<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required)
For the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transition period from to
Commission file number: 33-83740
DIAMOND CABLE COMMUNICATIONS Plc
(Exact name of registrant as specified in the charter)
ENGLAND NONE
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
DIAMOND PLAZA, DALESIDE ROAD,
NOTTINGHAM NG2 3GG, ENGLAND NONE
(Address of Principal Executive Offices) (Zip Code)
011-44-115-912-2242
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Name of Each Exchange
Title of Each Class on Which Registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act: None
NONE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
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INTRODUCTION
Diamond Cable Communications Plc (the "Company") is a public limited
company (with registered number 2965241) 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 below), in both cases through an intermediate holding company, Jewel
Holdings Limited ("Jewel"). In this Annual Report, 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 27, 1995, LCL, and references to
"Diamond" refer to the Company and its subsidiaries excluding LCL.
The Group operates a telecommunications and cable television business
focused on the East Midlands area of England. The Group is currently
constructing a broadband fiber-optic network to serve its fifteen contiguous
franchise areas, comprising approximately 1.2 million homes and an estimated
60,600 businesses. As of December 31, 1996, the Group's cable television and
telecommunications network had passed by civils construction approximately
453,500 homes and an estimated 23,900 businesses, of which portions of the
network passing approximately 347,200 homes and an estimated 17,900 businesses
had been activated. As of that date, the Group had approximately 104,500
residential telephone lines, 59,200 cable television subscribers and 18,900
business telephone lines. Through that date, L.317 million had been invested
(at original cost) in the construction of the network and related systems. For
certain operating data as of December 31, 1996, see Item 1. "Business --
Certain Operating Data".
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 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.
This document 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.
The Company operates only in the United Kingdom and, accordingly,
publishes its financial statements in pounds sterling. References herein 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 Annual
Report contains translations of certain pound sterling amounts into U.S.
dollars at specified rates. These translations should not be construed as
representations that the pound 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 pound sterling amounts into U.S. dollars have been made at
$1.7123 per L.1.00, the noon buying rate in The City of New York for cable
transfers in pounds sterling as certified for customs purposes by the Federal
Reserve Bank of New York (the "Noon Buying Rate") on December 31, 1996. See
Item 6. "Selected Financial Data -- Exchange Rates" for information regarding
the Noon Buying Rate for the past five fiscal years. On March 19, 1997 the Noon
Buying Rate was $1.5968 per L.1.00.
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PART I
ITEM 1. 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>
<S> <C> <C> <C> <C> <C>
DECEMBER 31,
1994 1995 1996
DIAMOND LCL COMBINED
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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(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.
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INDUSTRY OVERVIEW
Following the initial granting of licenses in 1984, development of the
cable television and telecommunications industry in the U.K. proceeded slowly.
This occurred for a number of reasons, including high construction costs (due
in large part to the fact that cable networks in the U.K. generally must be
buried underground), limitations on the cable companies' ability to offer
telephone services, the lack of access to attractive programming and the lack
of access to capital.
Fundamental changes in the U.K. regulatory framework in 1990 and 1991,
combined with increased availability of programming, have resulted in
significant investment in the cable industry since that time. In 1991, the
Secretary of State completed the liberalization review of the U.K.
telecommunications market (the "Duopoly Review"), which resulted in major
policy changes designed, among other things, to foster competition in the local
telephone loop, where BT held almost all of the market share. Pursuant to such
policy changes (i) new entrants (including foreign companies) could apply to
the government to operate new telecommunications networks over fixed links,
(ii) cable operators were permitted to provide voice telephony services and to
switch their own telephone customers' calls, instead of acting as agents of BT
or Mercury, and (iii) cable operators were permitted to form expanded
telecommunications networks by interconnecting their systems with one another.
See "-- Certain Regulatory Matters -- Cable Telecommunications -- Duopoly
Review" and "-- Certain Regulatory Matters -- Cable Telecommunications --
Interconnect Arrangements".
To further encourage cable companies to construct cable television and
telephone networks, current U.K. government policy restricts the ability of BT
and Mercury to use their telephone networks for conveying broadcast
entertainment to homes in cable franchise areas until at least 1998. U.K.
regulatory policy has also been to award only a single cable television license
for each franchise area. As a result of these government policies, cable
operators currently hold the only licenses to provide both cable television and
telecommunications services within their franchises. By operating a single
fiber-optic network infrastructure to provide both cable television and
telecommunications services, the cable operators can achieve significant
economies in designing, constructing, marketing and operating their networks.
BT cannot offer broadcast entertainment on its dedicated telecommunications
network and achieve similar economies of scope in existing cable franchise
areas, and BT has stated that these government policies have limited its
ability to develop and implement a national fiber-optic local access network in
the U.K. See "-- Certain Regulatory Matters -- Cable Telecommunications --
Restrictions on National PTOs".
Further, the extensive use of fiber optics and digital switches, the use of
synchronous digital hierarchy ("SDH") and other advanced technologies, have
enabled cable operators to offer advanced telecommunications services. In
addition, the availability of programming has improved substantially since the
1980s. As a result of the foregoing factors, significant investment in U.K.
cable television followed the conclusion of the Duopoly Review. In particular,
several North American cable operators and telephone companies initiated
significant investment in the U.K. cable industry. In addition, cable companies
in the U.K. began to access capital markets to finance construction. The U.K.
cable industry has also begun to consolidate as evidenced by the 1995 merger of
SBC CableComms and TeleWest Communications plc and the announcement on October
22, 1996 that NYNEX CableComms Group plc, Videotron Holdings Plc, Mercury and
Bell Cablemedia plc intend to merge.
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.
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Switching its own traffic enables the Group to offer a wider range of
services than would otherwise be possible, to monitor usage and manage doubtful
accounts, to gather information about customer calling patterns and use this
information in its marketing programs, and to structure rates and discount
programs accordingly. As part of the Company's strategy of increasing the
volume of calls switched locally and minimizing interconnect charges payable to
BT, Mercury, Energis and other telecommunications providers, the Group has from
time to time discussed with other cable operators the development of
inter-franchise telephone networks. However, no assurance can be given as to
whether or when any such inter-franchise networks will be developed.
BUSINESS TELECOMMUNICATIONS
The Group has achieved its share of the business telecommunications market
in the areas which its network has passed by providing high-quality services at
competitive prices. The Group had 3,935 business telecommunications customer
accounts at December 31, 1996 including connections to a number of important
corporate and governmental entities such as The Boots Company, Imperial
Tobacco, Cargill, CCN, the Nottinghamshire County Council, the Nottingham City
Council, Leicestershire County Council, Leicester City Council, Ashfield
District Council, North East Lincolnshire District Council, Lincoln City
Council, the Nottinghamshire Constabulary (including the local 999 emergency
number), the Leicestershire Constabulary and the Lincolnshire Constabulary, the
U.K. Inland Revenue national headquarters and their main sites in Leicester,
Nottingham, Lincoln and Mansfield, the Nottingham Health Care N.H.S. Trust, the
Nottingham City Hospital N.H.S. Trust, Nottingham Trent University, Leicester
University, Lincoln University, BBC Radio Nottingham, Radio Trent, the
Nottingham Building Society, Vision Express Group, Knoll Pharmaceuticals,
Pedigree Pet Foods and the Northcliff Newspaper Group (four regional newspapers
including Nottingham's Evening Post and the Leicester Mercury).
The focus of the business marketing effort in the Group's franchise areas
has been to attract large and medium-sized corporate and governmental
customers, which generate high volumes of traffic and revenue. At December 31,
1996, the Group provided 18,932 business lines to its 3,935 business accounts
giving the Group an average of approximately 4.8 lines per business account. In
many cases these customers have transferred all or a portion of their telephone
lines to the Group's service from those of the Group's principal competitors. A
number of these customers have been specifically targeted, and in some cases
the network has been built out to pass these customers. The Company plans to
continue this strategy of focusing a portion of the Group's network build and
marketing effort on town centers and industrial estates in its other franchise
areas in order to capitalize on business telecommunications opportunities. The
Company believes that its success in attracting these important customers has
fostered a positive image in the community and enhanced the Group's credibility
with other business customers.
The Group currently offers a range of special business services,
including:
o 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.
o 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.
o DDI (Direct Dialing Inward). Direct Dialing Inward offers
multiple unique numbers at a customer's premises via a smaller number
of access lines.
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o 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.
o Digital Services. The Group offers digital connection to the
public network using DASS2 (Digital Access Signalling System) and Q931
(European specification). The Group offers Primary Rate ISDN (30 X
64kbps channels) for voice and data, or Basic Rate ISDN offering 2
channels of 64kbit and a 16kbps overhead which the Group is planning
to use for "D" channel services (i.e. telemetry, alarm circuits etc).
The network allows transparency for DPNSS (Digital Private Network
Signalling System) where customers are linking privately owned
telephone systems over the public network.
C 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 have 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 "-- Certain
Regulatory Matters -- Cable Telecommunications -- Number Portability" and "--
Competition -- Business Telecommunications".
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:
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Reliability. The Group's fiber-optic network infrastructure provides
reliable, high-quality transmission across a modern network. In addition, the
Company believes that the Group's early concentration on attracting prominent
business and governmental customers has enhanced its credibility with
residential customers.
Special Services. By switching its own traffic, the Group is able to
offer a variety of special services to residential customers. All residential
customers receive three-way conference calling capabilities and fully itemized
monthly billing at no extra fee. The Group provides three-way conference
calling free of charge in order to stimulate additional call and/or termination
charges. Additional "Custom Calling Features" offered by the Group for an extra
charge include: call waiting, call barring (prevents unauthorized outgoing or
incoming calls) and call diversion (i.e., call forward). The Group's network
architecture provides a flexible platform for the Group to offer a wide range
of additional telephony services as they become available in the future. These
services are expected to include voice mail and distinctive telephone rings for
different members of a household.
Cost Savings. The Group seeks to provide residential telephone customers
with savings on the cost of line rental and usage charges compared to BT. In
order to encourage customers to subscribe to both television and telephone
services, the monthly line rental charge for customers who subscribe to both
services is offered at a discount to the monthly charge for customers who
subscribe to telephone service only. Further discounts are available if a
customer remains a subscriber to both services for an extended period of time.
Free Evening and Weekend Voice Calls. The Group allows free voice calls
between the Group's residential customers and by the Group's residential
customers to the Group's business customers located within the same local and
adjacent calling areas during off-peak evening and weekend hours. The
incremental cost of these calls to the Group is negligible because they do not
require interconnection with another operator. The Company believes that this
service has encouraged its subscribers to recommend its services to other
potential subscribers, particularly friends and family 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.
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Consequently, the Group devotes considerable resources to obtaining access to a
wide range of programming that it believes will be appealing to both existing
and potential subscribers of its basic and premium services. The Group may from
time to time pursue investments in programming providers.
The following sets forth the television programming currently offered by
the Company.
<TABLE>
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PROGRAMMING DESCRIPTION
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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
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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
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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
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<TABLE>
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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
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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
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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
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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.
- 10 -
<PAGE> 11
(13) HVC and the Adult Channel share a single channel.
(14) ATM and Namaste share a single channel.
The Company believes that an important factor influencing a consumer's
decision to subscribe for and retain cable services is the consumer's ability
to choose and pay for only those channels the consumer desires. The Group has
been constrained in its ability to offer a range of channel packages due to
requirements imposed by programming suppliers to provide certain channels to
all subscribers if provided to any. The Group has recently negotiated with
certain suppliers reductions in these requirements which will allow the Group
greater flexibility in designing the packages of channels it can offer
consumers in certain franchise areas.
The Group currently charges L.13.99 per month (after a L.1 direct debit
discount) for its basic cable television service (49 or 50 channels, depending
on the franchise area, and one converter box that provides cable service to one
television) and offers additional premium pay services. In two of its franchise
areas, Nottingham and Mansfield, the Company has introduced a "Connect Pack", an
entry-level package of 13 channels of television plus telephone line rental for
L.12.98 (L.5.99 for cable television and L.6.99 for telephone line rental).
This package, which does not include access to premium channels, is aimed at
the Group's large base of telephone-only subscribers as well as first time
subscribers to multichannel television. In these franchise areas, the Group
also offers its Variety Pack, which consists of 29 channels and is offered for
L.9.99 per month (after a L.1 per month direct debit discount). This package
provides subscribers access to premium channels without having to purchase a
full basic package. The Company also believes that these programming packages
will encourage existing subscribers to remain as cable television customers by
providing a less costly alternative to a full programming package. Generally,
there is no charge to the subscriber for service or repair of the cable
television network or customer premises equipment.
The Group obtains most of its programming from suppliers pursuant to
informal arrangements that are typically contemplated to run from three to five
years. The arrangements generally provide for payments by the Group based on
the number of subscribers to the service. Some programming, such as that
provided by the BBC and other terrestrial broadcasters, is provided to the
Group without charge.
BSkyB PROGRAMMING
BSkyB currently provides the Group with 12 channels on a non-exclusive
basis and also offers this programming (together with additional programming)
directly to its DTH satellite customers, in competition with the Group and
other cable operators. BSkyB is the leading supplier of cable programming in
the U.K. and the exclusive supplier of certain programming. Its programming is
generally popular in the U.K. and is important in terms of attracting and
retaining cable television subscribers. In the absence of more alternative
programming sources, BSkyB may be able to set and raise prices for its
programming without significant competitive pricing pressure. In addition,
BSkyB distributes 18 other programming channels on behalf of other providers
(including some providers partly owned by BSkyB).
The Group pays a monthly fee to BSkyB for programming based on the number
of the Group's subscribers taking the various BSkyB channels at the end of each
month. The fees vary by channel. The aggregate amount payable by the Group to
BSkyB during the year ended December 31, 1996 was L.3.6 million.
It was reported on September 3, 1996 that the ITC was investigating the
bundling of certain channels by BSkyB and, in particular, requirements that
cable companies must acquire a package including two premium movie channels in
order to obtain the Disney Channel from BSkyB. The ITC has not yet reported a
decision.
The prices that BSkyB charges the Group have been governed by rate cards
established by BSkyB from time to time. The two most recent rate cards were
approved by the Director General of Fair
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<PAGE> 12
Trading("DGFT") following inquiries by the Office of Fair Trading ("OFT").
Under its rate cards, BSkyB implemented significant price increases. BSkyB
submitted a revised rate card to the OFT in July 1996, which has been approved
and which was operative as of February 16, 1997.
In addition, under the new rate card, BSkyB has introduced a separate
charge to the Group for a third sports channel, which it currently provides to
its DTH sports subscribers at no additional charge. The Group has decided to
pass on this separate charge for this service to subscribers to the other BSkyB
sports services unless the subscriber takes three BSkyB premium channels.
During 1995 and 1996, the OFT conducted reviews of BSkyB's position in the
pay TV market. Following its review in 1996 of BSkyB's supply of programming to
pay TV (including to cable operators) and access to encryption and subscriber
management services, the OFT concluded that although BSkyB was not acting
anti-competitively, the competitive process was being impaired. BSkyB was not
referred to the Monopolies and Mergers Commission (the "MMC") but gave new
informal undertakings and accepted modifications to those it had previously
given in March 1995. BSkyB agreed not to require carriage of basic channels in
excess of 80% of homes; to unbundle channels, with the exception that two BSkyB
channels could be linked with specified other BSkyB channels; to ensure that
its Videocrypt conditional access system is made freely available without
discrimination to programmers on the basis of a published rate card on
cost-related terms; to maintain separate accounts for its DTH business, with
actual or notional charges not less than offered to cable operators; and to
revise the structure of the cable rate card.
The DGFT has announced that the informal undertakings given by BSkyB would
be reviewed by the end of 1998 or earlier if appropriate. The DGFT has also
concluded that BSkyB should offer cable operators reasonable contractual
security in terms of length of contract and that the OFT would regard a
demonstrable and unreasonable unwillingness to do so as an abuse of BSkyB's
market power.
The OFT has also reviewed agreements between BSkyB and subsidiaries of
NYNEX CableComms Group PLC and TeleWest Communications plc, which among other
things permitted the licensing of BSkyB's programming at rates not provided by
the rate card. These agreements originally included undertakings by the two
cable companies not to compete with BSkyB with respect to film or sport
programming. Following a suspension of these provisions, the DGFT announced in
July 1996, that the agreements had been amended to address the concerns
expressed by the DGFT.
On February 6, 1996, the DGFT announced that he was referring an agreement
between the Premier League, BSkyB and the BBC, by which the Premier League
sells the exclusive television rights for Premier League football matches, to
the Restrictive Practices Court (the "Court") because the agreement contained
significant restrictions on competition. The Court will decide whether the
restrictions are against the public interest in which case the Court may order
the parties not to give effect to, enforce, or try to enforce the restrictions
in the agreement and not make any other similar agreement. BSkyB, the Premier
League and the BBC are understood to have successfully resisted an attempt made
by the OFT to accelerate the review and the review has not yet been completed.
The OFT is currently considering whether a number of other arrangements
for televising soccer and other sporting events contain significantly
anticompetitive restrictions.
The Group has commenced discussions with other cable operators and media
companies for the purpose of exploring ways in which it could obtain viable
sources of alternative programming and has from time to time discussed the
development of cable television channels to provide programming, including
local programming, through the Group's network.
FUTURE SERVICES
The Group's network has been designed to enable it to provide customers
with a wide range of advanced interactive services as they become available. The
Company also currently expects to introduce a more extensive pay-per-view
service once one becomes more generally available to the industry. Such
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<PAGE> 13
a service would enable cable subscribers to order specific sporting events,
concerts, feature films or other special events on a per-event basis for an
additional charge. However, the Company cannot provide any assurances as to
whether or when such a service will be generally implemented.
Other interactive services that may be offered by the Group in the future
include video games that would be transmitted periodically (or possibly upon
subscriber request) to a special converter box at a subscriber's home where
they would be available for use by the subscriber (as with a traditional video
game) and video-on-demand services that would enable individual subscribers to
request specific programming from the service provider's inventory for viewing
at a specific time. See "-- Competition -- Cable Television". Additional
services could include video telephone services and video conferencing, access
to on-line databases and interactive transactional services. However, there can
be no assurance that the Group will be able to develop and deliver any of these
products on a timely and competitive basis.
Digital technology allows operators to provide more channels, through
digital compression, and higher quality pictures and sound. The Group believes
that its network leaves it well placed to provide digital television services
if in the Company's view providing these services in its franchise areas
becomes commercially attractive. However, the Group has no immediate plans to
introduce digital television services.
The Group currently receives negligible revenues from advertising, and
does not expect to receive any significant advertising revenues until its
subscriber base has expanded significantly. The Company believes that there may
be 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
- 13 -
<PAGE> 14
Group's service because of the costs and inconvenience associated with changing
numbers. In response to this, the Company provided its customers with the
opportunity to use its services for all outgoing telephone traffic, while
continuing to use other providers for incoming traffic. For a discussion of
certain regulatory developments regarding the introduction of number
portability in the U.K. See "-- Certain Regulatory Matters -- Cable
Telecommunications -- Number Portability". The Company believes that number
portability will offer little improvement to the Group's results in residential
areas but could offer marginal increased sales in the small business area where
number recognition and number advertising for the two and three line customer
is an issue. Overall, the Company believes that number portability will be
relatively neutral in its effect on the Group's business.
Both BT and Mercury have resources substantially greater than those of the
Group, and each has a national presence which may permit it to offer
telecommunications, data transmission and other services on a national basis to
business telecommunications customers with national operations beyond those
that the Group is currently able to offer on its own. The Company expects that
competition with Mercury and BT and other service providers, including the AT&T
group, entering the business telecommunications market will continue to
intensify.
Energis has nearly completed construction of a national network along
existing electrical power pylons and has launched telephony services. To date,
Energis has not marketed residential telephony lines and generally has
concentrated on the larger business telecommunications market. Energis' service
offering, along with indirect service from ACC and other, smaller, long
distance operators, and the emergence of International Simple Reseller
companies have increased competition in the long distance and international
telecommunications markets. It is also possible that utilities, such as rail or
water companies, will seek to use their existing infrastructures to construct
telecommunications networks that will compete with the Group's
telecommunications business.
RESIDENTIAL TELEPHONE
BT, with the large majority of the residential telephone market in the
U.K., is the Group's principal competitor in providing residential telephone
services. BT has a fully built national telephone network and, due to its
extensive experience in the marketing and operation of telecommunications
services in the U.K. and its large financial resources, it is a formidable
competitor to the Group. However, BT's ability to respond to price competition
from local cable operators is restricted by its license obligation not to show
undue preference to, or unduly discriminate against, different classes of
customers throughout the U.K. This effectively obligates BT to price all of its
services equally to the same classes of customer throughout the U.K., although
BT may provide discounts to high volume users. However, as the U.K.
telecommunications market becomes more competitive, there can be no assurance
that BT will not be given greater pricing flexibility in the future.
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
- 14 -
<PAGE> 15
of calls. There can be no assurance, however, that any such price cuts will not
adversely impact the financial performance of the Group's telephone operations.
BT has also started to market its services more aggressively to maintain
its market position over other service providers. For example, BT recently
began providing voice mail services on a national basis and caller ID services
in digital switch areas, and has implemented on a national basis other services
currently offered by the Group in its franchises, such as itemized billing and
time-based charges. BT has also implemented extensive marketing campaigns to
win back customers from cable operators.
The introduction of international facilities licensing in 1996 has
increased competition for international traffic, and the Group's telephone
subscribers can obtain access to these alternative international service
providers.
In both the business telecommunications and residential telephone areas,
the Group faces additional competition from (or may in the future compete with)
Mercury and mobile telecommunications providers such as Vodafone, Cellnet,
Mercury One2One and Orange and also faces competition from radio based
telecommunications providers such as Ionica.
CABLE TELEVISION
As a result of the ITC's practice of not granting more than one cable
television license within a franchise area, the Group does not compete with
other cable operators for subscribers within its franchise areas. The Group
does, however, compete with programming provided by terrestrial stations, DTH
satellite services, video cassette rental stores and SMATV systems and may in
the future compete with programming provided by video-on-demand and other
entertainment services provided by national PTOs and others.
The principal current (and potential) competitors for the Group's cable
television business are the following:
Broadcast. Television viewing in the U.K. has long been one of the most
popular forms of entertainment, and daily viewing time in the U.K. averages
over 230 minutes per person (Source: BARB). Until 1989, four broadcast channels
were the only source of television programming. Although the national
television channels in the U.K. generally are perceived as providing
high-quality programming, the Company believes that most viewers prefer a wider
variety of television programming. The market share of cable television and
satellite service programming is approximately one-third of all viewing in
homes with cable television and satellite services (Source: BARB). In addition,
the Company believes that the penetration of cable and DTH satellite services
and the widespread use of VCRs, indicates a willingness on the part of many
consumers in the U.K. to pay for additional programming.
In addition to the four existing terrestrial channels, an additional
commercial terrestrial channel (Channel 5) 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.
- 15 -
<PAGE> 16
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.
DTH Satellite. DTH satellite television service providers obtain
programming from a variety of sources (including some of those used by the
Group) and transmit the programming signal up to a satellite which then
retransmits the signal down to customers. In order to receive a satellite
service, the customer must have an outdoor reception dish.
DTH satellite services are widely available in the U.K., and the number of
DTH satellite subscribers has increased from 500,000 in 1989 to approximately
3.5 million at December 31, 1996. BSkyB is the leading supplier of satellite
programming in the U.K. See "-- Cable Television -- Programming". The Sky
Multi-Channels package provided by BSkyB currently offers subscribers
approximately thirty channels.
In the multichannel television market, BSkyB is the Group's principal
competitor as well as one of its most important sources of programming. The
Group provides to its subscribers all of the channels included in the Sky
Multi-Channels package. There can be no assurance that BSkyB will continue to
provide programming to the Group on acceptable terms. However, as other
programming sources become available, the Company believes that the Group may
become less dependent on programming from BSkyB. See "-- Cable Television --
Programming".
The Company believes that DTH satellite services will continue to be
significant competitors in the future. However, the Company believes that cable
television has a number of competitive advantages over DTH satellite service,
including the following: (a) the significant up-front or ongoing costs for the
purchase or rental of a satellite dish and related equipment required for DTH
(normally starting from approximately L.150 for the purchase of a satellite
dish and related equipment, including typical installation charges of
approximately L.50, or approximately L.12.50 per month for rental of a dish and
related equipment); (b) the perception that satellite dishes are unsightly; (c)
the long-term contracts (one-year) generally required for DTH satellite
services; and (d) the ability of cable networks to offer telephone services and
in the future to offer interactive and integrated entertainment,
telecommunications and information services in addition to television
programming.
The Company believes that the principal competitive advantage of DTH
satellite service is the monthly service charges for basic services and premium
services which are lower than those for comparable services provided by the
Group. BSkyB has announced its intention to introduce a digital DTH satellite
service (offering the possibility of over 200 television channels) by the end
of 1997. The Company believes that DTH satellite services may become more
competitive with cable service if digital compression technology is
successfully introduced in the U.K. such that satellite services can provide
more channels and direct specific programming to particular subscribers.
Other Competitors. The Group also faces competition from video cassette
rentals and SMATV systems (which receive signals from either broadcast or
satellite sources and then distribute them by cable to a discrete group of
subscribers). Currently, no video-on-demand service is commercially available in
the U.K. (although BT has conducted residential trials). However, the successful
introduction of a video-on-demand service in the Group's franchise areas,
particularly by a national PTO, would result in the Group's services being
subject to increased competition. See "-- Certain Regulatory Matters --
Restrictions on National PTOs". SMATV systems can compete with cable television
within a franchise area, but currently there are no SMATV systems licensed to
provide service to more than 1,000 homes in the Group's franchise areas.
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<PAGE> 17
New Technologies. The extent to which new media and technologies will
compete with cable television systems in the future cannot be predicted and
such media or technologies may become dominant in the future and render cable
television systems less profitable or even obsolete. Certain operators
currently are deploying digital compression technology in the U.S. If digital
compression technology is deployed successfully in the U.K., it will enable the
Group, as well as its terrestrial and digital DTH satellite competitors, to
increase significantly the number of channels they are currently able to offer
to their customers. An increase in the number of channels offered by
terrestrial and DTH satellite services at competitive costs could affect the
Group's current competitive position.
FRANCHISE AREAS
The Group has been granted cable television licenses to provide cable
television services in fifteen franchise areas that form a contiguous cluster
of approximately 1,229,900 equity homes. The Group has been granted
telecommunications licenses in eight of its fifteen franchises. In addition,
DCL has applied for a national telecommunications license which will enable the
provision of business and residential telecommunications in the Group's seven
remaining franchises and elsewhere in the U.K. The table below sets forth the
number of homes in the individual franchises areas according to CACI
Information Services (for the franchises governed by telecommunications
licenses and the Burton-upon-Trent and Hinckley LDLs) and the ITC (for the
other LDLs).
<TABLE>
<S> <C> <C>
OWNERSHIP EQUITY HOMES
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.
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<PAGE> 18
Under present rules, the telecommunications licenses covering these
franchises last for 23 years from the date from which the cable system first
becomes operative. Thereafter, these licenses are not extendable and
application must be made for a new license. The telecommunications license for
the Nottingham franchise, which was the first to become operative, expires in
2013. The telecommunications licenses currently held by the Group all
incorporate construction milestones which are reviewed by OFTEL. LDLs include
milestones that are reviewed by the ITC. See "-- Milestones". For further
descriptions of the Group's licenses, see "-- Certain Regulatory Matters".
The Company may from time to time seek to acquire one or more new or
existing franchises either in public tenders by the ITC or by private purchases
from third parties. The Company anticipates that it will generally seek to
acquire franchises that are contiguous to the Group's existing franchises and
therefore can effectively be integrated into the Group's existing operations.
No agreement for any specific material acquisition has been reached or is
currently pending. The Group currently operates solely in the U.K. and
currently expects that any future acquisitions would be of franchises or
businesses in the U.K.
An LDL enables an operator to provide cable television and (when held in
conjunction with a telecommunications license) telecommunications services,
utilizing not only cable networks but also microwave distribution systems. See
"-- Certain Regulatory Matters". When such licenses are applied for by one
operator, they are then generally advertised for competitive auction by the
ITC. No license has been awarded for certain other geographic areas that are
contiguous to the Group's franchise areas. The Group may bid for additional
LDLs, if the bid price (including the estimated additional capital costs to
complete the network) for the additional franchise areas provide an attractive
return, in order to further improve the Group's operating leverage and increase
asset value. If the Group were to be awarded any of the LDLs it may bid for in
the future, the areas would be constructed in parallel with the existing
franchises, but it is expected that the completion of the network for the
enlarged area would be later than that planned for the existing area. In
addition, to complete construction of an enlarged franchise area, the Group
would be required to expend additional funds which, depending on the size of
the franchise area, could be significant. See Item 7. "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,
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<PAGE> 19
approximately 23% of the network passed by civils construction had not been
activated (as measured by homes activated as a percentage of homes passed by
civils construction). At that date, approximately 27% of the homes activated by
the Group's network had not yet been marketed. The Company expects to accelerate
the release of homes for marketing as more homes are activated and as the
percentage of homes activated but not marketed is reduced. This may place
additional stress on the Company's management and operational resources. If the
Group is unable to manage its expected rapid growth and development
successfully, the Group's operating results and financial condition could be
materially adversely affected.
Diamond originally relied on its own construction team for the build out
of its network. Since 1994, the Group has primarily used outside contractors,
but believes that maintaining some in-house construction capability enables it
to reduce the costs of construction and to manage its build out better. In
particular, the in-house construction team provides a benchmark against which
to measure fees from outside contractors and provides a reliable construction
team for building out particularly difficult areas. Approximately 16% of the
network constructed during 1996 was constructed using the Group's in-house
team.
Cable operators have the benefit of and must comply with the New Roads and
Street Works Act 1991 (the "Street Works Act") which permits them to construct
on public highways on the same basis as public utilities. This has, to some
extent, reduced construction delays. See "-- Certain Regulatory Matters --
Cable Telecommunications -- Network Construction and Service Obligations".
For a discussion of the Company's plans to fund construction see Item 7.
"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 its 13 1/4% Senior Discount Notes due September
30, 2004 (the "1994 Notes") and, after a slight delay due to construction
planning and the hiring of contractors, began to accelerate the pace of the
build out of its network.
At December 31, 1995, the Group was obligated to meet specified milestones
in eight of the Group's franchise areas where building was due to have
commenced. Compliance with the milestones in these areas is in each case
monitored by OFTEL. During June 1996, OFTEL informed the Company that it did
not agree with the Company's historical method for calculating compliance with
its milestone obligations and that the number of premises passed should be
based only on the number of premises activated (the number of premises that can
be connected to the cable network without further extension of transmission
lines, apart from the final drop to the home). In calculating premises passed,
the Company had historically included premises passed by civils construction
(premises with ducting buried outside) but not yet activated. Based on OFTEL's
method of calculating premises passed, the Group failed to meet its year-end
1995 milestones in six of its eight franchise areas. In three of these
franchise areas -- Grantham, Newark-on-Trent and Melton Mowbray, the 1995
year-end milestones represented the final milestones required under each
license.
The Group has renegotiated its eight telecommunications license milestone
obligations with OFTEL. In five franchise areas where the final milestone has
not yet fallen due, the Director General of OFTEL has formally modified the
interim but not the final milestone obligations under the licenses to provide
new
- 19 -
<PAGE> 20
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.
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>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GROUP FRANCHISE AREAS 1994 1995 1996 1997 1998 1999 2000 AFTER
2000
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.
- 20 -
<PAGE> 21
The table below sets forth by franchise and date the number of premises
activated.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1996 1996 1996 1996
Nottingham 57,697 79,866 98,504 110,548 123,910 139,286
Mansfield 11,686 11,686 20,863 32,755 40,474 46,916
Newark-on-Trent 5,634 7,420 7,420 8,392 12,707 13,509
Grantham 0 0 0 3,503 11,515 14,894
Melton Mowbray 0 0 0 0 9,819 10,045
Lincoln 0 5,177 5,177 12,459 16,887 20,131
Grimsby and Cleethorpes 7,806 8,057 13,386 21,604 30,699 37,130
Leicester and Loughborough 51,409 57,366 61,007 67,766 77,017 83,280
Cumulative Total 134,232 169,572 206,357 257,027 323,028 365,191
</TABLE>
The Group is potentially subject to enforcement orders from the Director
General for failure to meet its telecommunications license milestones, which
could lead to revocation of the relevant licenses. Similarly, in the event that
the Group failed to meet the milestones for any of its LDLs, the ITC would have
power to shorten the LDL period, impose fines or commence proceedings leading
to revocation. In addition, under the Senior Banking Facility, failure to meet
the Group's milestone obligations could under certain circumstances prevent
further borrowing or result in an event of default. See "-- Certain Regulatory
Matters -- Cable Telecommunications -- Network Construction and Service
Obligations". The Group has not been subject to date to any enforcement action
by OFTEL or the ITC due to missed milestones; however, there can be no
assurance that OFTEL or the ITC will not take such action in the future.
SOURCES OF SUPPLY
The Group obtains services and equipment for the construction and
operation of its cable systems from numerous independent suppliers. As the
Group has grown and its construction and purchasing needs have increased, the
Group has sought to use its increased buying power to obtain more favorable
pricing and contract terms.
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.
- 21 -
<PAGE> 22
NETWORK ARCHITECTURE
The network being constructed by the Group comprises an overlay of a cable
television network and a telecommunications network. Portions of the network
currently in the ground utilize conventional tree and branch architecture and
the other portions utilize optical fiber node architecture with nodes serving
up to 2,500 homes. Both of these portions of the network may need to be
upgraded to achieve higher capability and reliability. This upgrading is not
expected to require significant additional capital expenditure.
The Group is now constructing a cable system in which optical fiber is
employed to areas serving approximately 500 homes for both cable television and
telecommunications services. The geography of the Group's franchise areas and
the location of the cable television network's headends and the
telecommunications network's switches dictate to some degree the physical
construction of the cable television and telecommunications network. The
Nottingham central network control office will control and monitor all other
locations which will be interconnected to Nottingham supertrunking fiber
network.
Five switches are currently in operation in Nottingham, which is presently
interconnected with three other switches, Mansfield, Lincoln and Grimsby.
Leicester is presently interconnected with 2mb circuits to Nottingham. Two
switches in Leicester are in service, with a third recently commissioned. The
Company expects that an additional four switches will be commissioned during
the build out.
In addition to the existing switches, six remote concentrator units
("RCUs") are being interconnected to the Nottingham headend. The Company
expects that an additional eight RCUs will be added during the build program.
There are presently three cable television headend locations. The Nottingham
location will monitor all headend locations. The interconnects are all fiber
optics with two-way capability and status monitoring.
The cable television headends consist of Scientific Atlanta and Magnavox
fiber transmitters, fiber receivers, satellite receivers, signal processors,
modulators, encoding equipment and network status monitoring and Panasonic
automated tape distribution equipment. The cable television network is being
constructed with Scientific Atlanta transmission equipment and set top
converters. The Network's downstream upper frequency capability is 750 MHz.
From the headends, fiber is deployed to each node for feeder distribution and
from the node, coaxial cable is installed to the distribution points. The upper
side of the downstream bandwidth will be 750 MHz. From the headends, fiber is
deployed to nodes for feeder distribution, and from the nodes, coaxial cable is
installed to the distribution points. The Group has begun the deployment of 750
MHz Scientific Atlanta set top converters, with capacity for 75 channels, as of
February 1997.
The telephone switches are GPT System X and Nortel DMS-100 platforms. The
telecommunications network near the switch is fed directly by copper. Outside
the copper service area, the telecommunications network uses Nortel or GPT SDH
multiplexing equipment in a fiber self-healing loop configuration operating at
155 Mb/s ("STM 1"). Four nodes of 500 homes will be served off of each 2,000
home fiber ring. GPT and ASCOM 120 line primary multiplexers are located in the
same street cabinet with the SDH multiplexers, and from there copper is fed
down to approximately 30 homes per street cabinet. As the telephone network
grows more distant from the switch, additional SDH rings operating at 622 Mb/s
("STM 4") will support four STM 1 rings. The telecommunications network has
been designed so that as penetration and traffic intensifies, ring splitting
will enable additional capacity to be carried. All network equipment, both
cable television and telephone, is powered by battery backed-up power supplies.
Telecommunications and cable television services are transmitted to the
home through the same "Siamese" drop cable. The "Siamese" cable consists of two
twisted pair telephone cables and a cable television coaxial drop cable
manufactured in the same cable housing/insulation package so that both
services are installed at the same time. From a subscriber's home, the
telephone cable is run through the street cabinet up to the 500 home hub
cabinet where calls are processed through a primary multiplexer which handles
many calls and transmits them to the telephone switching equipment. The calls
are then
- 22 -
<PAGE> 23
routed, if possible, to their final destination via the lowest cost routing, be
it BT, Mercury, Energis, Global One or the Group's own network.
The duct system is constructed with 89mm diameter duct with a 2.4mm wall
thickness. Trunk cable routes usually contain multiple fiber and coaxial cables
within four to six ducts. Distribution cable routes carry the drop cable to the
subscriber premises and usually contain one or two ducts. A subscriber drop is
placed inside either 25mm or 50mm duct which is buried in its approach to a
residence to reduce cable drop cuts and other maintenance.
The network will support 100% cable television penetration and 100%
telephone penetration based upon cabinet space but only 50% telephone
penetration based upon transmission equipment with hardware expandability to
96%.
The Company believes that the Group's network architecture design, with
respect to both telecommunications and cable television, will facilitate the
transition to greater fiber distribution. It should allow for efficient
utilization of primary multiplexers and eliminate the need for expensive
digital cross connects to maximize switch port utilization. The Company
believes that the network design has taken into account the need to be flexible
with respect to both node and hub sizes and future developments that may lead
to integration between the telecommunications and the cable television
networks.
The existing Diamond and LCL networks will be integrated in phases. The
initial objective has been to physically connect the two networks through a
fiber interconnect and this has been achieved with 2mb circuits, which are in
place. The main purpose of the interconnect is for the central network control
office (located in Nottingham) to have the ability to control the central
Nortel switch in Leicester, mainly for telephone purposes. This interconnect
will also enable Nottingham to monitor the Leicester cable television headend
and transfer data of route forwarding information between the two locations.
The physical connection point will be in Loughborough which is located
between Nottingham and Leicester and is the desired location for the third
switch for the LCL franchise areas.
Once the two networks physically have been joined and the interfacing is
complete, maintenance and monitoring of call traffic will be possible, followed
by integration of the wholesale and then the retail billing processes.
EMPLOYEES
As of December 31, 1996, the Group had 706 employees, including 581
employees in operations and 125 employees in civils construction. With effect
from February 1997, DCL has begun to directly employ residential salespeople,
which will increase the number of its employees. Previously salespeople had
been employed by independent companies engaged by the Group on a subcontracting
basis. The Group has not entered into any collective bargaining agreement with
employees and the Company currently believes that the Group's labor relations
are good.
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
- 23 -
<PAGE> 24
(b) a cable television license, which authorizes the provision of
broadcasting services within a defined geographical area and which may be
either:
(i) a Prescribed Diffusion Service License ("PDSL"), granted
under the CBA prior to 1991, which allows an operator to provide cable
television and other entertainment services by means of a cable
network, or
(ii) an LDL granted since January 1, 1991 under the Broadcasting
Act 1990, which allows an operator to deliver television and other
programming services by means of a licensed telecommunications network
including a cable network.
Each type of license described above contains various conditions, and in
the event of the breach of such conditions, the Director General or the ITC, as
appropriate, could issue an enforcement order and ultimately commence
proceedings to require compliance or to revoke such licenses.
Under the Broadcasting Act 1990, cable operators may elect to replace
certain PDSLs with LDLs with similar terms.
The regulatory environment in the U.K. has generally encouraged the
development of the cable telecommunications and the cable television industry
by, among other things, licensing only one operator for each cable franchise
area and restricting the national PTOs from using existing telecommunications
networks to carry broadcast entertainment.
The Labour Party has stated that it would review the existing regulatory
structure if it came into power. See "-- Cable Telecommunications --
Restrictions on National PTOs".
CABLE TELEVISION
The Broadcasting Act 1990
The Broadcasting Act 1990 established the ITC to license and regulate
commercial television services (terrestrial and satellite) and the Radio
Authority to regulate radio services. The ITC's functions are, among other
things, to grant licenses for television broadcasting activities and to
regulate the commercial television sector by issuing codes on programming,
advertising and sponsorship, monitoring programming content and enforcing
compliance with the Broadcasting Act and cable television license conditions.
The ITC has the power to vary cable television licenses and impose fines and
revoke such licenses in the event of a breach of the license conditions. The
ITC also enforces ownership restrictions on those who hold or may hold an
interest in licenses issued under the Broadcasting Act. See "-- Cable
Television Licenses -- Ownership Restrictions".
CABLE TELEVISION LICENSES
General. As of December 31, 1996, cable television licenses had been
granted for franchise areas covering approximately 16.5 million out of
approximately 22 million total homes in the U.K. The ITC has indicated that it
will grant only one cable television license for each geographical area for the
foreseeable future. The ITC also has indicated that certain areas, for which
cable television licenses have yet to be awarded, may be advertised at the
request of applicants. Such licenses (LDLs) are generally awarded after
competitive bids. Before awarding an LDL, the ITC must be satisfied as to
certain matters, including the technical specification of the proposed system;
that the applicant has sufficient funding to run the franchise; and that the
applicant is a fit and proper person to be awarded a license. The ITC will award
the LDL to the highest bidder unless there are exceptional circumstances,
including that the coverage proposed to be achieved by another applicant is
substantially greater than that indicated in the technical plan of the highest
bidder, such that it is appropriate to award the license to that other
applicant. In addition, all applicants must undertake to pay a percentage of
qualifying revenue ("PQR") to the ITC in each year of the license.
- 24 -
<PAGE> 25
Cable operators may carry U.K. licensed broadcast services, foreign
satellite programmes or text in their services. Cable television licenses also
require cable operators to ensure that advertising and foreign satellite
programs carried by them as part of their services conform to the restrictions
set forth in the codes on advertising, sponsorship and programming issued by
the ITC. Cable television licenses also impose an obligation on licensees to
provide any information which the ITC may require for purposes of exercising
its statutory functions.
Term, Renewal and Revocation of Cable Television Licenses. The Group
holds eight PDSLs which were issued for 15-year terms. The Group also holds
seven LDLs, four of which were granted on September 1, 1995 and three of which
were granted on September 13, 1996, all for 15-year terms.
An application may be made to the ITC to extend a PDSL for up to an
additional eight years if the cable operator holds a 23-year telecommunications
license. Fees would continue to be payable on the same basis as for the
unextended PDSLs and no PQRs or cash bids would be payable during this 8-year
term. If the Group elects to extend the PDSLs, the Group will upon expiration
of such PDSLs as so extended, be required to apply for a new LDL under the
competitive bid procedures described above. If the Group elects not to extend a
PDSL, the Group may apply to the ITC (no earlier than five years prior to the
expiration of the PDSL) for a replacement 15-year LDL, with respect to which it
must agree with the ITC on the amount of the cash bid and PQR payments that
will be payable over the term of the LDL (based on what would have been offered
if the franchise had been offered for competitive bids).
The Group's PDSLs will currently all expire in 2005. The Group has not yet
applied to extend any of its PDSLs, nor has it applied for any replacement LDLs
under the procedure outlined above, since more than five years remain before
their expiration.
The ITC may refuse an application for renewal, but only on limited
grounds, including that the ITC proposes to grant a license in an area
different from that described under the existing license or that the applicant
is not providing services through the whole of its franchise area.
The ITC may, after consultation with the DTI and the Director General,
revoke a cable television license if an operator fails to comply with its
conditions or with any direction of the ITC, and the ITC considers revocation
to be in the public interest. The ITC must be notified of changes in control of
the licensee, of changes in directors and of certain other changes in
shareholdings in the licensee. If there is any change in either the nature or
characteristics of an operator that is a corporate entity, or any change in
persons controlling or having an interest in it, the ITC can revoke the license
if, as a result, it would not have awarded the license had the new ownership or
control existed at the time the application for the license originally was
considered. The ITC can also revoke any cable television license in order to
enforce restrictions on ownership contained in the Broadcasting Act 1990 (see
below) and can impose fines and shorten the license period of LDLs.
A cable television license is transferable only with the consent of the
ITC, and several of the Group's cable television licenses have recently been
transferred to DCL from various of the Group's wholly owned subsidiaries with
that consent.
The Group also holds two licenses to provide television program services
under the Broadcasting Act 1990. The license for the Leicester Community
Channel came into force on June 29, 1992 and the license for Diamond Vision on
August 29, 1995. Both licenses are for a period of 10 years.
Ownership Restrictions. The ITC has a general duty to ensure that cable
television licenses are held by "fit and proper" persons and may exercise
control over who may hold a license where financial assistance is provided to,
or influence is exercised over, a licenseholder which may produce results which
it considers adverse to the public interest. The Broadcasting Act 1990 also
contains specific restrictions on the types of entities which may hold cable
television licenses or significant interests therein. Cable television licenses
may not be held by a local authority, an advertising agency, a religious or
political body (or one of its officers) or any entity controlled by them.
Ownership restrictions also apply to ownership of different licensed services
- 25 -
<PAGE> 26
(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, 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 "-- Competition -- Business
Telecommunications" and "-- Competition -- Residential Telephone". Following
the Duopoly Review, the Government has granted a telecommunications license to
any applicant provided the applicant has satisfied certain requirements,
including with respect to financial viability and, in some cases, service
commitments. See "-- Duopoly Review".
A cable operator's telecommunications license contains conditions
regulating the manner in which the licensee operates its telecommunications
system, provides telecommunications services, connects its systems to others and
generally operates its business. A cable operator's telecommunications license
also contains a number of detailed provisions relating to the technical aspects
of the licensed system (e.g., numbering, metering and the use of standard
technical interfaces) and the manner in which the licensee
- 26 -
<PAGE> 27
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 "--
Certain Regulatory Matters -- General"), the milestones are contained in the
corresponding telecommunications license and are reviewable by OFTEL.
Where, on the other hand, a cable operator holds a new LDL which is not a
conversion from a PDSL, the milestones are contained in the LDL and are
reviewable by the ITC.
Each of the Group's existing telecommunications licenses prescribes
milestones which require the Group to construct its network to pass a specified
number of premises within prescribed time periods. The milestones may be varied
by the Director General if he considers that the variation would enable the
licensee to meet the final milestone more easily. The final milestones can be
modified only following a public consultation period and with the approval of
the Director General. If the milestones prescribed by a telecommunications
license are not met, the Director General may take enforcement action which, if
not complied with, could result in the revocation of such license. Similarly,
the LDLs which the Group has acquired contain build milestones which may be
varied by the ITC. See "-- Construction" and "Business -- Milestones". The
Company understands that all milestones from now on will be contained in LDLs.
The Company also understands that the ITC will have jurisdiction to enforce
these milestones. To date, the ITC has not published any guidelines on
enforcement of milestones.
Where a cable network has been installed, a licensee must provide a cable
television service to anyone who reasonably requests it. A cable operator is
not required to provide telephony services, but where it does so, and achieves
a 25% or more share of the relevant market for such services (as determined by
the Director General) within its licensed area, the licensee may, at the
direction of the Director General, be required to ensure that telephone
services are available to anyone in the licensed area who reasonably requests
them. The Group has not received any such direction from the Director General.
Under a telecommunications license, the cable operator is subject to and
has the benefit of the Telecommunications Code promulgated under the
Telecommunications Act. The Telecommunications Code
- 27 -
<PAGE> 28
provides certain rights and obligations with respect to installing and
maintaining equipment such as ducts, cables and cabinets on public or private
land (including the installation of equipment on public highways). The
activities of cable operators under the Telecommunications Code are also subject
to planning legislation.
Cable operators have the benefit of, and must comply with, the Street
Works Act, which provides them with the same rights and responsibilities with
respect to construction on public highways as other public utilities. The
Street Works Act standardizes fees for inspections of construction works by
local governmental authorities and standardizes specifications for
reinstatement of property following excavation. As a result, construction
delays previously experienced by cable operators because of separate and often
lengthy negotiations with local governmental entities have been reduced.
Cable operators are required to post bonds for local authorities in
respect of their obligation to ensure reinstatement of roads and streets in the
event the operators become insolvent, cease to carry on business or have their
telecommunications license terminated. In order to install equipment on private
property cable operators must obtain legal permission from occupiers, property
owners and others.
Term, Renewal and Revocation of Telecommunications Licenses
To date, telecommunications licenses have generally been granted for
periods of 15 or 23 years. Seven of Diamond's telecommunications licenses were
granted for an initial period of 23 years, and one was granted for an initial
period of 15 years, both periods commencing on the date specified by the
Secretary of State (which, in practice, is the date on which the cable system
first becomes operative). The 15-year telecommunications license was
subsequently amended to a 23-year license. The Company expects that the Group's
anticipated national telecommunications license will be for a 23-year term.
Upon expiration, a telecommunications license cannot be extended and
application must be made for a new license.
A telecommunications license may be revoked if the licensee fails to pay
the license fees when due, fails to comply with an enforcement order, upon the
occurrence of certain insolvency-related events or if the cable television
license relating to the licensee's system is revoked. A telecommunications
license may also be revoked if, among other things, the licensee fails to give
the required notification to the DTI of changes in shareholdings and changes in
control and agreements affecting control of the licensee, or if the DTI
concludes that any such change would be against the interests of national
security or the U.K. Government's international relations.
Duopoly Review
In 1991, the U.K. Government concluded in its Duopoly Review that the
termination of the duopoly policy (which permitted only BT and Mercury to
operate local, national or international fixed-link networks in the U.K. to
provide public telephone services) might increase competition and benefit
consumers in the U.K. telecommunications market. As a result, the U.K.
Government revised its policy and determined that application for licenses
would be considered from any person seeking to operate new telecommunications
networks over fixed links within the U.K. Such licenses normally would be
granted subject to the general statutory duties of the DTI and the Director
General to ensure the provision of telecommunications services, to satisfy all
reasonable demands for them and the ability of a person providing the services
to finance their operations.
The Duopoly Review also recommended specific amendments to license
conditions that are particularly important to cable operators. Until the Duopoly
Review, for a cable operator to provide telephone services it had to enter an
agreement with BT or Mercury with respect to the terms and conditions (including
price) under which the operator would provide telephone services, obtain a
determination from the Director General that services could be provided and
operate its network as agent for either BT or Mercury. Since the Duopoly Review,
cable operators have been permitted to provide all forms of wired
telecommunications
- 28 -
<PAGE> 29
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
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 Item 7. "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
- 29 -
<PAGE> 30
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 "-- Competition --
Residential Telephone".
BT has limited opportunity for differential pricing to the same class of
customer because it is subject to prohibitions on undue preference and undue
discrimination across the U.K. Following the Duopoly Review, BT's
telecommunications license was modified to permit it to offer discounts to high
volume users, subject to several conditions. However, BT may not offer
discounted services in local markets without offering the discounts nationally
if such discounts result in undue discrimination or unfair cross-subsidy.
Following modifications made to BT's telecommunications license in 1995, the
Director General is proposing an amendment to BT's telecommunications license
to ensure that BT's interconnect prices are sufficiently transparent to enable
a comparison between the component elements of BT's charges to the Group and
other operators with those charged by BT to itself and to ensure that BT does
not favor its own business over that of other operators. The proposals for
price controls will mean further modification of interconnect prices in 1997.
The telephone service prices charged by the Group and other service
providers other than BT currently are not regulated by the Director General,
although undue preference, undue discrimination, linked sales and cross-subsidy
regulations within each of its franchise areas do apply to the Group.
Equal Access
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.
- 30 -
<PAGE> 31
BT's and Mercury's and cable operators' licenses have been amended to enable
the Director General to require them to make available equal access, either by
pre-selection or on a call-by-call basis, subject to, among other things, a
cost-benefit study indicating that the gains will outweigh the likely costs.
Many cable operators opposed the Duopoly Review in this respect because equal
access would reduce one of the current attractions of a cable operator's
telephone system. True open access might enable cable companies to offer equal
access benefits to their customers on attractive terms. Modifications made to
each of the Group's telecommunications licenses also provide that the relevant
licensee may be required by the Director General to make equal access available
once the Group first provides 25% of the available exchange lines in any local
exchange area of BT or in the relevant franchise area. The timing and terms of
the introduction of equal access are unclear. The EC is currently consulting on
proposals to introduce carrier pre-selection in the long term. There can be no
assurance that the implementation of true equal access in the future will not
adversely affect the ability of cable operators to market their telephone
services.
Number Portability
Telephone subscribers changing their telephone service to a cable operator
have historically had to change their telephone numbers. As a result certain
business customers have been reluctant to switch carriers because they would
lose their existing telephone numbers. In response to this, Diamond has
provided its business customers with the opportunity to use the Group's
telephone service for their outgoing telephone calls, which generally carry
higher revenues than incoming calls, and for their specialized
telecommunications needs, while retaining their existing service provider (and
their existing telephone number) for incoming telephone calls.
In January 1994, the Director General announced that OFTEL was working on
directives to require BT to introduce number portability for the cable
operators who had provided OFTEL with the necessary information as to where and
when they could provide portability to BT. The Director General's statement
indicated that number portability may be introduced in the geographic areas
where it is technically feasible in the foreseeable future. BT rejected a
framework proposed by OFTEL for determining the charges payable for number
portability in the event of a dispute between BT and other operators. In April
1995, the Director General referred the matter to the MMC to establish whether
the failure of BT to reach agreements with other operators on the commercial
terms and conditions for number portability was against the public interest,
and if so, whether the adverse effects could be remedied or prevented by
modifications to the conditions of BT's telecommunications license. On December
14, 1995, the Director General announced the MMC's conclusions, including that
the absence of number portability operated against the public interest, that
the absence of number portability was an obstacle to operators' (including
cable operators) ability to win customers from BT, that the introduction of
number portability will strengthen competition, and that BT's
telecommunications license should be modified (following a statutory
consultation period) to enable the allocation of BT's costs incurred in this
regard between BT and other operators (including cable operators), with BT
bearing the greater share. The MMC also noted that there is general agreement
in the industry that reciprocity should continue to be an essential element in
the introduction of number portability, and that the arrangements to be made
for allocating portability costs need to take account of the fact that BT will
not always be the exporting operator. BT's telecommunications license has been
modified accordingly, and the telecommunications licenses of the other national
PTOs are expected to be modified later in 1997, following consultation.
Restrictions on National PTOs
The Duopoly Review maintained restrictions upon BT and other national PTOs
from conveying or providing entertainment services (such as the cable television
services currently provided by the Group) over their national telecommunications
networks. The U.K. government stated that the restrictions upon the conveyance
of such services nationally (for example, on behalf of other service providers)
may be reviewed in 1998, but the restrictions regarding provision by the
national PTOs themselves were not intended to be reviewed until 2001. The
Duopoly Review policy did not prevent the national PTOs from providing cable
television services of the kind currently provided by the Group, but it did
require that such services be provided through separate systems by separate
subsidiaries of the national PTOs under separate licenses
- 31 -
<PAGE> 32
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 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 must be held by the end of May 1997 but may be called earlier.
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<PAGE> 33
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 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
- 33 -
<PAGE> 34
market limit and certain restrictions on the number of terrestrial licenses
held. Newspaper groups with less than 20% national newspaper circulation are now
able to control television broadcasters constituting up to 15% of the total
television market, subject to a limit on the number of terrestrial licenses
held, unless the ITC decides that such control would be against the public
interest. Newspaper companies, the license holders of Channel 3 and Channel 5
and satellite and cable broadcasters, are to have the ability to control any
number of digital terrestrial television licenses, in addition to any analogue
licenses.
Previous U.K. Government proposals have also contemplated a more
integrated system of media ownership and control in the longer term, to take
account of the increasing number of broadcasters and technological convergence,
and involving regulation of the media-market as a whole. The Company can give
no assurance as to whether these proposals for regulation will be enacted or,
if they were enacted, as to what their content would be or what effect they
might have on the Group's business.
BSM Services
In August 1995 OFTEL issued a consultative document which addressed the
potential development of broadband switched mass-market ("BSM") services in the
U.K. and related regulatory issues. BSM services involve the delivery of
video-quality images over a switched system, at prices intended to encourage
the development of a mass market. The consultative document suggested that
dominant operators (potentially including cable operators) should be required
to provide, on transparent and non-discriminatory terms, broadband conveyance
(including switching) as a network business to service providers which could
have direct commercial relationships with individual customers. Requirements
for accounting separation and the possible need for some form of price control
were also considered. OFTEL suggested that BT is likely, at an early stage, to
be considered a dominant operator, possibly when it starts to roll out BSM
services aimed at covering a significant portion of the U.K., either nationally
or in a specific regional market. OFTEL suggested that such regulation should
only be applied to the cable sector when it becomes dominant, either nationally
or in a specific regional market and is able to compete on equal terms with BT
and any other BSM services distributor. In the meantime the document recognized
the importance of encouraging continuing local investment in the cable
industry's infrastructure. The document also raised the question whether
license obligations on cable operators to provide cable television services
where their systems have been installed should not apply to BSM services (other
than the broadcast entertainment services for which they have exclusive cable
distribution rights in their franchise areas) until they become dominant in
their relevant markets. The stated purpose of the consultative document was to
raise issues in order to stimulate debate to assist in the development of the
kind of regulatory regime that will best promote the new services. The August
1995 consultative document was followed by a consultative document in February
1996 and by a statement by the Director General in June 1996, both of which
were concerned with promoting competition in the current market for services
such as on-line information, electronic data interchange and voice messaging.
ITEM 2. PROPERTIES
PROPERTIES
At December 31, 1996, the Group leased or rented 20 properties for
administrative and sales offices, hub, switch and head-end sites, warehouses
and equipment sites. At that date, the Group leased an aggregate of
approximately 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.
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<PAGE> 35
ITEM 3. LEGAL PROCEEDINGS
No member of the Group is a party to any material legal proceedings, nor
is it currently aware of any threatened material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY - HOLDERS
Not applicable.
- 35 -
<PAGE> 36
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
- 36 -
<PAGE> 37
ITEM 6. SELECTED FINANCIAL DATA
The selected data set forth below have been excerpted or derived from the
audited financial statements of the Group, which as of December 31, 1995 and
1996 and for each of the years in the three-year period ended December 31, 1996
are included elsewhere herein and have been audited by KPMG, independent
auditors. The selected data have been prepared in accordance with United
States generally accepted accounting principles ("U.S. GAAP") and should be
read in conjunction with, and are qualified in their entirety by reference to,
Item 7. "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 Annual
Report.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
1992 1993 1994 1995(1) 1996 1996(2)
---------- ----------- ----------- ---------- ---------- ---------
(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications....... L. 178 L. 1,237 L. 3,402 L. 5,852 L. 9,763 $16,717
Residential telephone............. 153 1,251 2,545 6,662 17,723 30,347
Cable television.................. 458 719 1,324 3,479 10,091 17,279
Other revenues.................... 11 20 35 -- -- --
Total revenues.................... 800 3,227 7,306 15,993 37,577 64,343
Operating costs and expenses:
Telephone......................... (140) (1,097) (3,067) (5,454) (9,776) (16,739)
Programming....................... (184) (324) (701) (1,844) (6,041) (10,344)
Selling, general and
administrative.................... (917) (1,632) (4,562) (13,020) (22,391) (38,340)
Depreciation and amortization..... (1,530) (2,520) (4,038) (8,867) (21,380) (36,609)
---------- ---------- ---------- ---------- --------- ---------
Total operating costs and expenses (2,771) (5,573) (12,368) (29,185) (59,588) (102,032)
---------- ---------- ---------- ---------- --------- ---------
Operating loss.................... (1,971) (2,346) (5,062) (13,192) (22,011) (37,689)
Interest income................... -- -- 1,415 3,887 3,441 5,892
Interest expense, and amortization
of debt discount and expenses..... (53) (231) (3,836) (17,118) (40,334) (69,064)
Foreign exchange gains/(losses)
net............................... (1,314) (221) (1,196) 925 31,018 53,112
Unrealized losses on derivative
financial instruments............. -- -- -- (868) (7,944) (13,603)
Other expenses.................... -- -- -- (1,241) -- --
---------- ---------- ---------- ---------- ---------- ---------
Net loss.......................... L.(3,338) L.(2,798) L.(8,679) L.(27,607) L.(35,830) $(61,352)
========== ========== ========== ========== ========== =========
BALANCE SHEET DATA:
Property and equipment, net....... L. 8,678 L. 18,021 L. 35,127 L. 163,721 L. 277,301 $474,822
Total assets...................... 9,487 19,882 138,606 374,172 416,819 713,719
Total debt (3).................... 13,779 21,889 103,068 319,492 325,041 556,567
Shareholders' equity (4).......... (6,733) (5,660) 26,092 25,133 54,100 92,636
OTHER DATA:
EBITDA (5) L. (441) L. 174 L. (1,024) L. (6,434) L. (8,575) $(14,683)
Deficiency of earnings to fixed
charges (6)....................... (3,338) (2,798) (8,679) (27,607) (35,830) (61,352)
Capital expenditures.............. 7,799 11,880 21,252 136,314 130,140 222,839
</TABLE>
(See notes to Selected Financial Data)
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<PAGE> 38
NOTES TO SELECTED FINANCIAL DATA
(1) The 1995 Group financial data includes the financial results of LCL from
October 1, 1995.
(2) Translated, solely for the convenience of the reader, at a rate of
$1.7123 = L.1.00, the Noon Buying Rate on December 31, 1996.
(3) Total debt for periods prior to December 31, 1994 consisted of advances
from shareholders and capital lease obligations. Total debt at December
31, 1994 consisted of the 1994 Notes and capital lease obligations. Total
debt at December 31, 1995 and 1996 consisted of the 1994 Notes, the
Company's 11 3/4% Senior Discount Notes due December 15, 2005 (the "1995
Notes"), capital lease obligations and the mortgage loan.
(4) The Company raised additional equity financing of L.40.4 million, L.27.0
million and L.64.6 million in the years ended December 31, 1994, 1995 and
1996, respectively.
(5) Earnings before interest, taxes, depreciation and amortization and
foreign exchange translation gains and losses ("EBITDA") is presented
because it is a widely accepted financial indicator of a leveraged
company's ability to 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.
EXCHANGE RATES
The following table sets forth, for the years, periods and dates
indicated, the average, high, low and period-end Noon Buying Rates for pounds
sterling expressed in U.S. dollars per L.1.00:
<TABLE>
<CAPTION>
YEAR AVERAGE(1) HIGH LOW PERIOD-END
- ---- ---------- ---- ---- ----------
<S> <C> <C> <C> <C>
1992 1.76 2.00 1.51 1.52
1993 1.49 1.59 1.42 1.48
1994 1.54 1.64 1.46 1.57
1995 1.58 1.64 1.53 1.55
1996 1.57 1.71 1.49 1.71
</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 March 19, 1997 was $1.5968 = L.1.00. For a
discussion of the impact of exchange rate movements on the Group's financial
condition and results of operations as well as its ability to service its U.S.
dollar-denominated obligations, see Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Foreign Exchange".
- 38 -
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Group should be read in conjunction with the
consolidated financial statements of the Group and related Notes which are
included elsewhere in this Annual Report.
OVERVIEW
The Group has partially constructed, and is continuing to construct, a
fiber-optic cable telecommunications and television network in its franchise
areas. Through December 31, 1996, approximately L.317 million had been invested
(at original cost) in the construction of the Group's network and related
systems. As of December 31, 1996, approximately 477,000 of the premises (homes
and businesses) in the Group's franchise areas had been passed by civils
construction, of which 365,000 premises had been activated, representing
approximately 36% of the premises required to be activated under the Group's
aggregate final milestone obligations.
The development and the installation of the network in the Group's
franchise areas requires significant additional capital expenditure. These
expenditures, together with the associated operating expenses, will continue to
result in significant cash requirements, and during the build out period the
Company expects to continue to incur operating losses.
The Group earns substantially all of its telecommunications revenues from
monthly fees for line rental, toll usage and ancillary services (including
charges for additional services purchased at the customer's discretion). Cable
television revenues are earned primarily from monthly customer fees for basic
and premium services. The ability of the Group to generate sufficient revenues
to cover cash expenditures and become profitable will depend upon a number of
factors, including the Group's ability to attract customers, revenues per
customer, churn rates, construction costs and financing costs. These factors
are expected to be primarily influenced by the success of the Group's operating
and marketing strategies as well as market acceptance of cable telephone and
television services. In addition, the Group's profitability may be influenced
by, among other things, changes in the industry's regulatory environment. See
Item 1. "Business -- 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.
- 39 -
<PAGE> 40
LIQUIDITY AND CAPITAL RESOURCES
The Group expended net cash to fund investing activities of L.71.9
million, L.155.5 million, and L.128.2 million, in 1994, 1995 and 1996,
respectively. In 1995, the Company received net sale proceeds of L.56.2 million
from marketable securities and invested net cash of L.108.8 million in the LCL
Acquisition. Net cash provided by financing activities was L.112.4 million and
L.212.2 million in 1994 and 1995, respectively, and was L.54.4 million in 1996,
of which L.64.6 million was provided by the issue of equity referred to below
and L.9.1 million was used for debt financing costs. The Group's investing
activities (other than temporary investments of the proceeds from equity and
debt financings and the LCL acquisition) consisted almost exclusively of the
ongoing construction of the network (L.19.1 million in 1994, L.102.9 million in
1995 and L.128.2 million in 1996). As noted above, during the third quarter of
1995, the Group expended net cash of L.108.8 million for the acquisition of LCL
which was funded by new equity, and a banking facility, which was repaid from
the proceeds of the 1995 Notes in December of 1995. In 1994, the Group
generated positive cash flows from operating activities of L.496,000, and in
1995 and 1996 generated negative cash flows from operating activities of L.4.1
million and L.1.3 million, respectively. The Group's cash and funding
requirements historically have been met principally through the issuance of
senior discount notes in September 1994 and December 1995 (the "1994 Notes" and
"1995 Notes", respectively), equity capital, advances from its shareholders,
and from bank and lease financing. In February 1997, the Company issued a new
series of senior discount notes (the "1997 Notes"), raising net proceeds of
approximately $240 million. See "-- Description of Company Debt -- Description
of Senior Discount Notes".
The further development and construction of the Group's cable television
and telecommunications network will require substantial capital investment. The
Group is obligated by the milestones in its telecommunications licenses and the
new LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. See Item 1. "Business -- Milestones".
The Company expects that the Group's residential cable network will extend
approximately 14,300 kilometers (plus 920 kilometers to interconnect the
residential build) and pass approximately 1.2 million homes once completed. The
network will be substantially completed by the end of 2001. The Company
currently estimates that the additional capital expenditures required for the
Group to substantially complete the network (including estimated subscriber
connection expenses) will be approximately L.570 million (of which L.520
million relates to capital expenditures occurring from December 31, 1996
through January 1, 2001), although these amounts could vary significantly.
The Company believes that available cash reserves (including the proceeds
of the 1998 Notes offering), the proposed equity injection of pound sterling 25
million and cash flows from operations will be sufficient to complete the
planned construction through the first quarter of 1997, 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 a senior bank facility (the "Senior Bank
Facility") that permits DCL to borrow, subject to certain conditions, up to
L.175 million. If such amounts are not available or are insufficient, the Group
would be required to obtain further debt or equity financing.
DCL will be able to draw on the Senior Bank Facility if certain conditions
are met, including conditions related to the operating cash flow of, equity
contributions to and certain financial ratios of Jewel and its subsidiaries
(together, the "Borrower Group") which are not currently met. See "--
Description of Company Debt -- Senior Bank Facility". Indebtedness under the
Senior Bank Facility will be incurred by DCL, guaranteed by the Borrower Group
and secured by a lien on the assets of the Borrower Group and a pledge of the
issued shares of the Borrower Group other than Jewel but including DCL and LCL.
However, the Group may not be able to borrow sufficient funds under the
Senior Bank Facility to meet its remaining funding requirements. In particular,
even after the initial conditions to borrowing have been met the amount of funds
that may be borrowed will be limited to a specified multiple of the Borrower
Group's reported annualized cash flow (as defined in the Senior Bank Facility).
This reported annualized cash flow will depend on a number of variables,
including penetration of cable television and premium channels, penetration of
business telecommunications and residential telephone, average revenues in each
of these
- 40 -
<PAGE> 41
areas, churn and expenses such as programming costs and interconnect charges.
Adverse developments in any of these or other areas could adversely affect the
Borrower Group's reported annualized cash flow and reduce amounts available
under the Senior Bank Facility.
To the extent that (i) the Group is unable to utilize fully the Senior
Bank Facility, (ii) the amounts required to complete the Group's planned build
out exceed its estimates or (iii) the Borrower Group's reported annualized cash
flow (as defined in the Senior Bank Facility) does not meet expectations, the
Group will require additional debt or other financing. There can be no
assurance that any such debt financing will be permitted under the terms of the
Group's debt instruments, which limit the incurrence of additional debt by the
Group, or that any such debt or other financing will be available on acceptable
commercial terms or at all.
The foregoing information with regard to expected completion times, future
capital expenditures and the sufficiency of funding is forward looking in
nature. Due to factors identified in the preceding two paragraphs and below,
actual results may differ materially from the expected results. There can be no
assurance that (i) conditions precedent to advances or the availability of
funds under any of the Group's existing and anticipated debt instruments will
be satisfied when funds are required; (ii) the Group will be able to generate
sufficient cash from operations to meet any unfunded portion of its capital
requirements when required; (iii) the cost of constructing and activating the
network will not increase significantly; (iv) the Group will not acquire
additional franchise areas, which would require additional capital
expenditures; or (v) the Group will not incur losses from foreign currency
transactions or its exposure to foreign currency exchange rate fluctuations.
See "-- Description of Company Debt -- Senior Bank Facility".
To date, the Group has funded its capital expenditure needs primarily
through the proceeds from the issuance of the 1994 Notes, 1995 Notes and 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 Item 1. "Business -- Certain Regulatory
Matters -- Cable Telecommunications".
The Group's revenues are denominated in pounds sterling, while its
obligations to pay interest and principal on the 1994 Notes, 1995 Notes and
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 L.7.3 million in 1994, L.16.0 million in
1995 and L.37.5 million in 1996. This growth is attributable to increases in
revenues in all three of the Group's primary lines of business and additional
revenues of L.2.25 million and L.10.9 million attributable to the inclusion of
LCL's results for the last quarter of 1995 and full year 1996, respectively.
- 41 -
<PAGE> 42
As a result of entering into revised interconnect agreements with BT which
will apply retroactively, the Company will receive outgoing interconnect charge
rebates relating to all periods prior to December 31, 1996 and must pay
incoming termination rebates relating to the period from April 1, 1995 to
December 31, 1996. The rebates that will be given to BT relating to the
incoming termination element amount to an estimated L.1,351,000 based on draft
final rates for the twelve month period from April 1, 1995 and interim rates
for the nine month period from April 1, 1996. This amount has been provided by
reducing residential telephone and business telecommunications revenues in 1996
by L.776,000 and L.575,000 respectively. The total amount of rebates to be
received by the Company will be determined by the parties once BT has furnished
to the Company a proposed calculation and supporting data and OFTEL has
determined the final rates applicable. The Company has estimated that the
amount of the rebate due to the Company from BT will exceed the amount of the
rebates to be provided by the Company to BT. Pending final determination of
rebates, the Company has recognized a reduction in interconnect charges in the
same period during which the related reduction in revenues is being recognized.
Accordingly, a reduction in telephone expenses of L.1,351,000 has been recorded
in 1996.
The analysis of revenue and average revenue per line is provided below on
the basis of revenues as reported as well as on a pro-forma basis adjusting for
the incoming termination rebates in the appropriate periods as if the revised
interconnect agreements and the draft final and interim rates had been in
effect since April 1995.
Business Telecommunications. Business telecommunications revenue was
L.3.4 million in 1994, L.5.9 million in 1995 and L.9.8 million in 1996.
Adjusting for rebates on the pro-forma basis described above, revenues were
L.5.7 million and L.10.0 million for 1995 and 1996, respectively, representing
an increase of 76%. The growth in reported revenues is due primarily to an
increase in the number of Diamond's business lines installed from 3,928 at
December 31, 1994 to 7,036 December 31, 1995 and 14,737 at December 31, 1996,
and the inclusion of L.0.5 million and L.2.2 million of revenue attributable to
LCL in the last quarter of 1995 and the full year 1996, respectively. There
were 4,195 business lines for the LCL operation at December 31, 1996. The
growth in the number of business lines for Diamond is partially offset by lower
monthly revenue per line. The monthly revenue per line for Diamond decreased
from L.88.68 in 1994 to L.74.60 in 1995 (L.72.02 on a pro-forma basis) and
L.49.81 (L.51.03 on a pro-forma basis) in 1996. This decline continued the
trend over the past several quarters and was due to a combination of (i)
Diamond's success in marketing Centrex services which has the effect of
increasing the average number of lines held by existing and new customers
taking those services (Diamond operated 6,011 Centrex lines at December 31,
1996 compared to 1,393 Centrex lines at December 31, 1995), (ii) a reduction in
certain tariffs in response to price reductions by the competition,
particularly BT, Diamond's principal competitor for business telecommunications
services, and (iii) the installation for existing customers of an increasing
number of lines utilized for incoming calls in addition to existing lines
dedicated solely to outgoing calls.
Residential Telephone. Residential telephone revenues were L.2.5 million
in 1994, L.6.7 million (pro-forma L.6.4 million) in 1995 and L.17.7 million
(pro-forma L.18.0 million) in 1996. The growth in residential telephone revenue
resulted from an increase in the number of Diamond's residential telephone
lines from 14,150 at December 31, 1994 to 36,122 at December 31, 1995 and
76,979 at December 31, 1996, and the inclusion of L.1.1 million and L.5.5
million of residential telephone revenue for the LCL operation for the last
quarter of 1995 and the full year 1996, respectively. There were 27,481
residential telephone lines for the LCL operation at December 31, 1996. Monthly
revenue per line for Diamond was L.18.83 in 1994, L.18.68 in 1995 and L.17.59
in 1996. On a pro-forma basis, Diamond's average monthly revenues per line
decreased slightly from L.18.11 in 1995 to L.17.84 in 1996. The Group's churn
rate (annualized) was 20.6% for 1996 as compared to pro-forma, combined 15.0%
for 1995. The increase in churn in 1996 is attributable in part to a tightening
of the disconnect policy for certain customers and certain ongoing efforts by
BT aimed at regaining former customers.
Cable Television. Cable television revenues increased from L.1.3 million
in 1994 to L.3.5 million in 1995 and L.10.1 million in 1996. This growth in
cable television revenue was primarily due to a combination of (i) an increase
in the number of Diamond's cable television subscribers which rose from 8,936 at
December 31, 1994 to 42,419 at December 31, 1996, (ii) an increase in the
average monthly revenue per
- 42 -
<PAGE> 43
subscriber from L.14.71 for 1994 to L.16.80 for 1995 and L.17.70 for 1996, and
(iii) the inclusion of cable television revenue of L.0.6 million and L.3.1
million for the LCL operation for the last quarter of 1995 and the full year
1996, respectively. The increase in average revenue per subscriber is primarily
due to increases in cable television pricing.
The Group's churn rate was 40.9% for 1996 as compared to a pro-forma
combined churn rate of 33.8% in 1995. The Company believes that the increase in
churn was due in part to the Group's announcement of increases in premium
subscription rates which led certain longer-term customers who had previously
benefitted from grandfathered rates, to disconnect service, as well as to the
application of a stricter disconnect policy relating to nonpayment implemented
in June 1996 in the LCL areas, which resulted in an increase in customer
disconnections, particularly in the third quarter of 1996. With the aim of
reducing churn among new subscribers, the Group has begun to require payment of
an installation fee in connection with the subscription for new residential
services and is evaluating other means to reduce its churn in the future.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges payable
to BT and Mercury, increased from L.3.1 million in 1994 to L.5.5 million in
1995 and L.9.8 million in 1996. On a pro-forma basis reflecting the apportioned
reduction in interconnect charges resulting from the revised interconnect
agreements in the appropriate periods to which they relate, telephone expenses
would have been L.5.0 million and L.10.2 million during 1995 and 1996,
respectively. These increases reflect the substantially larger volume of
telephone business generated by the Group. As a percentage of combined business
telecommunications and residential telephone revenues, these direct costs
decreased from 52% in 1994 to 44% in 1995 and 36% in 1996 due in part to
reduced interconnect charges paid to other operators. Taking into account on a
pro-forma basis the rebate-related adjustments to both revenues and expenses
during the appropriate periods, telephone expenses as a percentage of combined
business telecommunications and residential telephone revenues would have been
42% and 37% for 1995 and 1996, respectively.
Direct costs for cable television programming, which generally depend on
the number of subscribers and per-subscriber rates charged by programming
suppliers, increased from L.0.7 million in 1994 to L.1.8 million in 1995 and
L.6.0 million in 1996. As a percentage of cable television revenues, these
direct costs were 53% in 1994, 53% in 1995 and 60% for 1996. The percentage
increase in 1996 compared to 1995 stemmed from an increase in rates charged by
programming suppliers, and increases in the number of channels provided as part
of program packages which were not fully offset by increases in the subscriber
rates charged to existing subscribers by Diamond. Significant price increases
made by BSkyB, the largest supplier of programming to the Group, took effect on
January 1, 1996. As from October 1996, the Company increased its prices for
premium programming, and it increased the price of its basic subscriber package
in November 1996. The Company also introduced two lower-priced basic subscriber
packages during November 1996 available to subscribers in two of the Company's
franchise areas only.
Selling, general and administrative expenses increased by 185% from 1994
to 1995 and by 72% from 1995 to 1996. The increases were due to a combination
of increased sales commissions and higher administration costs associated with
the expansion of the Group's business and the inclusion of expenses related to
LCL during the last quarter of 1995 and the full year 1996. In February 1997,
the Group began employing residential salespeople directly and paying them on
the basis of a salary plus sales commissions.
Depreciation and amortization expenses increased by 120% from 1994 to 1995
and by 141% from 1995 to 1996. This increase was attributable to the increasing
size of the Company's network as well as the LCL acquisition.
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<PAGE> 44
INTEREST INCOME/EXPENSES
Interest expense was L.3.8 million, L.17.1 million and L.40.3 million for
1994, 1995 and 1996, respectively. The 1996 increase is due primarily to the
accretion of the discount on the 1994 Notes and 1995 Notes of L.38.2 million
during 1996 (compared to L.14.3 million during 1995 and L.3.2 million in 1994),
as well as other interest expense of L.1.2 million in 1996. In addition,
amortization of debt financing costs was L.0.9 million in 1996 (compared to
L.0.3 million in 1995 and L.0.1 million in 1994 ). Interest received was L.3.4
million in 1996, through temporary investment of the proceeds of the 1995
Notes.
FOREIGN EXCHANGE
A substantial portion of the Group's existing debt obligations are
denominated in U.S. dollars, while the Group's revenues and accounts are
generated and stated in pounds sterling. Foreign currency translation gains and
losses, except for unrealized gains and losses on available-for-sale
securities, are reported as part of the profit or loss of the Group. In the
year ended December 31, 1994, the Company recognized an unrealized foreign
exchange loss of L.0.7 million on the translation of its dollar-denominated
indebtedness, a realized loss of L.0.9 million relating to the conversion of
dollars to pound sterling, offset by an unrealized gain of L.0.4 million on the
translation of dollar-denominated securities. In the year ended December 31,
1995, the Company recognized an unrealized foreign exchange gain on the
translation of its dollar-denominated indebtedness of L.0.6 million, an
unrealized loss on its short-term securities of L.0.3 million and a net
realized foreign exchange gain of L.0.3 million relating to its operations and
the sale of dollar denominated available-for-sale securities. In the year ended
December 31, 1996, the Group recognized an unrealized foreign exchange gain on
the translation of its liability on the 1994 Notes and the 1995 Notes of L.31.5
million, an unrealized gain on its short-term securities of L.0.1 million and a
net realized foreign exchange loss of L.0.4 million relating to its operations.
UNREALIZED LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
Losses on derivative financial instruments include an unrealized loss of
L.0.9 million in 1995, and an unrealized profit of L.0.2 million in 1996 on the
mark-to-market valuation of an interest rate swap commitment.
The Company entered into a foreign exchange forward contract on November
1, 1996 for settlement on May 6, 1997 to sell L.200 million at a rate of
$1.6289 to L.1. On January 31, 1997 an offsetting agreement was entered into at
a rate of $1.6014 to L.1. The offsetting contracts were settled on February 6,
1997 with a payment of approximately L.3.4 million to the Company. Because of
changes in prevailing rates, the Company recorded for the year ended December
31, 1996, an unrealized loss of approximately L.8.1 million on the pounds
sterling sell forward contract which partially offset the gain that was
recorded on the translation of the U.S. dollar denominated obligations on the
1994 Notes and 1995 Notes during the same period. During the first quarter of
1997, the Company has recorded a gain of approximately L.11.5 million on the
two offsetting forward contracts, reflecting the reversal of the L.8.1 million
loss referred to above and the approximately L.3.4 million cash payment on
settlement of the contracts. Gain or loss on the translation of other foreign
currency denominated obligations for that period will depend upon the
prevailing rates at the end of the first quarter. The Company may from time to
time in the future enter into similar foreign currency contracts based on its
assessment of foreign currency market conditions and their effect on the
Group's operations and financial condition. Therefore, changes in currency
exchange rates may continue to have a material effect on the results of
operations of the Group and may materially affect the Company and the Group's
ability to satisfy their obligations, including obligations under outstanding
debt instruments, as they become due.
NET LOSS
As a result of the foregoing factors, the Group had net losses of L.8.7
million, L.27.6 million and L.35.8 million in 1994, 1995 and 1996,
respectively.
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<PAGE> 45
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. In February 1997, the Senior
Bank Facility was amended to reduce the aggregate amount available for
borrowing to L.220 million or less and to revise certain covenants and
borrowing conditions. 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 is 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 Item 1. "Business -- Milestones", and that each member of the
Borrower Group is 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.381.5 million and approximately $30 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 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.15 million. 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. The Group has not currently met all of the
conditions to borrowing under the amended facility.
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.
Because the proceeds to the Company from the issuance of the 1997 Notes
exceeded $175 million, the Company has, under the terms of the Senior Bank
Facility, entered into good faith negotiations with a view to agreeing to
certain amendments to the Senior Bank Facility, including among other things a
reduction in the amount available for borrowing under the facility to L.175
million, adjustments to the repayment schedule, adjustments in financial
covenant levels, modifications to restrictions on permitted dividends and
distributions, and certain borrowing conditions including reported annualized
cash flow (as defined) of the Borrower Group of at least L.18.5 million and an
increase of approximately $72 million in the amount of aggregate cash equity to
fund qualifying expenditure.
In addition to certain customary events of default, the following events
constitute events of default which may trigger acceleration under the Senior
Bank Facility: (i) failure of the Borrower Group to comply with aggregate build
milestones set forth in the terms of its telecommunications licenses and/or
LDLs, (ii) failure of a Borrower Group member to comply with (A) its build
milestones for individual franchise areas if OFTEL or the ITC has served a
notice on such Borrower Group member of its intent to make an order under
Section 17 of the Telecommunications Act (a "Notice Event") or equivalent in
relation to the ITC with respect to such failure to comply, or (B) any other
obligation in respect of such license, the breach of which (x) results in a
Notice Event or (y) is reasonably likely to have a material adverse effect on
the financial condition of the Borrower Group taken as a whole or on the
Group's telecommunication systems; and (iii) certain change of control events,
including certain persons or entities ceasing to control specified percentages
of the total voting and economic power of the Borrower Group.
- 45 -
<PAGE> 46
Borrowings will bear interest at adjusted sterling LIBOR plus a margin of
0.75%. Quarterly repayment of outstanding principal amounts is required
beginning in the fourth quarter of 2000, with final payment in 2003.
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. 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 1994 Notes, the 1995 Notes and the 1997 Notes.
Description of Senior Discount Notes
To help fund the Group's operations, in September 1994 the Company issued
$285,101,000 in principal amount at maturity of its 13 1/4% Senior Discount
Notes due September 30, 2004 (the "1994 Notes") at an issue price of $526.13
per $1,000 principal amount at maturity. Net proceeds received by the Company
amounted to L.91 million after issuance costs of L.4 million. Cash interest is
not payable on the 1994 Notes prior to September 30, 1999. Thereafter, cash
interest on the 1994 Notes is payable at a rate of 13 1/4% per annum.
On December 15, 1995, the Company issued $530,955,000 in principal amount
at maturity of its 11 3/4% Senior Discount Notes due December 15, 2005 (the
"1995 Notes") at an issue price of $565.02 per $1,000 principal amount at
maturity. Net proceeds received by the Company amounted to L.187 million after
issuance costs of L.8 million. Cash interest is not payable on the 1995 Notes
prior to December 15, 2000. Thereafter, cash interest on the 1995 Notes is
payable at a rate of 11 3/4% per annum.
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.
See Note 10 of Notes to the Consolidated Financial Statements contained
elsewhere herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-25 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
- 46 -
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning the directors and senior management of the
Company is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Director and
Lord Francis Pym 75 Non-Executive Chairman
Director, Chief
Robert T. Goad 42 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.
-47-
<PAGE> 48
Mr. McDonald has been a Director since October 1996. He is the McDonald
Interests' appointee under the Shareholders Agreement, dated September 1, 1994,
among ECCP, AmSouth, as trustee for the McDonald Interests, CGT, GS Capital
Partners, William W. McDonald and the Company (the "Shareholders Agreement")
and holds a number of other directorships in connection with other McDonald
investments.
Mr. Nilsson has been a Director since February 1995. Mr. Nilsson is
Managing Director of Investor U.K. Limited, London and was Managing Director of
AB Export Invest from 1985 to 1994. He is also a Board Member of European
Acquisition Capital, TV4 AB, WM Data, Svenska Dagbladet, Compagnie Immobel de
Belgique, STORA Finance, Tufton Oceanic Investments Ltd., Industri Kapital
Limited and Memex I&C AB.
Mr. Satter has been a Director since May 1994. Mr. Satter is a managing
director of Goldman Sachs International and co-head of that firm's European
Principal Investment Area. Mr. Satter joined Goldman Sachs in 1988. Mr. Satter
is also on the Advisory Committee or Board of Directors of Bran + Luebbe GmbH
and Empe Holdings GmbH.
Mr. Thornton has been a Director since May 1994. Mr. Thornton is a
managing director of Goldman, Sachs & Co. Mr. Thornton joined Goldman Sachs in
1980, is a member of the Executive Committee of The Goldman Sachs 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
Human Resources and
Peter C. Savage 38 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.
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<PAGE> 49
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
"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 (insofar 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
- 49 -
<PAGE> 50
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 Item 13. "Certain Relationships and Related Transactions --
Management Agreement". Options over a total of 220,000 Shares and 440,000
Shares were granted to certain principals of ECE Management on February 23,
1995 and October 24, 1995 under the Senior Management Options Scheme (described
below) with an exercise price of L.3.44 per Share and L.4.11 per Share,
respectively.
ITEM 11. 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.
- 50 -
<PAGE> 51
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION (1)
-----------------------------------------------------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER ANNUAL UNDERLYING
COMPENSATIONS(2) OPTIONS (#)
<S> <C> <C> <C> <C> <C>
1996 $256,845 $111,300 $37,715 --
Gary L. Davis, 1995 $233,025 $77,675 $31,547 --
Managing Director(3)........ 1994 $164,691 $39,162 $49,297 872,000
Nicholas R. Millard, 1996 $162,669 $95,889 $36,076 --
Chief Financial Officer..... 1995 $69,908 $34,954 $16,223 60,000
J.A. Duncan Craig
Chief Accounting Officer.... 1996 $77,054 $15,411 $15,776 --
Stephen D. Rowles, 1996 $153,900 $17,230 $17,760 --
Executive Director.......... 1995 $76,620 $46,605 $14,281 --
Mark Harris, 1994 $98,341 $29,764 $11,027 60,000
Technical Director.......... 1996 $145,544 $85,615 $35,912 --
1995 $125,663 $40,391 $23,025 30,000
</TABLE>
(1) Payments made in 1994, 1995 and 1996 in pounds sterling are presented in
U.S. dollars based on an exchange rate of $1.5665 to L.1.00, $1.5535 to
L.1.00 and $1.7123 to L.1.00, the Noon Buying Rates on December 30, 1994,
December 29, 1995 and December 31, 1996 respectively.
(2) Mr. Davis' "Other Annual Compensation" for 1996 includes $15,410 for
house rental, $15,962 for the lease of a car, $1,087 for health insurance
and $5,256 for other living expenses, for 1995 includes $18,642 for house
rental, $8,543 for the lease of a car, $926 for health insurance and
$3,436 other living expenses and for 1994 includes $17,073 for house
rental, $8,489 for the lease of a car, $847 for health insurance and
$10,538 for other living expenses. The remaining $12,350 of this amount
represents a loan to Mr. Davis from McDonald Management Inc. ("MMI"). See
"-- Employment Agreements and Other Arrangements". Mr. Millard's "Other
Annual Compensation" for 1996 includes $13,356 for home rental, $11,972
for the provision of a car, $908 for health insurance, $9,246 in pension
contributions and $594 for other living expenses, and for 1995 includes
$6,059 for home rental, $6,181 for the provision of a car, $343 for health
insurance, $3,495 in pension contributions and $145 for other living
expenses. Mr. Craig's "Other Annual Compensation" for 1996 includes
$10,430 for the provision of a car, $809 for health insurance and $4,537
in pension contributions. Mr. Rowles' "Other Annual Compensation" for
1996 includes $10,606 for the provision of a car, $647 for health
insurance, $343 for other living expenses and $6,164 in pension
contributions, for 1995 includes $9,427 for the provision of a car, $660
for health insurance and $4,194 in pension contributions, and for 1994
includes $6,192 for the provision of a car, $605 for health insurance and
$4,230 in pension contributions Mr. Harris' "Other Annual
Compensation" for 1996 includes $20,385 for the provision of two cars,
$4,101 for school fees, $810 for health insurance, $10,274 for home rental
and $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.
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<PAGE> 52
(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.
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.
- 52 -
<PAGE> 53
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 1995, 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.
- 53 -
<PAGE> 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 Item 11. "Executive Compensation". Except as specified with
regard to Mr. Davis, the number of Shares outstanding does not include
1,827,000 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.
- 54 -
<PAGE> 55
(3) AmSouth Bank of Alabama holds Shares as trustee for the Kathryn A.
McDonald Grantor Trust, the John L. McDonald Grantor Trust, the Jennifer
C. McDonald Grantor Trust and the Allan J. McDonald, Jr. Grantor Trust.
Pursuant to the Shareholders Agreement (discussed below), the McDonald
Interests have the right to appoint one member of the board of directors
of the Company. Otherwise, the McDonald Interests maintain no active role
in the management or operation of the Company.
(4) Booth English Cable, Inc. indirectly maintains an interest in Shares
through the 9.1% interest maintained by Booth English Cable, Inc. in ECCP
and directly maintains a 0.9% interest in Shares held by Booth English
Cable, Inc.
(5) Mr. Goad indirectly maintains an interest in Shares through the 7.6%
interest maintained by Columbia Management, Inc. in ECCP.
(6) The number of Shares in the table consists of 35,000 Shares held by CGT
and 654,000 Shares issuable pursuant to options granted to CGT. See Item
11. "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
Item 13. "Certain Relationships and Related 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
- 55 -
<PAGE> 56
that may jeopardize a material license of the Company and (viii) the
winding up of the Company or any equity repayment by the Company.
As to other provisions see Item 13. "Certain Relationships and Related
Transactions -- Shareholders Agreement".
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
Item 13. "Certain Relationships and Related Transactions -- Relationship
Agreements".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 Item 10. "Directors and
Executive Officers of the Registrant -- 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 Company may terminate the Management Agreement if ECE Management
International ceases to be an Affiliate (as defined therein) of both Mr. Booth
and Mr. Goad. In addition, the Company may terminate the Management Agreement
(after consultation with ECE Management International) if Diamond materially
underperforms compared to ECE Management
- 56 -
<PAGE> 57
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 Item 12. "Security Ownership
of Certain Beneficial Owners and Management -- 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 Item
12. "Security Ownership of Certain Beneficial Owners and Management --
Relationship Agreements".
The Relationship Agreements also provide that each party thereto will (so
far as it is able) procure that any contract between the Company (or any of its
affiliates) and that party (or any of its affiliates) is made on an arm's length
commercial basis. Unless ECCP agrees otherwise on any particular occasion, the
parties are required to procure (so far as they are legally able) that the
Company retains Goldman, Sachs & Co. or an affiliate of Goldman, Sachs & Co.
exclusively to perform all investment banking services for customary
compensation and on other terms consistent with an arm's length transaction.
The Relationship Agreements also place certain restrictions on the
transfer of shares held by the parties and grant certain registration rights.
OTHER RELATIONSHIPS
Goldman, Sachs & Co. acted as purchaser in connection with the 1997 Notes
offering and received underwriting commissions of approximately $6,750,000.
Goldman, Sachs & Co. acted as underwriter in connection with the 1995 Notes
offering and received underwriting commissions of approximately $6,750,000. In
connection with the offering of the 1994 Notes, Goldman, Sachs & Co. received
underwriting commissions of approximately $4,875,000. Goldman, Sachs & Co.
acted as advisor in connection with Diamond's acquisition of LCL and received
an advisory fee for their services amounting to L.1,091,000. Goldman Sachs
International acted as agent and financial advisor in connection with the
negotiation of Senior Bank Facility for which it has charged fees of
approximately 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 Item 7.
"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
- 57 -
<PAGE> 58
the Group. See Item 1. "Business -- Cable Television" and Item 1.
"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.
- 58 -
<PAGE> 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K
(a) 1. The following Consolidated Financial Statements of Diamond Cable
Communications Plc are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
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>
2. Not applicable.
3. Exhibits:
10.1 Loan Facility Agreement, dated February 13, 1997, among Diamond Cable
Communications (UK) Ltd, Jewel Holdings Limited, Natwest Markets and
National Westminster Bank plc.
10.2 Service Contract, dated as of April 1, 1996, between Diamond Cable
(Nottingham) Ltd. and Stephen Rowles.
10.3 Service Agreement, dated July 1, 1995, between Diamond Cable
Communications Plc and Nicholas Millard.
(b) The Company filed no Reports on Form 8-K during the three month period
ended December 31, 1996.
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Diamond Cable Communications Plc
(Registrant)
By
Robert T. Goad
Chief Executive Officer
March 21, 1997
- 60 -
<PAGE> 61
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ------------------------------------ --------------
<S> <C> <C>
/s/ Robert T. Goad Director and Chief Executive Officer March 21, 1997
Richard A. Friedman Director March 21, 1997
/s/ Gary L. Davis Director March 21, 1997
John L. McDonald Director March 21, 1997
/s/ Muneer A. Satter Director March 21, 1997
/s/ John L. Thornton Director March 21, 1997
Thomas Nilsson Director March 21, 1997
/s/ Lord Francis Pym Director March 21, 1997
/s/ Nicholas R. Millard Chief Financial Officer March 21, 1997
/s/ J.A. Duncan Craig Chief Accounting Officer March 21, 1997
</TABLE>
- 61 -
<PAGE> 62
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> 63
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> 64
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> 65
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> 66
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> 67
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1994 1995 1996 1996
---- ---- ---- ----
(note 1)
pound pound pound
sterling sterling sterling
(in thousands)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... (8,679) (27,607) (35,830) $(61,352)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Depreciation and amortization .................... 4,038 8,867 21,380 36,609
Foreign exchange (gains)/losses .................. 306 (613) (31,468) (53,883)
Profit on disposition of assets .................. (11) (11) (11) (19)
Provision for losses on accounts receivable ...... 121 407 918 1,572
Amortization of deferred financing costs ......... 70 312 943 1,615
Accretion of senior note discount ................ 3,248 14,335 38,157 65,336
Accretion of investment income ................... (525) 524 -- --
Profit on disposition of investments ............. -- (2,733) -- --
Change in operating assets and liabilities:
Change in trade receivables ..................... (869) (1,577) (3,724) (6,376)
Change in other assets .......................... (1,479) (2,175) 1,300 2,226
Change in accounts payable ...................... 1,960 4,532 (1,680) (2,877)
Change in other liabilities ..................... 2,316 1,626 8,667 14,841
------- ------- ------- --------
Net cash provided by/(used in) operating activities 496 (4,113) (1,348) (2,308)
------- ------- ------- --------
Cash flows from investing activities:
Cash invested in property and equipment .......... (19,061) (102,899) (128,246) (219,595)
Cash invested in marketable securities ........... (53,042) (17,445) -- --
Proceeds from disposition of assets .............. 162 72 65 111
Proceeds from disposition of investments ......... -- 73,644 -- --
Cash paid for franchises ......................... -- (45) (29) (50)
Payment for purchases of LCL (net of cash acquired) -- (108,844) -- --
------- ------- ------- --------
Net cash used in investing activities ............. (71,941) (155,517) (128,210) (219,534)
------- ------- ------- --------
Cash flows from financing activities:
Proceeds of issue of debt ........................ 95,117 194,881 -- --
Debt financing costs (note 14) ................... (4,474) (7,924) (9,096) (15,575)
New loans ........................................ -- 94,000 -- --
Repayment of loans ............................... -- (94,119) (23) (39)
Cash repaid to shareholders ...................... (18,713) -- -- --
Capital element of capital lease obligations ..... (878) (841) (1,117) (1,913)
Issue of shares and capital
contributions (net of expenses) ................. 40,431 26,978 64,664 110,724
Net increase/(decrease) in short-term borrowings 1,002 (773) -- --
------- ------- ------- --------
Net cash provided by financing activities ......... 112,485 212,202 54,428 93,197
------- ------- ------- --------
Net increase/(decrease) in cash ................... 41,040 52,572 (75,130) (128,645)
Cash and cash equivalents at beginning of year .... 26 41,066 93,308 159,771
Effect of exchange rate changes on cash and
cash equivalents ................................. -- (330) 133 228
------- ------- ------- --------
Cash and cash equivalents at end of year (note 6).. 41,066 93,308 18,311 $ 31,354
======= ======= ======= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-8
<PAGE> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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> 87
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Robert T. Goad
- ------------------------- Director and Chief Executive Officer March 21, 1997
Robert T. Goad
- ------------------------- Director March , 1997
Richard A. Friedman
/s/ Gary L. Davis
- ------------------------- Director March 21, 1997
Gary L. Davis
- ------------------------- Director March , 1997
John L. McDonald
/s/ Muneer A. Setter
- ------------------------- Director March 21, 1997
Muneer A. Setter
/s/ John L. Thornton
- ------------------------- Director March 21, 1997
John L. Thornton
- ------------------------- Director March , 1997
Thomas Nilsson
/s/ Lord Francis Pym
- ------------------------- Director March 21, 1997
Lord Francis Pym
/s/ Nicholas R. Millard
- ------------------------- Chief Financial Officer March 21, 1997
Nicholas R. Millard
/s/ J.A. Duncan Craig
- ------------------------- Chief Accounting Officer March 21, 1997
J.A. Duncan Craig
</TABLE>
<PAGE> 88
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
10.1 Supplemental Agreement dated 13th February, 1997
Loan Facility for Diamond Cable Communications (UK)
Limited arranged by Natwest Markets and CIBC Wood
Gundy PLC
10.2 Service Contract
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
SUPPLEMENTAL AGREEMENT
DATED 13th February, 1997
LOAN FACILITY
FOR
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
ARRANGED BY
NATWEST MARKETS
AND
CIBC WOOD GUNDY PLC
ALLEN & OVERY
London
B1:85734.1
<PAGE> 2
THIS SUPPLEMENTAL AGREEMENT is dated 13th February, 1997 between:
(1) DIAMOND CABLE COMMUNICATIONS (UK) LIMITED formerly Diamond Cable
(Nottingham) Limited (Registered No. 2357645) (the "BORROWER");
(2) JEWEL HOLDINGS LIMITED (Registered No. 3085518) ("JEWEL") and THE
SUBSIDIARIES OF JEWEL listed in schedule 1 to the Restated Credit
Agreement (each a "GUARANTOR");
(3) NATWEST MARKETS (a division of National Westminster Bank Plc) and CIBC
WOOD GUNDY PLC as Arrangers (in this capacity each an "ARRANGER");
(4) NATIONAL WESTMINSTER BANK PLC as security agent and trustee for the Banks
(in this capacity the "SECURITY AGENT");
(5) NATIONAL WESTMINSTER BANK plc as agent (in this capacity the "AGENT");
(6) THE FINANCIAL INSTITUTIONS listed in Part I of Schedule 1 as banks (the
"BANKS"); and
(7) NATIONAL WESTMINSTER BANK PLC as issuing Bank (in this capacity the
"ISSUING BANK").
WHEREAS:
(A) The parties to this Supplemental Agreement are parties to a credit
agreement dated 5th August, 1996 (the "CREDIT AGREEMENT").
(B) The parties to this Supplemental Agreement wish to amend and restate the
Credit Agreement in accordance with clause 28 (Amendments and waivers) of
the Credit Agreement on the terms set out in Schedule 2 (the "RESTATED
CREDIT AGREEMENT").
1. INTERPRETATION
1.1 DEFINITIONS
In this Supplemental Agreement, unless the contrary intention appears or
the context otherwise requires:
"EFFECTIVE DATE"
means the date of this Supplemental Agreement
1.2 INCORPORATION OF RESTATED CREDIT AGREEMENT DEFINITIONS
Terms defined in the Restated Credit Agreement shall, unless the contrary
intention appears or the context otherwise requires, have the same
meaning in this Supplemental Agreement.
<PAGE> 3
1.3 INCORPORATION
Clauses 1.2 (Construction), 12 (Payments), 24 (Expenses), 25 (Stamp
duties), 33 (Severability) and 34 (Counterparts) of the Restated Credit
Agreement shall apply to this Supplemental Agreement, mutatis mutandis.
1.4 DESIGNATION
The Agent and the Borrower hereby designate this Supplemental Agreement a
Finance Document.
2. AMENDMENT AND RESTATEMENT
The Credit Agreement shall be amended and restated in the form set out in
Schedule 2 to this Supplemental Agreement and as from the Effective Date
the Parties shall have no further rights or obligations under the Credit
Agreement in respect of the representations and warranties that have been
made under the Credit Agreement up to the date of this Supplemental
Agreement, other than the representation and warranty made by the
Obligors under Clause 17.14(c) of the Credit Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES
Subject to the provisions of the Disclosure Letter dated on or about the
date of this Supplemental Agreement from the Borrower to the Arrangers,
each Obligor makes the representations and warranties set out in this
Clause 3 (Representations and warranties) to each Finance Party on the
Effective Date.
3.2 AGREED BASE CASE
(a) The factual statements set out in the Agreed Base Case are true in all
material respects as at the date of this Supplemental Agreement and to the
best of each Obligor's knowledge (after due and proper enquiry) no fact
the omission of which makes the statements set out in the Agreed Base Case
misleading in any material respect has been omitted; and
(b) the forecasts, projections, and opinions concerning members of the
Diamond Group contained in the Agreed Base Case (the "PROJECTIONS") were
provided in good faith and arrived at after due and careful consideration
and fairly represent in all material respects the view of the Obligors as
at the date of this Supplemental Agreement, and the assumptions on which
the Projections are based are made on reasonable grounds provided that no
representation or warranty is given as to the actual outcome and results
within the Projections.
4. GOVERNING LAW
This Supplemental Agreement is governed by English law.
This Supplemental Agreement has been entered into on the date stated at the
beginning of this Supplemental Agreement.
<PAGE> 4
SCHEDULE 1
BANKS
BANKS
NATIONAL WESTMINSTER BANK PLC
CIBC WOOD GUNDY PLC
<PAGE> 5
SCHEDULE 2
AGREEMENT
DATED 5th August, 1996
LOAN FACILITY
FOR
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
ARRANGED BY
NATWEST MARKETS
AND
CIBC WOOD GUNDY PLC
ALLEN & OVERY
London
<PAGE> 6
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PAGE
<S> <C>
1. Interpretation 7
2. Facility 31
3. Purpose 32
4. Conditions Precedent 33
5. Drawdown 34
6. Repayment 37
7. Claims under the Bank Guarantees 38
8. Counter-Indemnity for the Bank Guarantees 39
9. Prepayment and Cancellation 41
10. Interest Periods 43
11. Interest and Guarantee Fee 44
12. Payments 46
13. Taxes 48
14. Market Disruption 49
15. Increased Costs and Illegality 50
16. Guarantee 52
17. Representations and Warranties 54
18. General Undertakings 58
19. System Undertakings 73
20. Management Agreement 75
21. Default 76
22. The Agent, the Security Agent and the Arrangers 81
23. Fees 86
24. Expenses 87
25. Stamp Duties 88
26. Indemnities 88
27. Evidence and Calculations 89
28. Amendments and Waivers 89
29. Changes to the Parties 92
30. Disclosure of Information 94
31. Set-Off 95
32. Pro Rata Sharing 95
33. Severability 96
34. Counterparts 96
35. Notices 96
36. Language 97
37. Governing Law 98
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
SCHEDULES PAGE
<S> <C>
1. Original Guarantors 99
2. Part I - Banks and Tranche A Commitments 100
Part 2 - Banks and Tranche B Commitments 101
3. Conditions Precedent 102
Part 1 - Documents to be delivered before the First Request 102
Part 2 - To be satisfied prior to each Tranche B Loan 107
Part 3 - To be delivered by an Additional Obligor 108
4. Calculation of the MLA Cost 111
5. Requests 113
Part 1 - Form of Loan Request 113
Part 2 - Form of Bank Guarantee Request 114
6. Forms of Accession Documents 115
Part 1 - Novation Certificate 115
Part 2 - Obligor Accession Agreement 117
7. Part 1 - ANOCF Multiple or Tranche B Leverage Ratio 118
Part 2 - Coverage of Bank Debt Loan Charges 119
Part 3 - Cash Interest Cover 120
Part 4 - EBITDA Covenant 121
8. Build Milestones 122
9. Form of Financial Covenant Certificate 124
Part 1 - Auditor's format 124
Part 2 - Borrower's format 126
Signatories 128
</TABLE>
<PAGE> 8
7
THIS AGREEMENT is dated 5th August, 1996 between:
(1) DIAMOND CABLE COMMUNICATIONS (UK) LIMITED (formerly Diamond Cable
(Nottingham) Limited) (Registered No. 2357645) (the "BORROWER");
(2) JEWEL HOLDINGS LIMITED (Registered No. 3085518) ("JEWEL") and THE
SUBSIDIARIES OF JEWEL listed in Schedule 1 (each a "GUARANTOR");
(3) NATWEST MARKETS (a division of National Westminster Bank Plc) and CIBC
WOOD GUNDY PLC as Arrangers (in this each an "ARRANGER");
(4) NATIONAL WESTMINSTER BANK PLC as security agent and trustee for the Banks
(in this capacity the "SECURITY AGENT");
(5) NATIONAL WESTMINSTER BANK PLC as agent (in this capacity the "AGENT");
(6) THE FINANCIAL INSTITUTIONS listed in Schedule 2 as banks (the "BANKS");
and
(7) NATIONAL WESTMINSTER BANK PLC as issuing Bank (in this capacity the
"ISSUING BANK").
IT IS AGREED as follows:
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement:
"ACCOUNT BANK"
means the bank or banks with which the Security Accounts are maintained
from time to time in accordance with Clause 18.29 (Operation of the
Security Accounts).
"ADDITIONAL DEBENTURE"
means a security document that will, when executed, grant a fixed and
floating security over all of the assets of an Additional Obligor in a
form agreed between the Borrower and the Agent.
"ADDITIONAL HIGH YIELD DEBT"
means the proceeds of a high yield debt issue by Diamond PLC under the
Indenture referred to in paragraph (c) of the definition of Indenture in
this Clause 1.1 after the date of the Supplemental Agreement to the
extent that those proceeds (before expenses) exceed US$175,000,000 and
are less than US$250,000,000 and that the Agent has received a
certificate from two officers confirming that those excess proceeds have
been injected into the Borrower Group as Aggregate Cash Equity and have
been spent on Qualifying Expenditure. The amount of the Additional High
Yield Debt injected as Aggregate Cash Equity (the "Additional Aggregate
Cash Equity") shall be:
<PAGE> 9
8
(a) calculated as a Sterling amount, the rate of exchange being
the spot rate of exchange of the Agent for the purchase of Sterling
in the London foreign exchange market with Dollars at or about 11.00
a.m on the date of injection as Aggregate Cash Equity; and
(b) less any expenses in connection with that Additional High
Yield Debt.
"ADDITIONAL OBLIGOR"
means a member of the Borrower Group which becomes an Obligor in
accordance with Clause 29.4 (Additional Obligors).
"AFFILIATE"
means a Subsidiary or a Holding Company (as defined in Section 736 of the
Companies Act 1985) of a Bank or any other Subsidiary of that Holding
Company.
"AGREED BASE CASE"
means the base case (reference HYB03S4D) in the form agreed by the
Borrower and the Arrangers and initialled for identification purposes by
them.
"AGGREGATE CASH EQUITY"
means the aggregate amount (without double counting) of:
(a) all called up share capital and share premium balances of the
Borrower Group; and
(b) all Subordinated Indebtedness.
"ANNUALISED NET OPERATING CASH FLOW" or "ANOCF"
means, at any time, twice the aggregate of Net Operating Cash Flow for
the two most recent Quarters for which a Financial Covenant Certificate
has been received by the Agent at such time.
"AUDITORS"
means the firm of independent public accountants of international
standing recognised and authorised by the Institute of Chartered
Accountants of England and Wales, which is from time to time appointed by
the Borrower to audit the consolidated annual accounts of the Borrower.
"AVAILABLE TOTAL B COMMITMENTS"
means at any time the lesser of:
(a) the Total B Commitments less the aggregate amount of Tranche
A Loans and the Undrawn Face Amount of Bank Guarantees at that time;
and
(b) the amount of Reported Annualised Cash Flow multiplied by the
figure set out in Part 1 of Schedule 7 opposite such Quarter.
<PAGE> 10
9
"BANK DEBT"
means the aggregate amount of all indebtedness of the Borrower Group in
respect of moneys borrowed from, or debit balances at, financial
institutions (excluding all indebtedness under leases and Subordinated
Indebtedness and, for the avoidance of doubt, Financial Indebtedness
under any Interest Rate Protection Agreement).
"BANK DEBT LOAN CHARGES"
means all interest, fees (excluding arrangement fees), commissions and
any other continuing, regular or periodic costs and expenses in the
nature of interest (whether paid, payable or capitalised) of the Borrower
Group in effecting, servicing or maintaining Bank Debt of the Borrower
Group, but taking into account the effect of any relevant Interest Rate
Protection Agreements.
"BANK GUARANTEE"
means any guarantee or bond issued by the Issuing Bank in favour of a
Beneficiary at the request of the Borrower on behalf of a Licence Holding
Subsidiary in respect of that Licence Holding Subsidiary's obligations
under Condition 20 of Schedule 4 of its Telecommunications Licence or any
equivalent provision, however numbered.
"BANK GUARANTEE REQUEST"
means a request made by the Borrower for the Issuing Bank to issue a Bank
Guarantee substantially in the form of Part 2 of Schedule 5.
"BENEFICIARY"
means an Authority or Managers concerned within the meaning of Condition
20 of Schedule 4 (or any equivalent provision however numbered) of a
relevant Telecommunications Licence as specified from time to time by
OFTEL and notified by the Borrower to the Agent.
"BOOTH AMERICAN COMPANY"
means Booth American Company, a corporation organised under the laws of
Michigan with an address at 333 West Fort Street, Suite 1230, Detroit,
Michigan, MI 48226.
"BORROWER GROUP"
means Jewel and its Subsidiaries from time to time and, for the avoidance
of doubt, shall exclude Diamond PLC; and "MEMBER OF THE BORROWER GROUP"
shall be construed accordingly.
"BORROWER GROUP INDEBTEDNESS"
means any Financial Indebtedness between members of the Borrower Group.
"BROADCASTING ACT"
means the Broadcasting Act 1990.
<PAGE> 11
10
"BUILD MILESTONES"
means the obligations of each member of the Operating Group, pursuant to
the Telecommunications Licences and LD Licences, relating to the number
of premises to be passed by stipulated dates as presently more
particularly described in either Condition 1.2 of Schedule 1 to the
Telecommunications Licences or in the Annex to the LD Licences and, for
the avoidance of doubt, set out in Schedule 8 to this Agreement and as
modified by OFTEL or the ITC (as appropriate) from time to time.
"BUSINESS DAY"
means a day (other than a Saturday or a Sunday) on which banks are open
for business in London.
"BT"
means British Telecommunications plc.
"CASH INTEREST COVER"
means, in respect of any period, the ratio of the Net Operating Cash Flow
of the Borrower Group for that period to the aggregate amount of cash
interest due on the Bank Debt and High Yield Debt during that period, but
taking into account the effect of any relevant Interest Rate Protection
Agreements.
"CONSTRUCTION LIABILITY ACCOUNT"
means, if such account or accounts are a method accepted by OFTEL of
dealing with the obligation under its Telecommunication Licences to
provide funds under Condition 20 of Schedule 4 of such Licences or the
equivalent provision however numbered, the account or accounts entitled
"Diamond Group Highway Construction Liability Account" in the name of one
or more members of the Borrower Group and held with NatWest Nottingham.
"COVERAGE OF BANK DEBT LOAN CHARGES"
means, as at the end of any Quarter, the Annualised Net Operating Cash
Flow divided by:
(a) Bank Debt Loan Charges scheduled to be due and payable during
the 12 month period beginning at the end of such Quarter calculated
by reference to the applicable rates of interest due on the Bank
Debt on the date as of which the calculation is made, but taking
into account the effect of any relevant Interest Rate Protection
Agreements; and
(b) the Repayment Amounts and repayment of any other of the
Borrower Group's Bank Debt scheduled to be made during such 12 month
period.
"COVERAGE OF TOTAL FIXED LOAN CHARGES"
means, as at the end of any Quarter, the Annualised Net Operating Cash
Flow divided by:
<PAGE> 12
11
(a) the aggregate of (i) Total Fixed Loan Charges scheduled to be
due and payable during the 12 month period beginning at the end of
such Quarter calculated by reference to the applicable rates of
interest due on the Bank Debt on the date as of which the
calculation is made, but taking into account the effect of any
relevant Interest Rate Protection Agreements and (ii) the Repayment
Amounts and repayment of any other of the Borrower Group's Bank Debt
scheduled to be made during such 12 month period; less
(b) amounts standing to the credit of the Security Account under
Clause 18.16(b) (Distributions).
"DANGEROUS SUBSTANCE"
means any radioactive emissions and any natural or artificial substance
(whether in solid or liquid form or in the form of a gas or vapour), the
generation, transportation, storage, treatment, use or disposal of which
(whether alone or in combination with any other substance) gives a risk
of causing harm to man or any other living organism or damaging the
Environment or public health or welfare, including, but not limited to
any controlled, special, hazardous, toxic, radioactive or dangerous
waste.
"DEBENTURE"
means the debenture dated on or about the date of this Agreement between
the Obligors and the Security Agent in form and substance satisfactory to
the Banks.
"DEBT INSTRUMENT ISSUE"
means any issue by Diamond PLC of any debenture, bond, note, loan stock
or other security on the debt capital markets including, without
limitation, the High Yield Debt.
"DEFAULT"
means an Event of Default or an event which, with the giving of notice,
lapse of time, determination of materiality (or any combination of the
foregoing), would constitute an Event of Default.
"DIAMOND GROUP"
means Diamond PLC and the Borrower Group ; and "MEMBER OF THE DIAMOND
GROUP" shall be construed accordingly.
"DIAMOND PLC"
means Diamond Cable Communications PLC.
"DISCLOSURE LETTER"
means a letter dated the date of this Agreement from the Borrower to the
Arrangers in form and substance satisfactory to the Arrangers disclosing
certain matters considered by the Borrower to be relevant in the context
of certain specified provisions of the Finance Documents, as
<PAGE> 13
12
updated by a letter dated on or about the date of the Supplemental
Agreement from the Borrower to the Arrangers, also in form and substance
satisfactory to the Arrangers.
"DTI"
means the Secretary of State for Trade and Industry and (to the extent
that it assists in the exercise of his powers and duties under the
Telecommunications Act) the Department of Trade and Industry and/or any
other successor or other body or authority having the rights and/or
obligations with respect to the issue of licences under the
Telecommunications Act and the regulation of telecommunication services
in the U.K. presently held or owed by the said Secretary of State.
"EBITDA"
means, in relation to any financial period, the consolidated net income
(excluding extraordinary items and any foreign exchange gains and losses)
of the Borrower Group before interest, amounts due under any hedging
arrangement, tax, depreciation, amortisation and all other non-cash
charges for that financial period for the Borrower Group.
"ECCP"
means European Cable Capital Partners, L.P., a Delaware limited
partnership whose principal office is at 85 Broad Street, New York, NY
1004, USA.
"ECE SIDE LETTER"
means the letter dated on or about the date of the Supplemental Agreement
from the Agent to ECE Management, the Borrower and Diamond PLC.
"ECE MANAGEMENT"
means ECE Management International, LLC, organised under the Laws of
Indiana, with an address at 845 West 116th Street, Carmel, Indiana 46032,
USA.
"ENERGIS"
means Energis Communications Limited.
"ENVIRONMENT"
means the environment as defined in section 1(2) of the Environmental
Protection Act 1990.
"ENVIRONMENTAL APPROVAL"
means any licence, authorisation, consent or permit of any kind required
under or in relation to Environmental Law.
"ENVIRONMENTAL LAW"
means any common or statutory law, regulation, code of practice,
circular, guidance note and the like (whether or not having the force of
law but in respect of which compliance is
<PAGE> 14
13
customary), concerning the protection of human health, the workplace or
the Environment or Dangerous Substances.
"EVENT OF DEFAULT"
means an event specified as such in Clause 21.1 (Events of Default).
"EXCESS CASH FLOW"
means, in respect of any Quarter, the Net Operating Cash Flow for that
Quarter after deducting:
(a) all interest, fees and commissions (whether paid or payable)
of the Borrower Group in respect of its Financial Indebtedness in
respect of such Quarter;
(b) the cash interest falling due on High Yield Debt due under
the Indentures and which is permitted to be paid in accordance with
Clause 18.16 (Distributions) and any amount paid into the Security
Account in accordance with Clause 18.16(b) (Distributions);
(c) the total amount by which the Borrower Group's Financial
Indebtedness was required to be reduced during such period;
(d) all capital expenditure of the Borrower Group during such
period; and
(e) any payments made in or payable in respect of that period in
respect of any VAT or similar tax,
and after deducting any increase in Working Capital or after adding any
decrease in Working Capital, in each case by comparison to the previous
Quarter.
"FACILITY"
means the loan and bank guarantee facility, the terms and conditions of
which are set out in this Agreement.
"FACILITY OFFICE"
means the office(s) notified by a Bank to the Agent:
(a) on or before the date it becomes a Bank; or
(b) by (unless otherwise agreed by the Agent) not less than 5 Business
Days' notice,
as the office(s) through which it will perform all or any of its
obligations under this Agreement.
"FEE LETTERS"
means the letter dated the date of this Agreement between the Arrangers and
the Borrower setting out the amounts of the arrangement fee referred to in
Clause 23.1 (Arrangement fee) and the letter dated the date of this
Agreement between the Agent and the Borrower setting out the amounts of the
agency fee and the Issuing Bank fee referred to in Clauses 23.3 (Agent's
fee)
<PAGE> 15
14
and 23.4 (Issuing Bank's fee), as amended by a supplemental
fee letter on or about the date of the Supplemental Agreement.
"FINAL MATURITY DATE"
means 30th June, 2004.
"FINANCE DOCUMENT"
means any of:
(a) this Agreement and the Supplemental Agreement;
(b) any Security Document;
(c) the Subordination Agreement;
(d) the Fee Letters;
(e) any Novation Certificate;
(f) any Interest Rate Protection Agreement;
(g) the ECE Side Letter; and
(h) any Bank Guarantee,
and any other document designated as such in writing by the Agent
and the Borrower.
"FINANCE LEASE INDEBTEDNESS"
means any indebtedness (without double counting) in respect of:
(a) any finance lease (as determined in accordance with the
Accounting Standards Committee Guidance Notices SSAP21: Accounting
for leases and hire purchase contracts);
(b) any hire purchase agreement, conditional sale agreement or
other contract for bailment entered into primarily as a method of
raising finance or financing the acquisition of the asset being
leased,
and any guarantee or other Financial Indebtedness given or incurred in
support of any of the above.
"FINANCE PARTY"
means an Arranger, a Bank, the Issuing Bank, an Interest Rate Protection
Bank, the Agent, the Security Agent or the Account Bank.
<PAGE> 16
15
"FINANCIAL COVENANT CERTIFICATE"
has the meaning given to that term under Clause 18.2(a)(iv)(1) (Financial
Information).
"FINANCIAL INDEBTEDNESS"
means any indebtedness (without double counting) in respect of:
(a) moneys borrowed or debit balances;
(b) any debenture, bond, note, loan stock or other security;
(c) any acceptance credit;
(d) receivables sold or discounted (otherwise than on a non-recourse
basis);
(e) the acquisition cost of any asset to the extent payable after
the time of acquisition or possession by the party liable where the
deferred payment is arranged primarily as a method of raising
finance or financing the acquisition of that asset;
(f) any Finance Lease Indebtedness;
(g) any currency or interest rate swap or exchange or any cap
and/or collar arrangement or any other hedging transaction;
(h) any amount raised under any other transaction for the
purposes of borrowing or raising money; or
(i) any guarantee, indemnity or similar assurance in respect of
obligations of the type referred to in paragraphs (a) to (h)
(inclusive).
"FRANCHISE AREAS"
means the areas located in Nottingham, Mansfield, Grimsby and
Cleethorpes, Lincoln, Newark, Melton Mowbray, Grantham, Ravenshead,
Bassetlaw, Leicester and Loughborough, Burton-upon-Trent, Hinckley,
Lincolnshire and South Humberside, Chesterfield and Vale of Belvoir (and
more particularly, falling within the red lines on the maps attached as
Annex C to each corresponding Telecommunications Licence or attached to
each LD Licence as appropriate) in which a member of the Operating Group
has been authorised to provide a local delivery service (within the
meaning of the Broadcasting Act) by the grant of a PDS Licence or, as the
case may be, an LD Licence.
"GS CAPITAL PARTNERS"
means European Cable Capital Partners L.P., GS Capital Partners, L.P,
Stone Street Fund 1996 L.P. and Bridge Street Fund 1996 L.P., all of
which are Delaware limited partnerships and whose principal offices are
at 85 Broad Street, New York, NY 10004 or any other fund managed by
Goldman Sachs & Co.
"GUARANTEE FEE"
<PAGE> 17
16
means the commission payable on Bank Guarantees in accordance with Clause
11.3 (Guarantee Fee).
"HEDGING EXPOSURE"
means at any time the aggregate notional principal amount the subject of
all Interest Rate Protection Agreements in force at that time.
"HIGH YIELD DEBT"
means the high yield notes issued or to be issued by Diamond PLC pursuant
to an Indenture (including any Additional High Yield Debt).
"IBM"
means IBM United Kingdom Financial Services Limited.
"INDENTURE"
means:
(a) the indenture for the issue of high yield notes due
September, 2004 dated 28th September, 1994 between Diamond PLC and
the Bank of New York (as trustee);
(b) the indenture for the issue of high yield notes due 15th
December, 2005 between Diamond PLC and the Bank of New York (as
trustee); and
(c) the indenture for the issue of high yield notes due February
or March, 2007 between Diamond PLC and the trustee which is expected
to be the Bank of New York,
as such indenture may be amended, varied, supplemented or replaced from
time to time.
"INFORMATION MEMORANDUM"
means the information memorandum to be prepared by the Borrower in
connection with this Agreement and to be dated as at the Information
Memorandum Date (but excluding for the avoidance of doubt any reference
to the agreed base case presented with, and referred to in, the
Information Memorandum).
"INFORMATION MEMORANDUM DATE"
means the date on which the Borrower and the Arrangers agree that the
Information Memorandum is available to be distributed to financial
institutions.
"INSURANCES"
means all contracts and policies of insurance taken out by or on behalf
of an Obligor pursuant to Clause 5.3 (Insurance) of the Debenture.
<PAGE> 18
17
"INTELLECTUAL PROPERTY RIGHTS"
means all know-how, patents, trade marks, service marks, designs,
business names, topographical or similar rights, copyrights and other
intellectual property monopoly rights and any interests (including by way
of licence) in any of the foregoing (in each case whether registered or
not and including all applications for the same).
"INTERCONNECT AGREEMENTS"
means the Nottingham BT Interconnect Agreements, the Nottingham Energis
Interconnect Agreement, the Mercury Interconnect Agreement, the Leicester
BT Interconnect Agreement, the Leicester Energis Interconnect Agreement
and the Leicester Mercury Interconnect Agreement and any interconnect
agreement entered into as a replacement for any of the same in accordance
with the provisions of Clause 19.2(c)(iii) (Project Contracts and
Licences).
"INTEREST PERIOD"
means each period determined in accordance with Clause 10 (Interest
periods).
"INTEREST RATE PROTECTION AGREEMENT"
means an agreement entered into by the Borrower or any other member of
the Borrower Group for the capping or the hedging of its interest
exposure which satisfies the requirements of Clause 18.23 (Interest
Hedging) including the swap agreement dated 30th June, 1995 between
Canadian Imperial Bank of Commerce and LCL Cable (Holdings) Limited.
"INTEREST RATE PROTECTION BANK"
means each institution satisfying the requirements of Clause 18.23
(Interest Hedging) which enters into an Interest Rate Protection
Agreement, which includes for the avoidance of doubt Canadian Imperial
Bank of Commerce under the swap agreement dated 30th June, 1995.
"ISSUE DATE"
means the date of issue of a Bank Guarantee.
"ITC"
means the Independent Television Commission and/or any other successor or
other body or authority having the right and/or obligation to supervise
and/or regulate any or all cable television and/or local delivery
services in the United Kingdom.
"LD LICENCE"
means each Local Delivery Licence granted from time to time to any member
of the Operating Group pursuant to Part II of the Broadcasting Act.
<PAGE> 19
18
"LEICESTER BT INTERCONNECT AGREEMENT"
means the Interconnect Agreement dated 12th July, 1996 between BT and
Diamond Cable (Leicester) Limited together with the two attached letters,
a billing letter and the transition agreement between the same parties,
all dated 12th July, 1996.
"LEICESTER ENERGIS INTERCONNECT AGREEMENT"
means the Interconnect Agreement dated 25th April, 1995 between Energis
and LCL Cable Communications Limited.
"LEICESTER MERCURY INTERCONNECT AGREEMENT"
means the Interconnect Agreement dated 15th March, 1996 between Mercury
and Diamond Cable (Leicester) Limited.
"LIBOR"
means:
(a) the rate per annum of the offered quotation for deposits in
Sterling for a period comparable to the relevant Interest Period
which appears on the display designated as "Page 3750", on the
Telerate Service (or such other page as may replace Page 3750 on
that service or such other service as may be nominated by the
British Bankers' Association as the information vendor for the
purpose of displaying British Bankers' Association Interest
Settlement Rates for sterling deposits) at or about 11.00 a.m. on
the first day of that Interest Period; or
(b) if no such offered quotation appears on the Telerate Page
3750 the arithmetic mean (rounded upwards, if necessary, to four
decimal places) of the offered quotations for deposits in Sterling
for a period comparable to the relevant Interest Period which
appears on the display designated as page "LIBP" on the Reuter
Monitor Money Rates Service (or such other page as may replace the
LIBP page on such system for the purpose of displaying London
interbank offered rates of leading banks) at or about 11.00 a.m. on
the first day of that Interest Period; or
(c) if no such offered quotation appears on the LIBP Page the
arithmetic mean (rounded upwards, if necessary, to four decimal
places) of the per annum rates, as supplied to the Agent at its
request, quoted by the Reference Banks to leading banks in the
London interbank market at or about 11.00 a.m. on the first day of
that Interest Period for the offering of deposits in Sterling in an
amount comparable to the relevant Loan and for a period equal to the
Interest Period.
"LICENCE"
means any Telecommunications Licence, PDS Licence or LD Licence.
<PAGE> 20
19
"LICENCE HOLDING SUBSIDIARY"
means the Borrower and each Subsidiary of Jewel that has been granted or
is due to be granted a PDS Licence, a LD Licence or a Telecommunications
Licence, such Subsidiaries being at the date of the Supplemental
Agreement:
(a) Diamond Cable (Grimclee) Limited;
(b) Diamond Cable (Grantham) Limited;
(c) Diamond Cable (Newark-on-Trent) Limited;
(d) Diamond Cable (Lincoln) Limited;
(e) Diamond Cable (Mansfield) Limited;
(f) Diamond Cable (Melton Mowbray) Limited; and
(g) Diamond Cable (Leicester) Limited.
"LOAN"
means:
(a) a loan drawn down or to be drawn down under the Facility or
(as the context may require) the outstanding principal amount of
such a loan; and
(b) when designated with the name of a particular Tranche, a Loan
drawn down or to be drawn down under that Tranche.
"LOAN DATE"
means the date of the advance of a Loan.
"LOAN REQUEST"
means a request made by the Borrower for a Loan substantially in the form
of Part 1 of Schedule 5.
"MAJORITY BANKS"
means, at any time, Banks:
(a) whose participations in the Utilisations then outstanding
aggregate more than 66 2/3 per cent. of all the Utilisations then
outstanding; or
(b) if there are no Utilisations then outstanding, whose Tranche
B Commitments then aggregate more than 66 2/3 per cent. of the Total
B Commitments; or
<PAGE> 21
20
(c) if there are no Utilisations then outstanding and the Total B
Commitments have been reduced to nil, whose Tranche B Commitments
aggregated more than 66 2/3 per cent. of the Total B Commitments
immediately before the reduction,
except that for the purposes of Majority Banks consent under Clause 21.18
(Change of Ownership), the figure 66 2/3 per cent. in this definition
will be replaced by 90 per cent.
"MANAGEMENT AGREEMENT"
means the management agreement dated 1st June, 1994 between ECE
Management Company and the Borrower as amended by an assignment agreement
effective as of 4th April, 1996 and a supplemental agreement to be
entered into between Diamond PLC, the Borrower and ECE Management and any
present or future agreement between a member of the Diamond Group and any
other person relating to the provision of management services.
"MARGIN"
means the percentage rate per annum set out in Clause 11.2 (Change in
Margin).
"MATERIAL ADVERSE EFFECT"
means any effect which is materially adverse to the ability of the
Borrower or, as the context may require, the Borrower Group (taken as a
whole) to perform or comply with any of its obligations under the Finance
Documents or which has a material adverse effect on the validity,
enforceability or priority of the security granted by the Security
Documents.
"MCDONALD INTERESTS"
has the meaning given to it in the Shareholders Agreement.
"MERCURY"
means Mercury Communications Limited.
"MERCURY INTERCONNECT AGREEMENT"
means the interconnect agreement dated 29th January, 1996 between Mercury
and the Borrower.
"MLA COST"
means the cost imputed to the Banks of compliance with the Mandatory
Liquid Assets requirements of the Bank of England during an Interest
Period for a Loan, expressed as a rate per annum and determined in
accordance with Schedule 4.
"MONTHLY ACCOUNTS"
means the consolidated management statements of the Borrower Group for a
month, substantially in the form of the Monthly Accounts delivered under
Part 1 of Schedule 3.
<PAGE> 22
21
"NATWEST NOTTINGHAM"
means National Westminster Bank Plc (Nottingham Smiths Bank Branch) of
Midlands Securities Centre, Impact House, 8 Castle Boulevard, Nottingham
NG7 1GG.
"NATWEST PROPERTY AGREEMENT"
means the commercial loan agreement dated 27th September, 1994 between
the NatWest Property Borrower and NatWest Nottingham as secured by a
mortgage over the premises situated at Daleside Road, Nottingham dated
27th September, 1994 between the NatWest Property Borrower as chargor and
NatWest Nottingham as chargee, as each have been amended and supplemented
by a supplemental deed dated 27th September, 1994 between the same
parties and as charged by a mortgage dated 2nd April, 1996 granted by
the Borrower in favour of National Westminster Bank Plc in respect of
the property at Shepshed.
"NATWEST PROPERTY BORROWER"
means Diamond Cable Communications (UK) Limited.
"NET OPERATING CASH FLOW" or "NOCF"
means, in respect of any relevant period, the sum of:
(a) net profit after tax for such period before foreign exchange
gains and losses, extraordinary or similar, gains and losses and
after deducting any interest income earned and any fees paid or
payable under the ECE Side Letter and due under the Management
Agreement in respect of such period to the extent not already
deducted;
(b) depreciation of tangible assets and amortisation of goodwill,
trademarks, deferred debt raising expenses and other intangible
assets in respect of such period;
(c) interest on any Finance Lease Indebtedness which is permitted
under Clause 18.13 (Finance Leasing);
(d) Bank Debt Loan Charges and interest on Subordinated Debt
between PLC and any member of the Borrower Group paid or payable in
respect of such period;
(e) other non cash charges less other non cash income in respect
of such period; and
(f) amounts due under any hedging arrangement,
in each case, of the Borrower Group.
"NEW CASH EQUITY"
means Aggregate Cash Equity injected into the Borrower Group from the
date of this Agreement, but excluding any Aggregate Cash Equity which is
counted towards the conditions precedent in Clause 4.2(b) (Conditions
precedent to Tranche A Utilisations) or Clause 4.3(d) (Conditions
precedent to Tranche B Utilisations).
<PAGE> 23
22
"NOTTINGHAM BT INTERCONNECT AGREEMENTS"
means
(a) Standard Interconnect Agreement dated 12th July, 1996 between
BT and Diamond Cable Communications (UK) Limited together with the
two attached letters, a billing letter and the Transition Agreement
between the same parties, all dated 12th July, 1996;
(b) Standard Interconnect Agreement dated 12th July, 1996 between
BT and Diamond Cable (Grimclee) Limited together with the two
attached letters and the Transition Agreement between the same
parties, all dated 12th July, 1996;
(c) Standard Interconnect Agreement dated 12th July, 1996 between
BT and Diamond Cable (Lincoln) Limited together with the two
attached letters and the Transition Agreement between the same
parties, all dated 12th July, 1996; and
(d) Standard Interconnect Agreement dated 12th July, 1996 between
BT and Diamond Cable (Mansfield) Limited together with the two
attached letters and the Transition Agreement between the same
parties, all dated 12th July, 1996.
"NOTTINGHAM ENERGIS INTERCONNECT AGREEMENT"
means the interconnect agreement dated 16th May, 1995 between the
Borrower and Energis.
"NOVATION CERTIFICATE"
has the meaning given to it in Clause 29.3 (Procedure for novations).
"OBLIGOR"
means the Borrower, Jewel, any of the companies listed in Schedule 1 or
an Additional Obligor.
"OBLIGOR ACCESSION AGREEMENT"
means a deed substantially in the form of Part 2 of Schedule 6 with such
amendments as the Agent may approve or reasonably require.
"OFFICER"
means, at any time, any director of the Borrower currently in office.
"OFT"
means the Director General of Fair Trading and (to the extent that it
assists in the exercise of his powers and duties) the Office of the
Director General of Fair Trading and/or any successor or any other body
or authority having the right and/or obligations to exercise such powers
and duties in the UK.
<PAGE> 24
23
"OFTEL"
means the Director General of Telecommunications and (to the extent that
it assists in the exercise of his powers and duties under the
Telecommunications Act) the Office of the Director General of
Telecommunications and/or any other successor or other body or authority
having the right and/or obligation to supervise and/or regulate
telecommunications services in the United Kingdom.
"OPERATING GROUP"
means each Licence Holding Subsidiary; and "member of the Operating
Group" shall be construed accordingly.
"ORIGINAL ACCOUNTS"
means the audited consolidated accounts of Diamond PLC for the year ended
31st December, 1995.
"PARTY"
means a party to this Agreement.
"PDS LICENCE"
means each Prescribed Diffusion Service Licence held by any member of the
Operating Group pursuant to the Cable and Broadcasting Act 1984.
"PERMITTED FLOTATION"
means the admission of any issued share capital of Diamond PLC or the
giving effect to trading arrangements in relation to such issued share
capital on any Recognised Investment Exchange whether or not including a
sale of issued shares in Diamond PLC or the subscription for new shares
in Diamond PLC.
"PERMITTED SECURITY INTEREST"
means any Security Interest permitted under Clause 18.9 (Negative
pledge).
"PROJECT"
means the design, construction, marketing, maintenance, operation and
provision of cable television and telecommunication services of whatever
description in the Franchise Areas.
"PROJECT CONTRACT NOTICES"
means the notices to:
(a) BT in relation to the Nottingham BT Interconnect Agreements;
(b) Energis in relation to the Nottingham Energis Interconnect
Agreement;
<PAGE> 25
24
(c) Mercury in relation to the Mercury Interconnect Agreement;
(d) BT in relation to the Leicester BT Interconnect Agreement;
(e) Energis in relation to the Leicester Energis Interconnect Agreement;
and
(f) Mercury in relation to the Leicester Mercury Interconnect
Agreement,
and to GPT Finance Limited and Swift Management Services (UK) Limited in
relation to the agreements set out in schedule 3 to the Debenture.
"PROJECT CONTRACTS"
means:
(a) the Nottingham BT Interconnect Agreements, the Mercury
Interconnect Agreement and the Leicester BT Interconnect Agreement;
and
(b) the Sky Agreement, and
any other agreements relating to the System or the Project or the
business or assets of the Borrower Group which, if cancelled, terminated
or revoked and not replaced or replaceable, would be reasonably likely to
have a Material Adverse Effect.
"PROPERTY"
means a freehold or leasehold property identified in Schedule 2 to the
Debenture or an Additional Debenture.
"QUALIFYING EXPENDITURE"
means expenditure in developing, maintaining and operating and
constructing the System and financing expenses contemplated by the
Finance Documents.
"QUARTER"
means each quarterly period ending on each Quarter Date.
"QUARTER DATE"
means, in each year, 31st March, 30th June, 30th September and 31st
December.
"QUARTERLY ACCOUNTS"
means the unaudited consolidated accounts of the Borrower Group for a
Quarter, substantially in the form of the Quarterly Accounts delivered
under Part 1 of Schedule 3.
<PAGE> 26
25
"RECOGNISED INVESTMENT EXCHANGE"
means the London Stock Exchange Limited, the New York Stock Exchange, the
American Stock Exchange and NASDAQ and any other investment exchange
granted recognition under the Financial Services Act 1986.
"REFERENCE BANKS"
means, subject to Clause 29.5 (Reference Banks), the principal London
offices of the Agent, CIBC Wood Gundy PLC and one other bank as the
Borrower and the Agent may agree.
"RELEVANT PERCENTAGE"
means, in relation to a Bank, at any time, the proportionate liability of
that Bank under a Bank Guarantee at that time.
"REPAYMENT AMOUNT"
means, in respect of the Tranche B Loans as at the Tranche B Term Date
and a Repayment Date, the amount that constitutes such percentage of such
Tranche B Loans as is set out opposite that Repayment Date under the
heading "Repayment percentage" in Clause 6.2 (Repayment of Tranche B).
"REPAYMENT DATE"
means each date set out in Clause 6.2 (Repayment of Tranche B) including,
for the avoidance of doubt, the Final Maturity Date.
"REPORTED ANNUALISED CASH FLOW"
means, at any time, twice the aggregate of Net Operating Cash Flow for
the most recent period of six months for which Monthly Accounts have been
received by the Agent at such time, as shown by the certificate delivered
with those Monthly Accounts referred to in Clause 18.2(a)(vi) (Financial
Information).
"REQUEST"
means a Loan Request or a Bank Guarantee Request.
"SECURITY ACCOUNT"
means any account established under Clause 5.4 (Security Accounts) of the
Debenture excluding, for the avoidance of doubt, the Construction
Liability Account.
"SECURITY ASSET"
means all assets the subject of any Security Interest constituted by the
Security Documents.
"SECURITY DOCUMENT"
means any of:
<PAGE> 27
26
(a) the Debenture; and
(b) any Additional Debenture,
and any other present or future document evidencing or creating any
Security Interest to secure any obligations of an Obligor to a Finance
Party under any Finance Document.
"SECURITY INTEREST"
means any mortgage, pledge, lien, charge, assignment by way of security,
hypothecation or security interest or any other agreement or arrangement
having the effect of conferring security.
"SHAREHOLDERS AGREEMENT"
means the Shareholders Agreement dated 1st September, 1994 between ECCP,
AmSouth Bank as trustee of the McDonald Interests, CGT Family
Corporation, Diamond PLC, GS Capital Partners and William White McDonald
as amended from time to time.
"SKY AGREEMENT"
means the letter (from time to time) from British Sky Broadcasting
Limited to either Diamond Cable Communications (UK) Limited or Diamond
Cable (Leicester) Limited notifying the Sky Television rate card in
respect of subscribers for carriage of Sky's channels together with any
other arrangements that may be recognised by the relevant parties as
representing arrangements currently subsisting between the parties.
"STERLING"
means the lawful currency of the U.K.
"SUBORDINATED INDEBTEDNESS"
means any Financial Indebtedness of any member of the Borrower Group to
Diamond PLC.
"SUBORDINATION AGREEMENT"
means an agreement dated the date of this Agreement between Diamond PLC
(as junior creditor), the Obligors and the Security Agent.
"SUBSCRIBER AGREEMENT"
means any agreement with a Subscriber for the provision of cable services
and/or telephony services via the System.
"SUBSCRIBERS"
means, as at any time, the total number of individuals or entities
subscribing to cable service and/or telephony service provided by the
System who have not been disconnected.
<PAGE> 28
27
"SUBSIDIARY"
means:
(a) a subsidiary within the meaning of Section 736 of the
Companies Act 1985 as amended by Section 144 of the Companies Act
1989; and
(b) unless the context otherwise requires, a subsidiary
undertaking within the meaning of Section 258 of the Companies Act
1985.
"SUPPLEMENTAL AGREEMENT"
means the supplemental agreement dated 13th February, 1997 between the
Parties, amending and restating this Agreement.
"SYSTEM"
means any telecommunication system (and all apparatus comprised therein)
of whatever description to be operated or run by or on behalf of the
Operating Group to provide any cable television and/or telecommunication
services of whatever description in all or any part of any of the
Franchise Areas together with all other apparatus and equipment of any
description to be operated or used by the Operating Group in connection
with the provision of any such services.
"TELECOMMUNICATIONS ACT"
means the Telecommunications Act 1984.
"TELECOMMUNICATIONS LICENCES"
means each of the telecommunications licences granted to a member of the
Operating Group by the Secretary of State for Trade and Industry pursuant
to Section 7 of the Telecommunications Act in respect of the Franchise
Areas being as at the date of this Agreement:
(a) Telecommunications Licence dated 17th April, 1990 in favour
of the Borrower;
(b) Telecommunications Licence dated 16th January, 1991 in favour
of Alphavision Communications Grim-Clee Limited (now named Diamond
Cable (Grimclee) Limited);
(c) Telecommunications Licence dated 27th March, 1991 in favour
of Diamond Cable (Grantham) Limited;
(d) Telecommunications Licences dated 27th March, 1991 and 16th
September, 1994 in favour of Diamond Cable (Newark-on-Trent)
Limited;
(e) Telecommunications Licence dated 17th January, 1991 in favour
of Alphavision Communications Lincoln Limited (now named Diamond
Cable (Lincoln) Limited);
(f) Telecommunications Licence dated 20th February, 1991 in
favour of Diamond Cable (Mansfield) Limited;
<PAGE> 29
28
(g) Telecommunications Licence dated 27th March, 1991 in favour
of Diamond Cable (Melton Mowbray) Limited; and
(h) Telecommunications Licences dated 3rd September, 1990 in
favour of Leicester Communications Limited and dated 21st December,
1994 in favour of LCL Cable Communications Limited (now Diamond
Cable (Leicester) Limited),
together with any telecommunications licence granted to any other member
of the Operating Group at any time.
"TITLE CERTIFICATES"
means the certificates of title in the agreed form provided by Eversheds
addressed to the Agent in respect of the Properties identified in
Schedule 2 to the Debenture.
"TOTAL A COMMITMENTS"
means the aggregate for the time being of the Tranche A Commitments
being, subject to Clause 9 (Prepayment and cancellation), pounds
sterling 15,000,000 at the date of this Agreement.
"TOTAL B COMMITMENTS"
means the aggregate for the time being of the Tranche B Commitments,
being subject to Clause 9 (Prepayment and cancellation), pounds
sterling 220,000,000 at the date of this Agreement.
"TOTAL FIXED LOAN CHARGES"
means all interest, fees (excluding arrangement fees), commissions and
any other continuing, regular or periodic costs and expenses in the
nature of interest (whether paid, payable or capitalised):
(a) of the Borrower Group in effecting, servicing or maintaining
all indebtedness of the Borrower Group in respect of moneys borrowed
from, or debit balances at, financial institutions; and
(b) of Diamond PLC in effecting, servicing or maintaining the
High Yield Debt issued under the Indentures.
"TOTAL LEVERAGE RATIO"
means, for a financial period, the ratio of the aggregate of Bank Debt
and High Yield Debt to ANOCF for that financial period.
"TRANCHE"
means either of Tranche A or Tranche B.
<PAGE> 30
29
"TRANCHE A LOANS" or "TRANCHE B LOANS"
means the Facility available under Clause 2.1(a) or 2.1(b) respectively.
"TRANCHE A COMMITMENT"
means the amount in Sterling set opposite the name of a Bank in relation
to Tranche A in Part 1 of Schedule 2 or the amount acquired by a Bank
under Clause 29 (Changes to the Parties) as Tranche A Commitment, to the
extent not cancelled, transferred or reduced under this Agreement.
"TRANCHE A COMMITMENT PERIOD"
means the period from the date of the Supplemental Agreement to the
Tranche A Term Date (both dates inclusive).
"TRANCHE A TERM DATE"
means the date falling 90 days from the date of the Supplemental
Agreement.
"TRANCHE B COMMITMENT"
means the amount in Sterling set opposite the name of a Bank in relation
to Tranche B in Part 2 of Schedule 2 or the amount acquired by a Bank
under Clause 29 (Changes to the Parties) as Tranche B Commitment, to the
extent not cancelled, transferred or reduced under this Agreement.
"TRANCHE B COMMITMENT PERIOD"
means the period from the date of the Supplemental Agreement to the
Tranche B Term Date (both dates inclusive).
"TRANCHE B LEVERAGE RATIO"
means at any time the ratio of the aggregate of Tranche B Loans
outstanding and the Undrawn Face Amount of Bank Guarantees outstanding to
Reported Annualised Cash Flow at that time.
"TRANCHE B TERM DATE"
means 30th June, 2000.
"U.K."
means the United Kingdom.
"UNDRAWN FACE AMOUNT"
means, in relation to an outstanding Bank Guarantee, the maximum amount
that may be or become payable to the Beneficiary of that Bank Guarantee.
<PAGE> 31
30
"US$"
means the lawful currency of the United States of America.
"UTILISATION":
means
(a) all the Loans the subject of a Loan Request served by the Borrower
for Loans; or
(b) all the Bank Guarantees the subject of a Bank Guarantee
Request served by the Borrower for Bank Guarantees.
"UTILISATION DATE"
means:
(a) in the case of a Loan or a Utilisation comprising Loans, the
Loan Date; or
(b) in the case of a Bank Guarantee or a Utilisation comprising
Bank Guarantees, the Issue Date.
"VALUE ADDED TAX" or "VAT"
means value added tax as referred to in Section 1 of the Value Added Tax
Act 1994 or any successor or like or similar Tax.
"WORKING CAPITAL"
means, at any time the current assets of the Borrower being realisable
within one year (other than investments, short term deposits and cash)
less current liabilities due within one year (other than Financial
Indebtedness).
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention appears, a reference to:
(i) "ACTING IN CONCERT" means actively co-operating, pursuant to
an agreement or understanding (whether formal or informal), through
the acquisition of shares in a company, to obtain or consolidate
control of that company;
"ASSETS" includes properties, revenues and rights of every
description;
an "AUTHORISATION" includes an authorisation, consent, approval,
resolution, licence, exemption, filing and registration;
a "MONTH" is a reference to a period starting on one day in a
calendar month and ending on the numerically corresponding day in
the next calendar month, except that:
(A) if there is no numerically corresponding day in
the month in which that period ends, that period shall end on
the last day in that calendar month; and
<PAGE> 32
31
(B) if an Interest Period for a Loan commences on the
last Business Day of a calendar month, that Interest Period
shall end on the last Business Day in the month on which it is
to end;
a "REGULATION" includes any regulation, rule, official directive,
request or guideline (whether or not having the force of law) of
any governmental body, agency, department or regulatory,
self-regulating or other authority or organisation;
(ii) a provision of law is a reference to that provision as amended or
re-enacted;
(iii) a Clause or a Schedule is a reference to a clause of or a schedule
to this Agreement;
(iv) a person includes its successors and assigns;
(v) a Finance Document, Project Contract, Licence or another
document is a reference to that Finance Document, Project Contract,
Licence or other document as amended, novated or supplemented; and
(vi) a time of day is a reference to London time.
(b) Unless the contrary intention appears, a term used in any other Finance
Document or in any notice given under or in connection with any Finance
Document has the same meaning in that Finance Document or notice as in
this Agreement.
(c) The index to and the headings in this Agreement are for convenience only
and are to be ignored in construing this Agreement.
2. FACILITY
2.1 FACILITY
Subject to the terms of this Agreement (including, without limitation
Clause 2.2 (Tranche and Bank limits)):
(a) each Bank shall participate in the making of Tranche A Loans
or the issue of Bank Guarantees to the Borrower during the Tranche A
Commitment Period; and
(b) each Bank shall participate in the making of Tranche B Loans
or the issue of Bank Guarantees to the Borrower during the Tranche B
Commitment Period.
2.2 TRANCHE AND BANK LIMITS
Notwithstanding any other provision of this Agreement:
(a) no Bank shall be obliged to participate in any Utilisation
under either Tranche, to the extent that if it were to do so the
aggregate of its participation in the Loans and its Relevant
Percentage of the Undrawn Face Amount in the Bank Guarantees under
that Tranche would exceed its Commitment under that Tranche;
<PAGE> 33
32
(b) the aggregate of Tranche A Loans and the Undrawn Face Amount
Bank Guarantees may not at any time exceed the Total A Commitments;
and
(c) the aggregate of Tranche B Loans and the Undrawn Face Amount
Bank Guarantees may not at any time exceed the Total B Commitments
2.3 COMMITMENT PERIOD
(a) The unutilised amount (if any) of the Total A Commitments shall
automatically be cancelled at close of business on the Tranche A Term
Date.
(b) The unutilised amount (if any) of the Total B Commitments shall
automatically be cancelled at close of business on the Tranche B Term
Date.
2.4 NATURE OF A FINANCE PARTY'S RIGHTS AND OBLIGATIONS
(a) The obligations of a Finance Party under the Finance Documents are
several. Failure of a Finance Party to carry out those obligations does
not relieve any other Party of its obligations under the Finance
Documents. No Finance Party is responsible for the obligations of any
other Finance Party under the Finance Documents.
(b) The rights of a Finance Party under the Finance Documents are divided
rights. A Finance Party may, except as otherwise stated in the Finance
Documents, separately enforce those rights.
3. PURPOSE
3.1 PURPOSE OF LOANS
The Borrower shall apply each Loan towards:
(a) the cost of construction, operation, maintenance and
development of the System and any working capital requirements; or
(b) the provision of cash collateral and/or a guarantee to
support an Obligor's obligation under a lease arrangement approved
by the Agent.
3.2 PURPOSE OF BANK GUARANTEES
The Borrower shall apply each Bank Guarantee issued at its request to
guarantee the obligations of a Licence Holding Subsidiary to a relevant
Beneficiary in respect of its obligations under Condition 20 of Schedule
4 of its Telecommunications Licence or the equivalent provision however
numbered.
3.3 RESTRICTIONS
(a) No Loan or any part thereof may be drawn down or applied for the purpose
of paying or funding any interest, fees, principal or other amount payable
under or in respect of any High Yield Debt except as provided in Clause
18.16 (Distributions).
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33
(b) No Loan may be made where to do so would result in a breach of an
Indenture in respect of High Yield Debt.
3.4 NO DUTY TO MONITOR
Without affecting the obligations of any Obligor in any way, no Finance
Party is bound to monitor or verify the application of any Utilisation.
4. CONDITIONS PRECEDENT
4.1 DOCUMENTARY CONDITIONS PRECEDENT
(a) The obligations of each Finance Party to any Obligor under this Agreement
are subject to the condition precedent that the Agent has notified (in
writing) the Borrower and the Banks that it has received all of the
documents set out in Part 1 of Schedule 3 in form and substance
satisfactory to the Agent, and the Agent shall use reasonable endeavours
to give such notice as soon as practicable after receiving such documents.
(b) The condition precedent in paragraph (a) above may only be amended or
waived by the Agent in any respect if the Agent is acting in accordance
with the instructions of all the Banks.
4.2 CONDITIONS PRECEDENT TO TRANCHE A UTILISATIONS
(a) The obligations of each Bank to make available or participate in any
Utilisation under Tranche A is subject to the further condition precedent
that the aggregate of the Tranche A Loans and the Undrawn Face Amount of
the Bank Guarantees would not, if the Utilisation requested in the Request
(and in all other Requests in respect of which the Utilisation Date has
not yet occurred) were made, exceed the Tranche A Commitments on the
proposed Utilisation Date.
(b) In addition to the obligations under paragraph (a) above, the obligations
of each Bank to make available or participate in any Tranche A Loan is
subject to the further condition precedent that in the case of the first
Tranche A Loan to be made available under Tranche A two Officers have
certified that:
(i) Aggregate Cash Equity injected and spent on Qualifying
Expenditure is not less than pounds sterling 300,000,000; and
(ii) a further amount of Aggregate Cash Equity in an amount of not
less than pounds sterling 12,000,000 has been injected into the
Borrower and has been and/or will be spent on Qualifying
Expenditure.
4.3 CONDITIONS PRECEDENT TO TRANCHE B UTILISATIONS
The obligation of each Bank to make available or participate in any
Utilisation under Tranche B is subject to the further condition precedent
that:
(a) the Agent has notified the Borrower and the Banks that all
the conditions precedent specified in Part 2 of Schedule 3 and under
Clause 4.2 (Conditions precedent to Tranche A Utilisation) have been
satisfied;
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34
(b) the Reported Annualised Cash Flow is an amount of at least
pounds sterling 15,000,000;
(c) the making of the Utilisation requested in the Request would
not cause the aggregate of the Tranche B Loans and the Undrawn Face
Amount of the Bank Guarantees at that time to exceed the then
Available Total B Commitments or the aggregate of the Loans and the
Undrawn Face Amount of the Bank Guarantees to exceed the Total B
Commitments; and
(d) two Officers have certified that further amounts of Aggregate
Cash Equity in an amount of not less than $30,000,000 and in an
amount of not less than pounds sterling 69,500,000 have been injected
into the Borrower and those amounts, whether in the currency of
injection or not, have been spent on Qualifying Expenditure.
4.4 FURTHER CONDITIONS PRECEDENT
The obligation of each Bank to make available or participate in any
Utilisation is subject to the further condition precedent that on both
the date of the Request and the Utilisation Date:
(a) the representations and warranties in Clause 17
(Representations and Warranties) to be repeated on those dates are
correct in all material respects and will be correct immediately
after the Utilisation is made as if given on that date by reference
to the facts and circumstances then existing;
(b) no Default is outstanding or will result from the making of
the Utilisation.
5. DRAWDOWN
5.1 REQUESTS
(a) Subject to the other provisions of this Agreement the Borrower may borrow
a Tranche A Loan or request the issue of a Bank Guarantee during the
Tranche A Commitment Period or a Tranche B Loan or request the issue of a
Bank Guarantee during the Tranche B Commitment Period if the Agent
receives, not later than 3 Business Days before the proposed Utilisation
Date, a duly completed Request.
(b) Each Request is irrevocable and, unless the Agent otherwise agrees, a
Loan Request may specify one Loan only.
(c) The Borrower may not deliver a Loan Request in relation to a Tranche less
than one month after delivery of a previous Loan Request in relation to
that Tranche.
(d) The Borrower may not deliver a Loan Request:
(i) more than 45 days after the end of any Quarter if the Agent
has not received a Financial Covenant Certificate for that Quarter;
and
(ii) more than 45 days after the end of any month if the Agent has
not received a certificate under Clause 18.2(a)(vi) (Financial
information) for that month.
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5.2 COMPLETION OF LOAN REQUESTS
A Loan Request will not be regarded as having been duly completed unless:
(a) for a Tranche A Loan:
(i) the Loan Date is a Business Day falling on or before the
Tranche A Term Date; and
(ii) the principal amount of the Loan is a minimum of pounds
sterling 5,000,000 or such other amount as may be agreed
between the Parties or the balance of the unutilised aggregate
amount of the Total A Commitments available at such time;
(b) for a Tranche B Loan:
(i) the Loan Date is a Business Day falling on or before the
Tranche B Term Date; and
(ii) the principal amount of the Loan is a minimum of pounds
sterling 5,000,000 or such other amount as may be agreed
between the Parties or the balance of the unutilised aggregate
amount of the Available Total B Commitments available at such
time.
(c) the first Interest Period selected complies with Clause 10 (Interest
Periods);
(d) the payment instructions comply with Clause 12 (Payments); and
(e) the Loan Request contains the information specified in Clause 2 of
Part 1 of Schedule 5.
5.3 COMPLETION OF BANK GUARANTEE REQUESTS
A Bank Guarantee Request will not be regarded as having been duly
completed unless:
(a) the Issue Date is a Business Day;
(b) the requested Undrawn Face Amount of the Bank Guarantee is a
specified amount, certified by the Borrower to be the appropriate
amount required for compliance with its obligations under Condition
20 of Schedule 4 of each relevant Telecommunications Licence or the
equivalent provision, however numbered, but the aggregate Undrawn
Face Amount of the Bank Guarantees shall not exceed pounds sterling
3,750,000 (except that, if the Borrower is granted a National
Telecommunications Act Licence, the Banks shall at the request of
the Borrower reconsider that limit in good faith);
(c) it includes the name and address of the Beneficiary or
Beneficiaries;
(d) the date on which the Bank Guarantee is to terminate;
(e) the name or names of the relevant Licence Holding Subsidiary or
Licence Holding Subsidiaries and the relevant Franchises are
specified; and
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36
(f) the Bank Guarantee Request contains the information specified in
Clause 2 of Part 2 of Schedule 5.
If the Borrower wishes an amendment to the terms of a Bank Guarantee or
the Borrower wishes the termination or withdrawal of a Bank Guarantee (in
whole or in part), the Borrower shall notify the Issuing Bank through the
Agent of:
(i) the relevant Bank Guarantee;
(ii) the amendments to be made, provided that if a Bank Guarantee Request
had been submitted in respect of that Bank Guarantee (as amended in
accordance with the proposed amendments), that Bank Guarantee
Request would have been duly completed in accordance with this
Clause 5.3 and provided that those amendments can be made in
accordance with the terms of that Bank Guarantee; and/or
(iii) the date on which that termination or withdrawal is to be effective
in accordance with the terms of the Bank Guarantee,
whereupon the relevant Beneficiary or Beneficiaries of that Bank
Guarantee shall be notified by the Issuing Bank of the amendment in
accordance with the terms of the relevant Bank Guarantee.
5.4 UTILISATION
(a) The Agent shall promptly notify each Bank of the details of a
requested Utilisation.
(b) The amount of a Bank's participation in a Loan will be the
proportion of the relevant Tranche A Loan or Tranche B Loan which
its Tranche A Commitment or Tranche B Commitment bears to the Total
A Commitments or the Total B Commitments, as appropriate.
(c) The amount of a Bank's Relevant Percentage will be:
(i) for a Bank Guarantee which is outstanding during
the period from the first Utilisation under Tranche A to the
first Utilisation under Tranche B, the proportion which that
Bank's Tranche A Commitment bears to the Total A Commitments;
and
(ii) for a Bank Guarantee which is outstanding during
the period from the first Utilisation under Tranche B to the
Final Maturity Date, the proportion which that Bank's Tranche
B Commitment bears to the Total B Commitments.
5.5 ADVANCE OF LOAN
Subject to the terms of this Agreement, each Bank shall make its
participation in the Loan available to the Agent for the Borrower on the
relevant Loan Date.
5.6 DELIVERY OF BANK GUARANTEES
Subject to the terms of this Agreement:
<PAGE> 38
37
(a) on the relevant Issue Date, the Issuing Bank shall deliver
the Bank Guarantee to the Borrower for the Beneficiary or
Beneficiaries specified in the Bank Guarantee Request; and
(b) subject to receipt, the Borrower shall as soon as practicable
deliver a copy of the Bank Guarantee to that Beneficiary or those
Beneficiaries.
6. REPAYMENT
6.1 REPAYMENT OF TRANCHE A
On the Tranche A Term Date the Borrower shall repay the Tranche A Loans.
For the avoidance of doubt the Borrower shall not be required to retire
or redeliver any Bank Guarantee on the Tranche A Term Date.
6.2 REPAYMENT OF TRANCHE B
The Borrower shall, on the dates set out below, repay the Tranche B Loans
by the following Repayment Amounts, being the percentage of the Tranche B
Loans set out below under the heading "Repayment percentage".
<TABLE>
<CAPTION>
REPAYMENT DATE REPAYMENT PERCENTAGE
<S> <C>
31 December 2000 3.00%
31 March 2001 3.00%
30 June 2001 3.00%
30 September 2001 3.00%
31 December 2001 3.00%
31 March 2002 5.00%
30 June 2002 5.00%
30 September 2002 5.00%
31 December 2002 5.00%
31 March 2003 9.00%
30 June 2003 9.00%
30 September 2003 10.00%
31 December 2003 10.00%
31 March 2004 12.00%
30 June 2004 15.00%
</TABLE>
The Repayment Amount payable on the Final Maturity Date shall also
include any other amounts outstanding under the Finance Documents on that
date.
<PAGE> 39
38
7. CLAIMS UNDER THE BANK GUARANTEES
7.1 NOTIFICATION OF CLAIM
If a Beneficiary makes a claim under a Bank Guarantee in accordance with
its terms, the Issuing Bank shall promptly notify the Agent of the claim.
If a claim under a Bank Guarantee has been made on the Issuing Bank and
notified to the Agent, the Agent shall promptly notify the Borrower and
each Bank specifying:
(a) the relevant Bank Guarantee;
(b) the date on which payment is to be made (the "PAYMENT DATE");
(c) the aggregate amount of the claim (the "CLAIMED AMOUNT") and
each Bank's Relevant Percentage of the Claimed Amount; and
(d) the details of the Issuing Bank's account to which payment is
to be made.
7.2 PAYMENT BY THE BORROWER
The Borrower shall, not later than 9.30 a.m. on the Payment Date, pay to
the Issuing Bank the Claimed Amount.
7.3 PAYMENT BY THE BANKS
(a) If the Issuing Bank has not received the Claimed Amount from the relevant
Borrower by 9.30 a.m. on the Payment Date, it shall notify the Agent not
later than 10.30 a.m. on that day.
(b) The Agent shall, if notified under paragraph (a) above, notify each Bank
which participated in the Bank Guarantee not later than 12.00 noon on that
day.
(c) Each Bank notified under paragraph (b) above shall pay to the Issuing
Bank, not later than 3.00 p.m. on the Payment Date, that Bank's Relevant
Percentage of the unpaid amount of the Claimed Amount.
7.4 DEFAULT BY BANKS
(a) If any Bank (a "DEFAULTING BANK") fails to make any payment due from it
for the account of the Issuing Bank under Clause 7.3 (Payment by the
Banks), then until the Issuing Bank has been reimbursed in respect thereof
in full (but without prejudice to the obligations of that Defaulting Bank
to make such payment):
(i) the Defaulting Bank shall hold on trust for the Issuing Bank
the benefit of any security now or hereafter created to secure the
obligations of the Borrower under this Agreement and to which that
Defaulting Bank would have been entitled had it made such payment;
and
(ii) for the purposes of determining the constitution of the
Majority Banks:
(1) the Issuing Bank shall be treated as having a
Tranche A Commitment or a Tranche B Commitment equal to that
of the Defaulting Bank (in addition to
<PAGE> 40
39
the Tranche A Commitment or the Tranche B Commitment (if
any) which the Issuing Bank already had in its capacity as a
Bank); and
(2) that Defaulting Bank shall be treated, for such
purpose only, as having no Tranche A Commitment or Tranche B
Commitment.
(b) The rights conferred upon the Issuing Bank in this Clause 7.4 are in
addition to any other rights which it may have against a Defaulting Bank.
8. COUNTER-INDEMNITY FOR THE BANK GUARANTEES
8.1 INDEMNITY
(a) The Borrower agrees to pay to the Agent for the account of each Bank on
demand from the Agent an amount equal to and in the same currency as each
amount demanded in accordance with paragraph (b) below of, or paid out by,
the Bank under Clause 7.3 (Payment by the Banks) in respect of any Bank
Guarantee issued for the account of the Borrower and undertakes to
indemnify and hold harmless each Finance Party from and against all
liabilities, costs, losses, damages and expenses which any Finance Party
may incur or sustain by reason of or arising in any way whatsoever in
connection with or by reference to the issue of any such Bank Guarantee or
its performance of the obligations expressed to be assumed by it under any
such Bank Guarantee save to the extent that any such liability, cost,
loss, damage or expense:
(i) is caused by the wilful misconduct, default or gross negligence of
the Finance Party concerned; or
(ii) represents a day to day cost of the Finance Party incurred by it in
the ordinary course of its business in connection with or by
reference to the issue of any Bank Guarantee or the performance of
the obligations expressed to be assumed by it under or related to
that Bank Guarantee or in respect thereof which is not an increased
cost of the nature compensated by the Borrower under Clause 13
(Taxes) or 15.1 (Increased Costs) or is excluded from costs to be
compensated under Clauses 13 (Taxes) or 15.1 (Increased Costs) by
virtue of its express terms.
(b) The Borrower and each Bank unconditionally and irrevocably:
(i) authorises and directs the Issuing Bank to pay any prima facie valid
demand under and in accordance with any Bank Guarantee issued for
its account without requiring proof of the agreement of the Borrower
or any Licence Holding Subsidiary or any Bank that the amounts so
demanded or paid are or were due and notwithstanding that the
Borrower or any Licence Holding Subsidiary may dispute the validity
of any such request, demand or payment;
(ii) confirm that the Issuing Bank deals in documents only and shall not
be concerned with the legality of the claim or any other underlying
transaction or any set off, counterclaim or defence as between the
Borrower or any Licence Holding Subsidiary and the Beneficiary of
any Bank Guarantee; and
(iii) agree that neither the Issuing Bank nor any Bank need have regard to
the sufficiency, accuracy or genuineness of any such demand or any
certificate or statement in
<PAGE> 41
40
connection therewith or any incapacity of or limitation upon the
powers of any person signing or issuing such demand, certificate or
statement which appears on its face to be in order and agree that
neither the Issuing Bank nor any Bank shall be obliged to enquire
as to any such matters and may assume that any such demand,
certificate or statement which appears on its face to be in order
is correct and properly made.
8.2 RIGHTS OF CONTRIBUTION AND SUBROGATION
(a) Until the Facility has been fully and irrevocably discharged and all
amounts which are or may become payable by the Obligors under or in
connection with the Finance Documents have been irrevocably paid in full,
no Obligor shall, by virtue of any payment made by it or them under or in
connection with or referable to this Clause 8 or otherwise, be subrogated
to any rights, security or moneys held or received by a Finance Party or
be entitled at any time to exercise, claim or have the benefit of any
right of contribution or subrogation or similar right against a Finance
Party. All rights of contribution or similar rights arising under or in
connection with the Finance Documents against any Finance Party are hereby
waived by the Obligors.
(b) Notwithstanding paragraph (a) above, the Issuing Bank shall, provided that
no Event of Default is outstanding and provided further that it has been
satisfactorily indemnified against all potential cost, losses and
expenses, afford the Obligors such assistance as is reasonably necessary
in the circumstances to contest any claim made by a Beneficiary which the
Obligors are able to demonstrate to the reasonable satisfaction of the
Issuing Bank is a claim that (i) cannot be contested without the
assistance of the Issuing Bank and (ii) is not properly merited.
8.3 WAIVER OF DEFENCES
The Borrower agrees that its obligations under this Clause 8 shall not be
affected by any act, omission, matter or thing which but for this
provision might operate to release or otherwise exonerate it from its
obligations hereunder in whole or in part, including without limitation
and whether or not known to it:
(a) any time or waiver granted to or composition with a Finance
Party, the Beneficiary of any Bank Guarantee or any other person;
(b) any taking, variation, compromise, renewal or release of, or
refusal or neglect to perfect or enforce, any rights, remedies or
securities available to any Finance Party or other person or arising
under any Bank Guarantee; or
(c) any variation or extension of (where that extension is
requested by the Borrower) or increase in liabilities under any Bank
Guarantee, so that references in this Agreement to any Bank
Guarantee shall include each such extension and variation.
<PAGE> 42
41
8.4 CONTINUING INDEMNITY
This shall be a continuing indemnity, shall extend to the ultimate balance
of the obligations and liabilities of the Borrower under this Clause 8 and
shall continue in force notwithstanding any intermediate payment in whole
or in part of such obligations or liabilities.
8.5 ADDITIONAL SECURITY
The obligations of the Borrower under this Clause 8 shall be in addition
to and shall not be in any way prejudiced by any collateral or other
security now or hereafter held by any Finance Party as security or any
lien to which that Finance Party may be entitled.
8.6 PRESERVATION OF RIGHTS
No invalidity or unenforceability of all or any part of this Clause 8
shall affect any rights of indemnity or otherwise which any Finance Party
would or may have in the absence of or in addition to this Clause 8.
9. PREPAYMENT AND CANCELLATION
9.1 VOLUNTARY PREPAYMENT OF TRANCHE A
(a) The Borrower may at the end of any Interest Period, by giving not less
than 10 days' prior notice to the Agent, prepay (without premium but
without prejudice to Clause 26.2 (Other indemnities)) any Tranche A Loans
in whole or in part (but, if in part, in a minimum amount of pounds
sterling 5,000,000 and an integral multiple of pounds sterling 500,000).
(b) Any Tranche A Loans prepaid under paragraph (a) may be reborrowed under
Tranche A subject to the terms hereof.
9.2 VOLUNTARY PREPAYMENT OF TRANCHE B
(a) The Borrower may, by giving not less than 30 days' prior notice (or prior
to the Tranche B Term Date 10 days' prior notice if the prepayment is to
be made before the Tranche B Term Date) to the Agent, prepay (without
premium but without prejudice to Clause 26.2 (Other indemnities)) any
Tranche B Loans in whole or in part (but, if in part, in a minimum amount
of pounds sterling 5,000,000 and an integral multiple of pounds
sterling 500,000).
(b) Any Tranche B Loans prepaid prior to the Tranche B Term Date may be
reborrowed under Tranche B subject to the terms hereof. Any Tranche B
Loans prepaid after the Tranche B Term Date may not be reborrowed and
shall be applied against the Repayment Amounts in inverse order of
maturity or if so elected by the Borrower by notice in writing prior to
the date of prepayment, in chronological order of maturity.
9.3 VOLUNTARY CANCELLATION
(a) The Borrower may, by giving not less than 10 days' prior notice to the
Agent, cancel the undrawn amount of the Total A Commitments and/or Total B
Commitments in whole or in part (but, if in part, in a minimum amount of
pounds sterling 5,000,000 and an integral multiple of pounds
sterling 500,000).
<PAGE> 43
42
(b) Any cancellation in part shall be applied against either the relevant
Tranche A Commitment and/or Tranche B Commitment, as the case may be, of
each Bank pro rata.
(c) If, at the same time as cancelling the whole of the Total A Commitments
and the Total B Commitments, the Borrower repays the Loans, it shall not
be obliged to satisfy the requirements of paragraphs (a) or (b) above.
9.4 ADDITIONAL RIGHT OF PREPAYMENT AND CANCELLATION
If:
(a) an Obligor is, or will be on the last day of the then current
interest period, required to pay to a Bank any additional amounts
under Clause 13 (Taxes) or is otherwise obliged to account for tax
in respect of interest paid under this Agreement; or
(b) an Obligor is or will be required to pay to a Bank any amount
under Clause 15 (Increased costs and illegality); or
(c) interest on a Bank's participation in a Loan is being
calculated in accordance with Clause 14.4(c) (Alternative basis),
then, without prejudice to the obligations of any Obligor under those
Clauses, the Borrower may, whilst the circumstances continue, serve a
notice of prepayment and cancellation on that Bank through the Agent. On
the date falling 5 Business Days after the date of service of the notice:
(i) the Borrower shall prepay that Bank's participation in the
Loans (without premium but without prejudice to Clause 26.2 (Other
indemnities));
(ii) that Bank's Commitment shall be cancelled; and
(iii) the Borrower shall deposit an amount equal to that Bank's
Relevant Percentage of all outstanding Bank Guarantees as cash cover
for the outstanding liabilities of that Bank under those Bank
Guarantees.
Any prepayment of a Tranche B Loan under this Clause 9.4 shall be applied
against the Repayment Amounts in chronological order of maturity.
9.5 MANDATORY PREPAYMENT
(a) Subject to paragraph (b) below, in relation to any Quarter ending on or
after the Tranche B Term Date, if the relevant Financial Covenant
Certificate (as defined in Clause 18.2 (Financial information)) shows
that:
(i) the Total Leverage Ratio for the two previous consecutive
Quarters for which a Financial Covenant has been received by the
Agent is less than 4:1; and
(ii) the amount of Excess Cash Flow for that Quarter is in excess
of Pounds Sterling 5,000,000 (that excess amount being the "EXCESS
AMOUNT"),
<PAGE> 44
43
the Borrower shall prepay the aggregate of the Tranche B Loans up to the
Excess Amount in an amount equal to the aggregate of:
(A) the lesser of Excess High Yield Interest and the Excess
Amount; and
(B) if and to the extent that Excess High Yield Interest is less
than the Excess Amount, seventy per cent. of the difference between
those amounts,
for that Quarter. Such prepayment shall be made on the first Repayment
Date following receipt by the Agent of a Financial Covenant Certificate
relating to such Quarter. For the purposes of this paragraph (a),
"EXCESS HIGH YIELD INTEREST" means any amount which is paid in respect of
cash interest falling due on High Yield Debt due under the Indentures in
excess of the amount shown in the Agreed Base Case but paid during a
Quarter in accordance with Clause 18.16(a)(iii) (Distributions).
(b) Any prepayment under this Clause 9.5 shall be applied against the
Repayment Amounts in inverse order of maturity as to one half thereof and
in chronological order of maturity as to the other half thereof.
9.6 MISCELLANEOUS PROVISIONS
(a) Any notice of prepayment or cancellation under this Clause 9 of this
Agreement is irrevocable. The Agent shall notify the Banks promptly of
receipt of any such notice.
(b) All prepayments under this Agreement shall be made together with accrued
interest on the amount prepaid.
(c) No prepayment or cancellation is permitted except in accordance with the
express terms of this Agreement.
(d) No amount of the Total A Commitments or the Total B Commitments cancelled
under this Agreement may subsequently be reinstated.
(e) The obligations of each Bank under Clause 7.3 (Payments by the Banks) in
relation to Bank Guarantees shall continue, notwithstanding any
cancellation of its Tranche A Commitment or its Tranche B Commitment in
whole or in part under this Agreement.
10. INTEREST PERIODS
10.1 SELECTION
(a) The Borrower may select an Interest Period for a Loan in either the
relevant Loan Request or, if the Loan has been borrowed, a notice received
by the Agent not later than 2 Business Days before the commencement of
that Interest Period. Each Interest Period for a Loan will commence on
its Drawdown Date or the expiry of its preceding Interest Period.
(b) Subject to the following provisions of this Clause 10, each Interest
Period will be for 1, 3 or 6 months or such other duration as the Banks
may agree, as so selected under paragraph (a) above.
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(c) If the Borrower fails to select an Interest Period for an outstanding
Loan in accordance with paragraph (a) above, that Interest Period will,
subject to the other provisions of this Clause 10, be 3 months' duration.
10.2 NON-BUSINESS DAYS
If an Interest Period would otherwise end on a day which is not a
Business Day, that Interest Period shall instead end on the next Business
Day in that calendar month (if there is one) or the preceding Business
Day (if there is not).
10.3 CONSOLIDATION
If the Borrower notifies the Agent with the relevant Request for a Loan
that it wishes to consolidate that Loan with another Loan of the same
Tranche, then notwithstanding Clause 10.1 (Selection), the first Interest
Period for that Loan shall end on the same day as the current Interest
Period for any other Loan of the same Tranche. On the last day of those
Interest Periods, those Loans applicable to each Tranche shall be
consolidated and treated as one Loan in that Tranche.
10.4 COINCIDENCE WITH REPAYMENT DATES
If an Interest Period would otherwise overrun the Final Maturity Date,
(or in the case of a Tranche A Loan, the Tranche A Term Date) it shall be
shortened so that it ends on the Final Maturity Date (or, in the case of
a Tranche A Loan, the Tranche A Term Date). The Agent may also shorten
any Interest Period for any Loan (and may redesignate any Loan as two
Loans) to ensure that the aggregate principal amount of Loans with an
Interest Period ending on a Repayment Date is not less than the Repayment
Amount due on that Repayment Date.
10.5 OTHER ADJUSTMENTS
The Agent and the Borrower may enter into such other arrangements as they
may agree for the adjustment of Interest Periods and the consolidation or
splitting of Loans which are outstanding under the same Tranche.
10.6 NOTIFICATION
The Agent shall notify the Borrower and the Banks of the duration of each
Interest Period promptly after ascertaining its duration.
11. INTEREST AND GUARANTEE FEE
11.1 INTEREST RATE
(a) The rate of interest on each Loan for each of its Interest Periods is the
rate per annum determined by the Agent to be the aggregate of the
applicable:
(i) Margin;
(ii) LIBOR; and
(iii) MLA Cost.
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(b) Except as otherwise provided in this Agreement, accrued interest on each
Loan is payable in arrears by the Borrower on the last day of each
Interest Period for that Loan and also, if the duration of an Interest
Period is 6 months or more, on the date falling 6 months after the first
day of that Interest Period.
11.2 CHANGE OF MARGIN
(a) In respect of Tranche A Loans, the Margin shall be 2.5 per cent. per
annum.
(b) In respect of a Tranche B Loan, the Margin shall be determined on the
first day of the relevant Interest Period with reference to the Tranche B
Leverage Ratio as follows:
(i) if the Tranche B Leverage Ratio is equal to 3.5 or more, the
Margin shall be 1.5 per cent. per annum;
(ii) if the Tranche B Leverage Ratio is equal to 3.0 or more but
less than 3.5, the Margin shall be 1 per cent. per annum; and
(iii) if the Tranche B Leverage Ratio is less than 3.0, the Margin
shall be 0.75 per cent. per annum.
(c) For the purposes of paragraph (b) above, the Tranche B Leverage Ratio
will be the value set out in the most recent Financial Covenant
Certificate delivered in accordance with Clause 18.2(a)(iii) (Financial
Information).
(d) If an Event of Default has occurred and is continuing at the start of an
Interest Period, the decrease in Margin will only be effected for that
Interest Period from the date that such Event of Default ceases to exist.
11.3 GUARANTEE FEE
(a) The rate of Guarantee Fee applicable to each Bank Guarantee will be the
same as the rate of the Margin at the time it is payable in accordance
with paragraph (c) below.
(b) Guarantee Fee is payable to the Agent for each Bank pro rata to its
Relevant Percentage under that Bank Guarantee, unless a Bank has received
cash cover for that Relevant Percentage under Clause 15.3 (Illegality).
(c) For each Bank Guarantee, Guarantee Fee is payable quarterly in arrears by
the Borrower from the date of issue of that Bank Guarantee to the expiry
date of that Bank Guarantee.
11.4 DEFAULT INTEREST
(a) If an Obligor fails to pay any amount payable by it under the Finance
Documents, it shall forthwith on demand by the Agent pay interest on the
overdue amount from the due date up to the date of actual payment, as well
after as before judgement, at a rate (the "DEFAULT RATE") determined by
the Agent to be 1 per cent. per annum above the rate which would have been
payable if the overdue amount had, during the period of non-payment,
constituted a Loan in the currency of the overdue amount for such
successive Interest Periods of such duration as the Agent may determine
(each a "DESIGNATED INTEREST PERIOD").
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(b) The default rate will be determined by the Agent on each Business Day or
the first day of, or two Business Days before the first day of, the
relevant Designated Interest Period, as appropriate.
(c) Default interest will be compounded at the end of each Designated
Interest Period.
11.5 NOTIFICATION
The Agent shall promptly notify each relevant Party of the determination
of a rate of interest under this Agreement.
12. PAYMENTS
12.1 PLACE
All payments by an Obligor or a Bank under the Finance Documents shall be
made to the Agent to its account at such office or bank as it may notify
to that Obligor or Bank for this purpose.
12.2 FUNDS
Payments under the Finance Documents to the Agent shall be made for value
on the due date at such times and in such funds as the Agent may specify
to the Party concerned as being customary at the time for the settlement
of transactions in Sterling.
12.3 DISTRIBUTION
(a) Each payment received by the Agent under the Finance Documents for
another Party shall, subject to paragraphs (b) and (c) below, be made
available by the Agent to that Party by payment (on the date and in the
currency and funds of receipt) to its account with such office or bank in
the principal financial centre of the country of the relevant currency as
it may notify to the Agent for this purpose by (unless specified in a
Request or otherwise agreed by the Agent) not less than 5 Business Days'
prior notice.
(b) The Agent may apply any amount received by it for an Obligor in or
towards payment (on the date and in the currency and funds of receipt) of
any amount due from an Obligor under the Finance Documents.
(c) Where a sum is to be paid to the Agent under the Finance Documents for
another Party, the Agent is not obliged to pay that sum to that Party
until it has established that it has actually received that sum. The
Agent may, however, assume that the sum has been paid to it in accordance
with this Agreement, and, in reliance on that assumption, make available
to that Party a corresponding amount. If the sum has not been made
available but the Agent has paid a corresponding amount to another Party,
that Party shall forthwith on demand by the Agent refund the corresponding
amount together with interest on that amount from the date of payment to
the date of receipt, calculated at a rate determined by the Agent to
reflect its cost of funds.
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12.4 CURRENCY
(a) Amounts payable in respect of costs, expenses and taxes and the like are
payable in the currency in which they are incurred.
(b) Any other amount payable under the Finance Documents is, except as
otherwise provided in the Finance Documents, payable in Sterling.
12.5 SET-OFF AND COUNTERCLAIM
All payments made by an Obligor under the Finance Documents shall be made
without set-off or counterclaim.
12.6 NON-BUSINESS DAYS
(a) If a payment under the Finance Documents is due on a day which is not a
Business Day, the due date for that payment shall instead be the next
Business Day in the same calendar month (if there is one) or the preceding
Business Day (if there is not).
(b) During any extension of the due date for payment of any principal under
this Agreement interest is payable on that principal at the rate payable
on the original due date.
12.7 PARTIAL PAYMENTS
(a) If the Agent receives a payment insufficient to discharge all the amounts
then due and payable by the Obligors under the Finance Documents, the
Agent shall apply that payment towards the obligations of the Obligors
under the Finance Documents in the following order:
(i) first, in or towards payment pro rata of any unpaid costs and
expenses of the Agent and the Issuing Bank under the Finance
Documents;
(ii) secondly, in or towards payment pro rata of any unpaid costs
and expenses and fees of the Agent, the Security Agent, the
Arrangers and the Account Bank under this Agreement;
(iii) thirdly, in or towards payment pro rata of any accrued
interest and/or Guarantee Fee due but unpaid under this Agreement;
(iv) fourthly, in or towards payment pro rata of any principal
amount of the Loans due but unpaid under this Agreement; and
(v) fifthly, in or towards payment pro rata of any other sum due
but unpaid under the Finance Documents.
(b) The Agent shall, if so directed by all the Banks, vary the order set out
in sub-paragraphs (a)(ii) to (v) above.
(c) Paragraphs (a) and (b) above shall override any appropriation made by an
Obligor.
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13. TAXES
13.1 GROSS-UP
All payments by an Obligor under the Finance Documents shall be made
without any deduction and free and clear of and without deduction for or
on account of any taxes, except to the extent that the Obligor is
required by law to make payment subject to any taxes. If any UK tax or
amounts in respect of UK tax must be deducted, or any other deductions
for or on account of UK tax must be made, from any amounts payable or
paid by an Obligor, or paid or payable by the Agent to a Finance Party
under the Finance Documents then, subject to Clause 13.3 (Section 840),
the Obligor shall pay such additional amounts as may be necessary to
ensure that the relevant Finance Party receives a net amount equal to
the full amount which it would have received had payment not been made
subject to deduction of such tax.
13.2 TAX RECEIPTS
All taxes required by law to be deducted or withheld by an Obligor from
any amounts paid or payable under the Finance Documents shall be paid by
the relevant Obligor when due and the Obligor shall, within 15 days of
the payment being made, deliver to the Agent for the relevant Bank
evidence satisfactory to that Bank (including all relevant tax receipts)
that the payment has been duly remitted to the appropriate authority.
13.3 SECTION 840
If, otherwise than as a result of the introduction of, change in, or any
officially published change in the interpretation, administration or
application of, any law or regulation or any officially published
practice or concession of the U.K. Inland Revenue occurring after the
date of this Agreement, a Bank or any New Bank (as defined in Clause 29.2
(Transfers by Banks)) is not or ceases to be a bank as defined in section
840A of the Income and Corporation Taxes Act 1988 which is within the
charge to UK corporation tax with regard to interest to which it is
entitled under or pursuant to this Agreement (a "QUALIFYING BANK") no
Obligor will be liable to pay to that Bank or any New Bank (as defined in
Clause 29.2 (Transfers by Banks)) under Clause 13.1 (Gross-up) any amount
in respect of taxes levied or imposed by the U.K. or any taxing authority
of or in the U.K. in excess of the amount it would have been obliged to
pay if that Bank was or had not ceased to be a Qualifying Bank.
13.4 TAX CREDIT
If any Bank receives an additional amount by virtue of Clause 13.1
(Gross-up) and the Bank in question, in its sole opinion (exercised in
good faith), determines that it has received or been granted a credit
against or relief or remission for, or repayment of, or other benefit in
respect of any tax paid or payable by it in respect of, or calculated
with reference to, the deduction giving rise to such additional amount,
the Bank in question shall, to the extent that it can do so without
prejudice to the retention of the amount of relevant credit, relief,
remission, repayment or other benefit received, pay to the Obligor such
amount as the Bank shall in its sole opinion (exercised in good faith)
have concluded to be attributable to the relevant deduction provided
always that the Bank shall be left in no more or less favourable position
than it would have been in if no additional amount had been required to
be paid and the Bank shall be the sole judge of the amount of any such
benefit and of the date on which it is received, shall have an absolute
discretion as to the order and manner in which it employs or claims tax
credits and
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allowances available to it and shall not be obliged to disclose to the
Obligor any information regarding its tax affairs or tax computations.
14. MARKET DISRUPTION
14.1 ABSENCE OF QUOTATIONS
If, in circumstances where sub-paragraph (c) of the definition of LIBOR
applies, the Agent requests a quotation from the Reference Banks and a
Reference Bank does not supply an offered rate by 12.00 noon on the first
day of an Interest Period, the applicable LIBOR shall, subject to Clause
14.2 (Market disruption), be calculated on the basis of the quotations of
the remaining Reference Banks.
14.2 MARKET DISRUPTION
If:
(a) in circumstances where sub-paragraph (c) of the definition of LIBOR
applies, the Agent requests a quotation from the Reference Banks and
no Reference Bank supplies an offered rate by 12.00 noon on the
first day of an Interest Period for the purposes of calculating
LIBOR or if no other adequate and fair means exist for ascertaining
LIBOR; or
(b) the Agent receives notification from Banks whose participations in a
Loan exceed 50 per cent. of that Loan that, in their opinion:
(i) matching deposits may not be available to them in
the London interbank market in the ordinary course of business
to fund their participations in that Loan for the relevant
Interest Period; or
(ii) the cost to them of obtaining matching deposits
in the London interbank market would be in excess of LIBOR for
the relevant Interest Period,
the Agent shall promptly notify the Borrower and the Banks of the
fact and that this Clause 14 is in operation.
14.3 SUSPENSION OF DRAWDOWNS
If a notification under Clause 14.2 (Market disruption) applies to a Loan
which has not been made, that Loan shall not be made. However, within 5
Business Days of receipt of the notification, the Borrower and the Agent
shall enter into negotiations for a period of not more than 30 days with
a view to agreeing an alternative basis for the borrowing of that and any
future Loan. Any alternative basis agreed shall be, with the prior
consent of the Majority Banks, binding on all the Parties.
14.4 ALTERNATIVE BASIS
If a notification under Clause 14.2 (Market disruption) applies to a Loan
which is outstanding, then, notwithstanding any other provision of this
Agreement:
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(a) within 5 Business Days of receipt of the notification, the
Borrower and the Agent shall enter into negotiations for a period of
not more than 30 days with a view to agreeing an alternative basis
for determining the rate of interest and/or funding applicable to
that Loan and/or any other Loans;
(b) any alternative basis agreed under paragraph (a) above shall
be, with the prior consent of the Majority Banks, binding on all the
Parties;
(c) if no alternative basis is agreed, each Bank shall (through
the Agent) certify on or before the last day of the Interest Period
to which the notification relates an alternative basis for
maintaining its participation in that Loan;
(d) any such alternative basis may include an alternative method
of fixing the interest rate, alternative Interest Periods or
alternative currencies but it must reflect the cost to the bank of
funding its participation in the Loan from whatever sources it may
select plus the Margin plus any applicable MLA Cost; and
(e) each alternative basis so certified shall be binding on the
Obligors and the certifying Bank and treated as part of this
Agreement.
14.5 MONITORING OF DISRUPTION
Any notification under Clause 14.2 (Market disruption) shall only apply
for such period as the relevant market disruption shall continue.
15. INCREASED COSTS AND ILLEGALITY
15.1 INCREASED COSTS
(a) Subject to Clause 15.2 (Exceptions), the Borrower shall forthwith on
demand by a Finance Party pay to that Finance Party the amount of any
increased cost incurred by it as a result of:
(i) any enactment, introduction, variation of, or change in
(occurring after the date of this Agreement); or
(ii) any change occurring after the date of this Agreement in the
commonly accepted interpretation of,
any law or regulation (including any law or regulation relating to
taxation, or reserve asset, special deposit, cash ratio, liquidity or
capital adequacy requirements or any other form of banking or monetary
control).
(b) In this Agreement "INCREASED COST" means:
(i) an additional cost incurred by a Finance Party as a result of
it having entered into, or performing, maintaining or funding its
obligations under, any Finance Document; or
(ii) that portion of an additional cost incurred by a Finance
Party in making, funding or maintaining all or any advances
comprised in a class of advances formed by or including its
participations in the Loans made or issued or to be made or issued
by it
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under this Agreement as is attributable to it making, funding or
maintaining those participations; or
(iii) a reduction in any amount payable to a Finance Party or in the
effective return to a Finance Party under the Finance Documents or a
reduction in the effective return to a Finance Party on its capital
as is attributable to the Finance Documents and/or the transactions
contemplated by the Finance Documents; or
(iv) the amount of any payment made by a Finance Party, or the amount of
any interest or other return foregone by a Finance Party, calculated
by reference to any amount received or receivable by that Finance
Party from any other Party under this Agreement,
and all references in this paragraph (b) to a Finance Party shall be
deemed to include its Holding Company.
15.2 EXCEPTIONS
Clause 15.1 (Increased costs) does not apply to any increased cost:
(a) compensated for by the payment of the MLA Cost;
(b) compensated for by the operation of Clause 13 (Taxes) or
which would have been compensated therefor but for the operation of
the exceptions to that Clause; or
(c) attributable to any change in the rate of Tax on the overall
net income of a Bank (or the overall net income of a division or
branch of the Bank) imposed in the jurisdiction in which its
principal office or Facility Office is situate or in which such Bank
transacts business.
15.3 ILLEGALITY
If it is or becomes unlawful in any jurisdiction for a Bank to give
effect to any of its obligations as contemplated by this Agreement or to
fund or maintain its participation in any Loan or to participate in a
Bank Guarantee, then:
(a) that Bank may notify the Borrower in writing through the
Agent accordingly; and
(b) within 10 days following the date of the notification under
paragraph (a) above (or such earlier date as may be necessary to
avoid the unlawfulness) and only to the extent necessary to cure the
unlawfulness:
(i) the Borrower shall prepay that Bank's
participation in the Loans (without premium but without
prejudice to Clause 26.2 (Other indemnities));
(ii) the Agent may, by notice to the Borrower declare
that, if any Bank Guarantee has not been issued, it shall not
be issued;
(iii) the Agent may, by notice to the Borrower if any
Bank Guarantee has been issued, demand that the relevant
Borrower shall within five Business Days (or, if later, the
latest date permitted by the relevant law) provide cash cover
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to the affected Bank in an amount equal to that Bank's maximum
aggregate actual and contingent liability under that Bank
Guarantee and use its reasonable endeavours to procure the
release of the Bank from its obligations under the Finance
Documents in respect of that Bank Guarantee; and
(iv) that Bank's Tranche A Commitment and Tranche B Commitment
shall be cancelled.
15.4 MITIGATION
If a Bank becomes aware of circumstances that will lead to that Bank
serving a notice under Clause 15.3 (Illegality) or additional amounts
becoming payable under Clauses 15.1 (Increased costs) or 13.1 (Gross up),
that Bank shall, without prejudice to the obligations of the Borrower,
take such steps as are reasonably open to it (but at no cost itself) to
mitigate the effect of those circumstances.
16. GUARANTEE
16.1 GUARANTEE
Each Obligor irrevocably, unconditionally, jointly and severally:
(a) as principal obligor, guarantees to each Finance Party prompt
performance by each other Obligor of all such other Obligor's
obligations under the Finance Documents;
(b) undertakes with each Finance Party that it shall forthwith on
demand by the Agent whenever any other Obligor does not pay any
amount when due under or in connection with any Finance Document,
pay that amount as if it instead of the other Obligor were expressed
to be the principal obligor; and
(c) indemnifies each Finance Party on demand against any loss or
liability suffered by such Finance Party it if any obligation
guaranteed by any Obligor under this Clause 16.1 is or becomes
unenforceable, invalid or illegal.
16.2 CONTINUING GUARANTEE
This guarantee is a continuing guarantee and will extend to the ultimate
balance of all sums payable by any Obligor under the Finance Documents,
regardless of any intermediate payment or discharge in whole or in part.
16.3 REINSTATEMENT
(a) Where any discharge (whether in respect of the obligations of any Obligor
or any security for those obligations or otherwise) is made in whole or in
part or any arrangement is made on the faith of any payment, security or
other disposition which is avoided or must be restored on insolvency,
liquidation or otherwise without limitation, the liability of each Obligor
under this Clause 16 shall continue as if the discharge or arrangement had
not occurred.
(b) Each Finance Party may concede or compromise any claim that any payment,
security or other disposition is liable to avoidance or restoration.
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16.4 WAIVER OF DEFENCES
The obligations of each Obligor under this Clause 16 will not be affected
by any act, omission, matter or thing which, but for this provision,
would reduce, release or prejudice any of its obligations under this
Clause 16 or prejudice or diminish those obligations in whole or in part,
including (whether or not known to it or any Finance Party):
(a) any time or waiver granted to, or composition with, any
Obligor or other person;
(b) the taking, variation, compromise, exchange, renewal or
release of, or refusal or neglect to perfect, take up or enforce,
any rights against, or security over assets of, any Obligor or other
person or any non-presentation or non-observance of any formality or
other requirement in respect of any instrument or any failure to
realise the full value of any security;
(c) any incapacity or lack of powers, authority or legal
personality of or dissolution or change in the members or status of
any Obligor or any other person;
(d) any variation (however fundamental) or replacement of a
Finance Document or any other document or security so that
references to that Finance Document in this Clause 16 shall include
each variation or replacement;
(e) any unenforceability, illegality or invalidity of any
obligation of any person under any Finance Document or the other
document or security, to the intent that each Obligor's obligations
under this Clause 16 shall remain in full force and its guarantee be
construed accordingly, as if there were no unenforceability,
illegality or invalidity;
(f) any postponement, discharge, reduction, non-provability or
other similar circumstance affecting any obligation of any Obligor
under a Finance Document resulting from any insolvency, liquidation
or dissolution proceedings or from any law, regulation or order so
that each such obligation shall for the purposes of the Obligor's
obligations under this Clause 16 shall be construed as if there were
no such circumstance.
16.5 IMMEDIATE RECOURSE
Each Obligor waives any right it may have of first requiring any Finance
Party (or any trustee or agent on its behalf) to proceed against or
enforce any other rights or security or claim payment from any other
Obligor or other person before claiming from such Obligor under this
Clause 16.
16.6 APPROPRIATIONS
Until all amounts which may be or become payable by the Obligors under or
in connection with the Finance Documents have been irrevocably paid in
full, each Finance Party (or any trustee or agent on its behalf) may:
(a) refrain from applying or enforcing any other moneys, security
or rights held or received by that Finance Party (or any trustee or
agent on its behalf) in respect of those amounts, or apply and
enforce the same in such manner and order as it sees fit (whether
against those amounts or otherwise) and no Obligor shall be entitled
to the benefit of the same; and
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(b) hold in a suspense account (subject to the accrual of
interest thereon at available market rates for the account of the
relevant Obligor) any moneys received from any Obligor or on account
of any Obligor's liability under this Clause 16.
16.7 NON-COMPETITION
Until all amounts which may be or become payable by the Obligors under or
in connection with the Finance Documents have been irrevocably paid in
full, no Obligor shall, after a claim has been made or by virtue of any
payment or performance by it under this Clause 16:
(a) be subrogated to any rights, security or moneys held,
received or receivable by any Finance Party (or any trustee or agent
on its behalf) or be entitled to any right of contribution or
indemnity in respect of any payment made or moneys received on
account of that Obligor's liability under this Clause 16;
(b) claim, rank, prove or vote as a creditor of any Obligor or
its estate in competition with any Finance Party (or any trustee or
agent on its behalf); or
(c) receive, claim or have the benefit of any payment,
distribution or security from or on account of any Obligor, or
exercise any right of set-off as against any Obligor.
Each Obligor shall hold in trust for and forthwith pay or transfer to the
Agent for the Finance Parties any payment or distribution or benefit of
security received by it contrary to this Clause 16.7.
16.8 ADDITIONAL SECURITY
This guarantee is in addition to and is not in any way prejudiced by any
other security now or hereafter held by any Finance Party.
17. REPRESENTATIONS AND WARRANTIES
17.1 REPRESENTATIONS AND WARRANTIES
Subject to the provisions of the Disclosure Letter, each Obligor makes
the representations and warranties set out in this Clause 17 to each
Finance Party.
17.2 STATUS
(a) It is a limited liability company, duly incorporated and validly existing
under the laws of the jurisdiction of its incorporation; and
(b) it has the power to own its assets and carry on its business as it is
being conducted.
17.3 POWERS AND AUTHORITY
It has the power to enter into and perform, and has taken all necessary
action to authorise the entry into, performance and delivery of, the
Finance Documents, the Management Agreement and the Project Contracts to
which it is or will be a party and the transactions contemplated by those
Finance Documents, the Management Agreement and those Project Contracts.
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17.4 LEGAL VALIDITY
Each Finance Document, the Management Agreement and each Project Contract
to which it is or will be a party constitutes, or when executed in
accordance with its terms will constitute, its legal, valid and binding
obligation enforceable in accordance with its terms subject to applicable
insolvency laws and general principles of equity.
17.5 NON-CONFLICT
The entry into and performance by it of, and the transactions
contemplated by, the Finance Documents to which the Obligor is a party do
not and will not:
(a) conflict with any law or regulation or judicial or official
order; or
(b) conflict with its constitutional documents; or
(c) conflict with any document which is binding upon it or any of
its assets save to the extent that in relation to a leasehold
property in respect of which the landlord's consent to the entry
into of the Finance Documents is requested, the consent has not,
with the Agent's prior written consent, been obtained.
17.6 NO DEFAULT
(a) No Default is outstanding or would result from the making of any Loan.
(b) No other event is outstanding which constitutes (or with the giving of
notice, lapse of time, determination of materiality or the fulfilment of
any other applicable condition or any combination of the foregoing, might
constitute) a default under any document which is binding on it or any of
its assets to an extent or in a manner which is reasonably likely to have
a Material Adverse Effect.
(c) Without prejudice to the generality of paragraph (b) above, each Obligor
is, and so far as each Obligor is aware all parties contracting with that
Obligor are, in compliance with the material terms and conditions of all
Project Contracts and the Licence(s) (if any) to which it is party.
17.7 AUTHORISATIONS, CONSENTS AND FILINGS
(a) Save in respect of registration at H.M. Land Registry and the Companies
Registration Office of the Security Documents:
(i) all authorisations required by each Obligor in connection
with the entry into, the performance by that Obligor of, the
validity and enforceability against that Obligor, and the
transactions contemplated by, the Finance Documents, Licences and
Project Contracts to which that Obligor is a party have been
obtained or effected (as appropriate) and are in full force and
effect; and
(ii) it is not necessary that any of the Finance Documents, the
Licences or the Project Contracts be filed, recorded or enrolled
with any court or agency in England or that any U.K. stamp,
registration or similar tax be paid on or in relation to the
execution or
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performance of any of the Finance Documents, Licences or Project
Contracts to which that Obligor is a party.
(b) All actions, conditions and other things required to be taken, fulfilled
and done (including the obtaining of all necessary consents) by each
Obligor to enable that Obligor to enter into and exercise its rights and
perform and comply with its obligations under the Finance Documents and
any Licence or Project Contract to which it is a party have been taken,
fulfilled and done.
17.8 ACCOUNTS
The:
(a) audited consolidated accounts of Diamond PLC for its financial year;
and
(b) financial statements contained in the Form 10-Q submitted by Diamond
PLC to the Securities and Exchange Commission Washington D.C. for
the relevant Quarter,
most recently delivered to the Agent under this Agreement:
(i) have been prepared in accordance with accounting principles and
practices generally accepted in the United Kingdom or (as the case
may be) the United States (and the rules and regulations of the
Securities and Exchange Commission) consistently applied;
(ii) fairly represent the consolidated financial condition of Diamond PLC
and, as applicable, the Borrower Group as at the date to which they
were drawn up; and
(iii) for the Monthly Accounts dated 30th November, 1996 only, there has,
as at the date of this Agreement, been no material adverse change in
the consolidated financial condition of the Borrower Group since the
date to which those Monthly Accounts were drawn up.
17.9 LITIGATION
No litigation, arbitration or administrative proceedings are current or,
to its knowledge, pending or threatened, which would, if adversely
determined, be reasonably likely to have a Material Adverse Effect.
17.10 PROJECT CONTRACTS, MANAGEMENT AGREEMENT AND LICENCES
(a) The copies of the Project Contracts, the Management Agreement and the
Licences which have been delivered to the Agent by any Obligor are true
and complete copies of such documents.
(b) There are no other agreements to which any Obligor is party on the date
of this Agreement relating to the provision of programming for the System,
the leasing of any asset forming part of the System, the use by any member
of the Operating Group of any public telecommunications network from time
to time other than (x) the Subscriber Agreements, (y) all related
construction contracts and (z) any agreements to which any member of the
Operating Group is a party which are not material to the Project or to the
ability of any member of the Borrower Group to perform its obligations
under any of the Finance Documents, copies of
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which have not been delivered or otherwise made available to the Agent
prior to the date of this Agreement.
(c) No statutory or regulatory licence, permit, certificate, consent, order
or other authorisation (including any Licence and any such licence,
permit, certificate, consent, order and other authorisation as is required
by ITC and DTI) which is necessary to enable each member of the Operating
Group to engage in the cable television and telecommunications business in
the places in the United Kingdom and in the manner in which such business
is now conducted is outstanding or not in force save for those licences,
permits, certificates, consents, orders and other authorisations the
absence of which (taken as a whole) are not reasonably likely to have a
Material Adverse Effect.
(d) So far as it is aware after all due enquiry, no other person or entity
has been authorised or licensed by DTI, ITC or the Cable Authority to
construct, operate or run any CATV (Cable TV) or SMATV (Satellite Master
Antenna TV) system of any kind to more than 1,000 homes within its
Franchise Areas.
(e) The Insurances are in full force and effect and no event or circumstance
has occurred nor has there been any omission to disclose a fact which in
any such case would entitle any insurer to avoid or otherwise reduce its
liability thereunder to less than the amount provided in the relevant
policy.
(f) As at the date of this Agreement, no statutory or regulatory licence,
permit, certificate, consent, order or other authorisation (including any
Licence and any such licence, permit, certificate, consent, order and
other authorisation as is required by ITC and DTI) which is necessary to
enable each member of the Operating Group to engage in the cable
television and telecommunications business in the places in the United
Kingdom and in the manner in which such business is now conducted is
outstanding or not in force.
17.11 TAXES
(a) The Borrower is now, and since its incorporation has been, and will
remain, resident in the U.K. for the purposes of corporation tax.
(b) Each Obligor has paid or discharged all taxes due from it or against its
assets on or prior to the due date for payment except for taxes assessed
and being contested in good faith by appropriate proceedings but only
where adequate reserves have been provided by such Obligor for the payment
of such taxes.
17.12 PROPERTIES
(a) The Borrower is not aware of any information or documents which have not
been provided to the solicitors preparing the Title Certificates which
would make any of the Title Certificates incorrect or misleading in any
material respect, and it is not aware that any of the Title Certificates
are incorrect or misleading in any material respect.
(b) The information given to the Agent regarding the Properties is in all
material respects true and complete and not misleading.
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17.3 INFORMATION MEMORANDUM
Any representation or warranty made by any member of the Diamond Group in
the Information Memorandum is true and accurate as at the Information
Memorandum Date.
17.14 TIMES FOR MAKING REPRESENTATIONS AND WARRANTIES
(a) The representations and warranties set out in this Clause 17 (other than
Clause 17.13 (Information Memorandum)):
(i) in the case of an Obligor which is a Party on the date of
this Agreement, are made by that Obligor on the date of the
Supplemental Agreement; and
(ii) in the case of an Obligor which becomes a Party after the
date of this Agreement, will be deemed to be made by that Obligor
(in relation to itself but not the other Obligors) on the date it
executes an Obligor Accession Agreement with reference to the facts
and circumstances then existing.
(b) The representations and warranties set out in this Clause 17 are deemed
to be repeated by each Obligor as follows:
(i) on the date of each Loan Request and on the date of the
Effective Date under (and as defined in) the Supplemental Agreement,
Clauses 17.2, 17.3, 17.4, 17.5, 17.6(a), 17.7, 17.8 (i) and (ii),
17.9 and 17.10(c) with reference to the facts and circumstances then
existing; and
(ii) on the first day of each Interest Period, Clauses 17.2, 17.3,
17.4, 17.5, 17.7, 17.8 (i) and (ii) and 17.10(c) with reference to
the facts and circumstances then existing.
(c) The representation and warranty set out in Clause 17.13 (Information
Memorandum) is made by each Obligor on the Information Memorandum Date
only, with reference to the facts and circumstances then existing.
18. GENERAL UNDERTAKINGS
18.1 DURATION
The undertakings in this Clause 18 and Clauses 19 (System Undertakings)
and 20 (Management Agreement) remain in force from the date of this
Agreement for so long as any amount is or may be outstanding under this
Agreement or any Commitment is in force.
18.2 FINANCIAL INFORMATION
(a) Jewel shall supply to the Agent in sufficient copies for all the Banks:
(i) as soon as the same are available (and in any event within 90
days of the end of its financial year) the audited consolidated
accounts of Diamond PLC for that financial year;
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(ii) as soon as the same are available (and in any event within 150 days
of the end of its financial year) the audited consolidated accounts
of the Borrower Group for that financial year;
(iii) as soon as the same are available:
(1) (and in any event within 45 days of the end of
each Quarter) the Quarterly Accounts for the Quarters ending
31st March, 30th June, 30th September and 31st December; and
(2) (and in any event within 45 days of the end of
each month) the Monthly Accounts for that month,
in each case substantially in the form provided to the Agent before
the date of this Agreement and initialled for the purposes of
identification only;
(iv) (1) (A) together with the accounts specified in sub-paragraph
(a)(ii) above, a certificate signed by its auditors; and
(B) together with the accounts
specified in sub-paragraph (a)(iii)(1) above, a
certificate signed by an Officer on its behalf,
setting out in reasonable detail computations establishing
the values of the ratios and quantities tested under Clause
18.24 (Financial covenants) substantially in the form of the
relevant part of Schedule 9 as at the date to which those
accounts were drawn up (each such certificate being a
"FINANCIAL COVENANT CERTIFICATE");
(2) together with the accounts specified in
sub-paragraph (iii)(1) above, a certificate signed by an
Officer on its behalf certifying that (so far as he is aware)
no Default is outstanding or, if a Default is outstanding,
specifying the Default and the steps, if any, being taken to
remedy it;
(v) as soon as the same is available (and in any event before the end of
each of its financial years ) an annual budget for the Project
prepared on substantially the same basis and in the same format as
the form of the budget for the Project for the financial year ending
31st December, 1996; and
(vi) together with the Monthly Accounts specified in sub-paragraph
(a)(iii)(2) above, a certificate signed by an Officer on its behalf
confirming the amount of Net Operating Cash Flow for that month.
(b) The Borrower will procure that representatives designated by the Agent be
allowed access (at reasonable times and, provided no Default shall have
occurred and be continuing, upon 48 hours' notice) to inspect all
accounting books, records and other data in any member of the Diamond
Group's possession as may be reasonably requested by the Agent subject to
that Finance Party agreeing to enter into appropriate confidentiality
arrangements.
(c) The Borrower will ensure that all accounts to be furnished or made
available for inspection under this Clause 18.2 (a)(i) and (ii) and Clause
18.4(c) (Project claims and information) have
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been prepared in accordance with generally accepted accounting
principles, standards and practices generally accepted in the U.K. (or
where relevant the United States) and consistently applied (save as
indicated in notes thereto) and present fairly the financial position of
the relevant company or companies as at the end of the relevant financial
period and the results of its operations for that period.
(d) The Borrower will provide such information as a Finance Party (through
the Agent) may from time to time reasonably request in relation to intra
Borrower Group indebtedness.
18.3 ACCESS TO SYSTEM, RECORDS AND ACCOUNTS
(a) Each Obligor will procure that representatives designated by the Agent be
allowed access (at reasonable times and, provided no Default shall have
occurred and be continuing, upon 48 hours' notice) to inspect the System
and the technical data, accounting books, records and other data in the
possession or control of an Obligor with respect to the System and to take
copies thereof for distribution to the Banks at the request of any Bank
subject to that Finance Party agreeing to enter into appropriate
confidentiality arrangements.
(b) Each Obligor will keep and maintain up to date in accordance with good
business practice and all applicable laws all statutory books, books of
account and statements with respect to the Project.
18.4 PROJECT CLAIMS AND INFORMATION
(a) (i) Each Obligor will furnish to the Agent copies of all notices of
default or material adverse claims made by any person against it
affecting any material part of the System or Project Contracts
(including any such demand or claim likely to give rise to a formal
investigation by DTI, ITC, OFT or OFTEL);
(ii) each Obligor will promptly and diligently take all reasonable steps
to remedy any such default and protect and defend the System or
Project Contracts against any adverse claim in such manner as it
reasonably deems fit; and
(iii) no Obligor will compromise any such claim in any manner
which is reasonably likely to have a Material Adverse Effect.
(b) Each Obligor will promptly inform the Agent in writing:
(i) of the occurrence of any force majeure event provided for in a
Project Contract and the details of that event, together with
updates of the situation so long as the event continues to the Agent
on a weekly basis (or more frequently if the Agent so requests); and
(ii) if it becomes aware that any governmental body or negotiating agency
is considering limiting, suspending or revoking any licence, permit,
certificate, consent, order or other authorisation referred to in
Clause 17.10 (Project Contracts, Management Agreement and Licences);
and
(iii) of any other event which is likely significantly to interrupt the
Project in any material respect.
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(c) The Borrower will provide to the Agent in enough copies for each of the
Banks as soon as practicable after the end of each Quarter (and in any
case within 90 days of the end of that Quarter) the Form 10Q in relation
to Diamond PLC and Form 10K relating to Diamond PLC.
(d) Each Obligor will promptly provide to the Agent for distribution to the
Banks:
(i) any information in connection with the Project or any Project
Contract which is given to, received from, or otherwise relates to
discussions with, DTI, OFTEL, ITC or OFT (or any other relevant
agency); and
(ii) such other information regarding the Project as the Agent may
from time to time reasonably request,
which, in each case, is material to the financial interests of the
Finance Parties under the Finance Documents.
(e) If any Obligor is at any time entitled to make any claim or to institute
any legal, arbitral or administrative proceedings against the ITC, OFTEL,
OFT, DTI, the U.K. Government or any agency thereof or any other person,
it will:
(i) promptly notify the Agent of, and if such Obligor reasonably
deems it appropriate, diligently pursue the claim and take all
necessary and proper legal, arbitral or administrative proceedings
and consult with the Agent with respect thereto and keep the Agent
fully informed of all material aspects thereof; and
(ii) not release or settle the claim in whole or in part without
the prior consent of the Majority Banks if such claim is reasonably
likely to have a Material Adverse Effect or is for more than pounds
sterling 100,000.
18.5 LITIGATION AND GENERAL INFORMATION
Each Obligor will supply to the Agent:
(a) promptly upon becoming aware of them, details of any
litigation, arbitration or administrative proceedings, whether
current, threatened or pending against any member of the Diamond
Group, which if adversely determined is reasonably likely to have a
Material Adverse Effect;
(b) promptly, such further information in the possession or
control of any Obligor regarding its business, financial condition
and operations as any Finance Party may reasonably request subject
to that Finance Party agreeing to enter into appropriate
confidentiality arrangements;
(c) promptly on receipt, all notices or other communications
received from the DTI, OFTEL or the ITC which allege or claim that
an Obligor is in any breach of any provision of any of the Licences
which is reasonably likely to have a Material Adverse Effect or
which modify or supplement (or will modify or supplement) any of the
provisions of any of the Licences; and
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(d) any application for any grant of any other licence or
franchise agreement for any cable television systems with respect to
any Franchise Area or any part thereof, promptly upon receipt
thereof,
in sufficient copies for all of the Banks, if the Agent so requests.
18.6 NOTIFICATION OF DEFAULT
(a) Each Obligor will notify the Agent of any Default (and the steps, if any,
being taken to remedy it) as soon as practicable after it becomes aware of
the same.
(b) Each Obligor will promptly notify the Agent of any default by a party
(other than an Obligor) to a Project Contract to which that Obligor is a
party which is material in the context of that Project Contract.
18.7 AUTHORISATIONS
Each Obligor will promptly obtain, maintain and comply with the terms of
any authorisation required under any law or regulation:
(a) to enable it to perform its obligations under, or for the
validity of, any Finance Document to which it is a party; or
(b) to carry out the Project or operate the System in such a
manner as to ensure that a Material Adverse Effect is not reasonably
likely to occur,
and will supply the Agent in sufficient numbers for the Banks copies of
any such authorisation.
18.8 PARI PASSU RANKING
Each Obligor will procure that its obligations under the Finance
Documents to which it is a party do and will rank at least pari passu
with all its other present and future unsecured obligations, except for
matters which are mandatorily preferred by law applying to companies
generally.
18.9 NEGATIVE PLEDGE
No Obligor will, and each Obligor will procure that each member of the
Diamond Group does not, create or permit to subsist any Security Interest
on any of its assets, except as follows:
(a) any lien arising by operation of law in the ordinary course
of business and securing amounts not more than 30 days overdue or
being contested in good faith and by appropriate means;
(b) any Security Interest created by or required under the
Finance Documents;
(c) in addition to those Security Interests referred to in
paragraphs (a) and (b) above any Security Interests at any time
securing a principal amount not exceeding in aggregate pounds
sterling 15,000,000 for the Borrower Group;
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(d) Security Interests created to satisfy the obligations of the
Borrower Group under its Telecommunications Licences to provide
funds under Condition 20 of Schedule 4 of such Licences, or the
equivalent provision, however numbered;
(e) Security Interests created in respect of Interest Rate
Protection Agreements; and
(f) any Security Interest created with the prior written consent
of the Majority Banks.
18.10 TRANSACTIONS SIMILAR TO SECURITY
(a) Save as provided in paragraph (b), no Obligor will, and each Obligor will
procure that each member of the Diamond Group does not:
(i) sell, transfer or otherwise dispose of any of its assets on
terms whereby it is or may be leased to or re-acquired or acquired
by any member of the Diamond Group or its related entities; or
(ii) sell, transfer or otherwise dispose of any of its receivables
on recourse terms, except for the discounting of bills or notes in
the ordinary course of trading,
in circumstances where the transaction is entered into primarily as a
method of raising finance or financing the acquisition of an asset.
(b) Paragraph (a) does not apply to:
(i) transactions which result in the creation of Permitted
Security Interests; or
(ii) transactions which create Finance Lease Indebtedness which is
permitted under Clause 18.13 (Finance Leasing).
18.11 DISPOSALS
(a) Without prejudice to the rights reserved to the Obligors pursuant to
Clause 19.2(c) (Project Contracts and Licences), no Obligor will sell,
transfer or dispose (whether by a single transaction or a number of
related or unrelated transactions and whether at the same time or over
a period of time) of all or any of its interest in:
(i) the System; or
(ii) the benefit of any Licence; or
(iii) the benefit of any of the Project Contract (save to the
extent that such Project Contract is not material to the System
and/or the Project); or
(iv) any of its assets not referred to in sub-paragraphs (i) to
(iii) above, present or future.
(b) Paragraph (a) does not apply to:
(i) sales, transfers or disposals permitted under any provision
of a Finance Document (but excluding any disposal which is permitted
at the discretion of any person other than a Finance Party);
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(ii) sales, transfers or disposals on arm's length commercial terms of
equipment, plant or other assets which are obsolete or no longer
serviceable or required or which are to be replaced by other
comparable or superior assets;
(iii) sales, transfers or disposal of assets with a value in aggregate not
exceeding pounds sterling 1,000,000 per annum;
(iv) sales, transfers or disposals of assets from one Obligor to another
Obligor; and
(v) sales, transfers or disposals which have been approved in advance in
writing by the Majority Banks.
(c) Save as is required to construct or operate the System or in relation to
the proper conduct of the Borrower Group's business, no Obligor will, and
each Obligor will procure that no member of the Borrower Group will, fix
or permit the affixing of any Security Assets to any real property which
is not a Security Asset.
18.12 COMPLIANCE WITH LAWS AND PAYMENT OF TAXES
(a) Each Obligor will comply with all laws, regulations and authorisations
applicable to it which are material to the System or the Project or which,
if an Obligor does not so comply, is reasonably likely to have a material
adverse effect on the financial condition of that Obligor.
(b) Each Obligor will pay all taxes and all rates, outgoings and other sums
payable out of or in respect of any of its present or future property in
accordance with prudent business practice.
18.13 FINANCE LEASING
Subject to Clause 18.29 (Operation of the Security Accounts), no Obligor
will incur or permit to subsist any Finance Lease Indebtedness other than
any Finance Lease Indebtedness at any time not exceeding a principal
aggregate amount for the Borrower Group of Pounds Sterling15,000,000.
18.14 INVESTMENTS
No Obligor will:
(a) acquire any share capital or any loan capital of any other
corporate body or other investments other than:
(i) investments in programming activities by way of share capital,
loan capital, guarantees, indemnities or loans which when
aggregated with the Borrower Group's other investments in
programming activities do not exceed Pounds Sterling5,000,000;
or
(ii) investments of surplus cash in deposits with financial
institutions whose long term debt is rated A or more by
Standard & Poor's Ratings Group or A2 or more by Moody's
Investors Service, Inc; or
(iii) in United States or United Kingdom government securities with
maturities not exceeding 2 years; or
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(iv) other investments approved by the Majority Banks
or as permitted by paragraph (b) below,
but only if in each case such investments are the subject of, or
the relevant Obligor does what is required to create, a first
priority fixed Security Interest pursuant to the Debenture or other
Security Document; or
(b) have or acquire any Subsidiary whether by formation or otherwise,
except:
(i) Subsidiaries existing at the date of this
Agreement or contemplated and notified to the Agent prior to
the date of this Agreement; and
(ii) with the prior written consent of the Agent (such
consent not to be unreasonably withheld or delayed).
18.15 BORROWING AND GUARANTEES
(a) Subject to Clause 18.29 (Operation of the Security Accounts), no Obligor
will incur or permit to subsist any Financial Indebtedness except:
(i) pursuant to (x) its obligations under its Telecommunications
Licences to provide funds under Condition 20 of Schedule 4 of such
Licences or any equivalent provision however numbered, or (y) any
guarantees or other form of financial support required to be
provided by any Obligor to the ITC prior to the granting of a
licence; or
(ii) Finance Lease Indebtedness which is permitted under Clause 18.13
(Finance Leasing) or guarantees in respect thereof; or
(iii) liabilities under the Finance Documents; or
(iv) any Subordinated Indebtedness or Borrower Group Indebtedness; or
(v) any Financial Indebtedness permitted by Clause 18.23 (Interest
Hedging); or
(vi) any other Financial Indebtedness (other than currency hedging in
respect of any High Yield Debt) at any time not exceeding a
principal aggregate amount for the Borrower Group of pounds
sterling 15,000,000.
(b) No Obligor will give any guarantees or similar assurances against
financial loss in respect of the Financial Indebtedness of any person
that is not an Obligor except:
(i) where contained in any Finance Document; or
(ii) in respect of Finance Lease Indebtedness which is permitted under
Clause 18.13 (Finance Leasing); or
(iii) as expressly permitted under paragraph (a) above.
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18.16 DISTRIBUTIONS
(a) Subject to paragraph (d) below, no Obligor will pay or make any dividend
or other distribution (in cash or in kind) or make any payments in respect
of Subordinated Indebtedness other than:
(i) a dividend or distribution from one Obligor to another Obligor; or
(ii) so long as no Event of Default has occurred or will result from the
relevant payments, to Diamond PLC in an amount not exceeding the
amount shown in the Agreed Base Case to fund cash interest falling
due on High Yield Debt issued under the Indentures; or
(iii) so long as no Event of Default has occurred or will result from the
relevant payments, to Diamond PLC in an amount exceeding the amount
shown in the Agreed Base Case to fund cash interest falling due on
High Yield Debt issued under the Indentures if, immediately after
the relevant payment, the Coverage of Total Fixed Loan Charges is
equal to or more than 1.25; or
(iv) notwithstanding the terms of the Subordination Agreement and so long
as no Event of Default has occurred or will result from the relevant
payment, any payment in accordance with the ECE Side Letter provided
that the payments are reflected in the most recent annual budget for
the Project delivered under Clause 18.2(a) (Financial Information).
(b) If the amount due to be paid under sub-paragraph (a)(ii) above is less
than the relevant amount in the Agreed Base Case that Obligor may pay the
difference into a specified interest-bearing Security Account. Any such
amount may be used, at the option of the Obligor, in the prepayment of
Loans or to fund cash interest falling due on High Yield Debt issued under
the Indentures in accordance with paragraph (c) below.
(c) Unless an Event of Default is outstanding, any amounts standing to the
credit of that Security Account may be withdrawn by the relevant Obligor
to pay any amount due to be paid on High Yield Debt to the extent such
amounts cannot be paid under sub-paragraph (a)(ii) or (iii) above.
(d) So long as no Event of Default has occurred or will result from the
relevant dividend or distribution, an Obligor is permitted to make any
dividend or distribution:
(i) if the ratio of Bank Debt and High Yield Debt to ANOCF is
below 3 to 1 for two consecutive Quarters and will subsequently
remain below 3 to 1 immediately following that dividend or
distribution being made; or
(ii) to the extent that New Cash Equity has been injected, an
amount equal to the amount by which that New Cash Equity is in
excess of the greater of:
(A) pounds sterling 25,000,000; and
(B) the aggregate of (1) the cumulative shortfall of
actual Net Operating Cash Flow from the relevant amount shown
in the Agreed Base Case and (2) the cumulative amount of the
excess of actual Qualifying Expenditure from the
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relevant amount shown in the Agreed Base Case, LESS the aggregate of
(x) the cumulative excess of actual Net Operating Cash Flow from the
relevant amount shown in the Agreed Base Case and (y) the cumulative
amount of the shortfall of actual Qualifying Expenditure from the
relevant amount shown in the Agreed Base Case, in each case for each
Quarter from the date of this Agreement.
18.17 LOANS AND CREDIT
No Obligor will make any loans, provide credit, enter into any hire
purchase, rental, finance or operating lease as lessor or otherwise enter
into transactions where third parties incur Financial Indebtedness in its
favour except as follows:
(a) credit provided pursuant to the terms of any Project
Contract;
(b) to the extent permitted by Clause 18.15 (Borrowing and
guarantees);
(c) finance schemes to subscribers in accordance with prudent
marketing strategy; and
(d) in relation to loan capital, guarantees, indemnities or loans
permitted under Clause 18.14(a) (Investments).
18.18 FINANCIAL YEAR-END AND COST CAPITALISATION POLICY
(a) No Obligor will change its financial year-end from 31st December.
(b) Each Obligor will maintain the same cost capitalisation policy as the
Borrower adopted for its audited accounts for the year ended 31st
December, 1995.
18.19 SCOPE OF BUSINESS
(a) Subject to paragraph (b) below, the business of each Licence Holding
Subsidiary will be that of the development, construction, maintenance,
operation or running of the System and no Obligor (other than Jewel) will
engage in any other business or trading activities, either alone or in
partnership or joint venture with any other person, other than those
associated with the development, construction, maintenance and operation
of the System or reasonably incidental to those activities.
(b) An Obligor may also act as holding company of any other Obligor.
(c) (i) Jewel shall not engage in any business or trading activities, either
alone or in partnership, other than the ownership of the entire
issued share capital of its Subsidiaries and the administration of
that ownership and other activities incidental to an investment
holding company (within the meaning of Section 130 of the Income and
Corporation Taxes Act 1988) of the Borrower Group.
(ii) Jewel will not enter into any agreement, instrument or arrangement
with any person other than any Finance Document to which it is a
party.
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(iii) Jewel will not purchase or otherwise acquire, or agree to do so, any
asset from any person other than, with the consent of the Agent (not
to be unreasonably withheld or delayed), the acquisition of a
company which becomes an Additional Obligor.
18.20 SHARE CAPITAL
No Obligor will:
(a) subject to Clause 18.21(a)(i) (Mergers and flotations), purchase,
cancel or redeem any of its share capital without the prior written
consent of the Majority Banks; or
(b) increase its share capital or issue any additional shares other than
in circumstances where the additional shares are fully and
effectively charged under the Debenture to the satisfaction of the
Majority Banks; or
(c) issue any loan capital except Borrower Group Indebtedness other than
in circumstances where the loan capital is fully and effectively
subordinated to the Financial Indebtedness under this Agreement to
the satisfaction of the Majority Banks and subject to the other
provisions of this Agreement (including, without limitation, Clause
18.15 (Borrowing and guarantees)).
18.21 MERGERS AND FLOTATIONS
(a) (Without prejudice to Clause 18.27 (Reorganisation)) no Obligor will enter
into any amalgamation, demerger, merger, reconstruction or winding-up nor
shall it offer (or permit any other person to offer) any part of its
issued or unissued share capital to the public unless:
(i) that amalgamation or merger is with another Obligor; or
(ii) the Majority Banks have given their prior consent.
(b) Neither the Borrower nor Jewel will permit any flotation of any issued
share capital of any member of the Diamond Group, other than the Permitted
Flotation.
18.22 INTELLECTUAL PROPERTY
Each Obligor shall promptly notify the Agent of any existing or, promptly
following its execution, any material contract for it to acquire (by
licence or otherwise), or of any application to register, any material
patent, registered design, trade mark or service mark.
18.23 INTEREST HEDGING
(a) No Obligor shall enter into any agreement for the capping or the hedging
of its interest exposure unless:
(i) the agreement is in substantially the terms of the ISDA
Master Agreement (1992 version, or such other version as the Agent
may from time to time at the Borrower's request agree) and with such
other amendments as the Agent may reasonably approve in writing, and
is on reasonable market terms;
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(ii) the notional principal amount which is the subject of that agreement
shall not, when aggregated with the then existing Hedging Exposure,
exceed the hedging limit referred to in paragraph (b) below;
(iii) the counterparty under that agreement is or is guaranteed by:
(y) a Bank; or
(z) any other financial institution whose long term
debt is rated A or more by Standard & Poor's Ratings Group or
A2 or more by Moody's Investors Service, Inc,
provided that, if that counterparty is guaranteed by such a financial
institution, the Arrangers have consented in advance to the terms and
conditions of the guarantee of the counterparty (such consent not to be
unreasonably withheld or delayed).
(b) The Borrower shall procure that prior to the date of the first Tranche B
Loan the Borrower Group (taken as a whole) shall have entered into
Interest Rate Protection Agreements providing for the capping at not more
than 10 per cent. per annum (plus the Margin) of interest in relation to
at least 50 per cent. of the aggregate of the projected Tranche B Loans in
the Agreed Base Case for the period beginning 1st January, 1998 and ending
30th June, 2001.
(c) For the avoidance of doubt, the Borrower shall be entitled to enter into
as many other interest hedging arrangements as it considers appropriate
with the Majority Banks' consent (such consent not to be unreasonably
withheld or delayed).
18.24 FINANCIAL COVENANTS
(a) (i) All the terms used in this Clause 18.24 are to be calculated
substantially in accordance with the accounting principles applied
in connection with the preparation of the Original Accounts and
where applicable on the basis of information supplied pursuant to
Clause 18.2 (Financial Information) above except that, if at any
time there is a change or a proposal to change the basis upon which
the relevant accounts are prepared, then:
(A) the Borrower shall promptly notify the Agent of the change or
proposed change;
(B) within 5 Business Days of receipt of the notification, the
Borrower and the Agent shall enter into discussions for a
period of not more than 21 days with a view to agreeing the
amendments which would be required to be made to this
Agreement (including, without limitation, Clause 18.24
(Financial covenants)) to reflect the basis upon which this
Agreement was entered into by the Banks;
(C) any agreement under sub-paragraph (B) above shall be, with the
prior consent of all the Banks, binding on all the Parties;
and
(D) if no agreement is reached under sub-paragraph (B) above, the
Borrower's auditors shall certify the amendments which would
be required to be made to this Agreement to place the Banks in
the same position they would have been in if the change had
not taken place; the auditor's certificate will, in the
absence of manifest error, be binding on all the Parties.
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(ii) If there is a dispute as to any interpretation or computation under
this Clause 18.24, the interpretation or computation of the Agent,
in the absence of manifest error, shall prevail.
(iii) Any amount outstanding in a currency other than Sterling is to be
taken into account at its Sterling equivalent calculated on the
basis of the Agent's spot rate of exchange for the purchase of the
relevant currency in the London foreign exchange market with
Sterling at or about 11.00 a.m. on the day the relevant amount falls
to be calculated.
(b) The Borrower shall procure that:
(i) as at the last day of each Quarter ending on or after the day on
which the first Loan under Tranche B was utilised, the Tranche B
Leverage Ratio for the Borrower Group will not be more than the
number set out in Part 1 of Schedule 7 opposite such date;
(ii) as at the last day of each Quarter, commencing with the Quarter
ending nine months prior to the first Repayment Date, the Coverage
of Bank Debt Loan Charges will not be less than the number set out
in Part 2 of Schedule 7;
(iii) Cash Interest Cover in respect of any period of two consecutive
Quarters shall not be less than the amount set opposite the date on
which such Quarters end in Part 3 of Schedule 7 on such date;
(iv) (A) for the period from the Quarter ended 31st March, 1998 to the
earlier of 31st December, 2000 and the last day of the Quarter
during which the Total Leverage Ratio has fallen below 4.5:1
for the two previous Quarters ending on that day, Annualised
EBITDA shall not be less than the amount set out opposite such
last day in Part 4 of Schedule 7 as at the last day of each
Quarter (the "RELEVANT QUARTER");
(B) if the end of the period in sub-paragraph (A) above is 31st
December, 2000, then from 31st December, 2000 to the last day
of the first Relevant Quarter for which the Total Leverage
Ratio is below 4.5:1, Annualised EBITDA shall not be less than
the amount which is 15 per cent. below the relevant projection
for that period as shown in the Agreed Base Case; and
(C) from the end of the Quarter in sub-paragraph (A) or (B) above
during which the Total Leverage Ratio has fallen below 4.5:1
for the two previous Quarters ending on that day, the Total
Leverage Ratio shall remain below 4.5:1,
and, for the purpose of this subparagraph (iv), "ANNUALISED EBITDA"
means two times EBITDA on a cumulative basis for the two
consecutive Quarters ending on the last day of the Quarter
preceding the Relevant Quarter.
18.25 BOOK DEBTS AND RECEIPTS
Each Obligor will get in and realise its:
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(a) securities to the extent held by way of temporary investment;
(b) book and other debts and other moneys; and
(c) royalties, fees and income of like nature in relation to any
Intellectual Property Rights owned by it,
in the ordinary course of its business and promptly pay the proceeds of
such getting in and realisation into a Security Account.
18.26 CONSTITUTIONAL DOCUMENTS
No Obligor will, save as required by law, amend or agree to amend the
Memorandum or Articles of Association or other constitutional documents or
by-laws in any way which would be likely materially and adversely to
affect the interests of the Banks under the Finance Documents provided
that if this Clause 18.26 would not be enforceable (having regard to the
rule in Russell v Northern Bank Development Corporation Limited & Ors)
against any Obligor it shall be deemed not to have been given by that
Obligor.
18.27 REORGANISATION
As soon as practicable prior to any proposed reorganisation with respect
to the members of the Borrower Group the Borrower shall notify the Agent
of the same and shall supply to the Agent in sufficient copies for all the
Banks a memorandum and charts describing the capital and share ownership
of the Borrower Group (and giving details of any minority shareholdings in
any Subsidiary) and all interests of members of the Borrower Group in
other companies, partnerships, joint ventures and the like as of and
immediately after such proposed reorganisation.
18.28 SYNDICATION
(a) The Borrower shall, at the request of any Arranger (acting reasonably),
provide reasonable assistance to the Arrangers in effecting the
syndication of this facility, including by:
(i) providing such information available to the Borrower as may
be required by any of the Arrangers(acting reasonably) in connection
with such syndication; and
(ii) making available in the United Kingdom the management of the
Borrower for the purposes of making presentations to potential
lending institutions to the extent reasonably necessary to achieve
such syndication.
(b) In relation to information distributed to a financial institution which
becomes a Bank by an Arranger in accordance with Clause 30 (Disclosure of
information), the Borrower shall give to that Bank an appropriate
representation and warranty as to the truth and accuracy of that
information as at the date it was distributed, to the extent that the
Borrower is able to make such a representation and warranty after due
consideration and acting in good faith.
18.29 OPERATION OF THE SECURITY ACCOUNTS
(a) In relation to each Security Account:
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(i) the Borrower shall use reasonable endeavours to procure that the
bank with which such Security Account is maintained shall give to
the Security Agent within 3 Business Days following execution of the
Debenture an acknowledgement substantially in the form set out in
Schedule 4 to the Debenture; if, despite the use of reasonable
endeavours, such bank will not give such an acknowledgement, no
Obligor will incur, create or permit to subsist any Financial
Indebtedness as between it as debtor and such bank as creditor;
(ii) the Borrower shall ensure that all amounts payable under each
Subscriber Agreement entered into after the date of this Agreement
are paid (directly or indirectly) into an account at NatWest
Nottingham or any other branch of National Westminster Bank Plc (or
a subsidiary thereof) (each a "NATWEST BANK"); and
(iii) the Borrower shall procure that by 1st January, 1997 NatWest
Nottingham or any other branch of National Westminster Bank Plc (or
a Subsidiary thereof) is the only Account Bank for the purposes of
this Agreement and the Project (other than any Giro or similar
account or account of Royal Bank of Scotland PLC from which amounts
payable by Subscribers are then promptly paid to a NatWest bank in
compliance with sub-paragraph (a)(ii) above).
(b) In relation to each Security Account referred to in paragraph (a) of this
Clause 18.29:
(i) unless an Event of Default has occurred and is continuing, each
Obligor may from time to time make withdrawals from any such
Security Account into which it has paid sums under Clause 18.25
(Book debts and receipts);
(ii) all amounts withdrawn from any such Security Account for application
in or towards making specific payment or meeting a specific
liability shall be applied in or towards making that payment or
meeting that liability and for no other purpose;
(c) In relation to any Security Account (including any Security Account
referred to in paragraph (a) above or any Security Account referred to in
Clause 18.16(b) (Distributions)):
(i) following the occurrence of an Event of Default which is continuing,
save to the extent the Agent otherwise directs in writing, no
Obligor may make any withdrawals from any such Security Account;
(ii) at any time after the security constituted by the Debenture becomes
enforceable, the Agent shall be entitled to withdraw sums from any
such Security Account and apply the same in or towards (i) any of
the purposes, and in the order, specified in Clause 12.7 (Partial
payments) and/or (ii) any of the purposes specified in Clause 9
(Powers of Receiver) of the Debenture and/or (iii) in accordance
with the directions of the Majority Banks;
(iii) neither the Agent nor any of the Banks shall be responsible to any
Obligor for any non-payment of any liability of any Obligor which
could be paid out of moneys standing to the credit of a Security
Account; and neither the Agent nor any of the Banks shall be liable
to any Obligor for any withdrawal wrongly made if made in good
faith;
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(iv) the Agent may delegate its powers of withdrawal under this Clause
18.29 to any administrative receiver, receiver and/or manager; and
(v) the Agent and each Bank shall be entitled to full information as to
the operation and use of any such Security Account.
18.30 CONSTRUCTION LIABILITY ACCOUNT
Jewel shall procure that there shall not, without prior consultation with
the Agent, at any time be more than such amount standing to the credit of
the Construction Liability Account or Construction Liability Accounts as
is required for the purposes of its obligation under Clause 18.15(a)(i)
(Borrowing and guarantees).
18.31 RING-FENCING
No Obligor shall, and Jewel shall procure that no member of the Borrower
Group will, deal with Diamond PLC or any Affiliate of Diamond PLC (other
than a member of the Borrower Group) (each a "DIAMOND COMPANY") in which
payments are to be made by a member of the Borrower Group or indebtedness
(other than Subordinated Debt) arises between a member of the Group and a
Diamond Company, unless that dealing
(a) is on an arm's length basis and is in the ordinary course of
business; or
(b) has been approved by the Agent (acting on the instructions of
the Majority Banks).
19. SYSTEM UNDERTAKINGS
19.1 SYSTEM
Each Obligor will procure that the System is designed, constructed,
completed, operated and run in a safe, efficient and business-like manner
in accordance with:
(a) the requirements of all Licences (other than the requirement to
comply with its Build Milestones);
(b) requirements relating thereto in any Project Contract;
(c) all applicable laws and regulations; and
(d) reasonable and prudent industry standards,
which, in the case of paragraphs (b) and (c) above, are material to the
System or the Project or which, if an Obligor does not so design,
construct, complete, operate or run, is reasonably likely to have a
material adverse effect on the financial condition of that Obligor.
19.2 PROJECT CONTRACTS AND LICENCES
(a) Subject to paragraph (b) below, each Obligor will comply with all of its
obligations under the Project Contracts to which it is a party where
failure so to comply is reasonably likely to have a Material Adverse
Effect.
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(b) (i) The Obligors shall pass, by each of the relevant dates stipulated
in the relevant Licences, at least the number of premises that the
Obligors in aggregate are required to pass in accordance their
Licence obligations.
(ii) Each Obligor which is a Licence Holding Subsidiary will comply with
all of its obligations (other than its obligation to comply with its
Build Milestones) under each relevant Licence.
(c) (i) Save in the circumstances identified in paragraph (iii) below, no
Obligor will give any consent under or agree to waive, or amend any
of the Licences where to do so in the case of a waiver or amendment
is reasonably likely to have a Material Adverse Effect.
(ii) No Obligor will give any consent under or agree to waive, amend,
terminate or abandon any of the Project Contracts where to do so is
reasonably likely to have a Material Adverse Effect.
(iii) For the avoidance of doubt, the provisions of sub-paragraphs (c)(i)
and (c)(ii) above and paragraph (d) below shall not prohibit any
Obligor from terminating:
(aa) any Project Contract provided that such Project
Contract is either replaced by an agreement on substantially
the same or better terms or, in the case of any Interconnect
Agreement, at least one other existing Interconnect Agreement
for the System remains in full force and effect; or
(bb) any PDS Licence provided that such PDS Licence is
replaced by an LD Licence in favour of the same Obligor for
the same Franchise Area.
(d) Each Obligor will maintain and in good faith enforce in a manner it
reasonably considers appropriate its rights under the Project Contracts
and on applicable terms, regulations and authorisations to the extent
necessary in order to ensure:
(i) its compliance with its obligations under the Finance Documents; and
(ii) if material to the interests of the Finance Parties under the
Finance Documents, the performance by the other parties thereto of
their obligations under the Project Contracts.
(e) Each Obligor will perform its obligations under all material leases,
permissions, consents, approvals, licences, easements, rights of way and
any other rights if failing to do so is reasonably likely to have a
Material Adverse Effect.
(f) The Borrower will promptly provide the Agent for distribution to the Banks
at intervals of no more than 3 months' duration, notice (together with
such details as the Agent may reasonably request) of all Project Contracts
entered into by any member of the Borrower Group since the date of this
Agreement, or if later, the date on which the Borrower last provided
notice pursuant to this Clause 19.2(f).
(g) Each Obligor shall ensure that, if any Licence is due to expire before the
Final Maturity Date, that Obligor shall use its best endeavours to ensure
that the Licence is renewed on or before expiry until a date after the
Final Maturity Date.
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19.3 OPERATIONS
Each Obligor (other than Jewel) will procure that it has at all times
available to it operating and maintenance personnel trained to operate
and maintain the System properly and efficiently within all
manufacturers' material guidelines and specifications and to respond to
emergency conditions.
19.4 MAINTENANCE AND REINSTATEMENT
Each Obligor (other than Jewel) will keep and use all reasonable
endeavours to keep or will procure that the System and, without
limitation, all assets forming part of the System are kept in good and
efficient operating condition and that material defects, imperfections
and other faults are promptly remedied and made good and that repairs,
renewals, replacements, additions and improvements thereto required to
such end are promptly made.
19.5 POWER TO REMEDY
(a) In case of default by any Obligor in complying with Clause 19.4
(Maintenance and reinstatement) or Clause 5.2(i) (Repair) of the
Debenture, each Obligor (other than Jewel) will permit the Agent or its
agents and contractors to enter facilities relating to the System and to
comply with or object to any notice served on any Obligor in respect of
the System and to effect such repairs or insurance or generally do such
things or pay all reasonable and properly incurred costs, charges and
expenses necessary or desirable to prevent or remedy any breach of those
Clauses or to comply with or object to any notice.
(b) The Borrower will indemnify and keep the Agent indemnified against all
losses, costs, charges and expenses reasonably and properly incurred in
connection with the exercise of the powers contained in this Clause 19.5
unless the same arises as a result of any gross negligence on the part of
the Agent or its officers, employees, directors, agents or contractors.
20. MANAGEMENT AGREEMENT
If either party to the Management Agreement terminates or gives notice of
an intention to terminate such agreement:
(a) the Borrower shall promptly notify the Agent in writing;
(b) as soon as practicable after such notification, the Borrower
shall enter into a replacement Management Agreement with a party and
on terms reasonably acceptable to the Majority Banks but only with
the prior written consent of the Majority Banks (such consent not to
be unreasonably withheld);
(c) the Banks shall not withhold consent to such replacement
Management Agreement if, at their absolute discretion, the
management arrangements represented by the replacement Management
Agreement (including the identity of the parties to such agreement)
do not materially differ from the management arrangements in place
at the date of this Agreement.
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21. DEFAULT
21.1 EVENTS OF DEFAULT
Each of the events set out in Clauses 21.2 to 21.20 (inclusive) is an
Event of Default.
21.2 NON-PAYMENT
An Obligor does not pay any amount payable by it under the Finance
Documents at the place and in the currency in which it is expressed to be
payable and in relation to payments of interest that have been delayed for
administrative reasons only, the same is not remedied within 3 Business
Days of the same becoming due.
21.3 BREACH OF OTHER OBLIGATIONS
(a) An Obligor does not comply with any obligation under Clauses 18.9
(Negative Pledge), 18.11 (Disposals), 18.15 (Borrowing and Guarantees),
18.16 (Distributions), 18.19 (Scope of business), 18.20 (Share capital),
18.23 (Hedging) or18.24 (Financial covenants).
(b) An Obligor does not comply with any obligation under a Finance Document
(other than those obligations referred to in Clause 21.2 (Non-payment),
paragraph (a) above and paragraph (d) below) and, if the default is
capable of remedy, it is not remedied to the reasonable satisfaction of
the Majority Banks within 30 days of notice from the Agent to the relevant
Obligor of that default.
(c) Any Obligor does not comply with any obligation under a Project Contract
to the extent that the default is reasonably likely to have a Material
Adverse Effect and, if the default is capable of remedy, it is not
remedied to the reasonable satisfaction of the Majority Banks within 15
days of notice from the Agent to the relevant Obligor of that default.
(d) An Obligor is not in compliance with its obligations under Clause 19.1(a)
(System) or Clause 19.2(b) (Projects Contracts and Licences) in respect
of:
(i) its aggregate Build Milestones for all Franchise Areas; or
(ii) its Build Milestones for individual Franchise Areas and a Notice
Event has occurred in respect of that breach; or
(iii) any other obligation in respect of the Licences and in respect of
that breach either:
(A) a Notice Event has occurred; or
(B) the breach is reasonably likely to have a material adverse
effect on the financial condition of the Borrower Group (taken
as a whole) or have a material adverse effect on the Project
or the System,
or a Notice Event occurs for any other reason, and for the purposes of
this paragraph (d), a "NOTICE EVENT" is either the service by OFTEL on any
Obligor of an intention to make an order under Section 17 of the
Telecommunications Act or any section of any act or provision of law
replacing, amending or re-enacting such section or the equivalent action
or equivalent stage in analogous proceedings is taken or reached by the
ITC.
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21.4 MISREPRESENTATION
A representation, warranty or statement of any Obligor made or repeated
in any Finance Document is or proves to be incorrect in a material
respect when made or deemed to be made or repeated and, if capable of
remedy, is not remedied to the reasonable satisfaction of the Majority
Banks within 30 days and such incorrectness is reasonably likely to have
a Material Adverse Effect.
21.5 CROSS-DEFAULT
(a) Any Financial Indebtedness in excess in aggregate of pound sterling
1,000,000 (or its equivalent in any other currency or currencies) of any
member of the Diamond Group (other than in each case under the Finance
Documents) is not paid when due as extended by any applicable grace period
or as a result of an event of default (however described) under the
document relating to that Financial Indebtedness becomes prematurely due
and payable or is placed on demand;
(b) the creditor concerned becomes entitled to declare any such Financial
Indebtedness in excess in aggregate of pound sterling 1,000,000 (or its
equivalent in any other currency or currencies) due and payable prior to
its stated maturity as a result of an event of default (however
described); or
(c) any Security Interest over any asset of any member of the Diamond Group
and securing Financial Indebtedness exceeding pound sterling 1,000,000 (or
its equivalent in any other currency or currencies) becomes enforceable as
a result of an event of default (however described) or is enforced.
21.6 INSOLVENCY
(a) Any member of the Diamond Group is unable to pay its debts as they fall
due or admits inability to pay its debts as they fall due; or
(b) any member of the Borrower Group stops, suspends or threatens to stop or
suspend payment of all or a material part of its debts or makes a general
assignment or any arrangement or composition with or for the benefit of
its creditors or a moratorium is agreed or declared in respect of or
affecting all or a material part of its indebtedness; or
(c) any member of the Borrower Group begins negotiations or takes any
proceeding or other step with a view to re-adjustment, re-scheduling or
deferral of its indebtedness (or any part thereof which it would otherwise
be unable to pay when due); or
(d) Diamond PLC makes a general arrangement for the benefit of, or a
composition with, its creditors or a moratorium is agreed or declared in
respect of or affecting all or a material part of its indebtedness.
21.7 INSOLVENCY PROCEEDINGS
(a) Any step (including petition, proposal or convening a meeting) is taken by
any member of the Borrower Group with a view to a composition, assignment
or arrangement with any creditors of any member of the Diamond Group; or
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(b) a meeting of the directors or the members of any member of the Borrower
Group is convened for the purpose of considering any resolution for (or to
petition for) its winding-up or for its administration or any such
resolution is passed; or
(c) any person presents a petition for the winding-up or administration of any
member of the Diamond Group which, provided the relevant member is
contesting the petition in good faith and by due process, is not
discharged within 30 days of its presentation; or
(d) an order for the winding-up or administration of any member of the Diamond
Group is made; or
(e) any other step (including petition, proposal or convening a meeting) of a
formal or judicial nature is taken with a view to the rehabilitation,
administration, custodianship, liquidation, winding-up or dissolution of
any member of the Borrower Group or any other insolvency proceedings
involving a member of the Borrower Group which other steps or insolvency
proceedings are not discharged within 30 days of their commencement.
21.8 APPOINTMENT OF RECEIVERS AND MANAGERS
(a) Any liquidator, trustee in bankruptcy, judicial custodian, compulsory
manager, receiver, administrative receiver, administrator or the like is
appointed in respect of any member of the Diamond Group or any part of its
assets; or
(b) any member of the Diamond Group or any of their respective directors
requests the appointment of a liquidator, trustee in bankruptcy, judicial
custodian, compulsory manager, receiver, administrative receiver,
administrator or the like.
21.9 CREDITORS' PROCESS
Any attachment, sequestration, distress or execution affects:
(a) any asset of any member of the Borrower Group;
(b) the whole or a substantial part of the assets of Diamond PLC,
and in each case is in respect of an amount exceeding pound sterling
100,000 (or its equivalent in any other currency or currencies) and is not
discharged within 14 days.
21.10 ANALOGOUS PROCEEDINGS
There occurs, in relation to any member of the Borrower Group or the
Diamond Group (as applicable), any event anywhere which corresponds with
any of those mentioned in Clauses 21.6 to 21.9 (inclusive).
21.11 SYSTEM
(a) There occurs any damage to the System which makes it unlikely that any
Obligor will be in a position to comply with its obligations under any of
the Licences, the consequences of which are reasonably likely to have a
Material Adverse Effect.
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(b) A material part of the works for the development of the System is
suspended for any reason which makes it unlikely any Obligor will be in a
position to comply with its obligations under any of the Licences, the
likely consequences of which are reasonably likely to have a Material
Adverse Effect.
21.12 ABANDONMENT AND CESSATION OF BUSINESS
(a) Any Obligor abandons all or a material part of the System.
(b) Any Obligor ceases, or threatens to cease, to carry on all or a
substantial part of its business.
21.13 NATIONALISATION
The Government of the U.K. or any agency thereof takes compulsory steps
and seizes, expropriates, nationalises or acquires any member of the
Diamond Group or any of its material assets.
21.14 OTHER ACTION OF STATE OR OTHER AGENCY
(a) The Government of the U.K. or any agency thereof (including without
limitation the DTI, OFTEL or the ITC) implements any regulation or asserts
any form of administrative control over the System and the result of any
of the foregoing has or is reasonably likely to have a Material Adverse
Effect.
(b) Any Licence of any Obligor is or is to be:
(i) terminated (subject to Clause 19.2(c)(iii) (Project Contracts and
Licences), revoked, cancelled; or
(ii) modified in a way which is reasonably likely to have a Material
Adverse Effect,
whether by reason of any breach by that Obligor of any term, condition or
other requirement thereof or for any other reason whatsoever other than as
permitted under Clause 19.2(c)(iii) (Project Contracts and Licences).
(c) Any Licence Holding Subsidiary does not pay any amount payable by it under
any Licence when due and the same is not remedied within 5 Business Days
of such sum becoming due.
21.15 INDUSTRIAL ACTION, ETC.
Any act of terrorism or sabotage is effected with respect to the System or
any person or works connected therewith which has a Material Adverse
Effect in relation to the Borrower Group.
21.16 ILLEGALITY
(a) It is or becomes unlawful for any person (other than a Finance Party) to
perform or comply with any one or more of its obligations under any of the
Finance Documents or the Project Contracts or any of the Licences
unlawfulness of the relevant obligation is reasonably likely to have a
Material Adverse Effect.
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(b) Any Project Contract or any of the Licences or any provision thereof is
required by any regulation having the force of law to be waived, amended,
modified or abandoned and that the waiver, amendment, modification or
abandonment is reasonably likely to have a Material Adverse Effect.
21.17 MATERIAL ADVERSE CHANGE
Any event or series of events occurs which is reasonably likely to have a
Material Adverse Effect.
21.18 CHANGE OF OWNERSHIP
(a) Prior to a Permitted Flotation (except with the consent of the Majority
Banks):
(i) GS Capital Partners at any time own (directly or indirectly) or are
only able to exercise or control the exercise of in aggregate less
than 25% of the voting power exercisable at general meetings of
Diamond PLC or only have the right to receive less than 25% of the
profits of the Borrower Group; or
(ii) GS Capital Partners, Mr. Robert Goad/Columbia Management, Inc. and
Booth American Company/Mr. Ralph Booth/Booth English Cable, Inc. at
any time together own (directly or indirectly) or are only able to
exercise or control the exercise of in aggregate less than 30% of
the voting power exercisable at general meetings of Diamond PLC or
only have the right to receive in aggregate less than 30% of the
profits of the Borrower Group; or
(iii) other than as a result of the listing requirements of or in
connection with a Permitted Flotation, ECCP at any time no longer
has each of the rights in relation to the appointment of directors
of Diamond PLC given to it in Clause 6.2 of the Shareholders
Agreement on the date such agreement was entered into.
(b) At any time (except with the consent of the Majority Banks), any single
person or group of persons acting in concert (other than ECCP or GS
Capital Partners ) acquires in one or a series of transactions or at any
time owns (directly or indirectly) or is able to exercise or control the
exercise of more than 29.9% of the voting power exercisable at general
meetings of Diamond PLC or is entitled to receive more than 29.9% of the
profits of the Borrower Group
(c) Until the earlier of 2 years following a Permitted Flotation or Year 6 of
the Agreed Base Case ECCP and/or Booth American Company owns (directly or
indirectly) in aggregate less than 10% of the issued share capital of
Diamond PLC provided that thereafter, subject to the management at such
time remaining in place and the Borrower being in substantial compliance
with the financial covenants set out in Clause 18.24 (Financial
covenants), ECCP and/or Booth American Company shall be entitled to
dispose of their shares in Diamond PLC.
(d) (i) Jewel at any time ceases to be a wholly owned Subsidiary of Diamond
PLC.
(ii) Any Obligor, directly or indirectly, ceases to be a wholly-owned
Subsidiary of Jewel.
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21.19 MANAGEMENT AGREEMENT
The Management Agreement is terminated and not replaced within 30 days of
such termination with a Management Agreement complying with Clause 20
(Management Agreement).
21.20 GUARANTEES AND SECURITY
(a) The guarantee of any Obligor is not effective or is alleged by an Obligor
to be ineffective for any reason.
(b) The Security Interests constituted by the Security Documents cease to be
first priority Security Interests of the type therein described (except as
contemplated therein) over the Security Assets therein referred to and
enforceable against the Obligor granting such security.
(c) The Subordination Agreement is not effective or is alleged by Diamond PLC
or any Obligor to be ineffective for any reason.
21.21 ACCELERATION
At any time after the occurrence of an Event of Default which is
continuing the Agent may, and shall if so directed by the Majority Banks,
by notice to the Borrower do any or all of the following:
(a) cancel all or any part of the Total A Commitments and/or the
Total B Commitments; and/or
(b) demand that all or part of the Loans outstanding under either
or both Tranches, together with accrued interest and any or all
other amounts accrued under the Finance Documents, be immediately
due and payable, whereupon they shall become immediately due and
payable; and/or
(c) demand immediate full cash cover in respect of all
outstanding Bank Guarantees, whereupon the Borrower shall
immediately provide to the Agent for the relevant Banks cash cover
for the outstanding liabilities (if any) of those Banks under each
such Bank Guarantee; and/or
(d) negotiate any compromise, release, reduction or retirement of
the relevant Banks' liabilities in respect of each outstanding Bank
Guarantee and any payment made pursuant to the same shall be treated
as payment made pursuant to a demand under that Bank Guarantee for
the purposes of Clause 8 (Counter-indemnity for the Bank
Guarantees); and/or
(e) instruct the Agent to enforce all or part of the security
constituted under or pursuant to the Security Documents or enforce
any other right held by it.
22. THE AGENT, THE SECURITY AGENT AND THE ARRANGERS
22.1 APPOINTMENT AND DUTIES OF THE AGENT
Each Finance Party (other than the Agent) irrevocably appoints the Agent
and each Finance Party (other than the Security Agent) irrevocably
appoints the Security Agent to act as its agent
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on its behalf, in each case under and in connection with the Finance
Documents, and irrevocably authorises the Agent and/or, as the case may
be, the Security Agent on its behalf to perform the duties and to exercise
the rights, powers and discretions that are specifically delegated to it
under or in connection with the Finance Documents, together with any other
incidental rights, powers and discretions. The Agent and the Security
Agent each have only those duties which are expressly specified in the
Finance Documents, and those duties are solely of a mechanical and
administrative nature.
22.2 ROLE OF THE ARRANGERS
Except as specifically provided in the Finance Documents, the Arrangers
have no obligations of any kind to any other Party under or in connection
with any Finance Document.
22.3 RELATIONSHIP
The relationship between the Agent and the other Finance Parties is that
of agent and principal only. Except as contemplated by the Security
Documents, nothing in this Agreement constitutes the Agent as trustee or
fiduciary for any other Party or any other person and the Agent need not
hold in trust any moneys paid to it for a Party or be liable to account
for interest on those moneys.
22.4 MAJORITY BANKS' DIRECTIONS
Each of the Agent and the Security Agent will be fully protected if it
acts in accordance with the instructions of the Majority Banks in
connection with the exercise of any right, power or discretion or any
matter not expressly provided for in the Finance Documents. The Agent
or, as the case may be, the Security Agent will promptly notify the Banks
of any instructions given by the Majority Banks. Any such instructions
given by the Majority Banks will be binding on all the Banks. In the
absence of such instructions, each of the Agent and the Security Agent
may act as it considers to be in the best interests of all the Banks.
22.5 DELEGATION
The Agent and the Security Agent may act under the Finance Documents
through their respective personnel and agents.
22.6 RESPONSIBILITY FOR DOCUMENTATION
None of the Agent, the Security Agent nor any Arranger is responsible to
any other Party for:
(a) the execution, genuineness, validity, enforceability or
sufficiency of any Finance Document or any other document;
(b) the collectability of amounts payable under any Finance
Document; or
(c) the accuracy of any statements (whether written or oral) made
in or in connection with any Finance Document (including the
Information Memorandum).
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22.7 DEFAULT
(a) Neither the Agent nor the Security Agent is obliged to monitor or enquire
as to whether or not a Default has occurred. Neither the Agent nor the
Security Agent will be deemed to have knowledge of the occurrence of a
Default. However, if the Agent or the Security Agent receives notice from
a Party referring to this Agreement, describing the Default and stating
that the event is a Default, it shall promptly notify the Banks.
(b) Each of the Agent and the Security Agent may require from the Banks the
receipt of security satisfactory to it, whether by way of payment in
advance or otherwise, against any liability or loss which it will or may
incur in taking any proceedings or action arising out of or in connection
with any Finance Document before it commences those proceedings or takes
that action.
22.8 EXONERATION
(a) Without limiting paragraph (b) below, neither the Agent nor the Security
Agent will be liable to any other Party for any action taken or not taken
by it under or in connection with any Finance Document, unless directly
caused by its gross negligence or wilful misconduct.
(b) No Party may take any proceedings against any officer, employee or agent
of the Agent in respect of any claim it might have against the Agent or
the Security Agent or in respect of any act or omission of any kind
(including gross negligence or wilful misconduct) by that officer,
employee or agent in relation to any Finance Document.
22.9 RELIANCE
Each of the Agent and the Security Agent may:
(a) rely on any notice or document believed by it to be genuine
and correct and to have been signed by, or with the authority of,
the proper person;
(b) rely on any statement made by a director or employee of any
person regarding any matters which may reasonably be assumed to be
within their knowledge or within their power to verify; and
(c) engage, pay for and rely on legal or other professional
advisers selected by it (including those in the Agent's or the
Security Agent's employment and those representing a Party other
than the Agent or the Security Agent).
22.10 CREDIT APPROVAL AND APPRAISAL
Without affecting the responsibility of any Obligor for information
supplied by it or on its behalf in connection with any Finance Document,
each Bank confirms that it:
(a) has made its own independent investigation and assessment of the
financial condition and affairs of each Obligor and its related
entities in connection with its participation in this Agreement and
has not relied exclusively on any information provided to it by the
Agent or the Arrangers in connection with any Finance Document; and
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(b) will continue to make its own independent appraisal of the
creditworthiness of each Obligor and its related entities while any
amount is or may be outstanding under the Finance Documents or any
Commitment is in force.
22.11 INFORMATION
(a) The Agent shall promptly forward to the person concerned the original or a
copy of any document which is delivered to the Agent by a Party for that
person.
(b) The Agent shall promptly supply a Bank with a copy of each document
received by the Agent under Clause 4 (Conditions Precedent) upon the
request and at the expense of that Bank.
(c) Except where this Agreement specifically provides otherwise, neither the
Agent nor the Security Agent is obliged to review or check the accuracy or
completeness of any document it forwards to another Party.
(d) Except as provided above, neither the Agent nor the Security Agent has any
duty:
(i) either initially or on a continuing basis to provide any Bank
with any credit or other information concerning the financial
condition or affairs of any Obligor or any related entity of any
Obligor whether coming into its possession before, on or after the
date of this Agreement; or
(ii) unless specifically requested to do so by a Bank in
accordance with this Agreement, to request any certificates or other
documents from any Obligor.
22.12 THE AGENT, THE SECURITY AGENT AND THE ARRANGERS INDIVIDUALLY
(a) If it is also a Bank, each of the Agent, the Security Agent and an
Arranger has the same rights and powers under this Agreement as any other
Bank and may exercise those rights and powers as though it were not the
Agent, the Security Agent or an Arranger.
(b) If it is also a Bank, any reference in the Finance Documents to the Agent
means the agency department of the Agent specifically responsible for
acting as Agent under and in connection with the Finance Documents, as
referred to in Clause 35 (Notices). In acting as Agent, the agency
department will be treated as a separate entity from any other department
or division of the Bank concerned. Without limiting the above, the Agent
will not be deemed to have notice of a document, information, fact, matter
or thing in the possession or knowledge of any other department or
division of that Bank.
(c) Each of the Agent, the Security Agent and each Arranger may:
(i) carry on any business with an Obligor or its related
entities;
(ii) act as agent or trustee for, or in relation to any financing
involving, an Obligor or its related entities; and
(iii) retain any profits or remuneration in connection with its
activities under this Agreement or in relation to any of the
foregoing.
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22.13 INDEMNITIES
(a) Without limiting the liability of any Obligor under the Finance Documents,
each Bank shall forthwith on demand indemnify the Agent and the Security
Agent for its proportion of any liability or loss incurred by the Agent
or, as the case may be, the Security Agent in any way relating to or
arising out of its acting as the Agent or Security Agent, except to the
extent that the liability or loss arises directly from the Agent's or the
Security Agent's gross negligence or wilful misconduct.
(b) A Bank's proportion of the liability set out in paragraph (a) above will
be the proportion which its participation in the Utilisations (if any)
bear to all the Utilisations on the date of the demand. If, however,
there are no Utilisations outstanding on the date of demand, then the
proportion will be the proportion which its Tranche B Commitment bears to
the Total B Commitments at the date of demand or, if the Total B
Commitments have then been cancelled, bore to the Total B Commitments
immediately before being cancelled.
(c) The Borrower shall forthwith on demand reimburse each Bank for any payment
made by it under paragraph (a) above.
22.14 COMPLIANCE
(a) Each of the Agent and the Security Agent may refrain from doing anything
which might, in its opinion, constitute a breach of any law or regulation
or be otherwise actionable at the suit of any person, and may do anything
which, in its opinion, is necessary or desirable to comply with any law or
regulation of any jurisdiction.
(b) Without limiting paragraph (a) above, neither the Agent nor the Security
Agent need disclose any information relating to any Obligor or any of its
related entities if the disclosure might, in the opinion of the Agent or,
as the case may be, the Security Agent, constitute a breach of any law or
regulation or any duty of secrecy or confidentiality or be otherwise
actionable at the suit of any person.
22.15 RESIGNATION OF THE AGENT
(a) Notwithstanding its irrevocable appointment, the Agent may (and, if the
Majority Banks so request, shall) resign by giving notice to the Banks and
the Borrower. The Agent will not give such notice without the consent of
the Borrower (such consent not to be unreasonably withheld). On giving
such notice, the Agent may forthwith appoint one of its Affiliates as
successor Agent or, failing that, the Majority Banks, following
consultation with the Borrower, may appoint a successor Agent.
(b) If the appointment of a successor Agent is to be made by the Majority
Banks but they have not, within 30 days after notice of resignation,
appointed a successor Agent which accepts the appointment, the Agent,
following consultation with the Borrower, may appoint a successor Agent.
(c) The resignation of the Agent and the appointment of any successor Agent
will both become effective only upon the successor Agent notifying all the
Parties that it accepts its appointment. On giving the notification, the
successor Agent will succeed to the position of the Agent and the term
"AGENT" will mean the successor Agent.
<PAGE> 87
86
(d) The retiring Agent shall, at its own cost, make available to the
successor Agent such documents and records and provide such assistance as
the successor Agent may reasonably request for the purposes of performing
its functions as the Agent under this Agreement.
(e) Upon its resignation becoming effective, this Clause 22 shall continue to
benefit the retiring Agent in respect of any action taken or not taken by
it under or in connection with the Finance Documents while it was the
Agent, and, subject to paragraph (d) above, it shall have no further
obligations under any Finance Document.
22.16 BANKS
Each of the Agent and the Security Agent may treat each Bank as a Bank,
entitled to payments under this Agreement and as acting through its
Facility Office(s) until it has received notice from that Bank to the
contrary not less than (unless otherwise agreed by the Agent or, as the
case may be, the Security Agent) 5 Business Days' prior to the relevant
payment.
22.17 SECURITY AGENT AS TRUSTEE
The Security Agent in its capacity as trustee or otherwise under the
Security Documents:
(a) is not liable for any failure, omission or defect in perfecting or
registering the security constituted or created by any Security
Document;
(b) may accept without enquiry such title as any Obligor may have
to any asset secured by any Security Document; and
(c) is not under any obligation to hold any Security Document or
any other document in connection with the Security Documents or the
assets secured by any Security Document (including title deeds) in
its own possession or to take any steps to protect or preserve the
same. The Security Agent may permit any Obligor to retain any
Security Document or other document in its possession.
23. FEES
23.1 ARRANGEMENT FEE
The Borrower shall pay to the Agent for the Arrangers an arrangement fee
in the amount agreed in the relevant Fee Letter. The arrangement fee is
payable on the date of this Agreement. The arrangement fee shall be
distributed by the Agent, on behalf of the Arrangers, among the Banks in
the proportions agreed between the Arrangers and the Banks prior to the
date of this Agreement.
23.2 COMMITMENT FEE
(a) The Borrower shall pay to the Agent for each Bank a commitment fee
computed at the rate of 0.625 per cent. per annum on the undrawn,
uncancelled amount of that Bank's Tranche A Commitment during the Tranche
A Commitment Period.
(b) The Borrower shall pay to the Agent for each Bank a commitment fee
computed at the rate of 0.45 per cent. per annum on the undrawn,
uncancelled amount of:
<PAGE> 88
87
(i) that Bank's Tranche B Commitment during the Tranche B
Commitment Period; less
(ii) prior to the Tranche A Term Date, the amount of such Bank's
Tranche A Commitment.
(c) Accrued commitment fee is payable quarterly in arrear from the date of
this Agreement until:
(i) in respect of Tranche A Commitment, the earlier of the
Tranche A Term Date and the date of full cancellation of the Total A
Commitments; and
(ii) in respect of Tranche B Commitment, the earlier of the
Tranche B Term Date and the date of full cancellation of the Total B
Commitments.
Accrued commitment fee is also payable to the Agent for a Bank on the
cancelled amount of its Tranche A Commitment or Tranche A Commitment at
the time the cancellation takes effect.
23.3 AGENT'S FEE
The Borrower shall pay to the Agent for its own account an agency fee in
the amount agreed in the relevant Fee Letter. The agency fee is payable
annually in advance. The first payment of the agency fee is payable on
the date of this Agreement and each subsequent payment is payable on each
anniversary of the date of this Agreement for so long as any amount is or
may be outstanding under this Agreement or any Commitment is in force.
23.4 ISSUING BANK'S FEE
The Borrower shall pay to the Agent for the account of the Issuing Bank
an Issuing Bank's fee in the amount agreed and on the dates set out in
the relevant Fee Letter.
23.5 VAT
Any fee referred to in this Clause 23 is exclusive of any Value Added Tax
or any other tax which might be chargeable in connection with that fee.
If any Value Added Tax or other tax is so chargeable, it shall be paid by
the Borrower at the same time as it pays the relevant fee, subject to
production of a valid VAT invoice.
24. EXPENSES
24.1 INITIAL AND SPECIAL COSTS
The Borrower shall forthwith on demand pay the Agent and the Arrangers
the amount of all costs and expenses (including legal fees) reasonably
incurred by either of them in connection with:
(a) the negotiation, preparation, printing, syndication and execution
of:
(i) this Agreement and any other documents referred
to in this Agreement; and
(ii) any other Finance Document (other than a Novation
Certificate which is not executed as part of the syndication
of this Facility) executed after the date of this Agreement;
<PAGE> 89
88
(b) any amendment, waiver, consent or suspension of rights (or
any proposal for any of the foregoing) requested by or on behalf of
an Obligor and relating to a Finance Document or a document referred
to in any Finance Document; and
(c) any other matter, not of an ordinary administrative nature,
arising out of or in connection with a Finance Document.
24.2 ENFORCEMENT COSTS
The Borrower shall forthwith on demand pay to each Finance Party the
amount of all costs and expenses (including legal fees) incurred by it:
(a) in connection with the enforcement of, or the preservation of
any rights under, any Finance Document; or
(b) in investigating any Default.
25. STAMP DUTIES
The Borrower shall pay, and forthwith on demand indemnify each Finance
Party against any liability it incurs in respect of, any U.K. stamp,
registration and similar tax which is or becomes payable in connection
with the entry into, performance or enforcement of any Finance Document.
26. INDEMNITIES
26.1 CURRENCY INDEMNITY
(a) If a Finance Party receives an amount in respect of an Obligor's liability
under the Finance Documents or if that liability is converted into a
claim, proof, judgment or order in a currency other than the currency (the
"CONTRACTUAL CURRENCY") in which the amount is expressed to be payable
under the relevant Finance Document:
(i) that Obligor shall indemnify that Finance Party as an independent
obligation against any loss or liability arising out of or as a
result of the conversion;
(ii) if the amount received by that Finance Party, when converted into
the contractual currency at a market rate in the usual course of its
business is less than the amount owed in the contractual currency,
the Obligor concerned shall forthwith on demand pay to that Finance
Party an amount in the contractual currency equal to the deficit;
and
(iii) the Obligor shall pay to the Finance Party concerned forthwith on
demand any exchange costs and taxes payable in connection with any
such conversion.
(b) Each Obligor waives any right it may have in any jurisdiction to pay any
amount under the Finance Documents in a currency other than that in which
it is expressed to be payable.
<PAGE> 90
89
26.2 OTHER INDEMNITIES
Each Obligor shall forthwith on demand indemnify each Finance Party
against any loss or liability which that Finance Party incurs as a
consequence of:
(a) any Event of Default;
(b) the operation of Clause 21.21 (Acceleration) or Clause 32
(Pro rata sharing);
(c) any payment of principal or an overdue amount being received
from any source otherwise than on the last day of a relevant
Interest Period or Designated Interest Period (as defined in Clause
11.4 (Default interest)) relative to the amount so received; or
(d) (other than by reason of negligence or default by that
Finance Party) a Utilisation not being made after the Borrower has
delivered a Request or a Loan (or part of a Loan) not being prepaid
in accordance with a notice of prepayment; or
(e) any claim relating to environmental matters or any actual or
alleged breach of or failure to comply with any Environmental Law or
Environmental Approval to the extent that the loss or liability
incurred by that Finance Party would not have arisen if this
Agreement or any of the other Finance Documents had not been
executed.
Each Obligor's liability in each case includes any loss of margin and
Guarantee Fee or other loss or expense on account of funds borrowed,
contracted for or utilised to fund any amount payable under any Finance
Document, any amount repaid or prepaid or any Utilisation.
27. EVIDENCE AND CALCULATIONS
27.1 ACCOUNTS
Accounts maintained by a Finance Party in connection with this Agreement
are prima facie evidence of the matters to which they relate.
27.2 CERTIFICATES AND DETERMINATIONS
Any certification or determination by a Finance Party of a rate or amount
under this Agreement is, in the absence of manifest error, conclusive
evidence of the matters to which it relates.
27.3 CALCULATIONS
Interest (including any applicable MLA Cost) and the fee payable under
Clause 23.2 (Commitment fee) accrue from day to day and are calculated on
the basis of the actual number of days elapsed and a year of 365 days.
28. AMENDMENTS AND WAIVERS
28.1 PROCEDURE
(a) Subject to Clause 28.2 (Exceptions) and 28.3 (Additional High Yield Debt),
any term of the Finance Documents may be amended or waived with the
agreement of the Borrower, the
<PAGE> 91
90
Majority Banks and the Agent. The Agent may effect, on behalf of the
Finance Parties, an amendment or waiver to which they or the Majority
Banks have agreed.
(b) The Agent shall promptly notify the other Parties of any amendment or
waiver effected under paragraph (a) above, and any such amendment or
waiver shall be binding on all the Parties.
28.2 EXCEPTIONS
Subject to Clause 28.3 (Additional High Yield Debt), an amendment or
waiver not agreed by a Bank and which relates to:
(a) the definition of "MAJORITY BANKS" in Clause 1.1;
(b) an extension of the date for, or a decrease in an amount or a
change in the currency of, any payment to or by that Bank under any
Finance Document;
(c) any reduction in the rate at which interest or fees are
payable under any Finance Document;
(d) an increase in that Bank's Commitment;
(e) the incorporation of additional borrowers or a change in the
Obligors otherwise than in accordance with Clause 29.4 (Additional
Obligors);
(e) a term of a Finance Document which expressly requires the
consent of each Bank;
(f) Clause 32 (Pro rata sharing) or this Clause 28, or
(g) any release of any security constituted by a Security
Document other than in connection with a disposal of an asset by an
Obligor which is permitted by the terms of this Agreement,
is not binding on that Bank.
28.3 ADDITIONAL HIGH YIELD DEBT
If Additional High Yield Debt is raised and is injected in to the
Borrower Group as Aggregate Cash Equity which has been spent on
Qualifying Expenditure, then:
(a) the Borrower shall notify the Agent of the amount of that
Additional High Yield Debt;
(b) the Borrower and the Agent (acting reasonably and in good
faith) shall enter into negotiations for a period of not less than
30 days with a view to agreeing the amendments to this Agreement
required to reflect the injection of that Aggregate Cash Equity;
(c) the amendments in paragraph (b) above shall:
(i) for Clause 6.2 (Repayment of Tranche B) reflect the revised
cash flow profile;
<PAGE> 92
91
(ii) include a reduction on the amount of the Total B Commitments
(on a pro rata basis for the Banks) by an amount at least
equal to the amount of that Additional Aggregate Cash Equity
(which for the avoidance of doubt would reduce the amount of
the Total B Commitments on which commitment fee is payable
under Clause 23.2 (Commitment fee)); and
(iii) adjust the covenant levels in Clause 18.24 (Financial
covenants) (other than under sub-paragraph (b)(iv) of that
Clause 18.24);
(iv) adjust the amount of the dividend or distribution permitted
under Clause 18.16(a) (Restrictions) to fund cash interest
falling due on High Yield Debt issued under the Indentures,
together with the related adjustment relating to Excess High
Yield Interest under Clause 9.5 (Mandatory prepayment), in
each case to reflect the impact of the Additional Aggregate
Cash Equity on the Agreed Base Case, such adjustment to be
calculated in a manner consistent with the methodology used in
calculating the Agreed Base Case; and
(v) if as a result of the injection of the Additional
Aggregate Cash Equity the first projected borrowings under
Tranche B are after 31st March, 1998, Clause 4.3(b) will
provide, in respect of a first drawdown under Tranche B prior
to 1st April, 1998, that the Reported Annualised Cash Flow is
an amount of not less than Pounds Sterling18,500,000;
(d) any agreement between the Borrower and the Agent under paragraph (b)
above shall, with the prior consent of all the Banks, be binding on
all the Parties;
(e) if no agreement is reached under paragraph (b) above, the Agent
shall certify the amendments that would need to be made to this
Agreement which would leave the Banks and the Obligors in no better
or worse position than under this Agreement after taking into
account the injection of the Additional Cash Equity; and
(f) a certificate of the Agent under paragraph (e) above shall, in the
absence of manifest error in calculations, be binding on all the
Parties.
28.4 WAIVERS AND REMEDIES CUMULATIVE
The rights of each Finance Party under the Finance Documents:
(a) may be exercised as often as necessary;
(b) are cumulative and not exclusive of its rights under the
general law; and
(c) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right is not a waiver of
that right.
<PAGE> 93
92
29. CHANGES TO THE PARTIES
29.1 TRANSFERS BY OBLIGORS
No Obligor may assign, transfer, novate or dispose of any of, or any
interest in, its rights and/or obligations under the Finance Documents.
29.2 TRANSFERS BY BANKS
(a) A Bank (the "EXISTING BANK") may at any time assign, transfer or novate
any part of its Commitment and/or any of its rights and/or obligations
under this Agreement to another bank or financial institution (the "NEW
BANK"). The prior consent of the Borrower is required (such consent not to
be unreasonably withheld or delayed) for any such assignment, transfer or
novation, unless:
(i) the New Bank is an Affiliate of a Bank (and for these purposes,
Goldman Sachs International Bank shall be treated as an Affiliate of
GS Credit Partners L.P.); or
(ii) an Event of Default is outstanding.
(b) A transfer of obligations will be effective only if either:
(i) the obligations are novated in accordance with Clause 29.3
(Procedure for novations); or
(ii) the New Bank confirms to the Agent and each Obligor that it
undertakes to be bound by the terms of this Agreement as a Bank in
form and substance satisfactory to the Agent. On the transfer
becoming effective in this manner the Existing Bank shall be
relieved of its obligations under this Agreement to the extent that
they are transferred to the New Bank,
and in either case, the obligations of the Existing Bank under the other
Finance Documents (including, without limitation, a Co-ordination
Agreement) (or, in the case of a transfer of a proportion of the Existing
Bank's obligations under this Agreement, the relevant proportion of such
other obligations) are transferred in accordance with any relevant
provisions of those Finance Documents.
(c) Nothing in this Agreement restricts the ability of a Bank to sub-contract
an obligation if that Bank remains liable under this Agreement for that
obligation.
(d) On each occasion an Existing Bank assigns, transfers or novates any of its
rights and/or obligations under this Agreement, the New Bank shall, on the
date the assignment, transfer and/or novation takes effect, pay to the
Agent for its own account a fee of pounds sterling 750.
(e) An Existing Bank is not responsible to a New Bank for:
(i) the execution, genuineness, validity, enforceability or sufficiency
of any Finance Document or any other document;
(ii) the collectability of amounts payable under any Finance Document; or
<PAGE> 94
93
(iii) the accuracy of any statements (whether written or oral) made in or
in connection with any Finance Document.
(f) Each New Bank confirms to the Existing Bank and the other Finance Parties
that it:
(i) has made its own independent investigation and assessment of the
financial condition and affairs of each Obligor and its related
entities in connection with its participation in this Agreement and
has not relied exclusively on any information provided to it by the
Existing Bank in connection with any Finance Document; and
(ii) will continue to make its own independent appraisal of the
creditworthiness of each Obligor and its related entities while any
amount is or may be outstanding under this Agreement or any
Commitment is in force.
(g) Nothing in any Finance Document obliges an Existing Bank to:
(i) accept a re-transfer from a New Bank of any of the rights and/or
obligations assigned, transferred or novated under this Clause; or
(ii) support any losses incurred by the New Bank by reason of the
non-performance by any Obligor of its obligations under the Finance
Documents or otherwise.
(h) Any reference in this Agreement to a Bank includes a New Bank but excludes
a Bank if no amount is or may be owed to or by it under this Agreement and
its Commitment has been cancelled or reduced to nil.
(i) If at any time a Bank assigns, transfers or novates any of its rights or
obligations under this Agreement to any person (a "SUCCESSOR") and as a
result, an Obligor is obliged to make a payment under this Agreement for
the account of such Successor at the time any other payment is due under
this Agreement and the amount of such payment is in excess of the amount
which such Obligor would have been obliged to pay for the account of such
Successor if no such assignment, transfer or novation had occurred, then
such Obligor shall not be required to pay such excess.
29.3 PROCEDURE FOR NOVATIONS
(a) A novation is effected if:
(i) the Existing Bank and the New Bank deliver to the Agent a duly
completed certificate, substantially in the form of Part 1 of
Schedule 6 (a "NOVATION CERTIFICATE") and such delivery may be by
fax and such faxed copy may be duly executed by the Agent; and
(ii) the Agent executes it (which the Agent shall promptly do).
(b) Each Party (other than the Existing Bank and the New Bank) irrevocably
authorises the Agent to execute any duly completed Novation Certificate on
its behalf.
(c) To the extent that they are expressed to be the subject of the novation in
the Novation Certificate:
<PAGE> 95
94
(i) the Existing Bank and the other Parties (the "EXISTING PARTIES")
will be released from their obligations to each other (the
"DISCHARGED OBLIGATIONS");
(ii) the New Bank and the existing Parties will assume obligations
towards each other which differ from the discharged obligations only
insofar as they are owed to or assumed by the New Bank instead of
the Existing Bank;
(iii) the rights of the Existing Bank against the existing Parties and
vice versa (the "DISCHARGED RIGHTS") will be cancelled; and
(iv) the New Bank and the existing Parties will acquire rights against
each other which differ from the discharged rights only insofar as
they are exercisable by or against the New Bank instead of the
Existing Bank,
all on the date of execution of the Novation Certificate by the Agent or,
if later, the date specified in the Novation Certificate.
29.4 ADDITIONAL OBLIGORS
(a) The Borrower shall procure that within 14 days of any company becoming a
Subsidiary after the date of this Agreement that company becomes an
Additional Obligor by delivery to the Agent of an Obligor Accession
Agreement, duly executed by that Subsidiary.
(b) Upon execution and delivery of an Obligor Accession Agreement, the
relevant Subsidiary will become an Additional Obligor.
(c) The Borrower shall procure that, at the same time as an Obligor Accession
Agreement is delivered to the Agent, there is also delivered to the Agent
all those other documents listed in Part 3 of Schedule 3, in each case in
form and substance satisfactory to the Agent.
(d) The execution of an Obligor Accession Agreement constitutes confirmation
by the Subsidiary that the representations and warranties set out in
Clause 17 (Representations and warranties) to be made by it on the date of
the Obligor Accession Agreement are correct, as if made with reference to
the facts and circumstances then existing.
29.5 REFERENCE BANKS
If a Reference Bank (or, if a Reference Bank is not a Bank, the Bank of
which it is an Affiliate) ceases to be a Bank, the Agent shall (in
consultation with the Borrower) appoint another Bank or an Affiliate of a
Bank to replace that Reference Bank.
29.6 REGISTER
The Agent shall keep a register of all the Parties and shall supply any
other Party (at that Party's expense) with a copy of the register on
request.
30. DISCLOSURE OF INFORMATION
(a) Subject to paragraph (b) below, a Finance Party may disclose to one of its
Affiliates or any person (a "PROSPECTIVE TRANSFEREE") with whom it is
proposing to enter, or has entered into, any kind of transfer,
participation or other agreement in relation to this Agreement:
<PAGE> 96
95
(i) a copy of any Finance Document; and
(ii) any information which that Finance Party has acquired under or in
connection with any Finance Document,
other than any information which the Borrower specifically designates as
confidential, the disclosure of which shall be subject to that Finance
Party procuring the entry into appropriate confidentiality arrangements by
anyone in receipt thereof.
(b) An Arranger shall only distribute such information to a prospective
transferee for the purposes of syndication as contemplated by Clause 18.28
(Syndication) as the Borrower has authorised in writing for distribution.
31. SET-OFF
A Finance Party may set off any matured obligation owed by an Obligor
under the Finance Documents (to the extent beneficially owned by that
Finance Party) against any obligation (whether or not matured) owed by
that Finance Party to that Obligor, regardless of the place of payment,
booking branch or currency of either obligation. If the obligations are
in different currencies, the Finance Party may convert either obligation
at a market rate of exchange in its usual course of business for the
purpose of the set-off. If either obligation is unliquidated or
unascertained, the Finance Party may set off in an amount estimated by it
in good faith to be the amount of that obligation.
32. PRO RATA SHARING
32.1 REDISTRIBUTION
If any amount owing by an Obligor under the Finance Documents to a
Finance Party is discharged by payment, set-off or any other manner other
than through the Agent in accordance with Clause 12 (Payments) (a
"RECOVERY"), then:
(a) the relevant Finance Party (the "RECOVERING FINANCE PARTY")
shall, within 3 Business Days, notify details of the recovery to the
Agent;
(b) the Agent shall determine whether the recovery is in excess
of the amount which the recovering Finance Party would have received
had the recovery been received by the Agent and distributed in
accordance with Clause 12 (Payments);
(c) subject to Clause 32.3 (Exception), the recovering Finance
Party shall within 3 Business Days of demand by the Agent pay to the
Agent an amount (the "REDISTRIBUTION") equal to the excess;
(d) the Agent shall treat the redistribution as if it were a
payment by the Obligor concerned under Clause 12 (Payments) and
shall pay the redistribution to the Finance Parties (other than the
recovering Finance Party) in accordance with Clause 12.7 (Partial
payments); and
(e) after payment of the full redistribution, the recovering
Finance Party will be subrogated to the portion of the claims paid
under paragraph (d) above and that
<PAGE> 97
96
Obligor will owe the recovering Finance Party a debt which is equal
to the redistribution, immediately payable and of the type
originally discharged.
32.2 REVERSAL OF REDISTRIBUTION
If under Clause 32.1 (Redistribution):
(a) a recovering Finance Party must subsequently return a recovery, or
an amount measured by reference to a recovery, to an Obligor; and
(b) the recovering Finance Party has paid a redistribution in relation
to that recovery, each Finance Party shall, within 3 Business Days
of demand by the recovering Finance Party through the Agent,
reimburse the recovering Finance Party all or the appropriate
portion of the redistribution paid to that Finance Party. Thereupon,
the subrogation in Clause 32.1(e) will operate in reverse to the
extent of the reimbursement.
32.3 EXCEPTION
A recovering Finance Party need not pay a redistribution to the extent
that it would not, after the payment, have a valid claim against the
Obligor concerned in the amount of the redistribution pursuant to Clause
32.1(e).
33. SEVERABILITY
If a provision of any Finance Document is or becomes illegal, invalid or
unenforceable in any jurisdiction, that shall not affect:
(a) the validity or enforceability in that jurisdiction of any
other provision of the Finance Documents; or
(b) the validity or enforceability in other jurisdictions of that
or any other provision of the Finance Documents.
34. COUNTERPARTS
Each Finance Document may be executed in any number of counterparts, and
this has the same effect as if the signatures on the counterparts were on
a single copy of the Finance Document.
35. NOTICES
35.1 GIVING OF NOTICES
All notices or other communications under or in connection with the
Finance Documents shall be given in writing or by telex or facsimile.
Any such notice will be deemed to be given as follows:
(a) if in writing, when delivered;
(b) if by telex, when despatched, but only if, at the time of
transmission, the correct answerback appears at the start and at the
end of the sender's copy of the notice; and
<PAGE> 98
97
(c) if by facsimile, when received.
However, a notice given in accordance with the above but received on a
non-working day or after business hours in the place of receipt will only
be deemed to be given on the next working day in that place.
35.2 ADDRESSES FOR NOTICES
(a) The address, telex number and facsimile number of each Party (other than
the Agent) for all notices under or in connection with the Finance
Documents are:
(i) those notified by that Party for this purpose to the Agent on or
before the date it becomes a Party; or
(ii) any other notified by that Party for this purpose to the Agent by
not less than 5 Business Days' notice.
(b) The address, telex number and facsimile number of the Agent are:
National Westminster Bank Plc
NatWest Markets Agency Group
Juno Court
3rd Floor
24 Prescott Street
London E1 8BB
<TABLE>
<CAPTION>
<S> <C>
Telex: 922457 NWMAG G
Facsimile: 0171 714 6167
Attention: Manager: Head of Agency Group,
</TABLE>
or such other as the Agent may notify to the other Parties by not less
than 5 Business Days' notice.
(c) All notices under or in connection with the Finance Documents from or to
an Obligor shall be sent through the Agent.
(d) The Agent shall, promptly upon request from any Party, give to that Party
the address, telex number or facsimile number of any other Party
applicable at the time for the purposes of this Clause.
36. LANGUAGE
(a) Any notice given under or in connection with any Finance Document shall be
in English.
(b) All other documents provided under or in connection with any Finance
Document shall be:
(i) in English; or
(ii) if not in English, accompanied by a certified English translation
and, in this case, the English translation shall prevail unless the
document is a statutory or other official document.
<PAGE> 99
98
37. GOVERNING LAW
This Agreement is governed by English law.
This Agreement has been entered into on the date stated at the beginning of
this Agreement.
<PAGE> 100
99
SCHEDULE 1
ORIGINAL GUARANTORS
<TABLE>
<CAPTION>
REGISTERED NUMBER
<S> <C>
DIAMOND CABLE (MANSFIELD) LIMITED 2379153
DIAMOND CABLE (NEWARK-ON-TRENT) LIMITED 2449141
DIAMOND CABLE (GRANTHAM) LIMITED 2449143
DIAMOND CABLE (MELTON MOWBRAY) LIMITED 2449137
DIAMOND CABLE (LINCOLN) LIMITED 2476654
DIAMOND CABLE (GRIMCLEE) LIMITED 2476662
DIAMOND CABLE ACQUISITIONS LIMITED 2417366
DIAMOND CABLE CONSTRUCTION LIMITED 2379018
DIAMOND CABLE CPE LIMITED 2459844
DIAMOND CABLE (BASSETLAW) LIMITED 3020785
DIAMOND CABLE (RAVENSHEAD) LIMITED 3020784
DIAMOND VISUAL COMMUNICATIONS LIMITED 3020782
DIAMOND CABLE (LINCOLNSHIRE) LIMITED 3020780
DIAMOND CABLE (VALE OF BELVOIR) LIMITED 3155311
DIAMOND CABLE (CHESTERFIELD) LIMITED 3155292
EAST MIDLANDS CABLE HOLDINGS LIMITED 3022472
EAST MIDLANDS CABLE GROUP LIMITED 3030063
EAST MIDLANDS CABLE COMMUNICATIONS LIMITED 2457536
LCL CABLE (HOLDINGS) LIMITED 3030067
DIAMOND CABLE (LEICESTER) LIMITED 2309938
LCL TELEPHONES LIMITED 2833893
DIAMOND CABLE (HINCKLEY) LIMITED 3016600
DIAMOND CABLE (BURTON-UPON-TRENT) LIMITED 3016632
</TABLE>
<PAGE> 101
100
SCHEDULE 2
PART 1
BANKS AND TRANCHE A COMMITMENTS
<TABLE>
<CAPTION>
BANKS COMMITMENTS
- ----- -----------
pounds
sterling
<S> <C>
NATIONAL WESTMINSTER BANK PLC 7,500,000
CIBC WOOD GUNDY PLC 7,500,000
----------
Total A Commitments 15,000,000
----------
</TABLE>
<PAGE> 102
101
SCHEDULE 2
PART 2
BANKS AND TRANCHE B COMMITMENTS
<TABLE>
<CAPTION>
BANKS COMMITMENTS
- ----- -----------
pounds
sterling
<S> <C>
NATIONAL WESTMINSTER BANK PLC 110,000,000
CIBC WOOD GUNDY PLC 110,000,000
-----------
Total B Commitments 220,000,000
-----------
</TABLE>
<PAGE> 103
102
SCHEDULE 3
CONDITIONS PRECEDENT
PART 1
DOCUMENTS TO BE DELIVERED BEFORE THE FIRST REQUEST
1. CORPORATE DOCUMENTS
(a) ALL OBLIGORS
A copy of the memorandum and articles of association and certificate of
incorporation of each Obligor.
(b) BORROWER
(i) A copy of a resolution of the board of directors of the Borrower:
(A) approving the terms of, and the transactions contemplated by,
the Finance Documents resolving that it execute the Finance
Documents to which it is a party;
(B) authorising a specified person or persons to execute the
Finance Documents to which it is a party on its behalf; and
(C) authorising a specified person or persons, on its behalf, to
sign and/or despatch all other documents and notices to be signed
and/or despatched by it under or in connection with the Finance
Documents;
(ii) a specimen of the signature of each person authorised by the resolution
referred to in paragraph (B) above;
(iii) a certificate of a director of the Borrower confirming that the
borrowing of the Facility in full would not cause any borrowing limit
binding on any Obligor to be exceeded; and
(iv) a certificate of two Officers confirming that, since 1st June, 1996,
persons have subscribed for additional share capital of Diamond PLC in an
aggregate amount (for all such persons) of not less than $100,000,000
(before expenses incurred in connection with that subscription which shall
not exceed pounds sterling 25,000).
(c) GUARANTORS
(i) A copy of a resolution of the board of directors of each Guarantor:
(A) approving the terms of, and the transactions contemplated by,
the Finance Documents and resolving that it execute the Finance
Documents to which it is a party;
(B) authorising a specified person or persons to execute the
Finance Documents to which it is a party on its behalf; and
<PAGE> 104
103
(C) authorising a specified person or persons, on its behalf, to
sign and/or despatch all other documents and notices to be signed
and/or despatched by it under or in connection with the Finance
Documents;
(ii) a copy of a resolution, signed by all the holders of the issued or
allotted shares in each Guarantor, approving the terms of, and the
transactions contemplated by, the Finance Documents;
(iii) a copy of a resolution of the board of directors of each corporate
shareholder in each Guarantor:
(A) approving the terms of the resolution referred to in
paragraph (ii) above for that Guarantor; and
(B) authorising a specified person or persons to sign the
resolution on its behalf; and
(iv) a specimen of the signature of each person authorised by the resolutions
referred to in paragraphs (ii) and (iii) above.
(d) DIAMOND PLC
(i) A copy of a resolution of the board of directors of Diamond PLC:
(A) approving the terms of, and the transactions contemplated by,
the Finance Documents;
(B) authorising a specified person or persons to execute on its
behalf the Finance Documents to which it is a party; and
(C) authorising a specified person or persons, on its behalf, to
sign and/or despatch all other documents and notices to be signed
and/or despatched by it under or in connection with the Finance
Documents.
(ii) A specimen of the signature of each person authorised by the resolution
referred to in sub-paragraph (C) above.
(iii) A certificate of a director of Diamond PLC confirming that no breach of
any High Yield Debt or event of default (howsoever described) under any
High Yield Debt would be or has been caused by the Obligors entering into
the Finance Documents or carrying out the transactions contemplated under
the Finance Documents.
2. FINANCE DOCUMENTS
(a) A duly executed original of each of the Finance Documents.
(b) Evidence satisfactory to the Agent that the Borrower has served each of
the Project Contract Notices on the relevant addressees thereof.
3. LICENCES ETC.
A copy of each:
<PAGE> 105
104
(a) Licence;
(b) Project Contract;
(c) sample Subscriber Agreement; and
(d) Shareholders Agreement.
4. SECURITY REQUIREMENTS
In relation to the Debenture, each of the following documents:
(a) all deeds and documents of title relating to the Properties
save where the documents are held by H.M. Land Registry (in which
case the Borrower's solicitors will deliver letters of authority in
respect of such documents) or to the order of the Security Agent or,
in the case of the property referred to in Part 2 of Schedule 2 to
the Debenture by the first chargee;
(b) the Title Certificates;
(c) duly completed notices of the Debenture to the landlords of
the Leases referred to in Part 1 and Part 3 of Schedule 2 to the
Debenture;
(d) all share certificates and all other documents of title
representing 100% of the issued share capital of each member of the
Borrower Group together with share transfers forms executed in blank
to enable the Agent or its nominees to become registered as the
owner of the same;
(e) all certificates and other documents of title relating to the
stocks, shares, debenture, bonds or other securities and investments
the subject of the Debenture, together with all share transfers and
other documents executed in blank necessary (other than shares to
enable the Agent or its nominees to be registered as owner of the
same or a certificate confirming that there are no other such
documents;
(f) a letter from the insurance brokers to Diamond PLC addressed
to the Security Agent in relation to third party and other
insurances (other than key person insurance) taken out by the
Diamond Group;
(g) duly executed notices of charge and acknowledgements in the
form of Schedules 4 and 5 of the Debenture respectively in relation
to each Security Account.
5. REGULATORY REQUIREMENTS
(a) A letter of undertaking in the agreed form from each of the ITC and the
DTI and any other relevant regulatory authority in relation to the
Licences;
(b) a certified copy of the licence granted to Diamond Cable CPE Limited and
Diamond Cable Communications (UK) Limited under the Consumer Credit Act
1974.
(c) A certified copy of the registration for the Borrower and the application
for registration for Diamond Cable CPE Limited under the Data Protection
Act 1984.
<PAGE> 106
105
6. OTHER DOCUMENTS
(a) The Agreed Base Case;
(b) a copy of the consolidated audited accounts for Diamond PLC and the
unconsolidated audited accounts for Jewel for the financial year ended
31st December, 1995, together with the unaudited consolidated management
accounts of the Diamond PLC for the Quarter ended 31st March, 1996;
(c) a form of Additional Debenture, initialled by the Borrower and the Agent
for the purposes of identifying that such document is in an agreed form;
(d) duly completed mandates in respect of each Security Account opened with
the Account Bank;
(e) a certificate of an authorised signatory of the Borrower certifying that
each copy document and certificate specified in Section 1 (Corporate
Documents) of Part 1 of this Schedule 3 is correct, complete and in full
force and effect as at a date no earlier than the date of this
Supplemental Agreement;
(f) a copy of any authorisation or other document, opinion or assurance which
the Agent considers to be necessary or desirable in connection with the
entry by any Obligor into and performance of and the transactions
contemplated by, any Finance Document by any Obligor or for the validity
and enforceability of any Finance Document against any Obligor;
(g) a certificate from two of the directors of the Borrower certifying the
solvency of each Obligor on the date of this Agreement, in a form
acceptable to the Agent;
(h) a memorandum between Diamond PLC and each relevant Obligor as to the
aggregate amount of Subordinated Indebtedness outstanding as of the date
of this Agreement;
(i) the Disclosure Letter, and any update;
(j) a copy of the reorganisation documentation;
(k) a copy of the form of the Monthly Accounts and the Quarterly Accounts;
(l) a copy of the budget for the Project for the financial year ending 31st
December, 1996;
(m) a copy of the Information Memorandum; and
(n) a letter from OFTEL, in form and substance satisfactory to the Agent,
relating to build milestones.
7. LEGAL OPINIONS
A legal opinion from each of:
(a) Allen & Overy, legal advisers to the Arrangers and the Agent,
addressed to the Finance Parties, in form and substance satisfactory
to the Arrangers and the Agent; and
<PAGE> 107
106
(b) Sullivan & Cromwell, legal advisers to Diamond PLC, as to
compliance with each Indenture.
8. SUPPLEMENTAL AGREEMENT
(a) A copy of the memorandum and articles of association and certificate of
incorporation of each Obligor, or a confirmation from an authorised
signatory that there has been no change to those documents since the date
they were delivered to the Agent.
(b) The ECE Side Letter.
(c) The supplemental fee letter.
(d) The Supplemental Agreement duly executed.
<PAGE> 108
107
SCHEDULE 3
PART 2
TO BE SATISFIED PRIOR TO FIRST TRANCHE B LOAN
1 Evidence satisfactory to the Agent that the Obligors are in compliance
with their obligations under Clause 19.2(b)(i) (Project Contracts and
Licences).
2. Originals of all Interest Rate Protection Agreements required under
Clause 18.23 (Interest Hedging).
3. Such documents, notices and acknowledgements as the Agent shall require
to perfect any security interests in the Interest Rate Protection
Agreements granted by the Borrower under the Debenture.
4. A certificate of two Officers confirming that, since the date of the
Supplemental Agreement, persons have subscribed for additional share
capital of Diamond PLC in an aggregate amount (for all such persons) of
not less than pounds sterling 25,000,000 (before expenses incurred in
connection with that subscription which shall not exceed pounds
sterling 100,000) and the net proceeds have been and/or will be spent on
Qualifying Expenditure.
5. A letter from the Borrower's Auditors in relation to the financial model
for the Project derived from the Agreed Base Case, in a form acceptable to
the Arrangers.
<PAGE> 109
108
SCHEDULE 3
PART 3
TO BE DELIVERED BY AN ADDITIONAL OBLIGOR
1 An Obligor Accession Agreement, duly executed under seal by the
Additional Obligor;
2. an Additional Debenture, duly executed under seal by the Additional
Obligor;
3. a copy of the memorandum and articles of association and certificate of
incorporation of the Additional Obligor;
4. a copy of a resolution of the board of directors of the Additional
Obligor:
(a) approving the terms of, and the transactions contemplated by,
the Obligor Accession Agreement and the Additional Debenture and
resolving that it execute the Obligor Accession Agreement and the
Additional Debenture under seal;
(b) authorising a specified person or persons to witness the
affixing of the common seal of the Additional Obligor to the Obligor
Accession Agreement and the Additional Debenture; and
(c) authorising a specified person or persons, on its behalf, to
sign and/or despatch all documents to be signed and/or despatched by
it under or in connection with the Finance Documents;
5. a copy of a resolution, signed by all the holders of the issued or
allotted shares in the Additional Obligor, approving the terms of, and the
transactions contemplated by, the Obligor Accession Agreement and the
Additional Debenture;
6. a copy of a resolution of the Board of Directors of each corporate
shareholder in the Additional Obligor:
(a) approving the terms of the resolution referred to in
paragraph 5 above; and
(b) authorising a specified person or persons to sign the
resolution on its behalf;
7. a certificate of a director of the Additional Obligor certifying that the
borrowing of the Facility in full would not cause any borrowing limit
binding on it to be exceeded;
8. a copy of any other authorisation or other document, opinion or assurance
which the Agent reasonably considers to be necessary or desirable in
connection with the entry into and performance of, and the transactions
contemplated by, the Obligor Accession Agreement and the Additional
Debenture or for the validity and enforceability of any Finance Document;
9. A copy of each Project Contract to which the Additional Obligor is a party.
<PAGE> 110
109
10. A copy of each of the following to which the Additional Obligor is a
party:
(a) any Telecommunications Licence; and
(b) any LD Licence.
11. Originals of the following documents:
(a) all deeds and documents of title relating to all real and
leasehold property the subject of the Additional Debenture and all
Local Land Charges, Land Charges and Land Registry Search
Certificates and similar documents received by or on behalf of the
Additional Obligor not more than three months prior to the date of
the Obligor Accession Agreement;
(b) any report on title or certificate on title in relation to
all real and leasehold property the subject of the Additional
Debenture prepared by or on behalf of the Additional Obligor in
relation to the Obligor Accession Agreement;
(c) all certificates and other documents of title relating to
the stocks, shares, debenture, bonds or other securities and
investments (if any) the subject of the Additional Debenture
together with all share transfers and other documents executed in
blank necessary to enable the Agent or its nominees to be
registered as owner of the same;
(d) a letter from the insurance brokers to the Additional
Obligor addressed to the Security Agent in relation to third party
and other insurances taken out by the Additional Obligor; and
(e) duly executed notices of charge and acknowledgements in the
form of Schedules 4 and 5 of the Debenture respectively in relation
to a Security Account opened in the name of the Additional Obligor.
12. Each of the following:
(a) a letter of undertaking from each of OFTEL, the ITC, the DTI
and any other relevant regulatory authority in relation to the
Licences to which the Additional Obligor is a party.
(b) if required by the relevant authorities, a certified copy of
the Additional Obligor's licence under the Consumer Credit Act
1974;
(c) if required by the relevant authorities, a certified extract
showing the Additional Obligor's registration under the Data
Protection Act 1984.
13. a specimen of the signature of each person authorised by the resolutions
referred to in paragraphs 4 and 6 above;
14. to the extent that audited accounts are available, a copy of the latest
audited accounts of the Additional Obligor together with its latest
unaudited management accounts;
15. a legal opinion of legal advisers to the Agent, addressed to the Finance
Parties; and
<PAGE> 111
110
16. a certificate of an authorised signatory of the Additional Obligor
certifying that each copy document specified in Part 3 of this Schedule 3
is correct, complete and in full force and effect as at a date no earlier
than the date of the Obligor Accession Agreement.
<PAGE> 112
111
SCHEDULE 4
CALCULATION OF THE MLA COST
(a) The MLA Cost for a Loan for each of its Interest Periods is calculated in
accordance with the following formula:
BY + L(Y - X) + S(Y - Z) % per annum MLA Cost
------------------------
100 - (B + S)
where on the day of application of the formula:
B is the percentage of the Agent's eligible liabilities which
the Bank of England requires the Agent to hold on a
non-interest-bearing deposit account in accordance with its cash
ratio requirements;
Y is the rate at which Sterling deposits are offered by the
Agent to leading banks in the London interbank market at or about
11.00 a.m. on that day for the relevant period;
L is the percentage of eligible liabilities which (as a result
of the requirements of the Bank of England) the Agent maintains as
secured money with members of the London Discount Market Association
or in certain marketable or callable securities approved by the Bank
of England;
X is the rate at which secured Sterling deposits may be placed
by the Agent with members of the London Discount Market Association
at or about 11.00 a.m. on that day for the relevant period or, if
greater, the rate at which Sterling bills of exchange (of a tenor
equal to the duration of the relevant period) eligible for
rediscounting at the Bank of England can be discounted in the London
Discount Market at or about 11.00 a.m. on that day;
S is the percentage of the Agent's eligible liabilities which
the Bank of England requires the Agent to place as a special
deposit; and
Z is the interest rate per annum allowed by the Bank of England
on special deposits.
(b) For purposes of this Schedule 4:
(i) "ELIGIBLE LIABILITIES" and "SPECIAL DEPOSITS" have the
meanings given to them at the time of application of the formula by
the Bank of England; and
(ii) "RELEVANT PERIOD" in relation to each Interest Period, means:
(A) if it is 3 months or less, that Interest Period;
or
(B) if it is more than 3 months 3 months.
<PAGE> 113
112
(c) In the application of the formula, B, Y, L, X, S and Z are included in the
formula as figures and not as percentages, e.g. if B = 0.5% and Y = 15%,
BY is calculated as 0.5 x 15.
(d) (i) The formula is applied on the first day of each relevant period
comprised in the relevant Interest Period.
(ii) Each rate calculated in accordance with the formula is, if
necessary, rounded upward to four decimal places.
(e) If the Agent reasonably determines that a change in circumstances has
rendered, or will render, the formula inappropriate, the Agent (after
consultation with the Banks) shall notify the Borrower of the manner in
which the MLA Cost will subsequently be calculated. The manner of
calculation so notified by the Agent shall, in the absence of manifest
error, be binding on all the Parties.
<PAGE> 114
113
SCHEDULE 5
PART 1
FORM OF LOAN REQUEST
To: NATIONAL WESTMINSTER BANK PLC AS AGENT
From: DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
Date:[ ]
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED - POUNDS STERLING 220,000,000 CREDIT
AGREEMENT DATED 5TH AUGUST, 1996
1. We wish to borrow a Loan as follows:
(a) Loan Date: [ ]
(b) Tranche: [ ]
(c) Amount: [ ]
(d) First Interest Period: [ ]
(e) Payment Instructions: [ ]
2. We confirm that each relevant condition specified in Clause 4 (Conditions
Precedent) is satisfied on the date of this Loan Request.
*[3. We confirm that we are in compliance with the conditions set out in
Clause 4.3 (Conditions precedent to Tranche B Utilisations) and the
Tranche B Leverage Ratio is [ ].
*[4. We have based the above calculations on the values of the following
defined terms, as set out in the most recent Financial Covenant
Certificate or certificates under Clause 18.2(a)(vi) (Financial
information) supplied to you (as appropriate):
Reported Annualised Cash Flow.
That certificate was dated [ ] and related to the Monthly
Accounts for the period ended [ ].
By:
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
Authorised Signatory
* Relevant to Tranche B only.
<PAGE> 115
114
PART 2
FORM OF BANK GUARANTEE REQUEST
To: NATIONAL WESTMINSTER BANK PLC AS AGENT
From: DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
Date:[ ]
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED - POUNDS STERLING 220,000,000
CREDIT AGREEMENT DATED 5TH AUGUST, 1996
1. We wish you to issue a Bank Guarantee with the following specifications:
(a) Issue Date: [ ]
(b) Tranche: [ ]
(c) Amount: [ ]
(d) Expiry date: [ ]
(e) Name and address of beneficiary/ies: [ ]
(f) Franchise/s [ ]
2. We confirm that each relevant condition specified in Clause 4 (Conditions
Precedent) is satisfied on the date of this Bank Guarantee Request.
*[3. We confirm that we are in compliance with the conditions set out in
Clause 4.3 (Conditions precedent to Tranche B Utilisations) and the
Tranche B Leverage Ratio is [ ].
*[4. We have based the above calculations on the values of the following
defined terms, as set out in the most recent Financial Covenant
Certificate or certificates under Clause 18.2(a)(vi) (Financial
information) supplied to you (as appropriate):
Reported Annualised Cash Flow.
That certificate was dated [ ] and related to the Monthly
Accounts for the period ended [ ].
By:
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
Authorised Signatory
- -----------------------------
* Relevant to Tranche B only.
<PAGE> 116
115
SCHEDULE 6
FORMS OF ACCESSION DOCUMENTS
PART 1
NOVATION CERTIFICATE
To: NATIONAL WESTMINSTER BANK PLC
From: [THE EXISTING BANK] and [THE NEW BANK]
Date: [ ]
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED - POUNDS STERLING 220,000,000
CREDIT AGREEMENT DATED 5TH AUGUST, 1996
We refer to Clause 29.3 (Procedure for novations).
1. We [ ] (the "EXISTING BANK") and [ ]
(the "NEW BANK") agree to the Existing Bank and the New Bank novating all
the Existing Bank's rights and obligations referred to in the Schedule in
accordance with Clause 29.3 (Procedure for novations) so that, on the date
specified in paragraph 2, the portion of the Existing Bank's Loans and/or
Commitments set out in the Schedule shall be novated to the New Bank,
together with a corresponding portion of the Existing Bank's rights and
obligations under the Finance Documents.
2. The specified date for the purposes of Clause 29.3(c) is [date of
novation].
3. The Facility Office and address for notices of the New Bank for the
purposes of Clause 35.2 (Addresses for notices) are set out in the
Schedule.
4. This Novation Certificate is governed by English law.
THE SCHEDULE
RIGHTS AND OBLIGATIONS TO BE NOVATED
<TABLE>
<CAPTION>
<S> <C> <C>
1. Commitment Tranche A Tranche B
Existing Bank's Commitment:
Portion Transferred:
2. Loans Tranche A Tranche B
Existing Bank's participation:
Portion Transferred:
</TABLE>
<PAGE> 117
116
<TABLE>
<CAPTION>
ADMINISTRATION DETAILS OF NEW BANK
<S> <C>
[Facility Office Address for notices]
</TABLE>
<TABLE>
<CAPTION>
SIGNATORIES
<S> <C> <C>
[Existing Bank] [New Bank] National Westminster Bank Plc
By: By: By:
Date: Date: Date:
</TABLE>
<PAGE> 118
117
SCHEDULE 6
PART 2
OBLIGOR ACCESSION AGREEMENT
To: NATIONAL WESTMINSTER BANK PLC
From: [PROPOSED OBLIGOR]
Date: [ ]
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED -
POUNDS STERLING 220,000,000 CREDIT AGREEMENT
DATED 5TH AUGUST, 1996 (THE "CREDIT AGREEMENT")
We refer to Clause 29.4 (Additional Obligors).
We, [name of company] of [Registered Office] (Registered no. [
]) agree to become an Additional Obligor and to be bound by the
terms of the Credit Agreement and the other Finance Documents as an Additional
Obligor in accordance with Clause 29.4 (Additional Obligors).
We confirm that we have executed and delivered to the Agent an Additional
Debenture.
Our address for notices for the purposes of Clause 35.2 (Addresses for notices)
is:
[
]
This Deed is governed by English law.
THE COMMON SEAL of )
[ADDITIONAL OBLIGOR] )
was affixed in )
the presence of: )
Director
Director/Secretary
<PAGE> 119
SCHEDULE 7
PART 1
TRANCHE B LEVERAGE RATIO
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED COVENANT ENDED COVENANT
- --------- --------- --------- ---------
<S> <C> <C> <C>
31/03/01 3
30/06/01 3
30/09/96 4 30/09/01 3
31/12/96 4 31/12/01 3
31/03/97 4 31/03/02 3
30/06/97 4 30/06/02 3
30/09/97 4 30/09/02 3
31/12/97 4 31/12/02
31/03/98 4 31/03/03 3
30/06/98 4 30/06/03 3
30/09/98 4 30/09/03 3
31/12/98 4 31/12/03 3
31/03/99 4 31/03/04 3
30/06/99 4 30/06/04 3
30/09/99 4
31/12/99 3
31/03/00 3
30/06/00 3
30/09/00 3
31/12/00 3
</TABLE>
<PAGE> 120
SCHEDULE 7
PART 2
COVERAGE OF BANK DEBT LOAN CHARGES
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED COVENANT ENDED COVENANT
- --------- --------- --------- ---------
<S> <C> <C> <C>
31/03/00 2.75 31/03/03 1.75
30/06/00 2.5 30/06/03 1.5
30/09/00 2.5 30/09/03 2
31/12/00 2.5 31/12/03 3
31/03/01 2.5 31/03/04 3.5
30/06/01 2.5 30/06/04 3.5
30/09/01 2.5
31/12/01 2.4
31/03/02 2
30/06/02 2
30/09/02 1.75
31/12/02 1.75
</TABLE>
<PAGE> 121
120
SCHEDULE 7
PART 3
CASH INTEREST COVER
<TABLE>
<CAPTION>
QUARTER QUARTER
ENDED COVENANT ENDED COVENANT
- --------- --------- --------- ---------
<S> <C> <C> <C>
31/03/02 1.5
30/06/02 1.5
30/09/02 1.5
31/12/02 1.5
31/03/03 1.75
30/06/98 3 30/06/03 1.75
30/09/98 3 30/09/03 1.75
31/12/98 3 31/12/03 2
31/03/99 3 31/03/04 2
30/06/99 3 30/06/04 2
30/09/99 3
31/12/99 3
31/03/00 2.25
30/06/00 2.25
30/09/00 2.75
31/12/00 2.75
31/03/01 2.75
30/06/01 1.5
30/09/01 1.5
31/12/01 1.5
</TABLE>
<PAGE> 122
121
SCHEDULE 7
PART 4
EBITDA COVENANT
<TABLE>
<CAPTION>
QUARTER ENDED EBITDA QUARTER ENDED EBITDA
- ------------- ------ ------------- ------
pounds pounds
sterling sterling
'000 '000
<S> <C> <C> <C>
31/03/00 85,000
30/06/00 100,000
30/09/00 110,000
31/12/00 120,000
31/03/98 19,500
30/06/98 25,000
30/09/98 30,000
31/12/98 35,000
31/03/99 45,000
30/06/99 55,000
30/09/99 65,000
31/12/99 75,000
</TABLE>
<PAGE> 123
122
SCHEDULE 8
BUILD MILESTONES
DIAMOND CABLE COMMUNICATIONS PLC
ACTUAL OFTEL/ITC MILESTONE REQUIREMENTS BY QUARTER
<TABLE>
<CAPTION>
OFTEL
FRANCHISE 1996 1996 1997 1997 1997 1997 1998 1998
3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR.
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nottingham 119000 132000 145000 162000 179000 190000 190000 230000
Mansfield 36000 42000 47000 54000 61000 66000 66000 66000
Newark 13500 13500 13500 13500 13500 13500 13500 13500
Lincoln 15000 18000 23000 30000 38000 43000 43000 43000
Grimsby 30000 35000 40000 46000 53000 57000 57000 63000
Grantham 14000 14000 14000 14000 14000 14000 14000 14000
Melton 10000 10000 10000 10000 10000 10000 10000 10000
Leicester 72000 76000 80000 88000 96000 100000 108000 121000
TOTAL 309500 340500 372500 417500 464500 493500 501500 560500
------- ------- ------- ------- ------- ------- ------- -------
ITC
------- ------- ------- ------- ------- ------- ------- -------
Humberside 0 0 0 0 0 5000 0 0
Burton-on-Trent 0 0 0 0 0 10000 0 0
Hinckley 0 0 0 0 0 8000 0 0
Bassetlaw 0 0 0 0 0 1000 0 0
FRANCHISE 1998 1998 1999 1999 1999 1999 2000 AFTER
3RD QTR. 4TH QTR. 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. 4TH QTR. 2000
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nottingham 230000 230000 230000 230000 230000 230000 230000 230000
Mansfield 66000 66000 66000 66000 66000 66000 66000 66000
Newark 13500 13500 13500 13500 13500 13500 13500 13500
Lincoln 43000 43000 43000 43000 43000 43000 43000 43000
Grimsby 63000 63000 63000 63000 63000 63000 63000 63000
Grantham 14000 14000 14000 14000 14000 14000 14000 14000
Melton 10000 10000 10000 10000 10000 10000 10000 10000
Leicester 138000 149000 161000 175000 189000 200670 200670 200670
TOTAL 577500 588500 600500 614500 628500 640170 640170 640170
------- ------- ------- ------- ------- ------- ------- -------
ITC
------- ------- ------- ------- ------- ------- ------- -------
Humberside 0 25000 0 0 0 45000 70000 144000
Burton-on-Trent 0 29000 0 0 0 45000 66000 77675
Hinckley 0 16000 0 0 0 23000 31204 31204
Bassetlaw 0 10000 0 0 0 19000 28000 32800
</TABLE>
<PAGE> 124
123
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chesterfield 0 0 0 0 0 8000 0 0
Vale of Belvoir 0 0 0 0 0 1000 0 0
Ravenshead 0 0 0 0 0 2500 0 0
Total 0 0 0 0 0 35500 0 0
Grand Total 309500 340500 372500 417500 464500 529000 501500 560500
------ ------ ------ ------ ------ ------ ------ ------
Chesterfield 0 28000 0 0 0 60000 80000 89000
Vale of Belvoir 0 2000 0 0 0 3000 4545 4545
Ravenshead 0 2500 0 0 0 2500 2500 2500
Total 0 112500 0 0 0 197500 282249 381724
Grand Total 577500 701000 600500 614500 628500 837,670 922419 1021894
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
<PAGE> 125
124
SCHEDULE 9
FORM OF FINANCIAL COVENANT CERTIFICATE
PART 1 - AUDITOR'S FORMAT
NatWest Markets
135 Bishopsgate
London EC2M 3UR
Attention: Project Finance Portfolio Management, Level 5
Dear Sirs
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
POUNDS STERLING 220,000,000 LOAN AGREEMENT DATED 5TH AUGUST, 1996
AS FROM TIME TO TIME AMENDED, VARIED, EXTENDED, RESTATED OR REPLACED
(THE "LOAN AGREEMENT")
We refer to the Loan Agreement and deliver this report in respect of the
financial year ended [ ] pursuant to clause
18.2(a)(iv)(1)(A) thereof. Terms defined in the Loan Agreement shall have the
same meaning when used in this report.
On the basis of the consolidated audited financial statements of Diamond Cable
Communications Plc and the audited accounts of the Borrower for the financial
year ended 31st December, [ ] and on the basis of unaudited management
accounts for the six month period ended 30th June, [ ] we confirm that
the financial information set out below has been accurately extracted from the
above financial statements:
1. Net Operating Cash Flow for the six month period ended [ ]
was [ ];
2. Annualised Net Operating Cash Flow for the six month period ended [ ]
was [ ];
3. Bank Debt outstanding as at [ ] was [ ];
4. Tranche B Loan as at [ ] was [ ];
5. High Yield Debt as at [ ] was [ ];
6. Bank Debt interest charges for the Quarter were [ ];
7. High Yield Debt interest charges for the Quarter were [ ];
8. On the basis of Diamond management projections for which the directors
are solely responsible, Bank Debt Loan Charges for the 12 months
ending [ ] is [ ].
<PAGE> 126
125
Based on the above we confirm that as at 31st December, [ ] the calculation
of the amounts set out below are arithmetically accurate:
A. The Tranche B Leverage Ratio was [ ];
B. The Coverage of Bank Debt Loan Charges was [ ];
C. Cash Interest Cover was [ ];
D. The Total Leverage Ratio was [ ].
E. Annualised EBITDA was [ ].
You should be aware that our audit opinion on the financial statements of [
] for the year ended [ ] was expressed for the purpose and
persons defined in part VII of the Companies Act 1985 and for no other purpose
or persons. We do not accept any responsibility for our audit reports beyond
that owed to those to whom they were addressed at the date of their issue.
This letter is for the information of, and can only be relied upon by the Banks
(as defined in the Loan Agreement) and is not to be relied upon by any other
person or quoted or referred to, in whole or in part, without prior written
consent.
FOR AND ON BEHALF OF
[AUDITORS]
.........................................................................
<PAGE> 127
126
SCHEDULE 9
FORM OF FINANCIAL COVENANT CERTIFICATE
PART 2 - BORROWER'S FORMAT
NatWest Markets
135 Bishopsgate
London EC2M 3UR
Attention: Project Finance Portfolio Management, Level 5
Dear Sirs
DIAMOND CABLE NOTTINGHAM LIMITED
POUNDS STERLING 220,000,000 LOAN AGREEMENT DATED 5TH AUGUST, 1996
AS FROM TIME TO TIME AMENDED, VARIED, EXTENDED, RESTATED OR REPLACED
(THE "LOAN AGREEMENT")
We refer to the Loan Agreement and deliver this certificate in respect of the
Quarter ended [ ] pursuant to clause 18.2(a)(iv)(1)(B)
thereof. Terms defined in the Loan Agreement shall have the same meaning when
used in this certificate.
We confirm that on or as of the last day of the Quarter ending [ ]:
1. Net Operating Cash Flow for the six month period ended [ ] was
[ ];
2. Annualised Net Operating Cash Flow for the six month period ended [ ]
was [ ];
3. Bank Debt outstanding as at [ ] was [ ];
4. Tranche B Loan as at [ ] was [ ];
5. High Yield Debt as at [ ] was [ ];
6. Bank Debt interest charges for the Quarter were [ ];
7. High Yield Debt interest charges for the Quarter were [ ];
8. On the basis of Diamond management projections, Bank Debt Loan Charges for
the 12 months ending [ ] is [ ].
Based on the above we confirm that as at the last day of the Quarter:
A. The Tranche B Leverage Ratio was [ ];
B. The Coverage of Bank Debt Loan Charges was [ ];
<PAGE> 128
127
C. Cash Interest Cover was [ ];
D. The Total Leverage Ratio was [ ].
E. Annualised EBITDA was [ ].
Based on the above we confirm that the Borrower was in compliance with the
financial covenants set out in clause 18.24(b)(i) to (iv) as at [ ].
We also confirm that the representations and warranties referred to in clause
17.14 including those deemed to be made by the Borrower pursuant to such clause
are true and correct at the date hereof as if each was made with respect to the
facts and circumstances existing at the date hereof.
FOR AND ON BEHALF OF
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
.........................................................................
[Authorised Officer]
<PAGE> 129
128
SIGNATORIES
BORROWER
DIAMOND CABLE COMMUNICATIONS (UK) LIMITED
By: N. MILLARD
ARRANGERS
CIBC WOOD GUNDY PLC
By: N. TRIANTIS
NATWEST MARKETS
(a division of National Westminster Bank Plc)
By: D.G. BRIMS
BANKS
CIBC WOOD GUNDY PLC
By: N. TRIANTIS
NATIONAL WESTMINSTER BANK PLC
By: D.G. BRIMS
GUARANTORS
JEWEL HOLDINGS LIMITED
By: N. MILLARD
DIAMOND CABLE (MANSFIELD) LIMITED
By: N. MILLARD
<PAGE> 130
129
DIAMOND CABLE (NEWARK-ON-TRENT) LIMITED
By: N. MILLARD
DIAMOND CABLE (GRANTHAM) LIMITED
By: N. MILLARD
DIAMOND CABLE (MELTON MOWBRAY) LIMITED
By: N. MILLARD
DIAMOND CABLE (LINCOLN) LIMITED
By: N. MILLARD
DIAMOND CABLE (GRIMCLEE) LIMITED
By: N. MILLARD
DIAMOND CABLE ACQUISITIONS LIMITED
By: N. MILLARD
DIAMOND CABLE CONSTRUCTION LIMITED
By: N. MILLARD
DIAMOND CABLE CPE LIMITED
By: N. MILLARD
DIAMOND CABLE (BASSETLAW) LIMITED
By: N. MILLARD
<PAGE> 131
130
DIAMOND CABLE (RAVENSHEAD) LIMITED
By: N. MILLARD
DIAMOND VISUAL COMMUNICATIONS LIMITED
By: N. MILLARD
DIAMOND CABLE (LINCOLNSHIRE) LIMITED
By: N. MILLARD
EAST MIDLANDS CABLE HOLDINGS LIMITED
By: N. MILLARD
DIAMOND CABLE (BELVOIR) LIMITED
By: N. MILLARD
DIAMOND CABLE (CHESTERFIELD) LIMITED
By: N. MILLARD
EAST MIDLANDS CABLE GROUP LIMITED
By: N. MILLARD
EAST MIDLANDS CABLE COMMUNICATIONS LIMITED
By: N. MILLARD
LCL CABLE (HOLDINGS) LIMITED
By: N. MILLARD
DIAMOND CABLE (LEICESTER) LIMITED
By: N. MILLARD
<PAGE> 132
131
LCL TELEPHONES LIMITED
By: N. MILLARD
DIAMOND CABLE (HINCKLEY) LIMITED
By: N. MILLARD
DIAMOND CABLE (BURTON-UPON-TRENT) LIMITED
By: N. MILLARD
SECURITY AGENT
NATIONAL WESTMINSTER BANK PLC
By: D.G. BRIMS
AGENT
NATIONAL WESTMINSTER BANK PLC
By: D.G. BRIMS
ISSUING BANK
NATIONAL WESTMINSTER BANK PLC
By: D.G. BRIMS
<PAGE> 1
Exhibit 10.2
SERVICE CONTRACT
1. INTRODUCTION
This Contact is made between Diamond Cable (Nottingham) Ltd, the Employer and
Stephen Rowles, the Employee. The purpose of the Contract is to establish an
employment relationship between the two parties.
2. SERVICE CONTRACT PERIOD
The Contract is made for a fixed term period commencing 1 April 1996 until 1
July 1999. It will continue beyond it's fixed term unless or until notice is
given in accordance with paragraph 9. Your employment with Diamond Cable
commenced on 17 February 1992. No previous service counts towards this
continuous period of employment.
3. JOB TITLE & PLACE OF WORK
The Employee's job title will be Director of Telecommunications. The immediate
supervisor is Mr. G Davis Managing Director. Your normal place of work will be
Diamond Plaza, Daleside Road, Nottingham although you may be required to work
elsewhere within the Diamond Cable operating area.
4. HOURS OF WORK
The employee will attend for work for those hours necessary for the successful
undertaking of his job and as may, from time to time, be laid down by the
Company.
5. DUTIES
Under the terms of this Contract, the Employee will perform those duties
specifically required by the Employer. The Employee will perform those specific
duties in a way commensurate with the Telecom Director's position. Any variation
to specific duties will be discussed and agreed by both parties to the Contract
prior to their introduction.
6. SALARY
The basic salary applicable to this Contract is pounds sterling 79,000 per
annum, paid monthly in arrears on the final day of the month. Salary will be
reviewed on 1st January each year dependant upon performance, the
responsibilities of the post and other relevant factors. In addition to basic
annual salary, the Employee will receive commission and bonus payments based
upon criteria agreed from time to time. In the first twelve months of the
existence of this contract, the on-target earnings will be pounds sterling
100,000 per annum with a maximum earnings of pounds sterling 125,000 per
annum.
Continued...
<PAGE> 2
- Page Two -
7. BENEFITS
The following benefits will apply to this Contract;
a. Holidays - 20 days plus 8 statutory days per calendar year
b. Pension - a 6% contribution to the Personal Pension Scheme set up by
the Company. A contribution of at least 4% will be payable
by the Employee
c. Life Insurance - life cover of 3 times the basic annual salary payable on
the death of the Employee during the Contract period
d. Nett Pay
Scheme - in the event of prolonged absence through illness
or accident (more than 28 continuous days), payments at the
rate of 90% of nett pay will be payable to the Employee,
subject to the rules of the Nett Pay Group Long Term
Disability Insurance Scheme
e. Company
Vehicle - the Employer will provide the Employee with a motor
vehicle for his business and personal use. The vehicle will
be fully expensed and of a type in accordance with the
Employer's Car Policy
f. Medical
Cover - the Employer will provide the Employee, his or
her spouse and any children under the age of 18 years, with
private medical cover for the duration of this contract
g. Sickness
Benefits - a. the Company will continue to pay the Employer
at his normal rate of pay during any period of absence
through sickness or injury up to an aggregate maximum of 40
days in any calendar year during the first six calendar
years of the Employment and up to an aggregate maximum of
60 days in any calendar year thereafter
b. statutory sick pay (SSP) will be paid by the Company
appropriate in accordance with legislation in force at the
time of absence. Any payment made by the Company will
discharge its obligation to pay SSP
Continued . . .
<PAGE> 3
7. BENEFITS (Contd)
g. Sickness
Benefits - c. the Employee will not be paid in respect of
any period during which he has been absent (other than by
reason of sickness or injury) without leave
- d. the Company reserves the right to require the
Employee to undergo a medical examination by a doctor
appointed by the Company at any time
8. EXISTING PROCEDURES
All policy procedures and customs and practise in existence at the inception
of the Contract will be maintained during it's existence. Any variation will be
the subject of separate agreement outside of this Contact.
9. NOTICE
a. The Contract will operate for the fixed term period in paragraph 2. Notice
to terminate can be given by either party, such notice will be of twenty four
months duration except in the special circumstances identified in paragraph b.
below.
b. There will be a special provision covering notice which allows the Employee
to give three months notice to terminate this Contract in favour of any option
to take up employment with European Cable Capital Partners or a company under
their direction or control. This provision will take precedent over paragraph
9a. above if exercised and will be an option to be taken solely at the
discretion of the Employee only.
10. GRIEVANCE
a. If, at any time, the Employee has any grievance relating to the
Employment, he may seek redress orally or in writing by the Managing Director.
The decision of the Managing Director will be final and binding in this respect.
b. The Disciplinary Rules and Procedures applicable to Diamond Cable
(Nottingham) Ltd shall apply to the Employee in respect of this Contract.
Signed on behalf of .....................................................
DIAMOND CABLE (NOTTM) LTD
Signed .....................................................
EMPLOYEE
Dated .....................................................
<PAGE> 1
Exhibit 10.3
DIAMOND CABLE COMMUNICATIONS PLC
NICHOLAS MILLARD
==================================
SERVICE AGREEMENT
==================================
<PAGE> 2
THIS AGREEMENT made on 1 July 1995.
BETWEEN;
DIAMOND CABLE COMMUNICATIONS PLC (Company number ) a company incorporated
under the laws of England and Wales with registered office at Diamond Plaza,
Daleside Road, Nottingham NG2 3GG (the Company); and
NICHOLAS R MILLARD of Beech End, Woodlands Glade, Beaconsfield, Buckinghamshire
HP9 1JZ (the Executive).
IT IS HEREBY AGREED as follows;
DEFINITIONS
1. In this Agreement;
the Board means the board of directors of the Company or a duly constituted
committee thereof;
Effective Date mean 1 July 1995;
the Employment means the employment established by this Agreement;
Group Company means any of (i) the Company, (ii) any holding company (as defined
in section 736 of the Companies Act 1985 as amended) from time to time of the
Company, (iii) any subsidiary (as defined in section 736 of the Companies Act
1985 as amended) from time to time of the Company or any such holding company,
(iv) any subsidiary undertaking (as defined in section 258 of the Companies)
from time to time of the Company or of any such holding company and, (v) any
associated company from time to time of the Company or of any such holding
company.
EMPLOYMENT
2.1 The Company will employ the Executive and the Executive will serve the
Company and its subsidiaries as Chief Financial Officer.
2.2 The Employment commenced on the Effective Date and, subject to clause 12
below, will continue unless terminated by either;
(a) the Company giving not less than 24 months prior written notice; or
(b) The Executive giving not less than 6 months prior written notice.
2.3 The Employment will automatically terminate upon the day on which the
Executive attains the age of 65 years or such age as may for the time being be
determined by the Company as the retirement age for executive directors.
<PAGE> 3
2.4 There is no employment with a previous employer which counts as part of
the Executive's period of continuous employment for statutory purposes, which
commenced on the Effective Date.
DUTIES
3.1 The Executive will serve the Company as Chief Financial Officer and will
perform such other duties consistent with his position as may be assigned to
him from time to time. The Executive will perform the duties assigned to him
and will comply with all reasonable directions made by or under the authority
of the Board. The Executive may also be required in pursuance of his Employment
and without further remuneration to be engaged in work on behalf of any other
Group Company.
3.2 At all times during the Employment, the Executive will well and faithfully
serve the Company and, to the extent required under clause 3.1 above, any other
Group Company, and will use his utmost endeavours to promote its or their
interests, and during hours which he is required to work pursuant to clause 10
will devote such of his time, attention and abilities as are necessary to
perform his duties under this Agreement.
3.3 During the Employment, the Executive will not (without the written consent
of the Board) remain or become a director of any corporation (which is not a
Group Company), nor, subject to sub-clause 3.4 below, will be he be directly or
indirectly engaged, concerned or interested in any other business, trade or
occupation.
3.4 None of the restrictions in clause 3.3 above, is intended to prevent the
Executive from having an interest (as defined by Schedule 13 Companies Act 1985)
in any securities (such term to include any stocks, shares and debentures)
unless they are securities to which both conditions (a) and (b), apply, namely:
(a) the company which issued the securities carries on, or is the holding
company of a company carrying on, a business which is similar to or
competitive with any business for the time being carried on by the Company
or any Group Company; and
(b) the securities are not listed or quoted on a Stock Exchange (excluding for
the avoidance of doubt, the Unlisted Securities Market or any
over-the-counter market) or, if they are so listed or quoted, they
represent more than 3 per cent. in nominal value or (in the case of
securities not having a nominal value) in number of a class of securities
which are not so listed or quoted.
PLACE OF WORK
4.1 The Executive will perform his duties a the principal offices of the
Company from time to time. However, the Company reserves the right to require
the Executive to move to work at any location in the United Kingdom as the
Company may reasonably from time to time decide. If, in accordance with this
clause, the Company requires the Executive to change his residence, the Company
will reimburse the Executive such removal and other incidental expenses as the
Company considers fair and reasonable in the circumstances.
<PAGE> 4
4.2 The Executive may be required from time to time to travel in the United
Kingdom and overseas in the proper performance of his duties.
SALARY
5.1 The Executive's initial salary is pound sterling 100,000 per annum (less
deductions for income tax and national insurance), payable in arrears in equal
monthly instalments on the last day of each month. Salary will accrue from day
to day.
5.2 The Executive's salary will be reviewed by the Board no less frequently
than annually (commencing 1 July 1996) and shall be increased by such amount as
the Board may in it's absolute discretion, from time to time, decide and notify
to the Executive in writing.
5.3 The Executive's salary is inclusive of any remuneration to which he may be
entitled as director of the Company or of any other Group Company.
BONUS
6. The Executive is entitled, subject to the conditions below, to a
Performance Related Bonus of up to 50% of his salary (less deduction for income
tax and national insurance) for each complete calendar tear of service, which
will be paid on or before 31 January in the following year. The size of the
bonus, if any, due to the Executive under this clause will depend upon the
performance of the Executive and/or the Company in relation to financial and
other targets agreed between the Company and the Executive at the beginning of
that calendar year. The bonus is not pensionable.
SHARE OPTIONS
7. Subject to the terms of the diamond Cable communication Senior Management
Option Scheme, the Executive has been granted stock option in respect of 60,000
shares in the company.
EXPENSES
8.1 The Executive will receive a housing allowance of pound sterling 650,00
(subject to tax and other deductions required by law) for a period of three
years from the Effective Date.
8.2 During the period of three years from the Effective Date, the Company will
lend or procure the loan to the Executive of a colour television set, a video
cassette recorded and a stereo system including a compact disc player. The
Executive will take good care of such equipment. The Executive shall return such
equipment to the Company on the earliest of 30 June 1998 or the date of
termination of the Employment (howsoever caused).
8.3 The Company ore another Group Company will reimburse any travelling, hotel,
entertainment and other out-of-pocket expenses properly and reasonably
incurred by the Executive in the course of the Employment in accordance with
the relevant rules of the Company for the time being in force subject to
production of receipts or other evidence of payment.
<PAGE> 5
COMPANY CAR
9.1 During the Employment, the Company will provide the Executive with a motor
car of an age and type appropriate (in the opinion of the Board) to his status,
being a Ford Scorpio or similar, for the Executive's business and personal use
and will bear the cost of fuel (in accordance with the terms of the Company's
fuel card arrangements) and the expenses of taxing, insuring, repairing and
maintaining such car. The car will be replaced from time to time in accordance
with the Company's car policy.
9.2 The Executive will take good care of the vehicle and will procure that the
provisions and conditions of any policy of insurance are observed in all
respects and will comply in full with the provisions of the Company's car
policy from time to time. In the event of any failure on the part of the
Executive to comply with the provisions of this clause 9.2 or if at any time
the Executive loses his driving licence, the Company reserves the right to
require the Executive to return his company car, and shall be under no
obligation to provide any replacement benefit.
PENSION SCHEME & INSURANCE BENEFITS
The Executive will be eligible for membership of the Diamond Cable Executive
Pension Scheme, an occupational scheme which will seek exempt approval under
Chapter 1, Part XIV of the Income and Corporation Taxes Act 1988.
10.1 The Company agrees to pay contributions to the Executive Pension Scheme
or, prior to it's establishment, such other personal pension scheme as provided
by the Company for the benefit of the Executive, equal to at least 6% per annum
of gross salary before any reduction resulting from the voluntary sacrifice of
pay by the Executive subject to Inland Revenue maxima. The Company will pay
such contributions in monthly instalments.
10.2 A contracting-out certificate is not in force in respect of the
Employment.
10.3 The Company will provide life assurance cover based upon three times the
Executive's salary at the date of his death.
10.4 The Company will pay for the benefit of the Executive, his wife and any
dependent children under 21, subscription to the Company's private health
insurance scheme for the time being in force.
10.5 The Executive is entitled to become a member of the Company's Long Term
Disability Insurance Scheme, upon the terms and subject to the conditions of
the rules governing such scheme from time to time in force.
10.6 The Company will provide the Executive with Director's and Officer's
Liability Insurance as the Company may, in its discretion, effect from time to
time.
<PAGE> 6
HOURS OF WORK, HOLIDAYS & SICKNESS
11.1 The Executive will work the hours necessary or appropriate from time to
time to carry out his duties properly and effectively (the Hours of work).
11.2 The Executive is entitled to 20 working days holiday (in addition to
statutory holidays) with full salary in each calendar year during the
Employment, to be taken at such time or times as may be approved by the Board.
The right to holiday pay will accrue pro-rata at the rate of 1.66 days per
month during each calendar year of the Employment. Up to 5 days holiday
entitlement may be carried forward to the next calendar year (provided they are
taken before 31 March in the next calendar year). There is a right to accrued
holiday pay on the termination of the Employment.
11.3 Subject to clause 11.5, the Company will continue to pay the Executive at
his normal rate of pay during any periods of absence through sickness or injury
up to an aggregate maximum of 60 days.
11.4 Statutory Sick Pay (SSP) will be paid by the Company where appropriate in
accordance with legislation in force at the time of absence. Any payment made
by the Company under clause 11.3 will discharge its obligations to pay SSP.
11.5 The Executive will not be paid in respect of any period during which he
has been absent (otherwise than by reason of sickness or injury) without leave.
11.6 The Company reserves the right to require the Executive to undergo a
medical examination by a doctor appointed by the Company at any time (provided
that the costs of such examination shall be paid by the Company).
TERMINATION & SUSPENSION
12.1 The Employment may be terminated by either party in accordance with
clause 2.
12.2 Without prejudice to the Executive's right to salary and other benefits
under this Agreement, the Company may, at any time, require the Executive (i)
not to attend any premises of the Company or any Group Company and suspend him
from the performance of any duties or obligations under this Agreement for all
or any part of the notice period; and (ii) to resign immediately from any
offices he may hold in the Company or any Group Company.
12.3 The Company may terminate the Employment summarily (but without prejudice
to its rights and remedies for any breach of this agreement by the Executive)
if;
(a) the Executive has committed or been engaged in or party to dishonesty or
serious or persistent misconduct, in all cases whether or not in connection
with or referable to the Employment; or
<PAGE> 7
(b) the Executive is declared bankrupt or enters into any general composition
or arrangement with or for the benefit of his creditors including a voluntary
arrangement under the Insolvency Act 1986; or
(c) the Executive commits any material breach or non-observance of any of the
terms of this Agreement or has conducted himself in such a way as to bring
himself or the Company or any Group Company into disrepute; or
(d) the Executive is convicted of any arrestable criminal offence (other than
an offence under road traffic legislation in the United Kingdom or elsewhere)
for which he is sentenced to any term of imprisonment (whether immediate or
suspended); or
(e) the Executive is or becomes disqualified from being a director by reason
of an order made by any competent court.
This clause is without prejudice to any rights the Company may have at common
law or otherwise to terminate the Employment summarily.
12.4 Without prejudice to clause 11.1, the Company may suspend the Executive
from the Employment at any time on full salary, during any period in which the
Company is carrying out an investigation in relation to any acts or defaults
(or alleged or suspected acts or defaults) of the Executive.
12.5 If (whether due to illness or otherwise) the Executive is unable properly
and effectively to perform his duties under this Agreement for a period or
periods totalling 180 days in aggregate in any period of 12 months, the Company
may, by giving written notice to the Executive, terminate the Employment on 6
months' notice provided that the Company shall withdraw such notice if during
its currency, the Executive returns to full-time work and provides the Company
with a medical certificate stating that he has fully recovered and that no
occurrence of such incapacity may reasonably be anticipated.
12.6 Upon termination of the Employment for whatever reason (and whether in
breach of contract or otherwise) the Executive will;
(a) deliver forthwith to the Company all books, documents, papers (including
copies), materials, credit cards, his company car, car keys and all other
property relating to the business of or belonging to the Company or to the
Company which is in his possession or under his power or control;
(b) resign forthwith his position as a director of the Company (and any other
Group Companies as the case may be) without compensation for loss of office
such as director, and should the Executive fail to do so, he hereby irrevocably
authorises the Company to appoint some person in his name and on his behalf to
sign any documents and do anything or things necessary or requisite to give
effect thereto;
<PAGE> 8
(c) execute forthwith stock transfer forms in favour of the Company or any
Group Company or such nominee or nominees as it or they shall appoint in
respect of any nominee shares held by the Executive on behalf of the
Company or any Group Company.
12.7 The Executive will not at any time after termination of the Employment
represent himself as being in any way connected with or interested in the
business of, or employed by, the Company or any Group Company.
CONFIDENTIALITY
13. Save insofar as such information is already in the public domain, the
Executive will keep secret and will not at any time (whether during the
Employment or thereafter) use for his own or another's advantage, or reveal to
any person, firm, company or organisation and shall use his best endeavours to
prevent the publication or disclosure of any information which the Executive
knows or ought reasonably to have known to be confidential, concerning the
business affairs of the Company or any other Group Company or any of its or
their customers.
The restrictions on this clause shall not apply;
(a) to any disclosure or use authorised by the Board or required by law or by
the Employment;
(b) so as to prevent the Executive from using his own personal skill in any
business in which he may be lawfully engaged after the Employment is
ended.
EXECUTIVE'S POSITION AS DIRECTOR
14. The Executive's duties as a director of the Company or any other Group
Company are subject to the Articles of Association of the relevant company for
the time being.
INTELLECTUAL PROPERTY
15. It shall be part of the Executive's normal duties or other duties
specifically assigned to him (whether or not during normal working hours and
whether or not performed at the Executive's normal place of work) at all times
to consider in what manner and by what new methods or devices the products,
services, processes, equipment or systems of the Company with which he is
concerned or for which he is responsible might be improved and to originate
designs (whether registrable or not) or patentable work or other work in which
copyright may subsist. Accordingly:
(a) the Executive shall forthwith disclose full details of the same in
confidence to the Company and shall regard himself in relation thereto as
a trustee for the Company;
(b) all intellectual property rights in such designs or work shall vest
absolutely in the Company which shall be entitled, so far as the law
permits, to the exclusive use thereof;
<PAGE> 9
(c) notwithstanding (b) above, the Executive shall at any time assign to the
Company the copyright (by way of assignment of copyright) and other
intellectual property rights, if any, in respect of all works written
originated conceived or made by the Executive (except only those works)
written, originated, conceived or made by the Executive wholly outside his
normal working hours hereunder and wholly unconnected with his service
hereunder) during the continuance of his employment hereunder; and
(d) the Executive agrees and undertakes that at any time during or after the
termination of his employment, he will execute such deeds or documents and
do all such acts and things as the Company may deem necessary or desirable
to substantiate it's rights in respect of the matters referred to above
including for the purposes of obtaining letters patent or other privileges
in all such countries as the Company may require.
GRIEVANCE & DISCIPLINARY PROCEDURE
16.1 If, at any time, the Executive has any grievance relating to the
Employment, he may seek redress orally or in writing by, in the first instance
referring the grievance to the Chief Executive of the Company. If the grievance
is not thereby resolved, the Executive may appeal the Board and the Board shall
deal with the matter by discussion and by majority decision of those present at
the relevant meeting of the Board and their decision shall be binding.
16.2 A copy of the disciplinary rules and procedures of the Company in force
from time to time can be obtained from the Director of Human Resources. The
rules and procedures do not form part of the Executive's contract of employment.
WAIVER OF RIGHTS
17. If the Employment is terminated by either party and the Executive is
offered re-employment by the Company or employment with another Group Company on
terms no less favourable in all material respects than the terms of the
Employment under this Agreement, the Executive shall have no claim against the
Company in respect of such termination.
MISCELLANEOUS
18.1 This Agreement supersedes all other agreements both oral and in writing
between the Company and the Executive (other than those expressly referred to
herein). The Executive acknowledges that he has not entered into this Agreement
in reliance upon any representation, warranty or undertaking which is not set
out in this Agreement or expressly referred to in it as forming part of the
Executive's contract of employment.
18.2 The Executive represents and warrants the Company that he will not by
reason of entering into the Employment, or by performing any duties under this
Agreement, be in breach of any terms of employment with a third party whether
express or implied or of any other obligation binding on him.
<PAGE> 10
18.3 Any notice to be given under this Agreement to the Executive may be
served by being handed to him personally or by being sent by recorded delivery
first class post to him at his usual or last known address; and any notice to
be given to the Company may be served by being left at or by being sent by
recorded delivery first class post to its registered office for the time being.
Any notice served by post shall be deemed to have been served on the day
(excluding Sundays and statutory holidays) next following the date of posting
and in proving such service it shall be sufficient proof that the envelope
containing the notice was properly addressed and posted as a pre-paid letter by
recorded delivery first class post.
18.4 Any reference in this Agreement to an Act of Parliament shall be deemed
to include any statutory modification on re-enhancement thereof.
18.5 This Agreement is governed by and shall be construed in accordance with,
the laws of England.
SIGNED as a DEED and )
DELIVERED by the )
EXECUTIVE in present of )
SIGNED for and on behalf of )
the COMPANY )
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K DATED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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0
0
<COMMON> 1,478
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