equivalents at end of year (note 6).. 41,066 93,308 18,311 $ 31,354
======= ======= ======= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-6
<PAGE> 152
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Diamond Cable Communications Plc ("the Company"), has exclusive licences
to operate a cable television and telecommunications business through its
subsidiaries focused on certain franchise areas centered around Nottingham,
England.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
All amounts herein are shown in Pounds Sterling ("pound sterling") and
for the year 1996 also are presented in US dollars, the latter being unaudited
and presented solely for the convenience of the reader, at the rate of pound
sterling 1 = $1.7123, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Diamond Cable Communications Plc and those of all majority owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated on consolidation. Until September 1, 1994 the business of the Group
was conducted by Diamond Cable (Nottingham) Limited which was subsequently
renamed Diamond Cable Communications (UK) Limited ("DCL") and its subsidiary
undertakings. On September 1, 1994 the shareholders of DCL transferred all of
their ordinary shares of 2.5p each and A shares of 25p each to the Company in
exchange for ordinary shares of 2.5p each and A shares of 25p each in the
Company. The transaction was accounted for at book value. During 1995, the
Company through Jewel Holdings Limited ("Jewel") acquired the entire share
capital of three undertakings, referred to collectively as "LCL". The
transaction has been recorded using the purchase method of accounting.
CABLE SYSTEM COSTS AND EXPENSES - The Group accounts for costs and
expenses applicable to the construction and operation of its cable system under
Statement of Financial Accounting Standards ("SFAS") No. 51, "Financial
Reporting by Cable Television Companies". In accordance with the standard the
cable infrastructure is being depreciated over 40 years weighted by factors
influenced by the growth in the number of subscribers.
REVENUE RECOGNITION - Revenue is recognized as services are delivered.
Initial connection fees are recognized in the period of connection to the
extent that the fee is offset by direct selling costs. The remainder is
recognized over the estimated average period that subscribers are expected to
remain connected to the system.
INTEREST RATE SWAP - Interest rate swaps, which are not designated to an
asset or liability, are recorded on the balance sheet in other assets or other
liabilities at their market value. Any gains or losses are recognized in the
statement of operations. Interest rate swaps which are designated to assets
and liabilities are accounted for on an accruals basis.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. A valuation allowance is
raised against a deferred tax asset where it is more likely than not that some
portion of the deferred tax asset will not be realized.
GOODWILL - Goodwill arising on the acquisition of subsidiaries is
amortized on a straight line basis over twenty years.
F-7
<PAGE> 153
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
GOODWILL IMPAIRMENT - The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the goodwill
balance over its remaining life can be recovered through projected undiscounted
future operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be impacted if
projected future operating cash flows are not achieved.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Depreciation on equipment other than cable infrastructure is computed on a
straight line basis using estimated useful lives of 5 to 10 years. Motor
vehicles are depreciated on a reducing balance basis over 3 years. Leasehold
improvements are depreciated on a straight line basis over the period of the
lease.
FRANCHISE COSTS - Costs relating to an unsuccessful application are
charged to operations while costs relating to successful applications are
amortized over the franchise term, generally 23 years.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
FOREIGN CURRENCIES - The primary economic environment in which the Group
operates is the United Kingdom and hence its reporting currency is the United
Kingdom Pound Sterling (pound sterling). Transactions in foreign currencies
are recorded using the rate of exchange in effect on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated using the rate of exchange in effect on the balance sheet date
and gains or losses on translation are included in the statement of operations.
Foreign exchange forward contracts which do not hedge firm commitments are
accounted at market value with reported gains and losses recorded in the
statement of operations.
PENSION COSTS - The Group does not have a defined benefit pension plan but
contributes up to specified limits to the third party plan of the employee's
choice. Pension costs of pound sterling 40,000, pound sterling 55,000 and
pound sterling 125,000 in 1994, 1995 and 1996, respectively, represent the
contributions payable to the selected plans.
SENIOR DISCOUNT NOTES - The debt discount is amortized to the statement of
operations on a constant yield to maturity basis.
DEFERRED FINANCING COSTS - Costs incurred relating to the issue of debt
are shown as an asset on the balance sheet and are amortized over the term of
the debt as an adjustment of yield.
SHARE OPTIONS - The Group accounts for stock-based compensation using the
recognition provisions of APB No. 25, Accounting for Stock Issued to Employees.
The disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation are set out in note 18.
NEW ACCOUNTING STANDARDS APPLICABLE TO THE GROUP - SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, was issued in June 1996 and establishes, among other things,
new criteria for determining whether a transfer of financial assets in exchange
for cash or other consideration should be accounted for as a sale or as a
pledge of collateral in a secured borrowing. Statement 125 also establishes
new accounting requirements for pledged collateral. As issued Statement 125 is
effective for all transfers and servicing of financial assets and
extinguishment of liabilities occurring after December 31, 1996. In December
1996, SFAS No. 127, Deferral of Effective Date of Certain Provisions of FASB
Statement No. 125, was issued. Statement 127 defers for one year the effective
date of certain requirements of Statement 125. Statement 125 is not expected
to have a material impact on the financial position or results of operations of
the Group.
F-8
<PAGE> 154
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Statement of Position (SOP) No. 96-1, Environmental Remediation
Liabilities, was issued in October 1996. This statement provides authoritative
guidance on specific accounting issues that are present in the recognition,
measurement, display, and disclosure of environmental remediation liabilities.
The provisions of this statement are effective for fiscal years beginning after
December 15, 1996. SOP 96-1 is not expected to have a material impact on the
financial position or results of operations of the Group.
3. UNREALIZED LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
pound pound pound
sterling sterling sterling
(in thousands)
Unrealized (loss)/gain on interest rate swap (note 17)............... - (868) 174
Unrealized loss on foreign exchange forward contract (note 17)....... - - (8,118)
------ ---- ------
- (868) (7,944)
====== ==== ======
</TABLE>
4. OTHER EXPENSES
Other expenses in 1995 represent costs incurred in an aborted flotation of
equity.
5. INCOME TAXES
No provision for taxation has been made due to operating losses incurred
to date. The Group has tax net operating losses carried forward of
approximately pound sterling 139 million and approximately pound sterling 3
million of capital losses carried forward at December 31, 1996. In previous
years the Group has not claimed tax allowances on capital assets as it was not
deemed beneficial to do so. As a result of changes to UK taxation legislation
this option is being re-examined. At the option of the Group elections can be
made to increase the operating losses carried forward to pound sterling 175
million. An evaluation of this option has not yet been concluded. For the
purpose of these financial statements the operating losses carried forward are
assumed to be pound sterling 139 million.
The operating losses have an unlimited carry forward period under United
Kingdom tax law (subject to restrictions on a loss carried forward where there
is a change in Group ownership and a major change in the nature or conduct of
the business), but are limited in their use to the type of business which
generated the loss. Capital losses carried forward are limited to their offset
against future capital gains.
Differences between the tax benefit recognized in the financial statements
and the expected tax benefit at the United Kingdom statutory rate of 33% are
summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
pound pound pound
sterling sterling sterling
(in thousands)
Tax benefit of net losses at statutory rate........................ (2,864) (9,110) (11,824)
Non-deductible expenses ........................................... 26 367 1,695
Valuation allowance ............................................... 2,838 8,743 10,129
------ ------ -------
Net tax benefit.................................................... - - -
====== ====== =======
</TABLE>
F-9
<PAGE> 155
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (continued)
<TABLE>
<CAPTION>
December 31
-------------------
1995 1996
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Deferred tax assets relating to:
Net losses ............................................ 20,155 45,736
Property and equipment ................................ 3,616 -
Accretion of discount on debt ......................... 1,584 -
Unrealized loss on interest rate swap ................. 443 -
Other ................................................. 109 447
------- -------
Deferred tax asset .................................... 25,907 46,183
Valuation allowance ................................... (20,762) (27,299)
------- -------
5,145 18,884
------- -------
Deferred tax liabilities relating to:
Property and equipment ................................ - (18,087)
Financing costs ....................................... (3,650) (155)
Other ................................................. (1,495) (642)
------- -------
Deferred tax liability ................................ (5,145) (18,884)
------- -------
Deferred tax per balance sheet ........................ - -
======= =======
</TABLE>
During 1995 the Company acquired LCL which had tax net operating losses
carried forward of pound sterling 17.2 million. The resulting deferred tax
asset was reduced by a 100% valuation allowance in the purchase accounting
entries.
Within the deferred tax balance in 1995 is an asset of pound
sterling 109,000 with a 100% valuation allowance in respect of the unrealized
loss on securities which is recognized as a separate component of equity.
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable losses, and tax planning strategies in making its assessment
as to the appropriateness of the reported valuation allowance.
6. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
December 31
-------------------
1995 1996
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Cash at bank and in hand .............................. 9,965 1,241
Short term securities ................................. 83,343 17,070
------- -------
93,308 18,311
======= =======
</TABLE>
The short term securities represent short term deposits placed in a cash
based unit fund. The deposits are denominated in both US dollars and pounds
sterling.
F-10
<PAGE> 156
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
charged to
Balance at Arising on costs and Amounts Balance at
January 1 acquisition expenses written off December 31
---------- ----------- ----------- ----------- -----------
pound pound pound pound pound
sterling sterling sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C> <C>
1994
Allowance for doubtful accounts ...................... 112 - 121 - 233
=== === ===== ==== =====
1995
Allowance for doubtful accounts ...................... 233 133 439 (32) 773
=== === ===== ==== =====
1996
Allowance for doubtful accounts ...................... 773 - 1,143 (225) 1,691
=== === ===== ==== =====
</TABLE>
8. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Land and Cable Office Motor
buildings network equipment vehicles Total
---------- ----------- ----------- ----------- -----------
pound pound pound pound pound
sterling sterling sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1995 ........................... 1,934 39,964 1,336 476 43,710
Additions ............................................ 1,929 130,727 3,365 293 136,314
Dispositions ......................................... - (31) - (125) (156)
----- ------- ----- ---- -------
Balance at December 31, 1995 ......................... 3,863 170,660 4,701 644 179,868
----- ------- ----- ---- -------
ACCUMULATED DEPRECIATION
Balance at January 1, 1995 ........................... 15 7,794 507 267 8,583
Charge for year ...................................... 59 6,509 943 127 7,638
Dispositions ......................................... - (8) - (66) (74)
----- ------- ----- ---- -------
Balance at December 31, 1995 ......................... 74 14,295 1,450 328 16,147
----- ------- ----- ---- -------
1995 NET BOOK VALUE .................................. 3,789 156,365 3,251 316 163,721
===== ======= ===== ==== =======
ACQUISITION COSTS
Balance at January 1, 1996 ........................... 3,863 170,660 4,701 644 179,868
Additions ............................................ 688 127,454 1,979 19 130,140
Dispositions ......................................... - (42) (154) (228) (424)
Reclassification ..................................... 467 (10) (457) - -
----- ------- ----- ---- -------
Balance at December 31, 1996 ......................... 5,018 298,062 6,069 435 309,584
----- ------- ----- ---- -------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996 ........................... 74 14,295 1,450 328 16,147
Charge for year ...................................... 150 14,737 1,524 95 16,506
Dispositions ......................................... - (41) (154) (175) (370)
Reclassification ..................................... 90 (50) (40) - -
----- ------- ----- ---- -------
Balance at December 31, 1996 ......................... 314 28,941 2,780 248 32,283
----- ------- ----- ---- -------
1996 NET BOOK VALUE .................................. 4,704 269,121 3,289 187 277,301
===== ======= ===== ==== =======
</TABLE>
The reclassification to land and buildings more appropriately allocates
expenditure on leasehold properties.
The Group leases certain cable network equipment and motor vehicles under
arrangements accounted for as capital leases. The original cost of assets held
under these arrangements was pound sterling 11,919,000 and pound
sterling 11,543,000 at December 31, 1995 and 1996, respectively. Accumulated
depreciation charged against these assets was pound sterling 2,817,000 and
pound sterling 3,882,000 at December 31, 1995 and 1996, respectively. During
the year certain of the assets held under capital lease arrangements were
purchased by the Group.
F-11
<PAGE> 157
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PROPERTY AND EQUIPMENT (continued)
Depreciation on assets held under capital lease arrangements charged to
the consolidated statement of operations during the year was pound
sterling 490,000, pound sterling 863,000 and pound sterling 1,375,000 in 1994,
1995 and 1996, respectively.
9. ACQUISITION
Effective September 30, 1995 for financial accounting purposes a
subsidiary of the Company acquired East Midlands Cable Group Limited ("EMCG"),
East Midlands Cable Communications Limited ("EMCC"), (formerly Fundy Cable
Communications Limited) and East Midlands Cable Holdings Limited ("EMCH")
referred to collectively as "LCL", which together owned a group of three
franchises contiguous to Diamond's existing franchise areas. The consideration
of pound sterling 109.1 million in cash was financed by way of existing cash
reserves, an equity issue and a pound sterling 61.5 million short term loan.
An additional pound sterling 30 million short term capital expenditure facility
was also drawn down to fund construction.
EMCG and subsidiaries represent the trading activities and substantially
all the assets of LCL. The acquisition was accounted for as a purchase and,
accordingly, the cost of the acquisition was allocated to the net assets
acquired based on their fair values. The excess of the purchase price over the
fair value of the net assets acquired, amounting to pound sterling 97 million,
is being amortized over twenty years.
The following represents the allocation of the excess of purchase price
over the estimated fair values of the acquired net assets of LCL. The fair
value of the acquired net assets is not materially different from the
historical net book value, except as noted in the table below.
<TABLE>
<CAPTION>
(in thousands)
pound
sterling
<S> <C>
Acquired net assets/(liabilities) at book value (September 30, 1995)
EMCG ................................................................. (5,413)
EMCC ................................................................. 55
EMCH ................................................................. --
Acquired zero coupon bonds ............................................... 23,296
Less certain fair value adjustments ...................................... (5,761)
Goodwill ................................................................. 96,960
-------
109,137
=======
</TABLE>
<TABLE>
<CAPTION>
(in thousands)
pound
sterling
<S> <C>
Fair value adjustments represent:
-- remeasurement of fixed assets .................................... (1,667)
-- accruals for direct acquisition costs ............................ (4,094)
-------
(5,761)
=======
</TABLE>
EMCG's primary business is the provision of cable television and
telecommunications services focused on a regional market centered around
Leicester, England, an area which is contiguous to the Company's existing
franchise areas.
The following unaudited pro forma summary presents information as if the
acquisition had occurred at January 1, 1994 for the year ended December 31, 1994
and at January 1, 1995 for the year ended December 31, 1995. The pro forma
information, which contains adjustments for interest on additional financing and
amortization of goodwill, is provided for information only. It is based on
historical information and does not necessarily reflect the actual results that
would have occurred, nor is it necessarily indicative of future results of
operations of the combined companies.
F-12
<PAGE> 158
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. ACQUISITION (continued)
<TABLE>
<CAPTION>
Year ended
December 31
---------------------
1994 1995
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Total revenues ............................ 9,883 21,001
Net loss ................................. (41,280) (52,566)
</TABLE>
10. DEBT
On September 28, 1994 the Company issued $285,101,000 of 13 1/4% Senior
Discount Notes due September 30, 2004 (the "1994 Notes") at an issue price of
$526.13 per $1,000 principal. Total proceeds received by the Company after
issuance costs amounted to pound sterling 91 million. Interest will not accrue
on the 1994 Notes prior to September 30, 1999. Interest on the 1994 Notes will
be payable on March 31 and September 30 of each year commencing March 31, 2000
at a rate of 13 1/4% per annum.
The 1994 Notes may be redeemed at the option of the Company, at any time
as a whole but not in part at the accreted value thereof or if such redemption
is to occur on or after September 30, 1999 at 100% of the principal amount at
maturity thereof, plus accrued and unpaid interest, if any, to the date of
redemption in the event of certain tax law changes requiring the Company to pay
additional amounts. In addition, the 1994 Notes may be redeemed in whole or in
part at the option of the Company, at any time after September 30, 1999, at
specified redemption prices.
On December 15, 1995, The Company issued $530,955,000 of 11 3/4% Senior
Discount Notes due December 15, 2005 (the "1995 Notes") at an issue price of
$565.02 per $1,000 principal. Total proceeds received by the Company amounted
to pound sterling 187 million after issuance costs of pound sterling 8 million.
Interest will not accrue on the 1995 Notes prior to December 15, 2000.
Interest on the 1995 Notes will be payable on June 15 and December 15 of each
year, commencing June 15, 2001 at a rate of 11 3/4% per annum.
The 1995 Notes may be redeemed at the option of the Company, in whole or
in part, at any time on or after December 15, 2000 at specified redemption
prices.
The 1995 Notes may be redeemed at the option of the Company in whole, but
not in part, at any time at the accreted value thereof or if such redemption is
to occur on or after December 15, 2000 at 100% of the principal amount plus
accrued interest to the date of redemption, in the event of certain tax law
changes requiring the payment of additional amounts.
The 1994 Notes and the 1995 Notes are unsecured indebtedness of the
Company and rank junior to any indebtedness of its subsidiaries to the extent
of the assets of such subsidiaries and to any secured indebtedness of the
Company to the extent of the assets securing such indebtedness.
The 1994 Notes and the 1995 Notes are stated net of unamortized discount
of approximately pound sterling 49 million ($84.7 million) and pound
sterling 113 million ($193.0 million), respectively at December 31, 1996. The
discount is being accreted through the statement of operations such that the
Company recognizes a fixed rate of interest, the total accretion for the period
being pound sterling 38 million ($65.3 million).
The costs relating to the issue of the 1994 Notes and the 1995 Notes have
been deferred and are shown as deferred finance costs in the balance sheet.
These costs are being amortized over the term of the 1994 Notes or 1995 Notes,
where appropriate, as an adjustment of yield.
The Senior Notes contain certain covenants generally restricting the
raising of certain types of additional financing, payment of dividends,
creation of liens, sale and leaseback transactions, sale of certain assets and
engaging in certain transactions with Affiliates of Related Persons.
F-13
<PAGE> 159
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEBT (continued)
On February 21, 1997 the Company issued $420,500,000 of 10 3/4% Senior
Discount Notes due February 15, 2007 (the "1997 Notes") at an issue price of
$594.48 per $1,000 principal. Total proceeds received by the Company amounted
to approximately pound sterling 149 million after issuance costs of
approximately pound sterling 5 million. Interest on the 1997 Notes will be
payable on February 15 and August 15 of each year commencing August 15, 2002.
11. COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
The Group leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expenses under
such arrangements amounted to pound sterling 78,000, pound sterling 733,000 and
pound sterling 1,158,000 in 1994, 1995 and 1996, respectively.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1996.
<TABLE>
<CAPTION>
Capital Operating
leases leases
-------- ---------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
1997 ........................................... 2,286 1,089
1998 ........................................... 2,434 716
1999 ........................................... 2,155 502
2000 ........................................... 1,834 313
2001 ........................................... 934 179
2002 and thereafter ............................ 159 1,741
Imputed interest ............................... (1,656) --
----- -----
8,146 4,540
===== =====
</TABLE>
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by leases on other properties.
MILESTONES
The Group is obligated under the terms of its existing licenses, and under
the milestone requirements of Local Delivery Licenses ("LDL's"), to construct
cable systems passing a predefined number of premises. Should the Group fail
to achieve these milestones, without license modifications, the Director
General could commence proceedings to require compliance. Similarly the
Independent Television Commission ("ITC") may commence proceedings to require
compliance with the build milestones in the LDL's.
If the Group is unable to comply, its license in respect of which
milestones have not been met could be revoked, and awarded to other cable
operators, which could have a material adverse effect on the Group.
LIQUIDITY
To the extent that the Group is unable to utilize fully the Senior Bank
Facility, the amount required to complete the Group's planned build out exceeds
its estimates or the annualized cash flow of certain subsidiaries does not meet
expectations, the Group will require additional debt or other financing in
order to meet its funding requirements.
F-14
<PAGE> 160
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. MORTGAGE LOAN
The Group entered into a mortgage loan agreement of pound sterling 2.5
million to fund the construction of the Company's headquarters in Nottingham.
The mortgage is repayable over a period of 20 years from July 31, 1995, the
date of drawdown, subject to a capital repayment moratorium which expired in
September 1996. Interest is paid monthly at a rate of LIBOR + 1 1/2%.
13. SHAREHOLDERS' EQUITY
The authorized and issued share capital of DCL during 1992 consisted of
two pound sterling 1 par value ordinary shares. On July 3, 1993 the
shareholders agreed to a four-for-one share split such that the share capital
consisted of eight 25 pence ordinary shares. In addition on such date DCL
issued an additional 392 shares in consideration of a reduction in the amount
of advances from shareholders of pound sterling 3.87 million.
On February 18, 1994, a further 1,780 DCL ordinary shares at 25 pence each
were issued for a total consideration of pound sterling 17.59 million. The
proceeds of the issue were used to repay the advance from shareholders.
On May 6, 1994 the authorized share capital of DCL was increased to pound
sterling 1,000,001 divided into 4,000,000 ordinary shares of 25 pence each and
six 'A' class shares of 25 pence each. The six 'A' shares have now been
converted into non-voting deferred shares in accordance with the Articles of
Association of DCL. The deferred shares entitle holders thereof only to the
repayment of the amounts paid up on such shares after payment in respect of
each Ordinary Share of pound sterling 100,000. The holders of deferred shares
are not entitled to the payment of any dividend or other distribution.
On May 13, 1994 DCL's principal shareholder made a capital contribution
to DCL in the amount of $1.3 million (pound sterling 863,000).
On May 17, 1994 DCL issued six A shares for cash at par and, for nil
consideration an additional 999 ordinary shares of 25 pence each to each of its
shareholders for each of the 2,180 ordinary shares held at that time.
On July 6, 1994 DCL issued a further 574,682 ordinary shares of 25 pence
each to European Cable Capital Partners LP ("ECCP") for a consideration of
pound sterling 15.44 million (net of pound sterling 1 million financing fees)
which had been advanced to DCL at various dates in May and June 1994 pending
formal issue of these ordinary shares. At such date a bonus allotment of
146,981 ordinary shares of 25 pence each was made to the holders of A shares in
accordance with the rights attaching to the A shares.
On September 1, 1994 DCL effected a ten for one share split such that the
authorized ordinary shares consisted of 40,000,000 shares of 2.5 pence each, of
which 29,016,630 were outstanding. In addition, on such date the shareholders
exchanged their shares in DCL for 29,016,630 ordinary shares of 2.5 pence each
and six A shares of 25 pence each in Diamond Cable Communications Plc ("the
Company"), a newly formed public limited company in proportion to their
shareholding in DCL.
At September 1, 1994 the authorized share capital of the Company was
70,000,000 ordinary shares and six A shares of 2.5 pence each of which
29,016,630 ordinary shares and six A shares of 25 pence each were outstanding.
The six A shares conferred certain anti-dilution rights and have now been
converted into non-voting deferred shares in accordance with the Articles of
Association.
On October 11, 1994, the Company issued 2,298,728 ordinary shares of 2.5
pence each to a wholly owned subsidiary of Investor Investments AB, a company
incorporated in Sweden, for gross proceeds of pound sterling 6.57 million. A
total of 587,874 ordinary shares of 2.5 pence each were allotted by way of
bonus to the holders of the A shares in accordance with the terms of such
shares.
On February 7, 1995 the Company issued 2,298,728 ordinary shares of 2.5
pence each to Creative Artists Agency Inc. for gross proceeds of pounds sterling
6.57 million. A further 587,873 ordinary shares of 2.5 pence each were allotted
by way of a bonus to the holders of the A shares in accordance with the terms of
such shares.
F-15
<PAGE> 161
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On August 31, 1995, a total of 7,138,700 ordinary shares of 2.5 pence each
of the Company were issued to ECCP, Investor Investments AB, Creative Artists
Agency, Inc. and William McDonald for gross proceeds of approximately pound
sterling 20.4 million. A further 1,825,642 ordinary shares of 2.5 pence each
were allotted on August 31, 1995 and September 4, 1995 by way of a bonus to the
holders of the A shares of 25 pence each, in accordance with the terms of such
shares. The conditions in the Articles relating to the conversion of the A
shares of 25 pence each into non-voting deferred shares of 25 pence each were
thereby satisfied and the six A shares of 25 pence each converted automatically
into six non-voting deferred shares of 25 pence each on September 4, 1995.
The deferred shares entitle holders thereof only to the repayment of the
amounts paid up on such shares after payment in respect of each ordinary share
of pound sterling 100,000. The holders of deferred shares will not be entitled
to the payment of any ordinary dividend or other distributions.
On August 16, 1995, the Company exchanged all its ordinary shares in DCL
for ordinary shares of a newly incorporated company, Jewel Holdings Limited
("Jewel"). As a result, DCL became a wholly owned subsidiary of Jewel and
Jewel became a wholly owned subsidiary of the Company.
On June 27, 1996, a total of 15,384,616 ordinary shares of 2.5 pence each
of the Company were issued to ECCP, Goldman Sachs, DCI Partners, Investor
Investments AB, English Cable Enterprises Inc and Sanford R Climan for gross
proceeds of approximately pound sterling 64.7 million (net of expenses).
14. DEBT FINANCING COSTS
Cash expended for debt financing costs in 1996 consists of payments of
pound sterling 1.15 million to holders of the 1994 Notes in connection with
their consent to certain amendments to the 1994 Notes indenture which were made
to conform certain provisions thereof to provisions of the 1995 Notes
indenture, and payments of pound sterling 7.94 million relating to the
arrangement costs of the Senior Bank Facility (described herein).
15. SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENT OF CASH FLOWS
Cash paid for interest was pound sterling 518,000, pounds sterling
2,376,000 and pound sterling 1,060,000 for the years ended December 31, 1994,
1995 and 1996.
16. RELATED PARTY TRANSACTIONS
In 1995 the Group declared a bonus to Mr Davis, Managing Director, in an
amount sufficient to repay his loan from the former majority shareholder, and
to meet any related tax liabilities (together amounting to approximately $1.2
million).
DCL entered into a 10-year Management Agreement with effect from June 1,
1994 (the "Management Agreement") with ECE Management Company ("ECE
Management"), a company controlled by Ralph H. Booth II and Robert T. Goad,
shareholders in the Company. As of April 4, 1996, ECE Management assigned its
rights and obligations under the Management Agreement to ECE Management
International, also controlled by Ralph H. Booth II and Robert T. Goad. As of
July 1, 1996 DCL assigned its rights and obligations under the Management
Agreement to the Company. Pursuant to the Management Agreement, ECE
Management International has agreed to manage and act as agent (under the
supervision and control of the Company's board of directors) in connection with
the strategic activities of the Company, including preparation of strategic
business plans and capital budgets, identification of investment opportunities
and strategic issues relating to the construction of the Group's cable network,
the operation and administration of the Company's business and the retention of
consultants. The contract provides for an annual management fee of $200,000.
In addition, the Group has agreed to reimburse ECE Management International for
the costs of all expenses incurred in the performance of its duties, and to
indemnify ECE Management International from any liability incurred in
connection with the performance of its duties, except in the case of ECE
Management International's wilful misconduct, gross negligence or bad faith.
During 1995 and 1996, the Group recorded expenses of pound sterling 1,085,000
and pound sterling 1,610,000, respectively, as amounts paid or payable to
F-16
<PAGE> 162
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. RELATED PARTY TRANSACTIONS (continued)
ECE Management and/or ECE Management International in connection with
management services provided to the Group and all related expenses incurred.
ECCP is a Delaware limited partnership of which European Cable Capital
Partners Holding Inc is the general partner and certain Goldman Sachs
affiliates, Booth English Cable Inc and Columbia Management Inc are the limited
partners. Under the partnership agreement governing ECCP, the Goldman Sachs
affiliates effectively control ECCP, which effectively controls 66.7% of the
outstanding shares of the Company at December 31, 1996. In addition, other
investment funds managed by Goldman, Sachs & Co or its affiliates directly own
4.2% of the outstanding shares of the Company at December 31, 1996.
OTHER RELATIONSHIPS
Goldman, Sachs & Co acted as purchaser in connection with the 1997 Notes
offering and received underwriting commissions of approximately $6,750,000.
Goldman, Sachs & Co acted as underwriter in connection with the 1995 Notes
offering and received underwriting commissions of approximately $6,750,000. In
connection with the offering of the 1994 Notes, Goldman, Sachs & Co received
underwriting commissions of approximately $4,875,000. Goldman, Sachs & Co
acted as advisor in connection with Diamond's acquisition of LCL and received
an advisory fee for their services amounting to pound sterling 1,091,000.
Goldman Sachs International acted as agent and financial advisor in connection
with the negotiation of the Senior Bank Facility for which it has charged fees
of approximately pound sterling 400,000 in 1996. In 1995, Goldman, Sachs & Co
charged a fee of $750,000 for financial advisory services that Goldman, Sachs &
Co rendered the Company. Goldman, Sachs & Co was the counterparty to foreign
exchange contracts entered into by the Company in 1996 and 1997.
John Thornton, who is a managing director of Goldman Sachs International
and a Director of the Company, is also a director of BSkyB, a principal
supplier of programming to the Group and a principal competitor of the Group.
Robert T Goad, a Director and the Chief Executive Officer of the Company
also has an indirect minority interest in ICTL, which has significant cable
interests in the UK.
17. FINANCIAL INSTRUMENTS
INTEREST RATE SWAP - On July 3, 1995, a subsidiary of EMCG entered into a
five year agreement to swap a floating interest rate calculated at sterling
LIBOR for a fixed rate of 8.79%. The swap has a maximum nominal value of
pound sterling 33.6 million and its nominal value at December 31, 1996 was
pound sterling 13.3 million. Following acquisition by Diamond Cable
Communications Plc, the interest rate swap has been retained and has been
recorded on the balance sheet in other liabilities at its market value at
December 31, 1996 of pound sterling 1.2 million. Profits or losses on the mark
to market of the interest rate swap are recognized in the consolidated
statement of operations. The Directors may decide to terminate the agreement
or they may retain the swap to alter the interest rate on its loan facility.
The net cash outflow in respect of the swap in 1996 was pound sterling 118,000.
FOREIGN EXCHANGE FORWARD CONTRACT - The Company entered into a foreign
exchange forward contract on November 1, 1996 for settlement on May 6, 1997 to
sell pound sterling 200 million at a rate of $1.6289 to pound sterling 1. On
January 31, 1997 an offsetting agreement was entered into at a rate of $1.6014
to pound sterling 1. The offsetting contracts were settled on February 6, 1997
with a payment of approximately pound sterling 3.4 million to the Company.
Because of changes in prevailing rates, the Company has recorded for the year
ended December 31, 1996, an unrealized loss of approximately pound sterling 8.1
million on the pounds sterling sell forward contract. During the first quarter
of 1997, the Company has recorded a gain of approximately pound sterling 11.5
million on the two offsetting forward contracts, reflecting the reversal of the
pound sterling 8.1 million loss referred to above and the approximately pound
sterling 3.4 million cash payment on settlement of the contracts.
F-17
<PAGE> 163
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. FINANCIAL INSTRUMENTS (continued)
DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS, TRADE RECEIVABLES, TRADE ACCOUNTS PAYABLE AND
ACCRUED EXPENSES - The carrying amount approximates fair value because of the
short maturity of these instruments.
INTEREST RATE SWAP - The interest rate swap has been marked to market and
the resulting carrying amount approximates its fair value. The fair value of
the instrument has been calculated based on quotations received from
independent, third party financial institutions and represents discounted
future cash flows based on the industry norm derivatives formula.
SENIOR DISCOUNT NOTES - The fair value of the senior notes has been
calculated based on quotations from Goldman, Sachs & Co and are based on
discounting the future cash flows to net present values using appropriate
market interest rates prevailing at the year end. The following table compares
the carrying value with the fair value of the debt:
<TABLE>
<CAPTION>
Year ended 31 December
----------------------------------------------
1995 1996 1995 1996
Carrying Carrying Fair Fair
value value value value
-------- -------- ------- -------
pound pound pound pound
sterling sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
1994 Notes.................................. 113,559 117,062 127,841 136,740
1995 Notes.................................. 194,170 197,356 203,359 220,726
------- ------- ------- -------
307,729 314,418 331,200 357,466
======= ======= ======= =======
</TABLE>
FOREIGN EXCHANGE FORWARD CONTRACT - The foreign exchange forward contract
has been marked to market and the resulting carrying amount approximates its
fair value. The fair value of the instrument has been calculated based on the
difference between the forward rate available at December 31, 1996 for the
remaining maturity of the contract and the contracted forward rate.
CONCENTRATION OF CREDIT RISK AND MARKET RISK - The Group operates
predominantly in one industry segment, the provision of cable television and
telecommunications services in certain areas of England. No single customer
accounts for 10% or more of consolidated net sales.
Financial instruments which potentially subject the Group to
concentrations of credit risk consist principally of temporary cash investments
and trade receivables. The Group places its temporary cash investments with
high credit quality financial institutions. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base. At December 31, 1996, the Group had no
significant concentrations of credit risk.
The Group is exposed to market risk on the interest rate swap to the
extent that the variable rate receivable is lower than the fixed rate payable.
The Group's revenues are generated in pounds sterling while the interest
and principal obligations with respect to the Senior discount notes will be
payable in US dollars. While the Company's policy has previously been not to
enter in hedging contracts it did enter into a foreign exchange forward
contract during 1996 (discussed herein). Changes in currency exchange rates
may continue to have a material effect on the results of operations of the
Group.
F-18
<PAGE> 164
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SHARE OPTIONS
The Group adopted a Senior Management Option Scheme on October 27, 1994.
Under the scheme, the Board of Directors may, for a period of 10 years, grant
options over Shares with an exercise price of pound sterling 3.44 or such other
price as the Board of Directors may determine, to executives or other
individuals associated with the Group selected by the Board of Directors.
Options granted on or before April 30, 1995 can be exercised as to 50% of the
shares subject to the option on or after June 30, 1998 and as to the other 50%
on or after June 30, 1999, in each case, until the seventh anniversary of the
date of grant of the option. Options granted after April 30, 1995 can only be
exercised as to 50% on or after the fourth anniversary of the date of grant, and
as to the remaining 50%, on or after the fifth anniversary of the date of grant,
in each case, until the seventh anniversary of the date of grant of the option.
Options may be exercised early in certain circumstances if the option holder
ceases to be a director or employee of the Group or if there is a change in
control of the Group.
According to the rules of the Senior Management Option Scheme, the
aggregate number of shares which have been or may be issued pursuant to options
granted under the Senior Management Option Scheme and options granted under any
other option scheme of the Group may not exceed 10% of the Company's then
current issued share capital.
Options over a total of 728,000 shares were granted to directors, senior
management and certain principals of ECE Management on February 23, 1995 and
July 19, 1995 under the Senior Management Option Scheme with an exercise price
of pound sterling 3.44. Of these 218,000 were granted to Gary Davis and 10,000
to Lord Pym.
On October 24, 1995, options over a total of 490,000 shares were granted
to directors, senior management and certain principals of ECE Management under
the Senior Management Option Scheme with an exercise price of pound
sterling 4.11 per share.
Options were granted on January 5, 1995 to CGT, in which Mr Davis and his
family are shareholders, over 654,000 shares with an exercise price of pound
sterling 3.44 and are exercisable at any time up to January 5, 2002. These
options were not granted under the Senior Management Option Scheme but are
subject to some of the provisions of the Senior Management Options Scheme.
The following table sets forth the number of options in issue:
<TABLE>
<CAPTION>
At 1 Granted At 31 Forfeited At 31
Jan 95 in 1995 Dec 95 in 1996 Dec 96
------ ------- ------ --------- ------
(number in thousands)
<S> <C> <C> <C> <C> <C>
- 1,872 1,872 (45) 1,827
=== ===== ===== ==== =====
</TABLE>
Options over 654,000 Shares were exercisable at December 31, 1995 and 1996.
No compensation expense has been recorded for these options under the
recognition provisions of APB 25 as they were all granted at a price which
approximated the market value at the date of grant.
The following pro-forma summary shows the reported net loss as if the fair
value based accounting method prescribed by SFAS No. 123 had been used to
account for stock-based compensation cost. In the absence of a reported share
price and restrictions on dividend payments, the fair value of the options has
been estimated using a risk-free interest rate based on prevailing interest
rates at the date of the grant of 6.25% and assuming options are exercised on
the seventh anniversary of the date of the grant. The pro-forma compensation
cost for 1995 and 1996 is pound sterling 0.20 million and pound sterling 0.33
million, respectively. The effects of applying SFAS No. 123 may not be
representative of the effects on reported net income/loss for future years.
F-19
<PAGE> 165
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SHARE OPTIONS (continued)
<TABLE>
<CAPTION>
Year ended
December 31
--------------------------
1995 1996
-------- --------
pound pound
sterling sterling
(in thousands)
<S> <C> <C>
Pro-forma net loss........................ (27,812) (36,164)
======= =======
</TABLE>
19. SENIOR BANK FACILITY AND RESTRICTION OF NET ASSETS
In August 1996 certain of the Company's subsidiaries entered into a pound
sterling 340 million senior bank loan and guarantee facility. Subsequent to the
year end, the terms of the Senior Bank Facility have been amended to reduce the
aggregate amount available for borrowing to pound sterling 220 million and to
revise certain covenants and borrowing conditions. Because the proceeds to the
Company from the issuance of the 1997 Notes exceeded $175 million the Company
has entered into negotiations under the terms of the Senior Bank Facility to,
among other things, reduce the amount available for borrowing under the
facility to pound sterling 175 million. To date, no funds have been drawn
under the facility.
Indebtedness under the Senior Bank Facility will be incurred and
guaranteed by certain of the Company's subsidiaries and secured by a lien on
their assets. The Senior Bank Facility contains various covenants, including
(i) financial covenants relating to leverage, bank debt loan charges coverage
ratios, cash interest coverage ratios and annualized EBITDA levels; (ii)
requirements that the Group maintain interest rate protection agreements in
relation of a portion of the loans expected to be outstanding for the period
January 1, 1998 to June 30, 2001; and (iii) restrictions on the payment of
dividends and intra-Group debt.
As a result of the above restrictions, certain subsidiaries are subject to
restrictions on their ability to make dividend payments, loans or other
transfers of cash to the Company. Such restrictions, unless amended or waived,
limit the use of any cash generated by these subsidiaries to pay obligations of
the Company. As of December 31, 1996 the conditions which would allow the
subsidiaries to make distributions to the Company were not satisfied and hence
the restrictions applied to the entire net assets of the subsidiaries.
The following condensed financial statements of the Company are provided
in compliance with the requirements of Rule 5-04 and 12-04 of Regulation S-X.
F-20
<PAGE> 166
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
------------------------------------------------
1994 1995 1996 1996
------- ------- -------- --------
(note A)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
OPERATING COSTS AND EXPENSES
Selling, general and administrative...... - - (1,468) $(2,514)
------ ------- ------- --------
OPERATING LOSS........................... - - (1,468) (2,514)
Interest income.......................... 1,258 3,543 40,119 68,695
Interest expense and amortization of
debt discount and expenses............. (3,319) (14,646) (39,100) (66,951)
Foreign exchange (losses)/gains, net..... (1,195) 909 (1,542) (2,640)
Unrealized loss on derivative financial
instruments............................ - - (8,118) (13,900)
Other expenses........................... - (911) - -
------ ------- ------- --------
Loss before income taxes................. (3,256) (11,105) (10,109) (17,310)
Income taxes............................. - - - -
------ ------- ------- --------
NET LOSS................................. (3,256) (11,105) (10,109) $(17,310)
====== ======= ======= ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-21
<PAGE> 167
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------------------
1995 1996 1996
------- ------- -------
(note A)
pound pound
sterling sterling
(in thousands except share data)
<S> <C> <C> <C>
ASSETS
Investments in and advances to subsidiaries........... 317,239 369,838 $633,273
Cash and cash equivalents............................. - 16,032 27,452
Other assets.......................................... 13 115 197
Deferred financing costs (less accumulated
amortization of pound sterling 382 and
pound sterling 1,325 at December 31,
1995 and 1996 respectively)......................... 12,016 11,960 20,479
------- ------- --------
TOTAL ASSETS.......................................... 329,268 397,945 $681,401
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities..................................... 1,635 9,265 15,864
Senior discount notes................................. 307,729 314,418 538,378
Shareholders' equity
Ordinary shares: 70,000,000 authorized;
43,754,175 shares issued at December 31, 1995,
59,138,791 shares issued at December 31, 1996..... 1,094 1,478 2,531
Non-voting deferred shares:
6 shares authorized and issued at December 31,
1995 and 1996..................................... - - -
Additional paid-in-capital.......................... 33,171 97,451 166,865
Unrealized loss on securities....................... - (197) (337)
Accumulated deficit ................................ (14,361) (24,470) (41,900)
------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ 329,268 397,945 $681,401
======= ======= ========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-22
<PAGE> 168
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Non-voting
Ordinary shares deferred shares Additional Unrealized Accum- Total
pound pound Paid-in- loss on ulated Shareholders'
Number sterling Number sterling capital securities Deficit Equity
(pound sterling in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1994...... - - - - - - - -
Shares issued and capital
contributions (net of
expenses)...................... 31,315,358 782 6 - 6,505 - - 7,287
Bonus shares issued............. 587,874 15 - - (15) - - -
Net loss........................ - - - - - - (3,256) (3,256)
---------- ----- --- --- ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1994.... 31,903,232 797 6 - 6,490 - (3,256) 4,031
========== ===== === === ====== ==== ======= =======
BALANCE AT JANUARY 1, 1995...... 31,903,232 797 6 - 6,490 - (3,256) 4,031
Shares issued and capital
contributions (net of
expenses)..................... 9,437,428 236 - - 26,742 - - 26,978
Bonus shares issued............. 2,413,515 61 - - (61) - - -
Net loss........................ - - - - - - (11,105) (11,105)
---------- ----- --- --- ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1995.... 43,754,175 1,094 6 - 33,171 - (14,361) 19,904
========== ===== === === ====== ==== ======= =======
BALANCE AT JANUARY 1, 1996..... 43,754,175 1,094 6 - 33,171 - (14,361) 19,904
Shares issued and capital
contributions (net of
expenses).................... 15,384,616 384 - - 64,280 - - 64,664
Unrealized loss on
securities................... - - - - - (197) - (197)
Net loss....................... - - - - - - (10,109) (10,109)
---------- ----- --- --- ------ ---- ------- -------
BALANCE AT DECEMBER 31, 1996... 59,138,791 1,478 6 - 97,451 (197) (24,470) 74,262
========== ===== === === ====== ==== ======= =======
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-23
<PAGE> 169
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
---------------------------------------------
1994 1995 1996 1996
------- -------- ------- -------
(note A)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... (3,256) (11,105) (10,109) $(17,310)
Adjustments to reconcile net loss to net cash
(used in)/provided by operating activities:
Foreign exchange losses/(gains).................. 338 (613) 820 1,404
Accrued interest on advances to subsidiaries..... - (318) (39,581) (67,774)
Amortization of deferred financing costs......... 70 312 943 1,615
Accretion of senior note discount................ 3,248 14,335 38,157 65,336
Accretion of investment income................... (525) 524 - -
Profit on disposition of investments............. - (2,733) - -
Change in operating assets and liabilities:
Change in other assets......................... - (13) (102) (175)
Change in other liabilities.................... 22 1,613 8,380 14,349
------- -------- ------- -------
Net cash (used in)/provided by operating activities (103) 2,002 (1,492) (2,555)
------- -------- ------- -------
Cash flows from investing activities:
Cash invested in marketable securities........... (53,042) (17,445) - -
Proceeds from disposition of investments......... - 73,644 - -
Advances to subsidiaries......................... (5,585) (310,611) (45,306) (77,577)
------- -------- ------- -------
Net cash used in investing activities.............. (58,627) (254,412) (45,306) (77,577)
Cash flows from financing activities:
Proceeds of issue of debt........................ 95,117 194,881 - -
Debt financing costs............................. (4,474) (7,924) (1,637) (2,803)
Issue of shares and capital
contributions (net of expenses)................ 6,562 26,978 64,664 110,724
------- -------- ------- -------
Net cash provided by financing activities.......... 97,205 213,935 63,027 107,921
------- -------- ------- -------
Net increase/(decrease) in cash.................... 38,475 (38,475) 16,229 27,789
Cash and cash equivalents at beginning of year..... - 38,475 - -
Effect of exchange rate changes on cash and
cash equivalents................................. - - (197) (337)
------- ------- ------- -------
Cash and cash equivalents at end of year........... 38,475 - 16,032 $27,452
======= ======== ======= =======
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-24
<PAGE> 170
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
A. BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
All amounts herein are shown in Pounds Sterling ("pound sterling") and
for the year 1996 also are presented in US dollars, the latter being unaudited
and presented solely for the convenience of the reader, at the rate of pound
sterling 1 = $1.7123, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 1996.
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to reverse. A valuation allowance is
raised against a deferred tax asset where it is more likely than not that some
portion of the deferred tax asset will not be realized.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include highly
liquid investments with original maturity of three months or less that are
readily convertible to cash.
FOREIGN CURRENCIES - The primary economic environment in which the Group
operates is the United Kingdom and hence its reporting currency is the United
Kingdom Pound Sterling (pound sterling). Transactions in foreign currencies
are recorded using the rate of exchange in effect on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated using the rate of exchange in effect on the balance sheet date
and gains or losses on translation are included in the statement of operations.
Foreign exchange forward contracts which do not hedge firm commitments are
accounted at market value with reported gains and losses recorded in the
statement of operations.
SENIOR DISCOUNT NOTES - The debt discount is amortized to the statement of
operations on a constant yield to maturity basis.
DEFERRED FINANCING COSTS - Costs incurred relating to the issue of debt
are shown as an asset on the balance sheet and are amortized over the term of
the debt as an adjustment of yield.
B. ADVANCES TO SUBSIDIARIES
The advances to subsidiaries consist of a dollar denominated loan of
approximately $491.7 million plus accrued interest and sterling denominated
loans.
The dollar denominated loan bears interest at a rate of 12.25% per annum.
The sterling denominated loans bear interest at a rate of LIBOR plus 2% per
annum.
The interest income on these loans in 1995 and 1996 was pound
sterling 318,000 and pound sterling 39.6 million respectively.
C. COMMITMENTS AND CONTINGENCIES
LIQUIDITY
To the extent that the Group is unable to utilize fully the Senior Bank
Facility, the amount required to complete the Group's planned build out exceeds
its estimates or the annualized cash flow of certain subsidiaries does not meet
expectations, the Group will require additional debt or other financing in
order to meet its funding requirements.
F-25
<PAGE> 171
===================================== ===================================
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 DIAMOND CABLE
CONSTITUTE AN OFFER TO SELL OR A COMMUNICATIONS PLC
SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS 13 1/4% SENIOR DISCOUNT
UNLAWFUL. NEITHER THE DELIVERY OF NOTES DUE SEPTEMBER 30, 2004
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION 11 3/4% SENIOR DISCOUNT
THAT THE INFORMATION CONTAINED NOTES DUE DECEMBER 15, 2005
HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
______________
TABLE OF CONTENTS GOLDMAN, SACHS & CO.
<TABLE>
<CAPTION> Page
----
<S> <C>
Service of Process and Enforcement
of Liabilities.......................
Prospectus Summary...................
Exchange Rates.......................
Capitalization.......................
Risk Factors.........................
Selected Financial Data..............
Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................
Business.............................
Certain Regulatory Matters...........
Company Organization.................
Shareholders.........................
Management...........................
Certain Transactions.................
Description of Company Debt..........
Description of 1994 Senior Notes.....
Description of 1995 Senior Notes.....
Taxation.............................
Plan of Distribution.................
Validity of Senior Notes.............
Experts..............................
Glossary.............................
Available Information
Index to Consolidated
Financial Statements F-1
</TABLE>
===================================== ===================================
<PAGE> 172
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
<TABLE>
<S> <C>
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Not applicable.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
</TABLE>
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
LONDON:81350
i
<PAGE> 173
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."
To the extent permitted by English law, the Company will indemnify and
hold harmless each director and each officer or representative of the Company
who signs the Registration Statement and the Company's Authorized
Representative from and against certain civil liabilities based on information
supplied to the Company for use herein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The only securities of the Company issued or sold within the past three
years and not registered under the Securities Act were as follows: Two Shares
of 2.5 pence each taken by the subscribers to the Memorandum of Association of
the Company and the 29,016,628 Shares of 2.5 pence each and six A Shares of 25
pence each were issued to the former shareholders of Diamond Cable (Nottingham)
Limited in connection with the reorganization that occurred on September 1,
1994, and 4,597,456 Shares were issued to Investor Investment and CAA and
1,175,747 Shares were allotted by way of a bonus to the holders of the A shares
in accordance with the terms of such shares. On August 31, 1995, a total of
7,138,700 Shares of 2.5 pence each were issued to ECCP, Investor Investments,
CAA and William McDonald for gross proceeds of approximately L.20.4 million. A
further 1,825,642 Shares of 2.5 pence each were allotted on August 31, 1995 and
September 4, 1995 by way of a bonus to the holders of the A shares of 25 pence
each, in accordance with the terms of such Shares. The conditions in the
Articles relating to the conversion of the A shares of 25 pence each into
non-voting deferred shares of 25 pence each were thereby satisfied and the six
A shares of 25 pence each converted automatically into six non-voting deferred
shares of 25 pence each on September 4, 1995. On August 6, 1996, the Company
formally issued 15,384,616 Shares to existing investors who had subscribed and
paid for such Shares prior to June 30, 1996. The Company has issued share
options as described in "Management -- Senior Management Option Scheme" in the
accompanying Prospectus. These Shares and options were issued in transactions
not involving any public offering.
On February 27, 1997, the Company issued $420,500,000 in principal amount
at maturity of its 10 3/4% Senior Discount Notes due February 15, 2007 (the
"1997 Notes") at an issue price of $594.48 per $1,000 principal amount at
maturity. Net proceeds received by the Company amounted to approximately L.149
million after issuance costs of approximately L.5 million. Cash interest is not
payable on the 1997 Notes prior to August 15, 2002. Thereafter, cash interest
on the 1997 Notes is payable at a rate of 10 3/4% per annum. The 1997 Notes
were issued in transactions not involving any public offering.
LONDON:81350
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<PAGE> 174
[Insert in 33-83740]
ITEM 16. EXHIBITS.
(A) EXHIBITS
The following is a list of exhibits to this Registration Statement:
<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Memorandum and Articles of Association of Diamond Cable Communications Plc.
*4.1 Indenture, dated as of September 29, 1994 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
*4.2 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.
*4.3 First Supplemental Indenture, dated as of May 31, 1996
between Diamond Cable Communications Plc and The Bank of New York,
as Trustee.
*5.1 Opinion of Sullivan & Cromwell as to the legality of the Senior Notes.
*5.2 Opinion of Freshfields as to due authorization and execution of the Senior Notes
*8.1 Opinion of Sullivan & Cromwell as to certain U.S. federal income tax matters.
*8.2 Opinion of Freshfields as to certain U.K. tax matters (included in Exhibit 5.1)
*10.1 Shareholders Agreement, dated as of September 1, 1994 among
ECCP, AmSouth, as trustee for the McDonald Interests, CGT Family
Corporation, GS Capital Partners, L.P., William W. McDonald and
Diamond Cable Communications Plc.
*10.2 Management Agreement, dated July 5, 1994, between ECE
Management Company and Diamond Cable (Nottingham) Limited.
*10.3 Service Agreement, dated May 17, 1994, between Gary L. Davis
and Diamond Cable (Nottingham) Limited.
*10.4 Service Contract, dated March 1, 1994, between Duncan Craig
and Diamond Cable (Nottingham) Limited.
*10.5 Service Contract, dated March 1, 1994, between Stephen Rowles
and Diamond Cable (Nottingham) Limited.
*10.6 Senior Management Option Scheme, adopted on October 29, 1994,
filed as an exhibit to the 1994 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.7 Form of Subscription Agreement among Company and shareholders
relating to equity commitment (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-98374;
Exhibit No. 10.7).
*10.8 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)).
*10.9 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)).
*10.10 Indenture, dated as of February 27, 1997 between Diamond
Cable Communication PLC and The Bank of New York, as Trustee. (incorporated
by reference to the Company's registration statement on Form S-4).
*10.11 Senior Bank Depositary Agreement, dated as of February 27, 1997 between Diamond
Cable Communication PLC and The Bank of New York, as Trustee. (incorporated
by reference to the Company's registration statement on Form S-4).
*10.12 Loan Facility Agreement, dated February 13, 1997, among
Diamond Cable Communications (U.K.) Ltd, Jewel Holdings Limited,
Natwest Markets and National Westminster Bank plc, filed as an exhibit to
the 1996 Annual Report on Form 10-K, File No. 33-83740, and incorporated
herein by reference.
*10.13 Service Contract, dated as of April 1, 1996, between Diamond
Cable (Nottingham) Ltd. and Stephen Rowles, filed as an exhibit to the 1996
Annual Report on Form 10-K, File No. 33-83740, and incorporated herein
by reference.
</TABLE>
LONDON:81350
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<PAGE> 175
<TABLE>
<S> <C>
*10.14 Service Agreement, dated July 1, 1995, between Diamond Cable
Communications Plc and Nicholas Millard, filed as an exhibit to the
1996 Annual Report on Form 10-K, file no. 33-83740, and incorporated
herein by reference.
12 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of Registrant (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-98374;
Exhibit No. 21.1)).
*23.1 Consent of Sullivan & Cromwell (included in Exhibits 5.1 and 8.1).
*23.2 Consent of Freshfields (included in Exhibits 5.2* and 8.2).
23.3 Consent of KPMG.
*25 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules
Included within Notes to Consolidated Financial Statements included in the
Prospectus.
LONDON:81350
iv
<PAGE> 176
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes to provide the Underwriters, at the
closing specified in the Underwriting Agreement, Senior Notes in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issued.
(d) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(e) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(f) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
LONDON:81350
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<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Diamond Cable Communications Plc, certifies that it has duly caused
this Post-Effective Amendment No.5 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in London, England,
on April , 1997.
DIAMOND CABLE COMMUNICATIONS PLC
By:_____________________________
Name:
Title:
LONDON:81350
vi
<PAGE> 178
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert T. Goad, Nicholas Millard, Muneer Satter
and J.A. Duncan Craig (with full power to each of them to act alone), his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that
such attorney may deem necessary or advisable under the Securities Act of 1933
(the "Act"), and any rules, regulations and requirements of the Commission in
connection with the registration under the Act of the the 13 1/4% Senior
Discount Notes due September 30, 2004 and the 11 3/4% Senior Discount Notes due
December 15, 2005 of the Issuer, and any securities or Blue Sky law of any of
the states of the United States of America in order to effect the registration
or qualification (or exemption therefrom) of the said securities for issue,
offer, sale or trade under the Blue Sky or other securities laws of any of such
states and in connection therewith to execute, acknowledge, verify, deliver,
file and cause to be published applications, reports, consents to service of
process, appointments of attorneys to receive service of process and other
papers and instruments which may be required under such laws, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign his name in his capacity as Director, Executive Officer
or Authorized U.S. Representative of the Issuer, as the case may be, this
Post-Effective Amendment to the Registration Statement and/or such other form
or forms as may be appropriate to be filed with the Commission or under or in
connection with any Blue Sky law or other securities laws of any state of the
United States of America or with such other regulatory bodies and agencies as
any of them may deem appropriate in respect of the 13 1/4% Senior Discount
Notes due September 30, 2004 and the 11 3/4% Senior Discount Notes due December
15, 2005, to any and all amendments, including post-effective amendments, to
this Post-Effective Amendment to the Registration Statement and to any and all
instruments and documents filed as part of or in connection with this
Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No.5 to the Registration Statement has been signed by
the following persons in the capacities and on the date indicated above.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/
- --------------------------
Robert T. Goad Director, Chief
Executive Officer and
Authorized
Representative in the
United States
/s/
- --------------------------- Director
Richard A. Friedman
- --------------------------- Director
Gary L. Davis
/s/
- --------------------------- Director
John L. McDonald
/s/
- --------------------------- Director
Muneer A. Satter
/s/
- --------------------------- Director
John L. Thornton
- --------------------------- Director
Thomas Nilsson
- --------------------------- Director
Lord Francis Pym
/s/
- --------------------------- Chief Financial Officer
Nicholas Millard
/s/
- --------------------------- Chief Accounting Officer
J.A. Duncan Craig
</TABLE>
LONDON:81350
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<PAGE> 179
EXHIBIT INDEX
Item Description
- ---- -----------
<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Memorandum and Articles of Association of Diamond Cable Communications Plc.
*4.1 Indenture, dated as of September 29, 1994 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
*4.2 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.
*4.3 First Supplemental Indenture, dated as of May 31, 1996
between Diamond Cable Communications Plc and The Bank of New York,
as Trustee.
*5.1 Opinion of Sullivan & Cromwell as to the legality of the Senior Notes.
*5.2 Opinion of Freshfields as to due authorization and execution of the Senior Notes
*8.1 Opinion of Sullivan & Cromwell as to certain U.S. federal income tax matters.
*8.2 Opinion of Freshfields as to certain U.K. tax matters (included in Exhibit 5.1)
*10.1 Shareholders Agreement, dated as of September 1, 1994 among
ECCP, AmSouth, as trustee for the McDonald Interests, CGT Family
Corporation, GS Capital Partners, L.P., William W. McDonald and
Diamond Cable Communications Plc.
*10.2 Management Agreement, dated July 5, 1994, between ECE
Management Company and Diamond Cable (Nottingham) Limited.
*10.3 Service Agreement, dated May 17, 1994, between Gary L. Davis
and Diamond Cable (Nottingham) Limited.
*10.4 Service Contract, dated March 1, 1994, between Duncan Craig
and Diamond Cable (Nottingham) Limited.
*10.5 Service Contract, dated March 1, 1994, between Stephen Rowles
and Diamond Cable (Nottingham) Limited.
*10.6 Senior Management Option Scheme, adopted on October 29, 1994,
filed as an exhibit to the 1994 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.7 Form of Subscription Agreement among Company and shareholders
relating to equity commitment (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-98374;
Exhibit No. 10.7).
*10.8 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)).
*10.9 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)).
*10.10 Indenture, dated as of February 27, 1997 between Diamond
Cable Communication PLC and The Bank of New York, as Trustee. (incorporated
by reference to the Company's registration statement on Form S-4).
*10.11 Senior Bank Depositary Agreement, dated as of February 27, 1997 between Diamond
Cable Communication PLC and The Bank of New York, as Trustee. (incorporated
by reference to the Company's registration statement on Form S-4).
*10.12 Loan Facility Agreement, dated February 13, 1997, among
Diamond Cable Communications (U.K.) Ltd, Jewel Holdings Limited,
Natwest Markets and National Westminster Bank plc, filed as an exhibit to
the 1996 Annual Report Form 10-K, File No. 33-83740, and incorporated
herein by reference.
*10.13 Service Contract, dated as of April 1, 1996, between Diamond
Cable (Nottingham) Ltd. and Stephen Rowles, filed as an exhibit to the 1996
Annual Report on Form 10-K, File No. 33-83740, and incorporated herein
by reference.
</TABLE>
<PAGE> 180
EXHIBIT INDEX
Index Description
- ----- -----------
<TABLE>
<S> <C>
*10.14 Service Agreement, dated July 1, 1995, between Diamond Cable
Communications Plc and Nicholas Millard, filed as an exhibit to the
1996 Annual Report on Form 10-K, file no. 33-83740, and incorporated
herein by reference.
12 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of Registrant (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-98374;
Exhibit No. 21.1)).
*23.1 Consent of Sullivan & Cromwell (included in Exhibits 5.1 and 8.1).
*23.2 Consent of Freshfields (included in Exhibits 5.2* and 8.2).
23.3 Consent of KPMG.
*25 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------
1994 1995 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. GAAP
EARNINGS:
Profit and loss before taxes L.(8,679) L.(27,607) L.(35,830)
FIXED CHARGES:
Interest element of capital lease charges 352 515 853
Rental expense deemed to be representative of interest factor(1) 26 244 386
Other interest expense 166 1,956 381
Amortization of debt discount and expense 3,318 14,647 39,100
------- -------- --------
3,862 17,362 40,720
------- -------- --------
(Loss)/profit before income taxes and fixed charges (4,817) (10,245) 4,890
Fixed charges (3,862) (17,362) (40,720)
------- -------- --------
Deficiency of earnings to fixed charges (8,679) (27,607) (35,830)
------- -------- --------
Ratio of earnings to fixed charges(2) N/A N/A N/A
</TABLE>
(1) For the purposes of the calculation of the deficiency/ratio of earnings
to fixed charges the portion of rental expenses deemed to be
representative of the interest factor is 1/3 of the rental expense.
(2) The ratio of earnings to fixed charges is computed by aggregating:
(a) income from continuing operations before taxes on income;
(b) fixed charges.
and dividing the total by fixed charges.
LONDON:81350
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
To the Shareholders
Diamond Cable Communications Plc:
We consent to the use of our reports with respect to Diamond Cable
Communications Plc included herein and to the references to our firm under the
headings "Experts" and "Selected Financial Data" in the Prospectus.
KPMG
Nottingham, England
April 14, 1997
LONDON:81350
