<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DIAMOND CABLE COMMUNICATIONS PLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
4841 NONE
ENGLAND (Primary Standard Industrial (I.R.S Employer
(Jurisdiction of incorporation) Classification Code Number) Identification Number)
DIAMOND PLAZA
DALESIDE ROAD CT CORPORATION SYSTEM
NOTTINGHAM NG2 3GG 1633 BROADWAY
ENGLAND NEW YORK, NY 10019
011-44-115-912-2217 (212) 664-1666
(Address and telephone number (Name, address and
of Registrant's principal telephone number of
executive offices) agent for service)
</TABLE>
---------------
COPIES TO:
SCOTT D. MILLER, ESQ.
SULLIVAN & CROMWELL
9A IRONMONGER LANE
LONDON EC2V 8EY ENGLAND
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and therein compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
L.135,000,000 10% Senior
Notes due February 1, 2008 (4) L.135,000,000 100% L.135,000,000 $66,340
$110,000,000 9 1/8% Senior
Notes due February 1, 2008 (4) $110,000,000 100% $110,000,000 $32,450
</TABLE>
(1) The amount of the Senior Notes to be registered includes an indeterminate
amount of Senior Notes that may be offered and sold from time to time by
broker-dealers affiliated with the Registrant in market-making transactions.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933. The
translation of pounds sterling into US dollars has been made at the noon buying
rate on March 13, 1998 of L.1 = $1.6658.
(3) Calculated pursuant to Rule 457(f).
(4) The Senior Notes will be represented by Book-Entry Interests as provided by
the Deposit Agreement filed as an exhibit hereto.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
================================================================================
<PAGE> 2
<PAGE> 3
EXPLANATORY NOTE
This Registration Statement relates to the registration of L.135,000,000
aggregate principal amount of 10% Senior Notes due February 1, 2008 and
$110,000,000 aggregate principal amount of 9 1/8% Senior Notes due February 1,
2008 (together, the "Senior Notes"), which are being issued by Diamond Holdings
plc (the "Issuer") and guaranteed as to payment of Principal and Interest by
Diamond Cable Communications Plc (the "Company"). The complete Prospectus
contained herein relates to the exchange offer in which Senior Notes are being
offered by the Issuer in exchange for its outstanding Senior Notes due February
1, 2008. A post-effective amendment on Form S-1 to this registration statement
on Form S-4 will be filed which will include a Prospectus relating to the sale
of the Senior Notes by Goldman, Sachs & Co. in market-making transactions.
Following the first such market-making transaction in the Senior Notes, the
Company will file the market-making prospectus pursuant to Rule 424 under the
Securities Act of 1933, as amended.
<PAGE> 4
INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 20, 1998
OFFER FOR ALL OUTSTANDING
POUNDS STERLING 135,000,000 10% SENIOR NOTES DUE FEBRUARY 1, 2008
$110,000,000 9 1/8% SENIOR NOTES DUE FEBRUARY 1, 2008
IN EXCHANGE FOR
POUNDS STERLING 135,000,000 10% SENIOR NOTES DUE FEBRUARY 1, 2008
$110,000,000 9 1/8% SENIOR NOTES DUE FEBRUARY 1, 2008
OF DIAMOND HOLDINGS PLC
GUARANTEED AS TO PAYMENT OF PRINCIPAL AND INTEREST
BY DIAMOND CABLE COMMUNICATIONS PLC
--------------------
Diamond Holdings plc (the "Issuer") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange pounds sterling 1,000 principal amount of its registered pounds
sterling 135,000,000 10% Senior Notes due February 1, 2008 (the "Sterling Senior
Notes") and $1,000 principal amount of its registered $110,000,000 9 1/8% Senior
Notes due February 1, 2008 (the "Dollar Senior Notes", and together with the
Sterling Senior Notes, the "Senior Notes" or the "1998 Notes"), for each pounds
sterling 1,000 principal amount of its unregistered pounds sterling 135,000,000
10% Senior Notes due February 1, 2008 (the "Old Sterling Senior Notes") and each
$1,000 principal amount of its unregistered $110,000,000 9 1/8% Senior Notes due
February 1, 2008 (the "Old Dollar Senior Notes", and together with the Old
Sterling Senior Notes, the "Old Notes"), respectively, of which aggregate
principal amounts of pounds sterling 135,000,000 and $110,000,000, respectively,
are outstanding. The form and terms of the Senior Notes are identical to the
form and terms of the Old Notes except that the Senior Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and will not bear any legends restricting their transfer nor include certain
provisions for an increase in the interest rate on the Old Notes related to the
Issuer's undertakings to carry out this Exchange Offer. The Senior Notes will be
issued pursuant to, and entitled to the benefits of, the Indenture governing the
Old Notes. The Exchange Offer is being made in order to satisfy contractual
undertakings made by the Issuer. See "The Exchange Offer" and "Description of
the Senior Notes and Guarantee". The Old Notes and the Senior Notes are
sometimes referred to collectively herein as the "Notes."
Interest on the Senior Notes is payable semi-annually in arrears on August
1 and February 1 of each year, commencing August 1, 1998 at a rate of 10% per
annum in the case of the Sterling Senior Notes and 9 1/8% per annum in the case
of the Dollar Senior Notes. See "Description of the Senior Notes and Guarantee".
The Senior Notes will be redeemable, in whole or in part, at the option of the
Issuer at any time on or after February 1, 2003, at the redemption prices set
forth herein plus accrued and unpaid interest, if any, and any other amounts
payable thereon to the date of redemption. The Senior Notes will also be
redeemable in whole, but not in part, at the option of the Issuer at any time at
100% of the principal amount thereof, plus accrued and unpaid interest and any
other amounts payable thereon to the date of redemption in the event of certain
tax law changes requiring the payment of additional amounts as described herein.
Upon the occurrence of a Change of Control, the Issuer is required to offer to
repurchase all outstanding Senior Notes at 101% of their principal amount plus
accrued and unpaid interest and any other amounts payable thereon to the date of
repurchase. See "Description of Senior Notes and Guarantee". There can be no
assurance that the Issuer would have the financial resources necessary or
otherwise be able to repurchase the Senior Notes under such circumstances.
Diamond Holdings plc is a wholly-owned subsidiary of Diamond Cable
Communications Plc. The Senior Notes are unconditionally guaranteed as to
principal, interest and any other amounts due by Diamond Cable Communications
Plc.
The Senior Notes will be unsecured senior indebtedness of the Issuer. Each
of the Sterling Senior Notes and the Dollar Senior Notes will rank pari passu
in right of payment with each other and with any other unsubordinated unsecured
indebtedness of the Issuer. The Issuer is a holding company which conducts
substantially all of its business through subsidiaries, all of which are
wholly-owned. Outstanding intercompany indebtedness owed to the Company by
subsidiaries of the Issuer will be subordinated to the Senior Notes. The
Senior Notes effectively rank junior to any indebtedness of the Issuer's
subsidiaries to the extent of the assets of such subsidiaries and to any
secured indebtedness of the Issuer to the extent of the assets securing such
indebtedness.
The Issuer will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on --, 1998, unless
extended (as so extended, the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time prior to the Expiration Date. The Exchange Offer is
subject to certain customary conditions. See "The Exchange Offer".
Each broker-dealer that receives Senior Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of those Senior Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Senior Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Issuer has agreed that, for a period of 90 days after
the date hereof, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution".
The Sterling Senior Notes and the Dollar Senior Notes will be issued as a
global security in bearer form, which will be deposited with The Bank of New
York, as Book-Entry Depositary. Except as described herein, such Senior Notes
will not be available in definitive form. Book-Entry Interests in the Senior
Notes will be shown on, and transfers thereof will be effected only through,
records maintained in book-entry form by The Depositary Trust Company,
Euroclear and Cedel and their Participants. See "Description of Senior Notes --
Form of the Senior Notes"; and " -- Description of Book-Entry System".
No public market existed for the Old Notes before the Exchange Offer. The
Issuer currently does not intend to list the Senior Notes on any securities
exchange (other than the Luxembourg Stock Exchange) or to seek approval for
quotation through any automated quotation system, and no active public market
for the Senior Notes is currently anticipated. The Issuer will pay all expenses
incidental to the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS PROSPECTUS FOR A
DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE SENIOR NOTES.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is --, 1998.
<PAGE> 5
THE EXCHANGE OFFER DESCRIBED IN THIS PROSPECTUS (THE "PROSPECTUS") IS NOT
DIRECTED TO, NOR WILL THE ISSUER ACCEPT ANY TENDER FOR EXCHANGE FROM, ANY
PERSON IN ANY JURISDICTION IN WHICH PARTICIPATION IN SUCH EXCHANGE OFFER WOULD
BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE MADE
PURSUANT HERETO SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE ISSUER OR THAT THE INFORMATION SET FORTH HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
____________________________
This Prospectus includes the Company's 1997 Annual Report on Form 10-K.
____________________________
Diamond Holdings plc (the "Issuer") is a public limited company recently
incorporated under the laws of England and Wales. The Issuer is a wholly-owned,
direct subsidiary of Diamond Cable Communications Plc (the "Company") and on
January 16, 1998 became the intermediate holding company which holds all of the
shares of (i) Diamond Cable Communications (UK) Limited ("DCL") (formerly
Diamond Cable (Nottingham) Limited) and (ii) the group of companies comprising
LCL (as defined herein), in both cases through as intermediate holding company,
Jewel Holdings Limited ("Jewel"). Unless otherwise indicated, information is
provided with respect to the Group as both the Issuer and the Company are
holding companies which directly or indirectly hold all the shares of the
Group's operating subsidiaries.
In this Prospectus, except as the context may otherwise require,
references to the Company refer to Diamond Cable Communications Plc and/or its
predecessor, references to the "Group" refer to the Company and its
subsidiaries, including as of September 30, 1995 LCL, and references to
"Diamond" refer to the Company and its subsidiaries excluding LCL. The
principal executive office of the Issuer and the Company is at Diamond Plaza,
Daleside Road, Nottingham NG2 3GG, England, and the telephone number at such
address is 011-44-115-912-2217.
On September 27, 1995, the Group acquired substantially all of the share
capital of East Midlands Cable Group Limited ("EMCG"), East Midlands Cable
Communications Limited and East Midlands Cable Holdings Limited (collectively
"LCL"), and on October 4, 1995 the Group acquired all of the remaining share
capital (less than 1%) of LCL. For financial accounting purposes, the
acquisition was given effect as of September 30, 1995. At and prior to
September 30, 1995, substantially all of LCL's operating activities were
carried out through LCL Cable Communications Limited ("LCL Cable") (now Diamond
Cable (Leicester) Limited). On April 26, 1995, LCL Cable became the principal
operating subsidiary of EMCG. References herein to LCL may also refer to LCL
Cable or EMCG as appropriate.
____________________________
The Old Notes are listed on, and application has been made to list the
Senior Notes on, the Luxembourg Stock Exchange. For a discussion of the trading
market, if any, in the Senior Notes see "Risk Factors -- Absence of a Public
Market for the Senior Notes; Possible Volatility of Senior Note Price".
This prospectus contains certain forward-looking statements, identified as
such, with respect to which the Issuer is seeking to utilize the safe harbor
provided by the Private Securities Litigation Reform Act of 1995. These
statements are accompanied by, and should be read in conjunction with, an
explanation of important factors that could cause actual results to differ
materially from those in the forward-looking statements. Among other
statements, statements regarding the Group's operational and financial goals
and objectives, expectations regarding the construction of the Group's network
and the marketing and acceptance of its services, including those under "Risk
Factors -- Requirement for Additional Funds", " -- Ability to Manage Network
Development and Expansion", " -- Significant Competition" and Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" are forward looking in nature.
Similarly, among other statements, statements regarding the effects of changes
in the competitive environment and government regulation, including those under
"Risk Factors -- Potential Changes in Government Regulation", " -- Requirement
to Meet Build Milestones", " -- Significant Competition", "Business --
Competition" and " -- Milestones" and statements regarding the expected
technological and managerial strains of continued growth, service enhancement
and year 2000 information processing issues, including those under "Risk
Factors -- Rapid Technological Changes", "Risk Factors -- Information Systems
- -- Year 2000" and "Business -- Competition", are forward looking in nature. By
their nature, forward-looking statements and forecasts involve risk and
uncertainty because they relate to events and depend on circumstances that will
occur in the future. There are a number of factors that could cause actual
results and developments to differ materially from those expressed or implied
by these forward-looking statements and forecasts. These factors include, among
other things, changes in demand for the products and services of the Group,
changes in the cost and availability of supplies to the Group, the rate and
cost of the build out of the Group's network, technological changes, the impact
of competition and changes in economic conditions in England.
2
<PAGE> 6
The Group operates only in the United Kingdom and, accordingly, publishes
its financial statements in pounds sterling. In this Prospectus, references to
"pounds sterling", "pounds sterling", "pence" or "p" are to the lawful currency
of the United Kingdom and references to "U.S. dollars", "dollars", "$" or "c"
are to the lawful currency of the United States. Merely for convenience, this
Prospectus contains translations of certain pounds sterling amounts into U.S.
dollars at specified rates. These translations should not be construed as
representations that the pounds sterling amounts actually represent such U.S.
dollar amounts or could have been or could be converted into U.S. dollars at the
rate indicated or at any other rate. Unless otherwise indicated, the
translations of pounds sterling amounts into U.S. dollars have been made at
$1.6427 per pounds sterling 1.00, the noon buying rate in The City of New York
for cable transfers in pounds sterling as certified for customs purposes by the
Federal Reserve Bank of New York (the "Noon Buying Rate") on December 31, 1997.
The Noon Buying Rate on March 18, 1998 was $1.6711 per pounds sterling 1.00.
See "Exchange Rates" for information regarding the Noon Buying Rate for the past
five fiscal years.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
The Issuer and the Company have been incorporated under English law.
Service of process upon directors and officers of the Issuer, and certain of
the experts named herein, who reside outside the United States may be difficult
to obtain within the United States. Furthermore, since most directly owned
assets of the Issuer and the Company are outside the United States, any
judgment obtained in the United States against it may not be collectible within
the United States. The Issuer and the Company have been advised by their
English counsel, Freshfields, that there is doubt as to the enforceability of
certain civil liabilities under U.S. Federal securities laws in original
actions in English courts, and that, subject to certain exceptions and time
limitations, English courts will treat a final and conclusive judgment of a
U.S. court for a liquidated amount as a debt enforceable by fresh proceedings
in the English courts. Such counsel has expressed no opinion, however, as to
whether the enforcement by an English court of any judgment would be in pounds
sterling or as of which date, if any, the determination of the applicable
exchange rate from U.S. dollars to pounds sterling would be made. The Issuer
and the Company have appointed CT Corporation Systems as their authorized agent
upon which process may be served in any suit or proceeding arising out of or
relating to the Senior Notes that may be instituted in any U.S. federal or
state court in the Borough of Manhattan, The City of New York or brought under
U.S. federal or state securities laws and submit to the jurisdiction of any
such court in any such suit or proceeding.
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements included elsewhere in this
Prospectus. All information in this Prospectus with respect to the number of
homes in the Group's franchise areas is based either on CACI Information
Services reports (which use 1991 census data compiled by the U.K.'s Office of
Population Census and Surveys) or information published by the Independent
Television Commission ("ITC") and all information with respect to the number of
businesses is based on Issuer estimates. There can be no assurance that the
actual number of homes in a franchise area is not different from that reflected
in the 1991 census or the ITC data or that the estimated number of businesses
reflects the actual number of businesses in the relevant franchise areas.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THE GROUP
OVERVIEW
The Group operates a telecommunications and cable television business
focused on the East Midlands area of England. The Group is currently
constructing a broadband fiber-optic network to serve its fifteen contiguous
franchise areas, comprising approximately 1.2 million homes and an estimated
60,600 businesses. As of December 31, 1997, the Group's cable television and
telecommunications network had passed by civils construction approximately
536,100 homes and an estimated 26,900 businesses, of which portions of the
network passing approximately 508,800 homes and an estimated 24,900 businesses
had been activated. As of that date, the Group had approximately 157,200
residential telephone lines, 83,800 cable television subscribers and 27,100
business telephone lines. Through that date, pounds sterling 428 million had
been invested (at original cost) in the construction of the network and related
systems.
The Group offers three basic services over its network infrastructure: (i)
residential telephone services allowing customers to place and receive local,
national and international calls and to use additional services such as
conference calling, voicemail, call waiting, call forward, call barring and
Internet access, (ii) business telecommunications services which include most
of 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 Item 1. "Business -- Business Telecommunications and
Residential Telephone" and "Business -- Cable Television".
HISTORY
The Group began operations in 1989. In May 1994, European Cable Capital
Partners, L.P. ("ECCP") acquired a majority stake in the Company. ECCP is a
partnership in which various investment funds managed by Goldman, Sachs & Co.
or its affiliates hold an 83.3% interest. The remaining partnership interests
in ECCP are held by affiliates of the Group's Chief Executive Officer, Robert
T. Goad, and Ralph H. Booth II.
4
<PAGE> 8
SELECTED OPERATING DATA
The following table sets forth certain data concerning the Group's
franchises at and for the years ended December 31, 1995, 1996 and 1997. The
operating data at and for the year ended December 31, 1995 reflects the
acquisition of LCL on a pro-forma basis as if it had been completed at the
beginning of 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995(1) 1996 1997
------- ------- -------
Homes passed by civils construction(2) . 281,311 453,496 536,110
Homes activated(3) . . . . . . . . . . . 157,906 347,246 508,801
Homes marketed(4). . . . . . . . . . . . 126,607 252,601 405,787
Student service rooms marketed(5). . . . - - 1,805
BUSINESS TELECOMMUNICATIONS
Business customers accounts. . . . . . . 2,399 3,935 5,723
Business lines connected . . . . . . . . 9,879 18,932 27,124
Private circuits(6). . . . . . . . . . . 161 226 258
Average lines per business account(7). . 4.1 4.8 4.7
Average monthly revenue per line(8)(9) . L.70.23 L.50.17 L.46.26
Pro-forma average monthly revenue
per line(9). . . . . . . . . . . . . . L.67.70 L.51.25 L.46.26
RESIDENTIAL TELEPHONE(5)
Residential lines connected. . . . . . . 52,698 104,460 157,171
Penetration rate of homes marketed(10) . 41.6% 41.4% 38.6%
Average monthly revenue per
line(9)(11). . . . . . . . . . . . . . L.19.88 L.18.40 L.18.75
Pro-forma average monthly revenue
per line(9). . . . . . . . . . . . . . L.19.22 L.18.64 L.18.75
Churn(12)(13). . . . . . . . . . . . . . 15.0% 20.6% 16.3%
CABLE TELEVISION
Basic service subscribers. . . . . . . . 30,749 59,242 83,793
Penetration rate of homes marketed(14) . 24.3% 23.5% 20.6%
Average monthly revenue per
subscriber(15) . . . . . . . . . . . . L.17.62 L.18.03 L.19.84
Churn(12)(13). . . . . . . . . . . . . . 33.8% 40.9% 32.7%
</TABLE>
(1) Information for 1995 is pro-forma combined information including both
Diamond and LCL as if LCL had been acquired on January 1, 1995.
(2) Homes passed by civils construction is the number of homes (excluding
student services rooms) that have had ducting buried outside.
(3) Homes activated is the number of homes (excluding student services rooms)
that are capable of receiving cable service without further extension of
transmission lines, apart from the final connection to the home.
(4) Homes marketed is the number of homes activated (excluding student
services rooms) for which the initial marketing phase (including
door-to-door direct marketing) has been completed.
(5) During 1997 the Group began to provide telephone services and internet
access to students at a number of large educational establishments in its
franchise area. Academic terms make this business seasonal in nature. In
order to fairly present the results, the Company has adopted the following
policy: (i) rental revenue is recognized evenly over a full twelve month
period (or the balance of the period to the start of the next academic
year if shorter), (ii) call revenue is recognised in the month in which it
is earned and is incorporated in residential telephone average monthly
revenue per line, (iii) a student services line is recognised as the
equivalent of 3/4 of a residential line, (iv) each student room at which
service is available is treated as a home marketed and incorporated in the
calculation of residential telephone penetration and, (v) any net decrease
in the number of students taking the service between one academic year and
another is ignored for the purposes of calculating residential telephone
churn.
(6) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(7) 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.
(8) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by
twelve.
5
<PAGE> 9
(9) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the
year to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995
but recorded in full against revenues in 1996. The rebates were calculated
in accordance with revised interconnect agreements with BT that were made
effective retroactively from April 1995. The pro-forma average monthly
revenue per line (for both residential telephone and business
telecommunications revenues) gives effect to the revised interconnect
agreements as if they had been in effect from April 1995 and allocates to
each period the portion of the rebates that relates to such period.
(10) Penetration rate of homes marketed is calculated by dividing the number
of residential lines, including student services lines recognized at the
equivalent of 3/4 of a residential line, connected on the given date by
the total number of homes marketed and student services rooms marketed as
of such date, expressed as a percentage.
(11) 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 twelve. Call revenue from student services lines
is recognized in the month in which it is earned and is incorporated in
residential telephone average monthly revenue per line, with each student
services line recognized as the equivalent of 3/4 of a residential line.
(12) 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). The calculation of churn excludes student
services lines.
(13) Since the beginning of 1997, the Group's reported churn has excluded from
net disconnected accounts subscribers who disconnect from the service when
moving residence and reconnect to the service in their new residence.
Previously, these subscribers were not identified under the Group's
information system and were therefore reported in the churn calculation as
disconnected accounts. If churn for the year ended December 31, 1997 was
calculated on the basis used in periods prior to 1997, annualized churn
would have been 21.3% and 36.9% for residential telephone and cable
television, respectively. The difference between churn on the new and
prior bases is not necessarily indicative of the adjustment that would
arise if churn for prior periods were restated.
(14) Penetration rate of homes marketed is calculated by dividing the number
of homes receiving basic cable television on the given date by the total
number of homes marketed as of such date, expressed as a percentage.
(15) 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 twelve.
5.1
<PAGE> 10
THE SENIOR NOTES
The form and terms of the Senior Notes are the same as the form and terms
of the Old Notes except that the Senior Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
nor include certain provisions for an increase in the interest rate on the Old
Notes related to the Issuer's undertakings to carry out this Exchange Offer.
The Senior Notes will be entitled to the benefits of the Indenture pursuant to
which the Old Notes were issued (the "Senior Notes Indenture"). The Old Notes
and the Senior Notes are sometimes referred to collectively herein as the
"Notes." See "Description of the Senior Notes and Guarantee".
SENIOR NOTES OFFERED Pounds sterling 135,000,000 in aggregate principal amount
of 10% Senior Notes due February 1, 2008 (the "Sterling
Senior Notes") and $110,000,000 in aggregate principal
amount of 9 1/8% Senior Notes due February 1, 2008 (the
"Dollar Senior Notes" and, together with the Sterling
Senior Notes, the "Senior Notes").
MATURITY DATE February 1, 2008.
USE OF PROCEEDS The Issuer will not receive any proceeds from the Exchange
Offer.
INTEREST 10% per annum in the case of the Sterling Notes and
9 1/8% per annum in the case of the Dollar Senior Notes,
in each case payable semi-annually in arrears on
August 1 and February 1, commencing August 1, 1998 and
accruing from February 6, 1998.
GUARANTEE The Senior Notes are unconditionally guaranteed as to
payment of principal, interest and any other amounts due
by Diamond Cable Communications Plc.
RANKING The Senior Notes constitute senior unsecured indebtedness
of the Issuer. Each of the Sterling Senior Notes and the
Dollar Senior Notes will rank pari passu in right of
payment with each other and with any other unsubordinated
unsecured indebtedness of the Issuer. Outstanding
intercompany indebtedness owed to the Company by
subsidiaries of the Issuer will be subordinated to the
Senior Notes.
The Senior Notes effectively rank senior to the Company's
13 1/4% Senior Discount Notes Due 2004 (the "1994 Notes"),
the Company's 11 3/4% Senior Discount Notes Due 2005 (the
"1995 Notes") and the Company's 10 3/4% Senior Discount
Notes Due 2007 (the "1997 Notes" and together with the
1994 Notes and 1995 Notes, the "Discount Notes") in that
funds will be available from the Company's subsidiaries,
including the Issuer, to the Company only through payment
of dividends, if any, or payment of principal of and
interest on currently outstanding intercompany
indebtedness which will be subordinated to the Senior
Notes. See "Risk Factors -- Holding Company Structure;
Liens on Assets".
The Senior Notes would effectively rank junior to any
unsubordinated indebtedness of the Issuer's subsidiaries
to the extent of the assets of such subsidiaries and to
any secured indebtedness of the Issuer to the extent of
the assets securing such indebtedness.
The Guarantee by the Company in respect of payments in
respect of the Senior Notes (the "Guarantee") will rank
pari passu with the Company's unsecured obligations,
including its obligations under the Discount Notes.
OPTIONAL REDEMPTION The Sterling Senior Notes and the Dollar Senior Notes will
each be redeemable, in whole or in part, at the option of
the Issuer at any time on or after February 1, 2003 at the
redemption prices set forth herein, plus accrued and
unpaid interest, if any, and any other amounts payable
thereon to the date of redemption. See "Description of the
Senior Notes and Guarantee -- Redemption -- Optional
Redemption".
TAX REDEMPTION In the event of certain changes affecting withholding
taxes applicable to certain payments on the Sterling
Senior Notes or the Dollar Senior Notes, such Senior Notes
will be redeemable, as a whole, but not in part, at the
election of the Issuer, at any time at 100% of the
principal amount thereof, plus accrued and unpaid
interest, if any, and any other amounts payable thereon to
the date of redemption. See "Description of the Senior
Notes and Guarantee -- Redemption -- Optional Tax
Redemption".
CHANGE OF CONTROL Upon a Change of Control, each holder of the Senior Notes
will have the right to require the Issuer to repurchase
such holder's Senior Notes at 101% of the principal amount
thereof,
6
<PAGE> 11
plus accrued and unpaid interest, if any, and any other
amounts payable thereon to the date of repurchase. There can
be no assurance that the Issuer would have the financial
resources necessary or otherwise be able to repurchase the
Senior Notes upon a Change of Control. Furthermore, a Change
of Control, which could occur (among other reasons) if any
Person (other than a Permitted Holder) or group of Persons
beneficially owns at least 45% of the aggregate voting power
of all Equity Securities of the Company or has elected a
majority of the Board of Directors of the Company, may enable
holders of the Discount Notes to exercise a similar right to
require the Company to repurchase the Discount Notes. The
simultaneous exercise of these rights would make it less
likely that the Issuer would be able to fulfill its
obligation to repurchase the Senior Notes. See "Description
of the Senior Notes and Guarantee -- Certain Covenants --
Change of Control" and "Risk Factors -- Holding Company
Structure; Liens on Assets".
CERTAIN COVENANTS The Senior Notes Indenture contains certain covenants which,
among other things, will restrict the ability of the Issuer
and its Restricted Subsidiaries to (i) incur additional Debt
or issue Disqualified Equity; (ii) create certain liens or
enter into certain sale and leaseback transactions; (iii)
engage in certain transactions with Affiliates or Related
Persons; or (iv) sell certain assets. Moreover, the
covenants restrict the ability of the Issuer to pay
dividends or make distributions in respect of the Issuer's
capital stock or make certain other restricted payments. In
addition, the Senior Notes Indenture limits the ability of
the Company and the Issuer to consolidate, merge or sell all
or substantially all of their respective assets. These
covenants are subject to a number of important exceptions
and qualifications, and there can be no assurance that these
covenants will protect the holders of the Senior Notes from
developments that may adversely affect the ability of the
Issuer and the Company to meet their respective obligations
on the Senior Notes and the Guarantee. See "Description of
the Senior Notes and Guarantee".
FORM OF NOTES The Sterling Senior Notes and the Dollar Senior Notes will
each be issued initially as one or more global securities in
bearer form without coupons (respectively, the "Sterling
Global Senior Notes" and the "Dollar Global Senior Notes"
and, together, the "Global Senior Notes"), which will be
held by The Bank of New York, as Book-Entry Depositary.
Book-Entry Interests in the Dollar Global Senior Notes will
be shown on, and transfers thereof will be effected only
through, records maintained in book-entry form by DTC or its
nominee with respect to its participants. Book-Entry
Interests in the Sterling Global Senior Notes will be shown
on, and transfers thereof will be effected only through,
records maintained in book-entry form by Morgan Guaranty
Trust Company of New York, as operator of the Euroclear
System ("Euroclear") and Cedel Bank, societe anonyme
("Cedel"), or their common depositary or its nominee, with
respect to their respective participants. Ownership of the
Book-Entry Interests is limited to persons that have
accounts with DTC, Euroclear or Cedel ("Participants") or
persons that may hold interests through Participants
("Indirect Participants").
Except as set forth under "Description of the Senior Notes
and Guarantee", Participants or Indirect Participants are not
entitled to receive physical delivery of Senior Notes in
definitive form or to have Senior Notes issued and registered
in their names and are not considered the owners or holders
thereof under the Senior Notes Indenture.
GLOBAL CLEARANCE Book-Entry Interests in the Dollar Senior Notes will be shown
AND SETTLEMENT on, and transfers thereof will be effected only through,
records maintained in book-entry form by DTC or its nominee
with respect to its Participants. Any secondary market
trading of Book-Entry Interests in the Dollar Senior Notes is
expected to occur through DTC Participants, including
Euroclear and Cedel, and settle in same-day funds. Book-Entry
Interests in the Dollar Senior Notes will trade in DTC's
Same-Day Funds Settlement System. Book-Entry Interests in the
Sterling Senior Notes will be shown on, and transfers thereof
will be effected only through, records maintained in
book-entry form by Euroclear and Cedel, or their common
depositary or its nominee, with respect to their respective
Participants. Any secondary market trading of Book-Entry
Interests in the Sterling Senior Notes is expected to occur
through Euroclear and Cedel Participants and settle in same
day funds. Owners of Book-Entry Interests in the Dollar
Senior Notes will receive payments in respect of such Senior
Notes in dollars. Owners of Book-Entry Interests in the
Sterling Senior Notes will receive payments in respect of
such Senior Notes in pounds sterling. See "Description of the
Senior Notes and Guarantee".
7
<PAGE> 12
RATINGS [The Senior Notes are expected to be assigned ratings of
B- by Standard & Poor's Rating Services ("S&P") and B3 by
Moody's Investors Service, Inc. ("Moody's").] The
Company's Discount Notes have been assigned ratings of B-
by S&P and Caa1 (recently lowered from B3) by Moody's. The
Issuer and the Company understand that S&P and Moody's
will continue to monitor the credit rating of the Issuer
and the Company and will make future adjustments to the
extent warranted. A rating reflects only the views of S&P
or Moody's, as the case may be, and is not a
recommendation to buy, sell or hold the Securities. There
is no assurance that any such rating will be retained for
any given period of time or that it will not be revised
downward or withdrawn entirely by S&P or Moody's, as the
case may be, if, in their respective judgments,
circumstances so warrant.
For additional information regarding the Senior Notes and definitions of
certain capitalized terms used above, see "Description of the Senior Notes and
Guarantee".
8
<PAGE> 13
THE EXCHANGE OFFER
The Exchange Offer applies to pounds sterling 135 million aggregate
principal amount of the Old Sterling Notes and $110 million aggregate principal
amount of the Old Dollar Notes.
THE EXCHANGE OFFER........... Pounds sterling 1,000 principal amount of
Sterling Senior Notes in exchange for each pounds
sterling 1,000 principal amount of Old Senior
Sterling Notes and $1,000 principal amount of
Dollar Senior Notes in exchange for each $1,000
principal amount of Old Dollar Notes. As of the
date hereof, Old Sterling Notes representing
pounds sterling 135,000,000 aggregate principal
amount and Old Dollar Notes representing
$110,000,000 aggregate principal amount are
outstanding. The form and terms of the Senior
Notes are identical to the form and terms of the
Old Notes except that the Senior Notes (i) have
been registered under the Securities Act and will
not bear any legends restricting their transfer
and (ii) will not contain certain provisions for
an increase in the interest rate on the Old Notes
related to certain defaults in respect of the
Issuer's undertakings to carry out this Exchange
Offer. Upon the completion of the Exchange Offer,
such undertakings will have been satisfied and
therefore such defaults will no longer be
applicable.
Based on an interpretation by the Commission's
staff set forth in interpretive letters issued to
third parties unrelated to the Issuer, the Issuer
believes that Senior Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by any person receiving the Senior
Notes, whether or not that person is the holder
(other than any such holder or such other person
that is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the Securities
Act, provided that (i) the Senior Notes are
acquired in the ordinary course of business of
that holder or such other person, (ii) neither
the holder nor such other person is engaging in
or intends to engage in a distribution of the
Senior Notes, and (iii) neither the holder nor
such other person has an arrangement or
understanding with any person to participate in
the distribution of the Senior Notes. See "The
Exchange Offer - Purpose and Effect." Each
broker-dealer that receives Senior Notes for its
own account in exchange for Old Notes, where
those Old Notes were acquired by the
broker-dealer as a result of its market-making
activities or other trading activities, must
acknowledge that it will deliver a prospectus in
connection with any resale of those Senior Notes.
See "Plan of Distribution."
REGISTRATION RIGHTS AGREEMENT The Old Notes were sold by the Issuer on February
6, 1998 in a private placement. In connection
with the sale, the Issuer and the Company entered
into an Exchange and Registration Rights
Agreement with the purchasers (the "Registration
Rights Agreement") under which the Issuer agreed
to effect the Exchange Offer. See "The Exchange
Offer - Purpose and Effect."
EXPIRATION DATE.............. The Exchange Offer will expire at 5:00 p.m., New
York City time, -- , or such later date and time
to which it is extended.
WITHDRAWAL................... The tender of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Any Old Notes not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or termination
of the Exchange Offer.
CONDITIONS TO THE
EXCHANGE OFFER............... The Exchange Offer is subject to certain
customary conditions, certain of which may be
waived by the Issuer. See "The Exchange Offer --
Certain Conditions."
9
<PAGE> 14
PROCEDURES FOR TENDERING
OLD NOTES.................... Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a copy thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together with
the Old Notes and any other required
documentation, to the Exchange Agent at the
address set forth herein. Persons holding
book-entry interests in Old Notes through the
Depository Trust Company ("DTC") and wishing to
accept the Exchange Offer must do so pursuant to
the DTC's Automated Tender Offer Program, by
which each tendering Participant will agree to be
bound by the Letter of Transmittal.
[Euroclear/Cedel] By executing or agreeing to be
bound by the Letter of Transmittal, each holder
will represent to the Issuer that, among other
things, (i) the Senior Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Senior Notes, whether or not such
person is the holder of the Old Notes, (ii)
neither the holder nor any such other person is
engaging in or intends to engage in a
distribution of such Senior Notes, (iii) neither
the holder nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of such Senior
Notes, and (iv) neither the holder nor any such
other person is an "affiliate", as defined under
Rule 405 promulgated under the Securities Act, of
the Issuer. Pursuant to the Registration Rights
Agreement, the Issuer is required to file a
registration statement for a continuous offering
pursuant to Rule 415 under the Securities Act in
respect of the Old Notes if existing Commission
interpretations are changed such that the Senior
Notes received by holders in the Exchange Offer
are not or would not be, upon receipt,
transferable by each such holder (other than an
affiliate of the Issuer) without restriction
under the Securities Act. See "The Exchange Offer
-- Purpose and Effect."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF SENIOR NOTES..... The Issuer will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Senior Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer."
EXCHANGE AGENT............... The Bank of New York is serving as Exchange Agent
in connection with the Exchange Offer.
FEDERAL INCOME TAX
CONSIDERATIONS............... The exchange pursuant to the Exchange Offer will
not be a taxable event for U.S. federal income
tax purposes. See "Taxation -- United States".
Holders of Old Notes are advised to consult their
own tax advisors as to the tax consequences of
accepting the Exchange Offer.
EFFECT OF NOT TENDERING...... Old Notes that are not tendered or that are
tendered but not accepted will, following the
completion of the Exchange Offer, continue to be
subject to the existing restrictions upon
transfer thereof. The Issuer will have no further
obligation to provide for the registration under
the Securities Act of such Old Notes and such
Old Notes will not be entitled to any Special
Interest resulting from a Registration Default
(as such terms are defined in the Senior Notes
Indenture).
10
<PAGE> 15
SUMMARY FINANCIAL DATA
The summary consolidated financial data for the Group at and for the years
ended December 31, 1995, 1996 and 1997 set forth below should be read in
conjunction with, and are qualified in their entirety by reference to, Item 6.
"Selected Financial Data", Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and the Consolidated Financial
Statements and related Notes which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
_________________________________________
1995(1) 1996 1997 1997(2)
________ ________ ________ _______
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications L. 5,852 L. 9,763 L. 14,208 $23,339
Residential telephone 6,662 17,723 29,495 48,452
Cable television 3,479 10,091 16,602 27,272
Other revenues -- -- -- --
_________ _________ _________ ________
Total revenues 15,993 37,577 60,305 99,063
Operating costs and expenses:
Telephone (5,454) (9,776) (12,088) (19,857)
Programming (1,844) (6,041) (9,749) (16,015)
Selling, general and
administrative (13,020) (22,391) (27,192) (44,668)
Depreciation and amortization (8,867) (21,380) (27,620) (45,371)
_________ _________ ________ ________
Total operating costs
and expenses (29,185) (59,588) (76,649) (125,911)
_________ _________ _________ ________
Operating loss (13,192) (22,011) (16,344) (26,848)
Interest income 3,887 3,441 6,440 10,579
Interest expense, and
amortization of debt discount
and expenses (17,118) (40,334) (66,367) (109,021)
Foreign exchange gains/(losses)
net 925 31,018 (12,555) (20,624)
Unrealized gains/(losses) on
derivative financial instruments (868) (7,944) 669 1,099
Other expenses (1,241) _ _ _
Realized gains on derivative
financial instrument _ _ 11,553 18,978
_________ _________ _________ ________
Loss before income taxes (27,607) (35,830) (76,604) (125,837)
Income taxes _ _ _ _
_________ _________ _________ _________
Net loss L.(27,607) L.(35,830) L.(76,604) $(125,837)
_________ _________ _________ _________
_________ _________ _________ _________
BALANCE SHEET DATA:
Property and equipment, net L.163,721 L.277,301 L.365,636 $600,630
Total assets 374,172 416,819 556,357 913,928
Total debt(3) 319,492 325,041 545,325 895,805
Shareholders' equity(4) 25,133 54,100 (22,511) (36,978)
OTHER DATA:
EBITDA(5) L. (5,566) L. (631) L. 11,276 $18,523
Net cash (used in)/provided by
operating activities (4,113) (1,348) 20,876 34,293
Net cash used in investing
activities (155,517) (128,210) (110,086) (180,838)
Net cash provided by financing
activities 212,202 54,428 146,586 240,797
Deficiency of earnings to
fixed charges(6) (27,607) (35,830) (76,604) (125,837)
Capital expenditures 136,314 130,140 111,252 182,754
</TABLE>
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
$1.6427 = pounds sterling 1.00, the Noon Buying Rate on December 31, 1997.
(3) Total debt at December 31, 1994 consisted of the accreted value of the
1994 Notes and capital lease obligations. Total debt at December 31, 1995
and 1996 and at September 30, 1996 consisted of the accreted value of the
1994 Notes, the accreted value of the 1995 Notes and capital lease
obligations and the mortgage loan, and total debt at December 31, 1997
included in addition to such indebtedness the accreted value of the 1997
Notes.
(4) The Group raised additional equity financing of pounds sterling 40.4
million, pounds sterling 27.0 million and pounds sterling 64.6 million in
the years ended December 31, 1994, 1995 and 1996, respectively.
(5) Earnings before interest, taxes, depreciation and amortization, foreign
exchange translation gains and losses, and realized and unrealized gains
and losses on derivative financial instruments ("EBITDA") is presented
because it is a widely accepted financial indicator of a leveraged
company's ability to service and incur indebtedness. EBITDA is not,
however, a measure of financial performance under GAAP, may not be
comparable to other similarly titled measures of other companies and should
not be considered as a substitute for net income as a measure of operating
results or for cash flows as a measure of liquidity. EBITDA for 1995
includes the costs of pounds sterling 1.24 million incurred in an abandoned
equity flotation.
(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 Group to be representative of the interest factor
(1/3 of rental expense). Because fixed charges exceeded earnings for all
periods presented, a ratio of earnings to fixed charges is not presented.
11
<PAGE> 16
RISK FACTORS
An investment in the Senior Notes is subject to a number of risks, which,
together with the other information set forth in this Prospectus, should be
considered carefully by prospective investors prior to any purchase of Senior
Notes.
REQUIREMENT FOR ADDITIONAL FUNDS
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
LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. Failure by the Group to meet its
milestones could potentially subject the Group to enforcement orders from the
Office of Telecommunications ("OFTEL") or the ITC, which could lead to
revocation of the relevant licenses or a shortening of an LDL period or fines.
The Group met the required quarterly milestone obligations under each of its
telecommunications licenses as at December 31, 1997. Principally because of
delays by the Department of Trade and Industry in granting the Group a national
telecommunications license, and consequent delays in the commencement of
construction, the Group did not meet its current LDL milestones in six of its
seven LDL franchises. The Group has applied to the ITC to modify its milestone
obligations.
The Group expects that its 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
Group expects the network to be substantially completed by the end of 2001. The
Group currently estimates that the additional capital expenditures from December
31, 1997 required for the Group to complete construction sufficient to satisfy
its aggregate milestone obligations of approximately 1.02 million premises
(including estimated subscriber connection expenses) will be approximately
pounds sterling 435 million, although further capital expenditures would be
required to substantially complete the network. These expenditures could vary
significantly depending on the number of customers actually connected to the
network, the availability of construction resources and a number of other
factors described below. See Item 1. "Business -- Milestones".
At December 31, 1997, the Group had constructed and activated a network
comprising approximately 52% of its aggregate milestones. The Group estimates
that the net proceeds from the sale of the Old Notes, existing cash resources
and future cash flows from operations will be sufficient to complete the
construction and activation of its network to almost 84% of its aggregate final
milestones, which level the Group estimates it will achieve by the end of 1999.
Thereafter, the Group will be required to obtain further debt and/or equity
financing to complete construction sufficient to satisfy its aggregate
milestones. To the extent that (i) the amounts required to construct the Group's
network to meet its milestones exceed the estimates, (ii) the Group's cash flow
does not meet expectations or (iii) the Group continues its construction of the
network beyond its milestone obligations, the amount of further debt and/or
equity financing required will increase. There can be no assurance that any such
debt or equity financing will be available to the Group on acceptable commercial
terms or at all.
The foregoing information with regard to expected completion times,
further capital expenditures and the sufficiency of funding is forward-looking
in nature. Due to a number of factors, including those identified in the
preceding paragraph and below, actual results may differ materially from
expected results. In particular, the anticipated further funding requirements
will depend upon the Group's cash flow which, in turn, will depend upon a
number of variables, including revenue generated from business
telecommunications, residential telephone and cable television services, churn,
expenses such as programming costs and interconnect charges, network
construction and development expenditures and financing costs. See
"--Historical Operating Losses". Adverse developments in any of these or other
areas could adversely affect the Group's cash flow. For example, the
reorganization of the Group's residential sales force in 1997 resulted in some
delays in the progress of marketing during the transitional phase and reduced
revenue growth in the short term as the new sales force has developed.
Moreover, there can be no assurance that (i) conditions precedent to the
availability of funds under any future 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, each of which factors would
increase the Group's funding needs.
To date, the Group has funded its capital expenditure requirements
primarily through the proceeds from the issuance of its Discount Notes, as well
as equity investments. The inability of the Group to secure additional
financing could result in a failure to comply with the minimum build milestones
set forth in its licenses and could ultimately lead to the revocation of such
licenses. See "--Requirement to Meet Build Milestones" and Item 1. "Business --
Certain Regulatory Matters -- Cable Telecommunications".
12
<PAGE> 17
ABILITY TO MANAGE NETWORK DEVELOPMENT AND EXPANSION
As of December 31, 1997, the Group's cable television and
telecommunications network had passed by civils construction approximately
536,100 homes and an estimated 26,900 businesses, of which portions of the
network passing approximately 508,800 homes and an estimated 24,900 businesses
had been activated. During 1996 and 1995, over 172,000 and 173,000 homes,
respectively, were passed by civils construction by the Group's cable network,
as compared with approximately 27,000 homes passed by civils construction in
1994. During 1997, the Group intentionally slowed the pace of civils
construction to reduce the large number of homes passed by civils construction
which were yet to be activated and/or marketed. The pace of civils construction
was also impacted by the phase out of one of the Group's largest contractors,
which went into liquidation. The Group may encounter difficulty in obtaining
other qualified contractors and may encounter cost overruns or further delays
in construction. Although the Group believes it will be able to continue to
negotiate construction contracts at competitive rates, construction costs could
increase significantly over the next few years in light of the demand for cable
construction services as the industry seeks to meet milestone requirements. As
with other U.K. cable operators, the Group is generally required to use
underground construction, which is more expensive and time consuming than
aerial construction. The Group cannot broadly employ mechanized construction
methods due to existing underground utility infrastructure, and is responsible
for the expense of restoring surface area after construction is completed.
Given the current high levels of cable construction in the U.K. and the
corresponding demand for materials, the Group has from time to time experienced
(and may in the future experience) shortages or price increases for critical
components such as fiber optic cable, ducting and cabinets.
The Group has experienced and expects to continue to experience a
substantial increase in customers subscribing to its services, which has placed
significant strains on the operational resources and financial controls of the
Group. These strains have in certain cases affected the level of customer
service provided by the Group, and the time periods required between
activation, the commencement of marketing and the installation of services. The
Group's subscriber management system is in the process of being substantially
upgraded in order to handle the expected increase in customers. The Group is
also reviewing its internal procedures and subscriber management system with a
view to improving their reliability and reducing the number of transactions
required to be input into the system manually. There can be no assurance,
however, that the Group will successfully implement an improved subscriber
management system or that the Group will not continue to experience
difficulties with it. Management of the Group's growth will also require
continued development of the Group's other operating and financial controls and
may place additional stress on the Group'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.
HISTORY OF CABLE TELECOMMUNICATIONS AND CABLE TELEVISION IN THE U.K.; CUSTOMER
ACCEPTANCE
Cable telecommunications and cable television have a relatively limited
history in the U.K. To date, the U.K. cable industry (including the Group) has
experienced lower levels of penetration of television services than were
originally predicted by most industry analysts. This has been offset to some
extent by higher than forecast telephone penetration. The Group's future
profitability, however, depends in large measure on continued acceptance of the
Group's customer base, including through improved market acceptance of cable
telephone and television services.
The Group has to date experienced significant annual cable television
subscriber churn. The Group's cable television subscriber churn rate was 32.7%
for the year to December 31, 1997 (36.9% using the Group's previous methodology
described above in Note 13 to the table under Item 1. "Business -- Certain
Operating Data".) The Group continues to focus on ways it can reduce churn.
However, there can be no assurance that such efforts will successfully reduce
churn levels or that the Group will not experience higher churn levels in the
future, which could have a material adverse effect on the Group's results of
operations. See Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview".
SIGNIFICANT COMPETITION
The Group faces significant competition from established competitors in
each of its business telecommunications, residential telephone and cable
television business areas. The Issuer believes that competition will continue
to intensify in each of these business areas.
BUSINESS TELECOMMUNICATIONS
The Group competes primarily with British Telecommunications plc ("BT") and
a number of other competitors, the largest of which is Cable and Wireless
Communications plc ("CWC") (which owns 100% of what was formerly Mercury
Communications Limited ("Mercury")), in providing business telecommunications
services to businesses in its franchise areas. The Group competes largely on the
basis of quality of services offered and, to a lesser extent, price. BT, the
former state-owned telephone monopoly, and CWC each have resources substantially
greater than those of the Group. In addition, each of CWC and BT has a national
presence which may permit it to offer telecommunications, data transmission and
other services on a nationwide basis to business telecommunications customers
with nationwide operations beyond those that the Group is currently able to
offer on its own. With effect from May 1997, Mercury was
13
<PAGE> 18
merged with three U.K. regional cable companies, NYNEX CableComms Group plc,
Bell Cablemedia plc and Videotron Holdings plc, to create a new group held by
CWC, which is a 52.6% owned subsidiary of Cable and Wireless plc. While the
effects of the merger cannot be predicted, the Group does not believe that the
merger has had a material effect on the Group's competitive position in the
Group's franchise areas. The Group, however, expects that competition with CWC
and BT and other service providers entering the business telecommunications
market, such as Energis plc ("Energis"), AT&T, MFS Worldcom and ACC Long
Distance, will continue to intensify. See Item 1. "Business -- Competition --
Business Telecommunications".
RESIDENTIAL TELEPHONE
The Group's principal competitor in providing telephone services to
residential customers is BT, which has an established market presence, fully
built networks and resources substantially greater than those of the Group. As
the substantial majority of U.K. residential telephone customers are currently
customers of BT, the Group's growth in residential telephone services depends
upon BT customers changing to the Group's telephone system. The Group believes
that price is currently one of the most important factors influencing the
decision of U.K. customers to switch to a cable telephone service. As a result,
the Group currently seeks to provide its telephone customers with monthly
savings on the cost of calls compared to BT. BT regularly reviews its prices,
generally resulting in price reductions. The Group has generally reacted to
previous BT price reductions by reducing its rates in order to maintain its
competitive price advantage. The Issuer believes that BT will be required for
regulatory and competitive reasons to continue to reduce its prices for most
residential customers in the future. See Item 1. "Business -- Competition --
Residential Telephone" and "Certain Regulatory Matters -- Cable
Telecommunications -- Price Regulation". There can be no assurance that such
price cuts will not adversely affect the residential telephone operations of
the Group or that the Group will be able to continue to offer customers cost
savings as compared to BT. The Group also competes, to a lesser extent, with
CWC and Ionica in providing residential telephone service.
In addition to BT, CWC and Ionica, the Group competes in the telephone
business with mobile telecommunications operators, international service
providers and other service providers, and competition is expected to intensify
in the future. See Item 1. "Business -- Competition -- Residential Telephone."
CABLE TELEVISION
The Group competes directly with television programming provided by
terrestrial (over-the-air) broadcast television stations and direct-to-home
("DTH") satellite services and may be subject to competition from satellite
master antenna television systems ("SMATV" systems). The Group's cable
television programming also competes to varying degrees with other
entertainment media, including home video (generally video rentals). See Item
1. "Business -- Competition -- Cable Television".
A number of recent developments are expected to increase competition in
the provision of multichannel television in the U.K. First, it has been
announced that BSkyB (as defined below) intends to introduce a digital DTH
satellite service, offering the possibility of over 200 television channels and
a range of interactive services in June 1998. Second, licenses have been
granted for six frequency ranges capable of providing a total of 30 or so new
digital terrestrial television channels which may broadcast to between 60% and
90% of the U.K. population. British Digital Broadcasting Limited ("BDB"), a
joint venture between two of the U.K.'s largest independent terrestrial
television companies, Carlton Communications plc and Granada Group plc, has a
license for three of these frequency ranges to operate digital terrestrial
television services, and is currently expected to commence digital terrestrial
television services in September 1998. BSkyB was originally a participant in
the joint venture, but withdrew at the request of the ITC. BSkyB will
nonetheless supply content to BDB. See "--Limitations on Access to
Programming". Third, BSkyB announced a joint venture with BT, Midland Bank and
Matsushita called British Interactive Broadcasting to develop and market a
digital set top decoder on a heavily subsidized basis. Fourth, on December 1,
1997, BSkyB launched a movie pay-per-view service broadcast on four of BSkyB's
satellite channels. CWC has entered into a two year contract with BSkyB to
carry this pay-per-view service. While the effect of these developments cannot
yet be determined and may not be known for some time, increases in the number
of competing television service and interactive services providers, in
particular providers with programming, financial and other resources greater
than those of the Group, or in the number of channels or the attractiveness of
the programming offered by digital terrestrial or DTH satellite services could
have an adverse effect upon the Group's ability to compete effectively. See
Item 1. "Business -- Competition -- Cable Television" and "--Certain Regulatory
Matters -- Future Developments -- Digital Broadcasting". Further, the Group may
face competition in the future from programming provided by video-on-demand
services and from other services provided using new technologies. See Part 1.
"Business -- Certain Regulatory Matters -- Cable Telecommunications --
Restrictions on National PTOs".
POTENTIAL ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
The Group is highly leveraged. At December 31, 1997, the Group had
approximately pounds sterling 545 million of indebtedness outstanding, including
approximately pounds sterling 535 million in accreted value of the Discount
Notes. The Senior Notes and any further indebtedness incurred by the Group to
fund its capital or operating requirements, will increase
14
<PAGE> 19
further the amount of debt outstanding at the Group. The indentures governing
the Group's outstanding Discount Notes as well as the Indenture governing the
Senior Notes permit the Group to incur substantial additional indebtedness to
fund the build out and operation of the Group's telecommunications and cable
franchises. The ability of the Group to make scheduled payments under present
and future indebtedness will depend on, among other things, the ability of the
obligors on the relevant debt to complete the build out of the franchises on a
timely and cost effective basis, the Group's ability to access the earnings of
its subsidiaries (which may be subject to significant contractual and legal
limitations), the future operating performance of the Group and the Group's
ability to refinance its indebtedness, when necessary. Each of these factors is
to a large extent subject to economic, financial, competitive, regulatory and
other factors that are beyond the Group's control. In addition, any future
borrowings may contain covenants which may further limit the Group's operating
and financial flexibility. See "Description of the Senior Notes and Guarantee".
The degree of the Group's leverage could have important consequences to
holders of the Senior Notes, including (i) increasing the Group's vulnerability
to adverse general economic and industry conditions; (ii) limiting the Group's
ability to obtain additional financing to fund future working capital needs,
capital expenditures, acquisitions or other general corporate purposes,
including the build out of the franchises; (iii) requiring a substantial
portion of the Group's cash flow from operations to be dedicated to debt
service requirements, thereby reducing the funds available for operations and
future business opportunities; (iv) increasing the Group's exposure to
increases in interest rates given that certain of the Group's future borrowings
may be at variable rates of interest; and (v) increasing the Group's exposure
to changes in currency exchange rates given that a significant portion of the
Group's current borrowings are denominated in U.S. dollars. In addition, the
Group may under certain circumstances be obligated to offer to repurchase its
outstanding debt securities prior to maturity and there can be no assurance
that the Issuer will have the financial resources necessary or otherwise be
able to repurchase those securities in such circumstances.
HOLDING COMPANY STRUCTURE; LIENS ON ASSETS
The Issuer is an intermediate holding company that conducts substantially
all of its business through DCL, its principal operating subsidiary. The ability
of the Issuer and its creditors, including holders of the Senior Notes, to
benefit in the distribution of any assets of any of the Issuer's subsidiaries
upon any liquidation of any such subsidiary will be subject to the prior claims
of the subsidiary's creditors, including trade creditors and, to the extent that
such subsidiary is not directly owned by the Issuer, to the prior claims of any
creditors of other subsidiaries directly or indirectly owning such subsidiary.
The ability of the Issuer to pay interest on the Senior Notes or to repay the
Senior Notes at maturity or otherwise, will depend upon the cash flows of its
subsidiaries and the payment of funds by those subsidiaries to the Issuer in the
form of repayment of loans, dividends or otherwise. The Issuer's subsidiaries
have no obligation, contingent or otherwise, to pay amounts due pursuant to the
Senior Notes or to make funds available therefor. In addition, the Issuer's
principal subsidiary is prevented from paying dividends by capital lease
arrangements entered into by those subsidiaries. Further, applicable English law
limits the amount of dividends which may be paid by the Issuer's subsidiaries to
the extent they do not have profits available for distribution, and other
statutory and general law obligations affect the ability of directors of the
Issuer's subsidiaries to declare dividends and the ability of the Issuer's
subsidiaries to make payments to the Issuer on account of intercompany loans. In
addition, the ability of the Issuer and its creditors, including holders of the
Senior Notes, to benefit from distributions of assets of the Issuer's
subsidiaries may be limited to the extent that the outstanding shares of any of
its subsidiaries are pledged to secure other debt of the Issuer or its
subsidiaries. The indentures under which the Discount Notes have been issued and
the Indenture governing the Senior Notes limit, but do not prohibit, the
incurrence of additional indebtedness by the Issuer's subsidiaries. Such
subsidiaries are expected to incur substantial additional indebtedness in the
future, particularly in connection with the build out of the Group's network
infrastructure. See "-- Requirement for Additional Funds".
A substantial portion of the Group's existing and future indebtedness
(other than the Discount Notes and the Senior Notes) may be secured by liens
over the assets and shares of certain of the Issuer's subsidiaries. The
principal fixed assets of the Issuer's subsidiaries are cable headends, cable
television and telecommunications distribution equipment, telecommunications
switches and customer equipment. The value of a substantial portion of these
fixed assets is derived from their employment in the Group's cable television
and telecommunications businesses. These assets are highly specialized and,
taken individually, can be expected to have limited marketability. Consequently,
in the event that secured creditors seek to realize on the collateral securing
debt of the Issuer's subsidiaries, these creditors would be likely to seek to
sell the business as a going concern (possibly through a sale of pledged shares
of subsidiaries), either in its entirety, or by franchise or other business
unit, in order to maximize the proceeds realized. The amounts (and the timing of
the receipt of any amounts) available to satisfy the Issuer's obligations under
the Senior Notes after any such sale may be adversely affected by provisions of
U.K. insolvency laws favoring secured creditors.
The Issuer is a wholly owned, direct subsidiary of the Company. Because
the Issuer is not the Group's parent company, it is possible for Group assets
to be held, or for Group business to be conducted, by the Company or one of its
subsidiaries (other than the Issuer or its subsidiaries). Currently, there are
no operating subsidiaries of the Company that are not also subsidiaries of the
Issuer. The covenants of the Issuer in the Senior Notes Indenture restrict, but
do not prohibit, the Issuer from transferring assets, or causing the transfer
of assets held by the Issuer's subsidiaries, to entities elsewhere in the Group
that are not subsidiaries of the Issuer.
15
<PAGE> 20
In addition, under the Senior Notes Indenture, the Issuer will be permitted
to pay dividends to, or make loans to, or repay loans from, the Company or
certain of its subsidiaries or transfer property or assets to the Company or
certain of its subsidiaries, if otherwise legally permissible, in certain
amounts, including amounts necessary to make payments of cash interest required
under the Discount Notes. See "Description of the Senior Notes and Guarantee --
Covenants -- Limitation on Restricted Payments". Prospective investors in the
Senior Notes should review carefully the terms of the covenants described under
"Description of the Senior Notes Indenture and Guarantee -- Certain Covenants".
HISTORICAL OPERATING LOSSES
The Group had incurred aggregate operating and net losses, from
commencement of operations through December 31, 1997 of approximately pounds
sterling 77.1 million and pounds sterling 182.1 million, respectively, which
includes on a pro forma basis aggregate operating and net losses of pounds
sterling 13.3 million and pounds sterling 23.8 million respectively for LCL
incurred prior to its acquisition in September 1995. Although the Group believes
that the continued expansion of its network ultimately will provide the Group
with revenues that will exceed its operating expenses, the Group expects to
continue to incur additional net losses for the foreseeable future and there can
be no assurance that the Group's operations will become profitable. The Group's
ability to achieve profitability will depend in large measure on its ability to
attract a sufficient number of customers subscribing to its services, permitting
its relatively fixed costs to decline in relation to the number of customers and
as a percentage of revenues. See "-- History of Cable Telecommunications and
Cable Television in the U.K.; Customer Acceptance". Failure to become profitable
or generate sufficient positive operating cash flows would impact the Group's
ability to sustain operations and obtain required additional funds. See "--
Requirement for Additional Funds" and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
POTENTIAL CHANGES IN GOVERNMENT REGULATION
The activities of cable television and telecommunications operators in the
U.K. are subject to significant regulation and supervision by various
regulatory bodies. See Item 1. "Business -- Certain Regulatory Matters".
Changes in laws, regulations or government policy (or in the interpretation of
existing laws or regulations) affecting the Group, its competitors or the
industry generally, such as licensing requirements, price regulation,
interconnection arrangements, the imposition of universal service obligations,
acceleration of the date (which is scheduled for 2001, but is subject to review
in 1998) on which BT and other public telephone operators ("PTOs") can convey
broadcast entertainment services over their existing national networks or a
change in policy allowing more than one cable television license in a franchise
area, could have a material adverse effect on the Group. On May 1, 1997, a
Labour government was elected in the U.K., following a period of Conservative
government since 1979. It has been the stated policy of the Labour Party to
review the broadcasting restrictions on national PTOs, and the government has
stated that it expects to publish proposals regarding those restrictions in the
near future. The Group is unable to predict whether any changes in policy will
result, and, if so, when they will occur or how they might affect the Group.
See Item 1. "Business -- Certain Regulatory Matters -- Cable
Telecommunications -- Restrictions on National PTOs".
As the U.K. is a member of the European Union, the Group is subject to
regulatory and legislative initiatives of the European Commission ("EC").
Changes in existing EC directives and the introduction of new directives,
particularly to the extent that they introduce provisions requiring the Group
to provide access to its cable network infrastructure to other service
providers, could have a material adverse effect on its business. See Item 1.
"Business -- Certain Regulatory Matters -- Indirect and Equal Access".
LIMITATIONS ON ACCESS TO PROGRAMMING
The Group's ability to offer competitive cable television services is
dependent on its ability to obtain suitable programming at a reasonable cost.
While various sources of programming are available to cable system operators in
the U.K., British Sky Broadcasting Group plc and its wholly-owned subsidiary
British Sky Broadcasting Limited (collectively, "BSkyB") are the leading
suppliers of cable programming and the exclusive suppliers of certain
programming, including Sky Sports and the most popular premium movie channels
available in the U.K. BSkyB also competes with the Group by operating a DTH
satellite service that provides programming, including programming that is also
offered by the Group, to approximately 4 million subscribers in the U.K.
BSkyB's programming is important to the Group in attracting and retaining cable
television subscribers and, in the absence of more alternative programming
sources, BSkyB may be able to set and raise prices for its programming without
significant competitive pricing pressure. In 1995, 1996 and 1997, BSkyB
implemented significant increases in the per subscriber price for its important
movie and sports premium channels. In February 1997, BSkyB, pursuant to a new
rate card, introduced a separate charge to the Group for Sky Sports 3, its
third premium sports channel, which it provided to its DTH sports subscribers
at no additional charge. The Group decided to pass on the separate charge for
this service to customers subscribing to the other BSkyB sports services unless
the customer subscribed to three BSkyB premium channels. In October 1997,
BSkyB introduced a separate charge for Sky Sports 2, its second premium sports
channel, previously supplied free of charge to subscribers of Sky Sports 1, and
dropped its charge to cable operators for Sky Sports 3. Consequential changes
to the rate card have been approved by the OFT and a revised rate card is now
in operation. The Group does not have a formal contract
16
<PAGE> 21
with BSkyB, and the Group is not currently in discussions with BSkyB relating
to a definitive written programming supply contract. There can be no assurance
that BSkyB will continue to supply programming to the Group on reasonable
commercial terms or at all. Further, existing or potential arrangements between
BSkyB and other cable operators may hinder the development of alternative
programming through cooperative ventures among cable operators. Moreover, the
Group has not entered into written contracts with many of its other program
suppliers. The loss of BSkyB or other programming, a deterioration of the
perceived quality of BSkyB or other programming, or further material increases
in the price that the Group is required to pay for BSkyB or other programming
could have a material adverse effect on the Group. See Item 1. "Business --
Cable Television -- Programming".
DEPENDENCE ON KEY PERSONNEL
The Group's business is managed by a small number of key executive
officers, the loss of certain of whom could have a material adverse effect on
the Group. The Group believes that its future success will depend in large part
on its continued ability to attract and retain highly skilled and qualified
personnel. The Group has entered into service or management contracts providing
for the services of certain of its key executive officers and employees. The
Group has not obtained life insurance policies covering such key executive
officers. See Item 10. "Directors and Executive Officers of the Registrant".
REQUIREMENT TO MEET BUILD MILESTONES
The Group is obliged by the milestones in its telecommunications licenses
and its LDLs to construct and activate a network to pass an aggregate of
1,021,894 premises within prescribed time periods. At December 31, 1997, the
portion of the Group's network that had been activated was approximately 533,700
premises (homes and businesses). At December 31, 1995, the Group was obligated
to meet milestones specified in telecommunications licenses for eight of the
Group's franchise areas where building was due to have commenced. Compliance
with the milestones in these areas is in each case monitored by the Office of
Telecommunications ("OFTEL"). During June 1996, OFTEL informed the Group that it
did not agree with the Group's historical method for calculating compliance with
its milestone obligations. Based on OFTEL's method of calculating premises
passed, the Group failed to meet its year-end 1995 milestones for six of its
eight telecommunications licenses. The Group has renegotiated its milestone
obligations with OFTEL, and at December 31, 1997, the Group met the required
quarterly milestone obligations under each of its telecommunications licenses.
Principally because of delays by the Department of Trade and Industry in
granting the Group a national telecommunications license, and consequent delays
in the commencement of construction, the Group did not meet its current LDL
milestones in six of the seven LDL franchises at the end of 1997, although
construction has commenced in five of the seven LDL franchises. The Group has
applied to the ITC to modify its milestone obligations for all of its LDL
franchise areas except Vale of Belvoir. The Group understands that the ITC
intends to grant the requested modifications. See Item 1. "Business --
Milestones" and "Business -- Certain Regulatory Matters -- Cable
Telecommunications -- Network Construction and Service Obligations". Failure of
the Group to meet the construction milestones under its telecommunications
licenses could result in the commencement by the Director General of
Telecommunications (the "Director General") of proceedings to require
compliance. Similarly, the ITC may commence proceedings to require compliance
with the build milestones in the LDLs. If the Group were unable to comply, its
licenses in respect of which milestones have not been met could be revoked and
awarded to other cable operators, which could have a material adverse effect on
the Group. Failure to comply with a build milestone in the LDLs could also
result in the ITC imposing a fine or shortening the license period of the LDL.
In addition, a failure to meet certain build requirements may in certain
circumstances preclude the Group from making additional borrowings. See "--
Requirement for Additional Funds", Item 1. "Business -- Milestones" and
"Business -- Certain Regulatory Matters".
RAPID TECHNOLOGICAL CHANGES
The cable television and telecommunications industries are subject to
rapid and significant changes in technology. The Group believes that its
network has been designed with sufficient capacity to accommodate anticipated
business demands and technological changes, as well as to permit new services,
including digital television and advanced interactive telecommunications
services, which the Group may choose to provide as they become generally
available in the future. The Group's network generally employs fiber-optic
cable to the 500-home level for both cable television and telecommunications
services. There can be no assurance, however, that existing, proposed or as yet
undeveloped technologies will not become dominant in the future or otherwise
render cable television or telecommunications services less competitive, less
profitable or less viable.
INFORMATION SYSTEMS -- YEAR 2000
The Group is actively reviewing its information systems in light of year
2000 information processing requirements. The Group believes that its main
hardware and operating systems are currently compliant and expects that its key
subscriber management systems and financial systems will be compliant by the
end of 1998. The costs of investigating and correcting year 2000 information
processing problems has not been and is not expected by the Group to be
material. Although the Group intends to ensure that all of its systems will be
year 2000 compliant, it is generally reliant on third party suppliers for
delivery of appropriate system solutions. In addition, the Group may be
affected by year 2000 problems encountered by its primary suppliers or
customers. Significant year 2000 information processing
17
<PAGE> 22
problems encountered by the Group or certain of its customers or suppliers
could have a material adverse effect on the Group.
CURRENCY RISKS; FOREIGN CURRENCY TRANSACTIONS
A substantial portion of the Group's outstanding indebtedness, including
the Discount Notes and the Old Dollar Notes, is denominated in dollars. The
Group's revenues are generated in pounds sterling while the interest and
principal obligations with respect to this indebtedness will be payable in
dollars. While the Group's policy has been not to enter into hedging contracts
in respect of its foreign currency denominated assets and liabilities, it
entered into a foreign currency forward purchase contract which was settled in
the first quarter of 1997 and entered into two additional forward foreign
exchange contracts in June 1997 for settlement in June and July 1998. See Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Exchange." The Group may from time to time in the future
enter into similar foreign currency contracts based on its assessment of market
conditions. In addition, foreign currency translation gains and losses arising
upon translation of the U.S. dollar denominated indebtedness under the Discount
Notes and the Old Dollar Notes are reported as part of the profit or loss of the
Group, and the same will be true of indebtedness under the Dollar Senior Notes.
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
Issuer's and the Group's ability to satisfy their obligations, including
obligations under outstanding debt instruments, as they become due. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Foreign Exchange".
CONTROL OF THE GROUP; POTENTIAL CONFLICTS OF INTEREST
ECCP owns 66.7% of the outstanding shares of the Company. Certain
investment funds managed by Goldman, Sachs & Co. or its affiliates (the
"Goldman Sachs Affiliates") have an 83.3% interest in ECCP and directly own
another 4.2% of the Company's outstanding shares. As a result, ECCP (and
indirectly, the Goldman Sachs Affiliates) has the ability to exercise control
over the business and affairs of the Group by virtue of its continuing ability
to control the board of directors of the Company (which consists of the same
persons as the Board of Directors of the Issuer). Pursuant to a shareholders
agreement, ECCP has the right, which it has exercised, to appoint four of the
Directors of the Company, one of whom may exercise voting control at meetings
of the Directors. See Item 12. "Security Ownership of Certain Beneficial Owners
and Management -- Shareholders Agreement". In the event that circumstances
arise in which the interests of ECCP or of the shareholders as a whole conflict
with the interests of the holders of the Senior Notes, such as if the Group
were to encounter financial difficulties or were unable to pay its debts as
they mature, the holders of the Senior Notes could be disadvantaged by the
actions that ECCP and the other shareholders may seek to pursue. In addition,
the shareholders may pursue acquisitions, divestitures, financings, currency
exchange or interest rate hedging or other transactions that could enhance the
value of their equity investment, even though such transactions might involve
risks to the holders of the Senior Notes. Holders of the Senior Notes must rely
on the covenants described under "Description of the Senior Notes and Guarantee
- -- Certain Covenants" to protect their interests and there can be no assurance
that those covenants will protect the holders of the Senior Notes from the
risks described above.
LIMITED INSURANCE COVERAGE
The Group obtains insurance of a type and in amounts that the Group
believes is customary in the U.K. for similar companies. Consistent with this
practice, the Group does not insure the underground portion of its cable
network. Accordingly, any event or circumstance damaging a significant portion
of the system's cable network could result in substantial uninsured losses. In
addition, the Group does not currently carry broadcaster's liability insurance.
ABSENCE OF A PUBLIC MARKET FOR THE SENIOR NOTES; POSSIBLE VOLATILITY OF SENIOR
NOTE PRICE
The Senior Notes are new securities for which there is currently no
market. The Old Notes were originally issued in a private placement and did not
trade in the public securities markets in the United States. Although Goldman,
Sachs & Co. have informed the Issuer that they currently intend to make a
market in the Senior Notes after the Exchange Offer, they are not obligated to
do so and any such market-making may be interrupted or discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Senior Notes. If a market for the Senior Notes
were to develop, the Senior Notes could trade at prices that may depend upon
many factors, including prevailing interest rates, the Group's operating
results and the markets for similar securities. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Senior Notes.
There can be no assurance that, if a market for the Senior Notes were to
develop, such a market would not be subject to similar disruptions. Moreover,
because Goldman, Sachs & Co. are affiliated with the Issuer, following the
Exchange Offer they will be required to deliver a current prospectus and
otherwise comply with the registration requirements of the Securities Act in
connection with any secondary market sale of Senior Notes, which may affect
their ability to continue market-making activities. See "Plan of Distribution".
18
<PAGE> 23
THE ISSUER
The Issuer is a public limited company incorporated on December 15, 1997
under the laws of England and Wales. The Issuer is a wholly-owned, direct
subsidiary of the Company and on January 16, 1998 became the intermediate
holding company which holds all the shares of (i) DCL and (ii) the group of
companies comprising LCL, in both cases through an intermediate holding company,
Jewel. The principal executive office of the Issuer is at Diamond Plaza,
Daleside Road, Nottingham NG2 3GG, England, and the telephone number at such
address is +44-115-912-2217. The Issuer's directors and auditors are the same as
those of the Company. See Item 10. "Directors and Executive Officers of the
Registrant " and "Experts". The Issuer's fiscal year ends on December 31 of each
calendar year.
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 pounds sterling 1.00:
<TABLE>
<CAPTION>
YEAR AVERAGE(1) HIGH LOW PERIOD-END
- ----- ----------- ---- ---- ----------
<S> <C> <C> <C> <C>
1993......................... 1.49 1.59 1.42 1.48
1994......................... 1.54 1.64 1.46 1.57
1995......................... 1.58 1.64 1.53 1.55
1996......................... 1.57 1.71 1.48 1.71
1997......................... 1.64 1.70 1.58 1.64
1998......................... 1.64 1.67 1.61 1.67
</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 18, 1998 was $1.6711 = pounds sterling 1.00.
For a discussion of the impact of exchange rate movements on the Group's
financial condition and results of operations as well as its ability to service
its U.S. dollar-denominated obligations, see Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations --Foreign Exchange
Gains/(Losses), Net".
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Group as of December 31, 1997 and as adjusted to reflect the Senior Notes. This
table should be read in conjunction with Item 6. "Selected Financial Data", the
Group's Audited Consolidated Financial Statements and related Notes, and Item
7. "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
ACTUAL AS ADJUSTED AS ADJUSTED(1)
----------- ----------- --------------
<S> <C> <C> <C>
Long-term debt:
Mortgage........................ L. 2,423 L. 2,423 $ 3,980
Capital lease obligations....... 8,041 8,041 13,209
1994 Notes...................... 138,726 138,726 227,885
1995 Notes...................... 230,599 230,599 378,805
1997 Notes...................... 165,536 165,536 271,926
Senior Notes(2)................. -- 201,963 331,765
---------- --------- ----------
Total long-term debt............ 545,325 747,288 1,227,570
Shareholders' equity............ (22,511) (22,511) (36,979)
---------- --------- ----------
Total capitalization(3)......... L. 522,814 L.724,777 $1,190,591
========== ========= ==========
</TABLE>
- ------------
(1) Based on the Noon Buying Rate on December 31, 1997 of $1.6427 = pounds
sterling 1.00.
The following table sets forth the unconsolidated capitalization of the
Issuer as of December 31, 1997 and as adjusted to reflect the Senior Notes.
This table does not reflect the long-term debt and shareholder's equity of the
Issuer's subsidiaries or the Company and should be read in conjunction with the
table above, Item 6. "Selected Financial Data", the Group's Consolidated
Financial Statements and related Notes, and Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
19
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------
ACTUAL AS ADJUSTED AS ADJUSTED(1)
------ ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Senior Notes(2)................... L. -- L.201,963 $331,765
Shareholders' equity.............. 50 50 82
----- --------- --------
Total capitalization(3)........... L. 50 L.202,013 $331,847
===== ========= ========
</TABLE>
- -------------
(1) Based on the Noon Buying Rate on December 31, 1997 of $1.6427 = pounds
sterling 1.00.
(2) On January 16, 1998, the Issuer issued a further pounds sterling 1,000 in
ordinary share capital to the Company. There have been no other changes to
the consolidated capitalization of the Issuer since incorporation.
20
<PAGE> 25
DESCRIPTION OF THE SENIOR NOTES AND GUARANTEE
The Sterling Senior Notes and the Dollar Senior Notes will be issued under
an Indenture dated as of February 6, 1998 (the "Senior Notes Indenture" or the
"Indenture"), between the Issuer, the Company and The Bank of New York, as
trustee (the "Trustee"). The following summary of certain provisions of the
Senior Notes Indenture does not purport to be complete and is subject to, and
is qualified in its entirety by reference to all of the provisions of the
Senior Notes Indenture, including the definitions of certain terms therein and
those terms made a part of the Senior Notes Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on
the date of the Senior Notes Indenture. In this section, references to the
Issuer are to Diamond Holdings plc. The definitions of certain capitalized
terms used in the following summary are set forth below under "-- Certain
Definitions". Article and Section references are to articles and sections of
the Senior Notes Indenture.
GENERAL
The Senior Notes constitute general unsubordinated obligations of the
Issuer, limited to pounds sterling 135 million aggregate principal amount of
Sterling Senior Notes and $110 million aggregate principal amount of Dollar
Senior Notes, and will mature on February 1, 2008 at par. Cash interest on the
Senior Notes will accrue at the rates shown on the front cover of this
Prospectus from February 6, 1998 and be payable semi-annually in arrears on each
August 1 and February 1 (each, an "Interest Payment Date"), commencing August 1,
1998, to the Book-Entry Depositary (as hereinafter defined) in the case of the
Global Senior Notes (as hereinafter defined) and to holders of Definitive
Registered Notes (as hereinafter defined), if any, on the January 15 or July 15,
as the case may be, immediately preceding such Interest Payment Date. Cash
interest will accrue from and including the most recent Interest Payment Date to
which interest has been paid or duly provided for to but excluding the relevant
Interest Payment Date. Cash interest will be computed on the basis of a 360-day
year of twelve 30-day months. For additional information concerning payments on
the Senior Notes, see "--Description of Book-Entry System --Payments on the
Global Senior Notes" and "-- Form of the Senior Notes".
Each of the Dollar Senior Notes and the Sterling Senior Notes will rank
pari passu in right of payment with each other and with any other
unsubordinated unsecured indebtedness of the Issuer. Outstanding intercompany
indebtedness owed to the Company by subsidiaries of the Issuer will be
subordinated to the Senior Notes. The Issuer has not issued, and does not have
any current plans to issue, any significant indebtedness that will be
subordinated to the Senior Notes. The Senior Notes effectively rank junior to
any indebtedness of the Issuer's subsidiaries to the extent of the assets of
such subsidiaries and to any secured indebtedness of the Issuer to the extent
of the assets securing such indebtedness. See "Risk Factors --Holding Company
Structure; Liens on Assets".
The Guarantee by the Company in respect of payments in respect of the
Senior Notes (the "Guarantee") will rank pari passu with the Company's
unsecured unsubordinated obligations, including its obligations under the
Discount Notes.
Except as described below under "--Certain Covenants --Change of Control"
and "--Mergers, Consolidations and Certain Sales of Assets", the Senior Notes
Indenture does not contain any provisions that permit the holders of the Senior
Notes to require that the Issuer repurchase or redeem the Senior Notes or
otherwise protect the holders of Senior Notes in the event of a takeover,
recapitalization or similar restructuring or in the event of any other highly
leveraged transaction.
Application has been made to list the Senior Notes on the Luxembourg Stock
Exchange. There can be no assurance that any trading market in the Senior Notes
will develop. See "Risk Factors --Absence of a Public Market for the Senior
Notes; Possible Volatility of Senior Note Price".
FORM OF THE SENIOR NOTES
The Sterling Senior Notes and the Dollar Senior Notes will each be
represented by one or more global securities in bearer form, without coupons
(respectively, the "Sterling Global Senior Notes" and the "Dollar Global Senior
Notes" and, together, the "Global Senior Notes"), which have been issued in a
denomination equal to the outstanding principal amount of Senior Notes
represented thereby. The Global Senior Notes will be deposited with The Bank
of New York, as book-entry depositary (the "Book-Entry Depositary"), pursuant
to the terms of a Senior Notes Depositary Agreement, dated as of February 6,
1998 between the Issuer, for the limited purposes set forth therein, the
Book-Entry Depositary and the owners from time to time of Book-Entry Interests
(the "Deposit Agreement"). See "--Description of Book-Entry System".
Under the terms of the Deposit Agreement, owners of Book-Entry Interests
will receive Definitive Registered Notes (i) if, in the case of the Dollar
Senior Notes, DTC notifies the Book-Entry Depositary that it is unwilling or
unable to act as depositary or ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, as amended, and, in either case, a
successor depositary is not appointed by the Book-Entry Depositary at the
request of the Issuer within 120 days, (ii) if, in the case of the Sterling
Senior Notes, Euroclear and Cedel notify the Book-Entry
21
<PAGE> 26
Depositary that they are unwilling or unable to act as clearing agency and a
successor is not appointed by the Book-Entry Depositary at the request of the
Issuer within 120 days, (iii) in the event of an Event of Default under the
Senior Notes Indenture upon request of the owner of such Book-Entry Interest,
(iv) at any time if the Issuer in its sole discretion determines that the
Global Senior Notes (in whole but not in part) should be exchanged for
Definitive Registered Notes, (v) if such owner of a Book-Entry Interest
requests such exchange in writing delivered to DTC, in the case of the Dollar
Senior Notes, or Euroclear or Cedel, in the case of the Sterling Senior Notes,
and through such clearing agency to the Book-Entry Depositary or (vi) if the
Book-Entry Depositary is at any time unwilling or unable to continue as
Book-Entry Depositary and a successor Book-Entry Depositary is not appointed by
the Issuer within 120 days of its giving notification thereof to the Issuer. In
no event will definitive Senior Notes in bearer form be issued.
Any Definitive Registered Notes will be issued in registered form in
denominations of pounds sterling 1,000 or $1,000 (as the case may be) principal
amount or multiple thereof. Any Definitive Registered Notes will be registered
in such name or names as the Book-Entry Depositary shall instruct the Trustee
based on the instructions of DTC, in the case of the Dollar Senior Notes, or
Euroclear or Cedel, in the case of the Sterling Senior Notes. It is expected
that such instructions will be based upon directions received by DTC, Euroclear
or Cedel, in each case from its participants ("Participants") with respect to
ownership of Book-Entry Interests. To the extent permitted by law, the Issuer,
the Trustee and any paying agent shall be entitled to treat the person in whose
name any Definitive Registered Note is registered as the absolute owner thereof.
While any Sterling Global Senior Note is outstanding, holders of sterling
denominated Definitive Registered Notes may exchange such Definitive Registered
Notes for Book-Entry Interests in such Sterling Global Senior Note by
surrendering their Definitive Registered Notes to the Book-Entry Depositary.
While any Dollar Global Senior Note is outstanding, holders of dollar
denominated Definitive Registered Notes may exchange such Definitive Registered
Notes for Book-Entry Interests in such Dollar Global Senior Note by surrendering
their Definitive Registered Notes to the Book-Entry Depositary. The amount of
the relevant Global Senior Notes (and the Book-Entry Interests) will be
increased or decreased to reflect exchanges or issues of Definitive Registered
Notes. The Book-Entry Depositary will request the Trustee to make the
appropriate adjustments to the relevant Global Senior Note or Notes underlying
the Book-Entry Interests to reflect any such issues or adjustments. The Senior
Notes Indenture contains provisions relating to the maintenance by a registrar
of a register reflecting ownership of Definitive Registered Notes, if any, and
other provisions customary for a registered debt security. Payment of principal
and interest on, and all other amounts payable under, each Definitive Registered
Note will be made to the holder appearing on the register at the close of
business on the record date at his address shown on the register on the record
date.
HOLDERS SHOULD BE AWARE THAT, UNDER CURRENT U.K. TAX LAW, UPON THE
ISSUANCE TO A HOLDER OF DEFINITIVE REGISTERED NOTES, SUCH HOLDER WILL BECOME
SUBJECT TO U.K. INCOME TAX (CURRENTLY 20%) TO BE WITHHELD ON ANY PAYMENTS OF
INTEREST ON THE DEFINITIVE REGISTERED NOTES AS SET FORTH UNDER "TAXATION". A
HOLDER OF DEFINITIVE REGISTERED NOTES WILL, TO THE EXTENT DESCRIBED BELOW UNDER
"--PAYMENT OF ADDITIONAL AMOUNTS", BE ENTITLED TO RECEIVE ADDITIONAL AMOUNTS
WITH RESPECT TO SUCH DEFINITIVE REGISTERED NOTES. ADDITIONAL AMOUNTS WILL NOT
BE PAYABLE IF SUCH DEFINITIVE REGISTERED NOTES WERE ISSUED AT THE REQUEST OF A
HOLDER (INCLUDING FOLLOWING AN EVENT OF DEFAULT) AND AT THE TIME OF THE PAYMENT
IN QUESTION DEFINITIVE REGISTERED NOTES HAVE NOT BEEN ISSUED IN EXCHANGE FOR
THE ENTIRE PRINCIPAL AMOUNT OF NOTES. However, a U.S. holder of Definitive
Registered Notes may be entitled to receive a refund of withheld amounts from
the Inland Revenue in certain circumstances. See "Taxation --United Kingdom
- --Payments on the Senior Notes".
Any person receiving Definitive Registered Notes other than at its own
request will not be obligated to pay or otherwise bear the cost of any tax or
governmental charge or any cost or expense of the Book-Entry Depositary
relating to insurance, postage, transportation or any similar charge, all of
which will be solely the responsibility of the Issuer.
Principal of and interest on, and all other amounts payable under, any
Definitive Registered Notes will be payable at the corporate trust office or
agency of the Trustee in The City of New York and London, England maintained
for such purposes and at the specified office of the Paying Agent in Luxembourg
(against surrender of the relevant Definitive Registered Note, in the case of
payments of principal). In addition, interest, including Special Interest, if
any, on Definitive Registered Notes may be paid by check mailed to the person
entitled thereto as shown on the register for the Definitive Registered Notes.
No service charge will be made for any registration of transfer or exchange of
any Definitive Registered Notes.
The Issuer has undertaken to procure that while the Senior Notes are
outstanding and listed on the Luxembourg Stock Exchange, it will maintain a
paying agent and a transfer agent in Luxembourg through which payment of
principal of and interest on, and all other amounts payable under, the Senior
Notes may be made and through which the registration of transfer of Senior Notes
may be effected. Transfers of any Definitive Registered Note may be made, in
accordance with the procedures set out under "Notice to Investors" and the
Senior Notes Indenture, by presenting and surrendering such note at the office
of any transfer agent. Transfers of a portion of a Definitive Registered Note
may be made in authorized denominations of pounds sterling 1,000 or $1,000, as
the case may be, in accordance with the Senior Notes Indenture, at the office of
any transfer agent, and new Definitive Registered Notes in appropriate
denominations will be made available by the Issuer at such office.
22
<PAGE> 27
The initial paying agent and transfer agent appointed by the Issuer in
Luxembourg is Banque Internationale a Luxembourg S.A., 69 route d'Esch, L-1470
Luxembourg.
REDEMPTION
OPTIONAL REDEMPTION
The Sterling Senior Notes are redeemable, in whole or in part, at any time
on or after February 1, 2003, at the option of the Issuer, upon not less than 30
nor more than 60 days' notice; provided that the Issuer may not give a notice of
redemption (i) more than four times in any year or (ii) in respect of the
redemption of less than pounds sterling 5 million in principal amount of the
Sterling Senior Notes. Such redemption will be at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest, including Special Interest, if any, to the redemption date, and
any Additional Amounts due, if redeemed during the 12-month period beginning
February 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003............................................. 105%
2004............................................. 103.333%
2005............................................. 101.667%
2006 and thereafter.............................. 100%
</TABLE>
The Dollar Senior Notes are redeemable, in whole or in part, at any time
on or after February 1, 2003, at the option of the Issuer, upon not less than
30 nor more than 60 days notice; provided that the Issuer may not give a notice
of redemption (i) more than four times in any year or (ii) in respect of the
redemption of less than $5 million in principal amount of the Dollar Senior
Notes. Such redemption will be at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest, including Special Interest, if any, to the redemption date, and any
Additional Amounts due, if redeemed during the 12-month period beginning
February 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003................................................. 104.562%
2004................................................. 103.042%
2005................................................. 101.521%
2006 and thereafter.................................. 100%
</TABLE>
SELECTION; EFFECT OF REDEMPTION NOTICE
In the case of a partial redemption, selection of the relevant Senior
Notes for redemption will be made pro rata (subject, in the case of Book-Entry
Interests, to the procedures of DTC, Euroclear and Cedel, as the case may be).
Upon giving of a redemption notice, interest on Senior Notes called for
redemption will cease to accrue from and after the date fixed for redemption
(unless the Issuer defaults in providing the funds for such redemption) and
such Senior Notes will then cease to be outstanding.
PURCHASE OBLIGATION
The Issuer is not required to make any mandatory redemption or sinking
fund payments in respect of the Senior Notes.
Upon the occurrence of a Change of Control (as defined below), the Issuer
will be obligated to make an Offer to Purchase all the outstanding Senior Notes
at a price of 101% of the principal amount at maturity thereof, plus accrued
and unpaid interest, including Special Interest, if any, and any Additional
Amounts due, to the date of purchase. In addition, upon the occurrence of an
Asset Disposition, the Issuer may be obligated to make an Offer to Purchase all
or a portion of the outstanding Senior Notes at a price of 100% of the
principal amount thereof, plus accrued and unpaid interest including Special
Interest, if any, and any Additional Amounts due, to the date of purchase. See
"--Certain Covenants --Change of Control" and "--Certain Covenants --Limitation
on Certain Asset Dispositions", respectively.
OPTIONAL TAX REDEMPTION
The Sterling Senior Notes and the Dollar Senior Notes will each be subject
to redemption upon not less than 30 nor more than 60 days' notice by mail and
publication in Luxembourg, as a whole, but not in part, at the election of the
Issuer at any time at a redemption price equal to 100% of the principal amount
thereof (together in the case of any
23
<PAGE> 28
such redemption with accrued and unpaid interest, including Special Interest,
if any, and any Additional Amounts due, to the date of redemption), if (a) the
Issuer is required to issue Definitive Registered Senior Notes in respect
thereof after using all reasonable efforts to avoid having to issue such
Definitive Registered Senior Notes and the Issuer is required, or would be so
required in the absence of any applicable tax treaty, on the next succeeding
Interest Payment Date to pay Additional Amounts with respect to such Senior
Notes as described under "--Payment of Additional Amounts" or (b) the Issuer or
the Company has become, or would become obligated to pay in the absence of any
applicable tax treaty, on the next date on which any amount would be payable
with respect to such Senior Notes, any Additional Amounts as a result of any
amendment to or change in the laws (or any rules or regulations thereunder) of
the United Kingdom or any political subdivision or taxing authority thereof or
therein (or, in the case of Additional Amounts payable by a successor Person to
the Issuer, of the jurisdiction in which such successor Person is organized or
any political subdivision or taxing authority thereof or therein) or any
amendment or change in any official interpretation or application of such laws
or rules or regulations or any execution of or amendment to any treaty
affecting taxation to which the United Kingdom or such political subdivision or
taxing authority (or such other jurisdiction or political subdivision or taxing
authority) is a party, if the amendment or change becomes effective on or after
the date of the Senior Notes Indenture (or, in the case of Additional Amounts
payable by a successor Person to the Issuer, the date on which such successor
Person became such pursuant to the applicable provisions of the Senior Notes
Indenture unless as of such date the relevant tax authority had publicly
announced that such amendment or change or execution was to occur after such
date) and such obligation cannot be avoided by the use of all commercially
reasonable measures available to the Issuer or the Company; provided, however,
that (1) no such notice of redemption may be given earlier than 90 days prior
to the earliest date on which the Issuer or the Company would be obligated to
pay such Additional Amounts were a payment in respect of such Senior Notes then
due, and (2) at the time such notice of redemption is given, such obligation to
pay such Additional Amounts remains in effect.
PAYMENT OF ADDITIONAL AMOUNTS
All payments made by the Issuer or the Company in respect of the Senior
Notes or the Guarantee will be made free and clear of and without withholding
or deduction for or on account of any present or future taxes, duties,
assessments or governmental charges of whatever nature unless the withholding
or deduction is then required by law. If any withholding or deduction for or on
account of any present or future taxes, assessments or other governmental
charges of the United Kingdom or any political subdivision or taxing authority
thereof or therein ("Taxes") shall at any time be required in respect of any
amounts to be paid by the Issuer or the Company in respect of the Senior Notes
or the Guarantees, the Issuer or the Company, as the case may be, will pay such
additional amounts ("Additional Amounts") as may be necessary so that the net
amount received by each holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the Holder would have
received if such Taxes had not been withheld or deducted; provided that the
foregoing obligation to pay Additional Amounts does not apply to (a) any Taxes
which would not have been so imposed but for the existence of any present or
former connection between such Holder and the United Kingdom (other than the
mere receipt of such payment or the ownership or holding outside of the United
Kingdom of such Senior Note); (b) any estate, inheritance, gift, sales, excise,
transfer, personal property tax or similar tax, assessment or governmental
charge; or (c) any Taxes payable otherwise than by deduction or withholding
from payments of principal of (or premium, if any, on) or interest (including
Special Interest, if any) on such Senior Note; nor will Additional Amounts be
paid (i) if the payment could have been made by or through another paying agent
without such deduction or withholding, (ii) if the payment could have been made
without such deduction or withholding had the holder of the Senior Note or, if
different, the beneficiary of the payment complied with a request of the
Issuer, the Company or any other person through whom payment may be made, made
upon reasonable notice prior to such payment, addressed or otherwise provided
to such holder or beneficiary to provide information, documents or other
evidence concerning the nationality, residence, identity or connection with the
taxing jurisdiction of such holder or beneficiary which is required or imposed
by a statute, treaty, regulation or administrative practice of the taxing
jurisdiction as a precondition to exemption from all or part of such tax, (iii)
with respect to any payment of principal of (or premium if any, on) or interest
(including Special Interest, if any) on such Senior Note to any holder who is a
fiduciary or partnership or Person other than the sole beneficial owner of such
payment, to the extent such payment would be required by the laws of the U.K.
(or any political subdivision or taxing authority thereof or therein) to be
included in the income for tax purposes of a beneficiary or settlor with
respect to such fiduciary or a member of such partnership or a beneficial owner
who would not have been entitled to the Additional Amounts had such
beneficiary, settlor, member or beneficial owner been the holder of such a
Senior Note, or (iv) if the payment is in respect of a Definitive Registered
Note issued at the request of a holder of a Book-Entry Interest (including
following an Event of Default) and at the time the payment is made Definitive
Registered Notes have not been issued in exchange for the entire principal
amount of the Senior Notes. The foregoing provisions shall survive any
termination or discharge of the Senior Notes Indenture and shall apply mutatis
mutandis to any withholding or deduction for or on account of any present or
future taxes, assessments or governmental charges of whatever nature of any
jurisdiction in which any successor Person to the Issuer or the Company, as the
case may be, is organized, or any political subdivision or taxing authority
thereof or therein. The Issuer has agreed to use commercially reasonable
efforts to facilitate administrative actions necessary to assist Holders to
obtain any refund of or credit against withholding taxes for which Additional
Amounts are not paid as a result of the proviso in the second preceding
sentence.
24
<PAGE> 29
SUBSTITUTION OF CURRENCY
Although there can be no assurance that a single European currency will be
adopted or, if adopted, on what time schedule, the Treaty on the European
Economic and Monetary Union provides for the introduction of the Euro in
substitution for the national currencies of the member states which adopt the
Euro. If the United Kingdom adopts the Euro, the regulations of the European
Commission relating to the Euro shall apply to the Sterling Senior Notes. In
accordance with the Senior Notes Indenture and the laws of the State of New
York, the circumstances and consequences described in this paragraph entitle
neither the Issuer nor any holder of Senior Notes to early redemption,
rescission, notice or repudiation of the terms and conditions of the Senior
Notes or the Indenture or to raise other defenses or to request any
compensation claim, nor will they affect any of the other obligations of the
Issuer or the Company under the Senior Notes and the Indenture.
CERTAIN COVENANTS
The Senior Notes Indenture contains, among others, the following additional
covenants:
LIMITATION ON CONSOLIDATED DEBT AND DISQUALIFIED EQUITY
The Issuer shall not, and shall not permit any Restricted Subsidiary to,
Incur any Debt or issue any Disqualified Equity unless, immediately after
giving effect to the Incurrence of such Debt or the issuance of such
Disqualified Equity and the receipt and application of the proceeds thereof,
the Annualized Consolidated Debt to Cash Flow Ratio of the Restricted Group for
the quarter next preceding the Incurrence of such Debt or the issuance of such
Disqualified Equity, as the case may be, for which quarterly financial
statements are available, calculated on a pro forma basis (as if such Debt had
been Incurred or such Disqualified Equity had been issued at the beginning of
such quarter) would be less than 7.0 to 1.
Notwithstanding the foregoing paragraph, the Issuer may, and may permit any
Restricted Subsidiary to, Incur or issue the following: (i) Debt of the Issuer
and/or any Restricted Subsidiary outstanding on the date of the Senior Notes
Indenture; (ii) Debt or Disqualified Equity to the extent that the proceeds are
used to finance working capital, or the construction of, or the acquisition of,
property or assets to be used in a Cable Business; (iii) Debt Incurred or
Disqualified Equity issued to finance a Cable Acquisition or provide working
capital for or financing for the construction of property or assets to be used
in the business so acquired; (iv) Debt consisting of Interest Rate Protection
Obligations or Currency Hedging Agreements; (v) performance bonds or surety
bonds or similar instruments provided in the ordinary course of business; (vi)
Debt owed by the Issuer to any Wholly Owned Restricted Subsidiary (so long as
such Debt is held by a Wholly Owned Restricted Subsidiary) or Debt owed by or
Disqualified Equity issued by a Restricted Subsidiary to the Issuer or a Wholly
Owned Restricted Subsidiary of the Issuer (provided that such Debt or
Disqualified Equity is at all times held by the Issuer or a Wholly Owned
Restricted Subsidiary); provided, however, that upon either (a) the transfer or
other disposition by such Wholly Owned Restricted Subsidiary or the Issuer of
any such Debt or Disqualified Equity to a Person other than the Issuer or
another Wholly Owned Restricted Subsidiary or (b) the issuance, sale, lease,
transfer or other disposition of shares of Equity Securities (including by
consolidation or merger) of such Wholly Owned Restricted Subsidiary to a Person
other than the Issuer or another such Wholly Owned Restricted Subsidiary, such
Debt shall be deemed to have been Incurred or such Disqualified Equity shall be
deemed to have been issued at the time of such transfer or other disposition;
(vii) Debt Incurred or Disqualified Equity issued to renew, extend, refinance or
refund any Debt or Disqualified Equity permitted in Clauses (i) through (iii)
above, or the Senior Notes (in the event that the Senior Notes are redeemed in
part pursuant to the provisions described under "--Redemption" above) in an
amount not to exceed the outstanding principal amount (or, if less, Accreted
Value) of the Debt or the aggregate liquidation preference of the Disqualified
Equity so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt or
Disqualified Equity refinanced, or the amount of any premium reasonably
determined by the Issuer to be necessary to accomplish such refinancing by means
of a tender offer or privately negotiated repurchase plus the expenses of the
Issuer Incurred in connection with such refinancing; provided that (a) in the
case of any refinancing or refunding of Debt which is pari passu to the Senior
Notes, the refinancing or refunding Debt is made pari passu to the Senior Notes
or subordinated to the Senior Notes, and, in the case of any refinancing or
refunding of Debt which is subordinated to the Senior Notes or of Disqualified
Equity, the refinancing or refunding Debt is subordinated to the Senior Notes to
the same extent as the Debt being refinanced or refunded or is Disqualified
Equity; and (b) in either case, the refinancing or refunding Debt or
Disqualified Equity by its terms, or by the terms of any agreement or instrument
pursuant to which such Debt or Disqualified Equity is Incurred or issued, does
not have a Weighted Average Life that is lower than that of the Debt or
Disqualified Equity being refinanced or refunded; and (viii) Debt or
Disqualified Equity not otherwise permitted to be Incurred or issued under
Clauses (i) through (vii) above, which, together with any other outstanding Debt
Incurred or Disqualified Equity issued pursuant to this Clause (viii), has an
aggregate principal amount (or liquidation preference) not in excess of pounds
sterling 20 million at any time outstanding.
LIMITATION ON RESTRICTED PAYMENTS
The Issuer (i) shall not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities or otherwise) in respect of any class of its Equity
Securities or to
25
<PAGE> 30
the holders of any class of its Equity Securities (including pursuant to a
merger or consolidation of the Issuer, but excluding any dividends or
distributions payable solely in its Equity Securities (other than Disqualified
Equity) or in options, warrants or other rights to acquire its Equity Securities
(other than Disqualified Equity)); (ii) shall not, and shall not permit any
Restricted Subsidiary of the Issuer to, directly or indirectly, purchase, redeem
or otherwise acquire or retire for value (a) any Equity Securities of the Issuer
or any Related Person of the Issuer or (b) any options, warrants or rights to
purchase or acquire Equity Securities of the Issuer or any Related Person of the
Issuer (except options, warrants or rights to purchase or acquire such Equity
Securities held by any current or former officer or director of the Issuer or
ECE Management International (or any of its predecessors) in an aggregate amount
not exceeding pounds sterling 5 million); (iii) shall not make, or permit any
Restricted Subsidiary of the Issuer to make any Investment in, or Incur an
obligation to guarantee any obligation of, any Affiliate or Related Person of
the Issuer, other than the Issuer or a Wholly Owned Restricted Subsidiary of the
Issuer which is a Wholly Owned Subsidiary prior to such Investment, and (iv)
shall not, and shall not permit any Restricted Subsidiary to, redeem, defease,
repurchase or otherwise retire or acquire for value prior to any scheduled
maturity, repayment or sinking fund payment, Debt of the Issuer which explicitly
by its terms is subordinate in right of payment to the Senior Notes (the
transactions described in Clauses (i) through (iv) being referred to herein as
"Restricted Payments"), if: (1) at the time thereof and after giving effect
thereto an Event of Default, or an event that with notice or lapse of time, or
both, would constitute an Event of Default, shall have occurred and be
continuing or (2) upon giving effect to such Restricted Payment, the aggregate
of all Restricted Payments from the date of the Senior Notes Indenture exceeds
the sum of (a) the difference between (x) the cumulative Consolidated Operating
Cash Flow of the Issuer from the first day of the fiscal quarter in which the
issue date of the Senior Notes falls through the last day of the last full
fiscal quarter immediately preceding such Restricted Payment for which quarterly
financial statements are available, and (y) 150% of cumulative Consolidated
Interest Expense of the Issuer from the first day of the fiscal quarter in which
the issue date of the Senior Notes falls through the last day of the last full
fiscal quarter immediately preceding such Restricted Payment for which quarterly
financial statements of the Issuer are available; and (b) 100% of the aggregate
net cash proceeds after the issue date of the Senior Notes, from the issuance of
Equity Securities (other than Disqualified Equity) of the Issuer and options,
warrants or other rights on Equity Securities (other than Disqualified Equity)
of the Issuer (other than to a Restricted Subsidiary) after the issue date of
the Senior Notes; provided that this provision shall not restrict the Issuer
from paying cash dividends in any year in amounts up to the sum of (i) the cash
interest payable by the Company on the outstanding Discount Notes and (ii)
pounds sterling 5 million. The foregoing provision shall not be violated by
reason of (i) the payment of any dividend within 60 days after declaration
thereof if at the declaration date such payment would have complied with the
foregoing provision; (ii) any refinancing or refunding of any Debt otherwise
permitted under Clause (vii) described in the second paragraph under the caption
"--Limitation on Consolidated Debt and Disqualified Equity"; (iii) investments
by the Issuer or any Restricted Subsidiary in an amount not to exceed in the
aggregate pounds sterling 10 million in a Person which is engaged in a Cable
Business or a business incidental thereto; and (iv) investments in
Non-Restricted Subsidiaries made with the proceeds of a substantially concurrent
(1) capital contribution to the Company or (2) issue or sale of Equity
Securities (other than Disqualified Equity) of the Company.
LIMITATION ON THIRD-PARTY OWNERSHIP OF THE ISSUER
The Company shall maintain the Issuer as a wholly-owned, direct Subsidiary
of the Company.
LIMITATION ON LIENS
The Issuer shall not, and shall not permit any Restricted Subsidiary to,
Incur or suffer to exist any Lien upon any of its properties or assets, now
owned or hereafter acquired, to secure any Debt without making, or causing such
Restricted Subsidiary to make, effective provision for securing the Senior Notes
equally and ratably with such Debt so long as such Debt shall be so secured or
in the event such Debt is subordinate in right of payment to the Senior Notes,
prior to such Debt as to such property and assets for so long as such Debt shall
be so secured. The foregoing restrictions do not apply to Liens existing at the
date of the Senior Notes Indenture or to: (i) Liens securing only the Senior
Notes; (ii) Liens in favor of the Issuer or any Wholly-Owned Restricted
Subsidiary; (iii) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Issuer or any Restricted Subsidiary of
the Issuer (and not incurred in anticipation of such merger or consolidation)
which Liens shall not extend to any other property of the Issuer or any
Restricted Subsidiary; (iv) Liens on property existing immediately prior to the
time of acquisition thereof (and not in anticipation of the financing of such
acquisition); (v) Liens to secure Debt Incurred under the provisions described
in clauses (ii), (iii), (iv) or (vii) of the second paragraph under the caption
"--Limitation on Consolidated Debt and Disqualified Equity"; (vi) Liens for
taxes or assessments or other governmental charges or levies which are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in accordance with generally accepted accounting
principles shall have been made; (vii) Liens to secure obligations under
workmen's compensation laws or similar legislation, including Liens with respect
to judgments which are not currently dischargeable; and (viii) Liens to secure
Debt Incurred to extend, renew, refinance or refund (or successive extensions,
renewals, refinancings or refundings), in whole or in part, Debt secured by any
Lien referred to in the foregoing Clauses (i) through (viii) so long as such
Lien does not extend to any other property. In addition to the foregoing, the
Issuer and its Restricted Subsidiaries may incur a Lien to secure any Debt or
enter into a Sale and Leaseback Transaction, without equally and ratably
securing the Senior Notes, if the sum of (i) the amount of Debt secured by a
Lien entered into after the date of the Senior Notes Indenture and otherwise
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prohibited by the Senior Notes Indenture and (ii) the Attributable Value of all
Sale and Leaseback Transactions entered into after the date of the Senior Notes
Indenture and otherwise prohibited by the Senior Notes Indenture does not
exceed 5% of the Issuer's Consolidated Tangible Assets.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Issuer shall not, and shall not permit any Restricted Subsidiary of
the Issuer to, enter into any Sale and Leaseback Transaction unless (i) the
Issuer or such Restricted Subsidiary were entitled to incur a Lien to secure
Debt in an amount at least equal to the Attributable Value of such Sale and
Leaseback Transaction and the terms of such transaction have been approved by
the Board of Directors of the Issuer or (ii) all of the conditions contained in
the provisions described under "--Limitation on Certain Asset Dispositions"
(including the provisions concerning the application of Net Available Proceeds)
would be satisfied with respect to such Sale and Leaseback Transaction if all
of the consideration received in such Sale and Leaseback Transaction were
treated as Net Available Proceeds.
LIMITATIONS CONCERNING DISTRIBUTIONS BY AND TRANSFERS TO RESTRICTED GROUP
The Issuer may not, and may not permit any Restricted Subsidiary to, suffer
to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make any
other distributions in respect of its Equity Securities or pay any Debt or other
obligation owed to the Issuer or any Restricted Subsidiary of the Issuer; (ii)
to make loans or advances to the Issuer or any Restricted Subsidiary of the
Issuer; or (iii) to transfer any of its property or assets to, the Issuer or any
Restricted Subsidiary of the Issuer. Notwithstanding the foregoing, the Issuer
may, and may permit any Subsidiary to, suffer to exist any such encumbrance or
restriction on the ability of any Subsidiary of the Issuer if and to the extent
such encumbrance or restriction exists on the date of the Senior Notes Indenture
or (a) existed prior to the time any Person became a Subsidiary of the Issuer
and such restriction or encumbrance was not incurred in anticipation of such
Person becoming a Subsidiary of the Issuer; (b) exists by reason of a customary
merger or acquisition agreement for the purchase or acquisition of the stock or
assets of the Issuer or any of its Restricted Subsidiaries by another Person;
(c) is contained in an operating lease for real property and is effective only
upon the occurrence and during the continuance of a default in the payment of
rent; (d) is the result of applicable corporate law or regulation relating to
the payment of dividends or distributions; (e) is pursuant to an agreement
pursuant to which Debt meeting the requirements of Clause (ii), (iii), (iv) or
(vii) of the second paragraph under the caption "--Limitation on Consolidated
Debt and Disqualified Equity" is Incurred; provided, however, that the
provisions contained in such agreement relating to such encumbrance or
restriction are no more restrictive than those contained in the terms of the
Senior Bank Facility as in effect immediately prior to Closing; or (f) pursuant
to an agreement effecting a renewal, extension, refinancing or refunding of Debt
Incurred pursuant to an agreement referred to in Clause (a) or (e) above;
provided, however, that the provisions contained in such agreement relating to
such encumbrance or restriction are no more restrictive than the provisions
contained in the agreement the subject thereof, as determined in good faith by
the Board of Directors and evidenced by a Board Resolution.
TRANSACTIONS WITH AFFILIATES AND RELATED PERSONS
Except as permitted in the following paragraph, the Issuer shall not, and
shall not permit any Restricted Subsidiary to, enter into any transaction or
conduct any business with any Affiliate or Related Person of the Issuer, unless
such transaction is effected or such business is conducted on terms which are in
the Issuer's good faith judgment at least as favorable as those that could be
obtained in a comparable arm's length transaction with a Person that is not an
Affiliate or Related Person. Any such transaction (or series of related
transactions) in which such Affiliate or Related Person receives in excess of
pounds sterling 1.0 million in any twelve-month period shall be approved as
being in the Issuer's best interests by a majority of the disinterested
directors of the Board of Directors of the Issuer. Any such transaction
involving in excess of pounds sterling 5.0 million (or series of related
transactions involving in excess of pounds sterling 5.0 million), or as to which
there are no disinterested directors, is subject to the further requirement that
the Issuer obtain an opinion of an internationally recognized expert with
experience in appraising the terms and conditions of the relevant type of
transaction (or series of related transactions) stating that the transaction or
series of related transactions is fair (from a financial point of view) to the
Issuer or such Restricted Subsidiary.
The above requirements shall not be applicable to (i) any transaction
among the Issuer and its Wholly Owned Subsidiaries; (ii) any existing
management agreement with ECE Management International or any successor or
assign, or any other management agreement which has substantially similar
terms; or (iii) any transaction in which investment banking or other financial
advisory services are provided to the Issuer or any Subsidiary by Goldman,
Sachs & Co. or any of its Affiliates that is, in the Issuer's good faith
judgment, on arm's length terms.
LIMITATION ON CERTAIN ASSET DISPOSITIONS
The Issuer will not, and will not permit any Restricted Subsidiary to, make
any Asset Disposition unless (a) the Issuer or such Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Disposition at
least equal to the fair market value of the shares or assets sold or otherwise
disposed of; and (b) at least 90% of such consideration consists of cash or Cash
Equivalents. To the extent the Net Available Proceeds of any Asset Disposition
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are not required to be applied to repay amounts outstanding under any Debt of a
Restricted Subsidiary, or are not so applied, the Issuer or such Restricted
Subsidiary, as the case may be, may apply such Net Available Proceeds within 365
days of the receipt thereof, to an investment in properties and assets that will
be used in a Cable Business (or in Equity Securities of any such Person that
will become a Restricted Subsidiary as a result of such investment to the extent
that such Person owns properties and assets that will be used in a Cable
Business) of the Issuer or any Restricted Subsidiary ("Replacement Assets").
Notwithstanding the foregoing, the Issuer may retain the Net Available Proceeds
from any Asset Disposition, the Net Available Proceeds of which do not exceed
pounds sterling 1.0 million for any purpose. Any Net Available Proceeds from any
Asset Disposition that are neither used to repay amounts outstanding under any
Debt of a Restricted Subsidiary nor invested in Replacement Assets within such
365-day period (exclusive of the up to pounds sterling 1.0 million referred to
in the preceding sentence) shall constitute "Excess Proceeds" subject to the
provisions described in the following paragraph.
When the aggregate amount of Excess Proceeds equals or exceeds pounds
sterling 10.0 million, the Issuer shall make to all holders of the Senior Notes
within 30 days of the determination thereof an Offer to Purchase Senior Notes
with an aggregate principal amount equal to such Excess Proceeds at a price in
cash equal to 100% of the outstanding principal amount thereof plus accrued and
unpaid interest, if any, and any other amounts payable thereon, to the date of
purchase. To the extent that the amounts payable in respect of Senior Notes
tendered pursuant to such Offer to Purchase are less than the Excess Proceeds,
the Issuer may use such deficiency for any purpose. If the aggregate principal
amount of Senior Notes validly tendered and not withdrawn by holders thereof
exceeds the amount of Senior Notes which can be purchased with the Excess
Proceeds, Senior Notes to be purchased will be selected on a pro rata basis and
Sterling Senior Notes on the one hand and Dollar Senior Notes on the other hand
will be prorated on the basis of an exchange rate prevailing at the commencement
of the Offer to Purchase as determined by the Trustee.
Notwithstanding the two immediately preceding paragraphs, the Issuer and
the Restricted Subsidiaries will be permitted to consummate an Asset Disposition
without complying with such paragraphs to the extent (i) at least 90% of the
consideration for such Asset Disposition constitutes Replacement Assets (or
Equity Securities of any such Person that will become a Restricted Subsidiary as
a result of such transaction to the extent that such Person owns properties and
assets that will be used in a Cable Business) and (ii) such Asset Disposition is
for fair market value; provided that any consideration not constituting
Replacement Assets or Equity Securities as described in Clause (i) received by
the Issuer or any Restricted Subsidiaries in connection with any Asset
Disposition permitted to be consummated under this paragraph shall constitute
Net Available Proceeds subject to the provisions of the two preceding
paragraphs.
CHANGE OF CONTROL
Within 60 days following the date of the consummation of a transaction
resulting in a Change of Control, the Issuer shall commence an Offer to Purchase
all Outstanding Senior Notes at a purchase price equal to 101% of their
principal amount plus in such case accrued but unpaid interest, if any and any
other amounts payable thereon, to the date of purchase. The Issuer will, not
less than 10 days after the date on which the Issuer first becomes aware of the
consummation of a transaction resulting in a Change of Control, cause notice of
such Change of Control to be mailed to holders of the Senior Notes and published
in Luxembourg. A "Change of Control" will be deemed to have occurred in the
event that, after the date of the Senior Notes Indenture, either (a) any Person
or any Persons (other than a Permitted Holder) acting together which would
constitute a group (for purposes of Section 13(d) of the Exchange Act, or any
successor provision thereto) (a "Group"), together with any Affiliates or
Related Persons thereof, shall beneficially own (as defined in Rule 13d-3 under
the Exchange Act, or any successor provision thereto) at least 45% of the
aggregate voting power of all Equity Securities of the Issuer entitled to vote
generally in the election of directors of the Issuer; or (b) any Person or Group
(other than a Permitted Holder), together with any Affiliates or Related Persons
thereof, shall succeed in having a sufficient number of its nominees elected to
the Board of Directors of the Issuer such that such nominees, when added to any
existing director remaining on the Board of Directors of the Issuer after such
election who is an Affiliate or Related Person of such Group, will constitute a
majority of the Board of Directors of the Issuer; or (c) certain events of
bankruptcy, insolvency or receivership affecting the Issuer.
Any future credit agreements or other agreements relating to indebtedness
of the Issuer and its subsidiaries may contain provisions restricting the
ability of the Issuer to repurchase Senior Notes upon a Change of Control. In
the event that a Change of Control occurs when such provisions are in effect,
the Issuer may seek the consent of the relevant lenders to the repurchase of
Senior Notes or could attempt to repay or refinance such indebtedness, in a
manner that would permit the Issuer to effect the repurchase of the Senior
Notes. In the absence of such a repayment or refinancing, the Issuer may be
precluded from offering to repurchase the Senior Notes by the applicable
provisions of such other agreements. The failure of the Issuer to offer to
repurchase the Senior Notes upon a Change of Control would constitute an Event
of Default under the Senior Notes Indenture. Moreover, there can be no
assurance that the Issuer will have the financial resources necessary to effect
any repurchase of Senior Notes upon a Change of Control.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
Neither the Issuer nor the Company shall, in a single transaction or
through a series of related transactions, (i) consolidate with or merge into
any other Person; (ii) permit any other Person to consolidate with or merge
into the Issuer or the Company, as the case may be; (iii) directly or
indirectly transfer, assign, convey, sell, lease or otherwise
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dispose of all or substantially all of its properties and assets as an entirety;
or (iv) permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or transactions, in the aggregate, would result
in a sale, assignment, transfer, lease or disposal of all or substantially all
of the properties and assets of the Company and its Subsidiaries or the Issuer
and its Subsidiaries, as the case may be, on a consolidated basis to any other
Person or group of affiliated Person unless: (1) immediately before and after
giving effect to such transaction and treating any Debt and Disqualified Equity
which becomes an obligation of the Company or the Issuer or a Subsidiary of the
Issuer as a result of such transaction as having been Incurred or issued, as
applicable, by the Company or the Issuer or such Subsidiary at the time of the
transaction, no Event of Default or event that with notice or lapse of time, or
both, would constitute an Event of Default shall have occurred and be
continuing; (2) in the event the Issuer or the Company shall consolidate with or
merge into another Person or shall directly or indirectly transfer, assign,
convey, sell, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety, the Person formed by such consolidation or
into which the Issuer or the Company is merged or the Person which acquires by
transfer, assignment, conveyance, sale, lease or other disposition all or
substantially all of the properties and assets of the Issuer or the Company as
an entirety shall be a corporation, partnership or trust, shall be organized and
validly existing under the laws of England and Wales or of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume by an indenture supplemental to the Senior Notes Indenture executed and
delivered to the Trustee, in form satisfactory to the Trustee, in the case of
the Issuer, the due and punctual payment of the principal of (and premium, if
any), interest (including Special Interest, if any) and Additional Amounts, if
any, on all the Senior Notes and, in the case of the Company, all of its
obligations under the Guarantee and in each case the performance of every
covenant of the Senior Notes Indenture on the part of the Issuer or the Company,
as the case may be, to be performed or observed; (3) the Issuer or the successor
to the Issuer will have an Annualized Consolidated Debt to Cash Flow Ratio for
the quarter next preceding such transaction for which quarterly financial
statements are available (determined on a pro forma basis giving effect to the
proposed transaction as if it had taken place at the beginning of such quarter)
equal to or less than the Annualized Consolidated Debt to Cash Flow Ratio of the
Issuer without giving effect to the proposed transaction; provided further that
if the Annualized Consolidated Debt to Cash Flow Ratio of the Issuer immediately
preceding such transaction is 7.0:1 or less, then the Annualized Consolidated
Debt to Cash Flow Ratio of the Issuer or its successor after giving pro forma
effect to such transaction may be up to 0.5:1 greater than such ratio
immediately prior to such transaction; (4) if, as a result of any such
transaction, property or assets of the Issuer or any Subsidiary of the Issuer
would become subject to a Lien prohibited by the provisions of the Senior Notes
Indenture described under "Limitation on Liens" above, and the Issuer or the
successor entity to the Issuer shall have secured the Senior Notes as required
by that covenant; (5) such transaction would not result in the loss of a
Material License (which for this purpose will be determined on a pro forma
basis, giving effect to such transaction); and (6) the Issuer or the Company, as
the case may be, shall have delivered to the Trustee an officers' certificate
and an opinion of counsel each stating that such consolidation, merger,
transfer, lease or disposition and the supplemental indenture comply with the
Senior Notes Indenture.
EVENTS OF DEFAULT
The following will be Events of Default under the Senior Notes Indenture:
(a) failure to pay principal of (or premium, if any, on) any Senior Note at its
Maturity; (b) failure to pay any interest (including Special Interest, if any)
or Additional Amounts on any Senior Note when due, continued for 30 days; (c)
default in the payment of principal of and interest on and any other amounts
payable under Senior Notes required to be purchased pursuant to an Offer to
Purchase as described under the captions "--Change of Control" and "--Limitation
on Certain Asset Dispositions"; (d) failure to perform or comply with the
provisions described under "--Mergers, Consolidations and Certain Sales of
Assets"; (e) failure by the Issuer or the Company to perform any other covenant
under the Senior Notes Indenture or the Senior Notes continued for 30 days after
written notice to the Issuer or the Company as the case may be by the Trustee or
holders of at least 25% in aggregate principal amount of Outstanding Sterling
Senior Notes or Outstanding Dollar Senior Notes; (f) default under the terms of
any instrument evidencing or securing Debt by the Company, the Issuer or any
Significant Restricted Subsidiary of either which results in the acceleration of
the payment of principal amount in excess of pounds sterling 5 million or which
shall constitute the failure to pay any portion in excess of pounds sterling 5
million of principal or similar amount when due and payable after the expiration
of any applicable grace period; (g) the rendering of a final judgment or
judgments against the Company, the Issuer or any Significant Restricted
Subsidiary of either in an amount in excess of pounds sterling 5 million which
remains undischarged or unstayed for a period of 60 days after the date on which
the right to appeal has expired; and (h) certain events of bankruptcy,
insolvency or reorganization affecting the Company, the Issuer or any
Significant Restricted Subsidiary of either.
Subject to the provisions of the Senior Notes Indenture relating to the
duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee is under no obligation to exercise any of its rights or
powers under the Senior Notes Indenture at the request or direction of any of
the holders, unless such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the holders of a majority in aggregate principal amount of the Outstanding
Senior Notes have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee.
If an Event of Default (other than an Event of Default described in Clause
(h) above) occurs and is continuing, then either the Trustee or the holders of
at least 25% in aggregate principal amount of the Outstanding Sterling Senior
Notes or Outstanding Dollar Senior Notes may accelerate the maturity of all
such Senior Notes; provided, however, that
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after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of such Outstanding
Sterling Senior Notes or Outstanding Dollar Senior Notes, as the case may be,
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal, have
been cured or waived as provided in the Senior Notes Indenture. If an Event of
Default specified in Clause (h) above occurs, the Outstanding Senior Notes will
ipso facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any holder. For information as to waiver of
defaults, see "--Modification and Waiver".
No holder of any Senior Note shall have any right to institute any
proceeding with respect to the Senior Notes Indenture or for any remedy
thereunder, unless such holder shall have previously given to the Trustee
written notice of a continuing Event of Default and unless also the holders of
at least 25% in aggregate principal amount of the Outstanding Sterling Senior
Notes or Outstanding Dollar Senior Notes, as the case may be, shall have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as trustee, and the Trustee shall not have received from the
holders of a majority in aggregate principal amount of such Outstanding Senior
Notes a direction inconsistent with such request and shall have failed to
institute such proceeding within 60 days. However, such limitations do not
apply to a suit instituted by a holder of a Senior Note for enforcement of
payment of the principal of and premium, if any, or interest on, or any other
amounts payable under, such Senior Note on or after the respective due dates
(or, in the case of a redemption, the Redemption Dates or, in the case of an
Offer to Purchase, the Purchase Date) expressed in or established pursuant to
the terms of such Senior Note and Senior Notes Indenture.
The Issuer is required to furnish to the Trustee annually a statement as
to the performance by it of certain of its obligations under the Senior Notes
Indenture and as to any default in such performance.
DEFEASANCE
The Senior Notes Indenture provides that (A) if applicable, the Issuer and
the Company will be discharged from any and all obligations in respect of the
Outstanding Senior Notes other than certain obligations to transfer the Senior
Notes, or (B) if applicable, the Issuer and the Company may omit to comply with
certain restrictive covenants, and certain events will cease to be Events of
Default under the Senior Notes Indenture and the Senior Notes, in either case
(A) or (B), upon irrevocable deposit with the Trustee, in trust, of money and/or
U.S. Government Obligations which will provide money in an amount sufficient to
pay the principal of and premium, if any, and each installment of interest
(including Special Interest), if any, on the Outstanding Senior Notes. With
respect to Clause (B), the obligations under the Senior Notes Indenture other
than with respect to certain covenants and Events of Default will remain in full
force and effect. Such trust may only be established if, among other things (i)
with respect to Clause (A), (1) the Issuer or the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or there has
been a change in law, which in the opinion of counsel provides that holders of
the Senior Notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to U.S. federal income tax on the same amount, in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred and (2) the Issuer or the Company has delivered to
the Trustee an opinion of counsel to the effect that, under the law in effect at
the time of such deposit, payments made from the defeasance trust would not
require the payment of Additional Amounts if the provisions of the Senior Notes
Indenture described under "--Payment of Additional Amounts" above were
applicable to such payments; or, with respect to Clause (B), the Issuer or the
Company has delivered to the Trustee (1) an opinion of counsel (which may be
based on an Internal Revenue Service ruling) to the effect that the holders of
the Senior Notes will not recognize gain or loss for U.S. federal income tax
purposes as a result of such deposit and defeasance and will be subject to U.S.
federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and defeasance had not occurred and
(2) an opinion of counsel to the effect that, under the law in effect at the
time of such deposit, payments made from the defeasance trust would not require
the payment of Additional Amounts if the provisions of the Senior Notes
Indenture described under "--Payment of Additional Amounts" above were
applicable to such payments; (ii) no Event of Default or event that with the
passing of time or the giving of notice, or both, shall constitute an Event of
Default shall have occurred or be continuing on the date of such deposit or,
insofar as an Event of Default described in Clause (h) under "--Events of
Default," at any time during the period ending on the 121st day after the date
of such deposit; (iii) the Issuer or the Company has delivered to the Trustee an
opinion of counsel to the effect that such deposit shall not cause the Trustee
or the trust so created to be subject to the Investment Company Act of 1940; and
(iv) certain other customary conditions precedent are satisfied.
GOVERNING LAW
The Senior Notes Indenture and the Senior Notes will be governed by the
laws of the State of New York.
MODIFICATION AND WAIVER
From time to time the Issuer and the Company, when authorized by
resolutions of their respective Board of Directors, and the Trustee, without
the consent of the holders of the Senior Notes, may amend, waive or supplement
the Senior Notes Indenture or the Senior Notes for certain specified purposes,
including, among other things, curing
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ambiguities, defects or inconsistencies, maintaining the qualification of the
Senior Notes Indenture under the Trust Indenture Act or making any change that
does not adversely affect the rights of any holder.
Modifications and amendments of the Senior Notes Indenture affecting either
the Sterling Senior Notes or the Dollar Senior Notes may be made by the Issuer,
the Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of such Outstanding Sterling Senior Notes or
Outstanding Dollar Senior Notes, as the case may be; provided, however, that no
such modification or amendment may, without the consent of the holder of each
Outstanding Senior Note affected thereby, (a) change the Stated Maturity of the
principal of or any installment of interest (including Special Interest, if any)
or Additional Amounts on any Senior Note, (b) reduce the principal amount of,
(or the premium) or interest (including Special Interest, if any) or Additional
Amounts on any Senior Note, (c) change the place or currency of payment of
principal of (or premium) or interest (including Special Interest, if any) or
Additional Amounts on any Senior Note, (d) impair the right to institute suit
for the enforcement of any payment on or after the Stated Maturity thereof (or
Redemption Date, in the case of redemption, or Purchase Date, in the case of an
Offer to Purchase), (e) reduce the above-stated percentage of Outstanding Senior
Notes necessary to modify or amend the Senior Notes Indenture, (f) reduce the
percentage of principal amount of Outstanding Senior Notes necessary for waiver
of compliance with certain provisions of the Senior Notes Indenture or for
waiver of certain defaults, (g) modify certain provisions of the Senior Notes
Indenture relating to the modification of the Senior Notes Indenture or the
waiver of past defaults or covenants, except as otherwise specified or (h)
following the mailing of any Offer to Purchase, modify any Offer to Purchase for
the Senior Notes required as described under the caption "--Limitation on
Certain Asset Dispositions" and "-- Change of Control" in a manner materially
adverse to the holders thereof.
The holders of not less than a majority in aggregate principal amount of
the Outstanding Sterling Senior Notes or Outstanding Dollar Senior Notes, as
the case may be, on behalf of all holders of such Senior Notes, may waive
compliance by the Issuer and the Company with certain restrictive provisions
and covenants of the Senior Notes Indenture affecting such Sterling Senior
Notes or Dollar Senior Notes. Subject to certain rights of the Trustee, as
provided in the Senior Notes Indenture, the holders of not less than a majority
in aggregate principal amount of the Outstanding Sterling Senior Notes or
Outstanding Dollar Senior Notes, on behalf of all holders of such Senior Notes,
may waive any past default under the Senior Notes Indenture affecting such
Sterling Senior Notes or Dollar Senior Notes, except a default in the payment
of principal, premium or interest or in respect of a covenant or provision that
cannot be modified or amended without the consent of the holder of each
Outstanding Senior Note.
REPORTS
The Issuer shall deliver to the Trustee, within 15 days after it files
them with the Commission, copies of the Issuer's (or, if no such separate
documents exist, the Company's) annual report and of the information, documents
and other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Issuer (or, if no
such obligation exists, the Company) is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act within the time periods
prescribed under such rules and regulations. Notwithstanding that the Issuer
(or the Company) may not be required to remain subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on
an annual and quarterly basis on forms provided for such annual and quarterly
reporting pursuant to rules and regulations promulgated by the Commission, the
Senior Notes Indenture requires the Issuer (or the Company) to continue to file
with the Commission and provide to the Trustee such annual and interim reports
on Forms 10-K and 10-Q, respectively, as the Issuer (or the Company) would be
required to file were it subject to such reporting requirements within the time
periods prescribed under such rules and regulations. The Issuer (or the
Company) shall not be obligated to file any such reports with the Commission if
the Commission does not permit such filings but shall remain obligated to
provide such reports to the Trustee.
THE TRUSTEE
The duties and responsibilities of the Trustee are those provided by the
Trust Indenture Act. Notwithstanding the foregoing, the Senior Notes Indenture
does not require the Trustee to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its duties under the Senior
Notes Indenture, or in the exercise of any of its rights or powers, if it has
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk of liability is not reasonably assured to it.
The Trustee is permitted to engage in other transactions with the Issuer,
or any Affiliate (including the Company), provided, however, that if it
acquires any conflicting interest (as defined in the Trust Indenture Act), it
must eliminate such conflict or resign.
No Personal Liability of Directors, Employees and Shareholders
No director, officer, employee, incorporator or shareholder of the Issuer
or the Company shall have any liability, as such for any obligations of the
Issuer or the Company under the Senior Notes or the Senior Notes Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of the Senior Notes by accepting a Senior Note
waives and releases all such liability; provided that such waiver will not
release any person
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from liability for fraud or criminal acts. The waiver and release are part of
the consideration for issuance of the Senior Notes. Such waiver and release may
not be effective to waive liabilities under English law or under the U.S.
Federal securities laws and it is the view of the Commission that such waiver
and release is against public policy.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Senior
Notes Indenture. Reference is made to the Senior Notes Indenture for the full
definition of all such terms, as well as any other terms used herein for which
no definition is provided. All accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein described, the term
"generally accepted accounting principles" with respect to any computation
required or permitted under the Senior Notes Indenture means accounting
principles as are generally accepted in the United States as consistently
applied by the Issuer at the date of the Senior Notes Indenture.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Consolidated Debt to Cash Flow Ratio" for any Person means for
any fiscal quarter the ratio of (i) Total Consolidated Debt of such Person as
of the end of such fiscal quarter to (ii) Consolidated Operating Cash Flow of
such Person for such fiscal quarter multiplied by four.
"Asset Acquisition" means (i) any capital contribution (including without
limitation by means of transfers of cash or other property to others or
payments for property or services for the account or use of others) by the
Issuer or any Restricted Subsidiary in any other Person (including, for the
avoidance of doubt, a prospective licensee that subsequently acquires a license
to operate a cable television and/or telephone and/or telecommunications
system), or any acquisition or purchase of equity interests in any other Person
by the Issuer or any Restricted Subsidiary, in either case pursuant to which
such Person shall become a Restricted Subsidiary or shall be merged with or
into the Issuer or any Restricted Subsidiary or (ii) any acquisition by the
Issuer or any Restricted Subsidiary of the assets of any Person which
constitute substantially all of an operating unit or line of business of such
Person or which is otherwise outside of the ordinary course of business.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Issuer or any of its Restricted Subsidiaries (including by
way of consolidation or merger) resulting in Net Available Proceeds in excess of
pounds sterling 250,000 of (i) shares or other ownership interest of a
Subsidiary of the Issuer, (ii) substantially all of the assets of the Issuer or
any Subsidiary representing a division or line of business, or (iii) other
assets or rights outside of the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable, and at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the initial term thereof as determined in
accordance with generally accepted accounting principles, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capital Lease
Obligation with like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any such lease for
any such period shall be the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges. In the case of any lease which is terminable by the lessee
upon the payment of a penalty, such net amount shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Cable Acquisition" means an Asset Acquisition of properties or assets to
be used in a Cable Business or of equity interests in any Person that becomes a
Restricted Subsidiary or, subject to the covenant described under "-- Certain
Covenants --Limitation on Restricted Payments" above, a Non-Restricted
Subsidiary as a result of such Asset Acquisition, provided that such Person's
assets and properties consist principally of properties or assets that will be
used in a Cable Business.
"Cable Business" means any business operating a cable television and/or
telephone and/or telecommunications system or any business reasonably related
thereto, including, without limitation, the production or provision of
programming as well as any business conducted by the Company, the Issuer or any
Restricted Subsidiary on the date on which the Senior Notes are first issued.
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"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property which is required to be classified
and accounted for as a capital lease or a liability on the face of a balance
sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Cash Equivalent" means, at any time, (i) any evidence of Debt issued or
directly and fully guaranteed or insured by the government of an Approved
Jurisdiction or any agency or instrumentality thereof (provided that the full
faith and credit of the relevant Approved Jurisdiction is pledged in support
thereof); (ii) certificates of deposit or acceptances of any financial
institution that has combined capital and surplus and undivided profits of not
less than $50,000,000 (or the equivalent thereof in another currency) and has a
long term debt rating of at least "AA" by Standard & Poor's Corporation or at
least "Aa3" by Moody's Investor Service or if not rated by either of those
rating agencies the equivalent rating from another Approved Rating Agency;
(iii) commercial paper issued by a corporation organized under the laws of any
Approved Jurisdiction and rated at least A-1 by Standard & Poor's Corporation
or at least P-1 by Moody's Investor Service or if not rated by either of those
rating agencies the equivalent rating from another Approved Rating Agency; (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the government of an
Approved Jurisdiction; and (v) any other investment, instrument or cash
balance, provided, that in each of clauses (i) through (v) above such
instrument shall be considered a Cash Equivalent within the meaning of this
definition only to the extent that such instrument would have been classified
as a "cash equivalent" in accordance with the accounting principles applied to
the Issuer's audited consolidated balance sheet as of December 31, 1996.
"Approved Jurisdiction" means the United States of America, Canada, the United
Kingdom and any other member nation of the Organization for Economic
Cooperation and Development. "Approved Rating Agency" means Standard & Poor's
Corporation, Moody's Investor Service and any other recognized rating agency
that provides or assigns credit rating for debt securities similar to the
Senior Notes and that shall have been approved by the Trustee upon the written
request of the Issuer or the Company from time to time.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person as charged in arriving
at Consolidated Net Income for such period.
"Consolidated Interest Expense" of any Person means for any period the
interest expense (without deducting interest income) of such Person for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of) (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities; (iii) fees with respect to interest rate swap
or similar agreements or foreign currency hedge, exchange or similar agreements;
(iv) Preferred Stock dividends (other than in respect of Preferred Stock held by
such Person or a Wholly Owned Subsidiary of such Person) declared and payable in
such period in cash; and (v) the portion of any rental obligation allocable to
interest expense under generally accepted accounting principles.
"Consolidated Net Income" of any Person means for any period the net
income (or loss) of such Person for such period determined on a consolidated
basis in accordance with generally accepted accounting principles; provided
that there shall be excluded therefrom (a) the net income (or loss) of any
Person acquired by such Person or a subsidiary of such Person in a transaction
accounted for under the pooling-of-interests method for any period prior to the
date of such transaction, (b) the net income (but not the net loss) of any
Restricted Subsidiary of such Person which is subject to restrictions which
prevent the payment of dividends or the making of distributions (by loans,
advances, intercompany transfers or otherwise) to such Person to the extent of
such restrictions, (c) the net income (or loss) of any Person that is not a
Consolidated Subsidiary of such Person except to the extent of the amount of
dividends or other distributions actually paid to a member of the Restricted
Group by such other Person during such period, (d) gains or losses on Asset
Dispositions and (e) all extraordinary gains and extraordinary losses.
"Consolidated Operating Cash Flow" of any Person means for any period (a)
the sum of (i) Consolidated Net Income for such period; (ii) Consolidated
Interest Expense for such period; (iii) Consolidated Income Tax Expense for such
period; (iv) the depreciation and amortization expense included in the
consolidated income statement of such Person for such period; and (v) other
non-cash charges (other than trading and operating items in the ordinary course
of business) deducted from consolidated revenues in determining Consolidated Net
Income for such period (including any foreign currency translation losses),
minus (b) non-cash items (other than trading and operating items in the ordinary
course of business) increasing consolidated revenues in determining Consolidated
Net Income for such period (including any foreign currency translation gains).
"Consolidated Subsidiaries" of any Person means all Subsidiaries and other
equity investees of such Person that would be accounted for on a consolidated
basis in such Person's financial statements in accordance with generally
accepted accounting principles.
"Consolidated Tangible Assets" of any Person means the total assets of
such Person and its Restricted Subsidiaries consolidated, as determined in
accordance with generally accepted accounting principles, less (i) the net book
value of all its licenses, patents, patent applications, copyrights,
trademarks, trade names, goodwill, non-compete
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agreements or organizational expenses and other like intangibles, (ii)
unamortized Debt discount and expense, (iii) all reserves for depreciation,
obsolescence, depletion and amortization of its properties and (iv) all other
proper reserves which in accordance with generally accepted accounting
principles should be provided in connection with the business conducted by such
Person; provided that with respect to the Issuer and its Consolidated
Subsidiaries, adjustments following the date of the Senior Notes Indenture to
the accounting books and records of the Issuer and its Consolidated Subsidiaries
in accordance with Accounting Principles Board Opinions Nos. 16 and 17 (or
successor opinions thereto), or otherwise resulting from the acquisition of
control of the Issuer by another Person shall not be given effect to.
"Currency Hedging Agreements" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Issuer or any of its Restricted Subsidiaries against fluctuations in currency
values to the extent relating to (i) Debt and/or (ii) obligations to purchase
assets, properties or services incurred in the ordinary course of business and
not for speculative purposes; provided that such Currency Hedging Agreements do
not increase the Debt or other obligations of the Issuer and its Subsidiaries
outstanding other than as a result of fluctuations in foreign currency exchange
rates or by reason of fees, indemnities and compensation payments thereunder.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations Incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every Capital Lease Obligation of such Person, (vi) every net
obligation under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person at the time of
determination and (vii) every obligation of the type referred to in Clauses (i)
through (vi) of another Person and all dividends of another Person the payment
of which, in either case, such Person has Guaranteed or is responsible or
liable for, directly or indirectly, as obligor, Company or otherwise; provided
that Trade Obligations are excluded from the definition of Debt.
"Disqualified Equity" of any Person means any Equity Security of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final stated maturity of the Senior
Notes.
"Equity Homes" means the product of (i) the number of homes in a franchise
area, as set forth in the cable television or telecommunications licenses
relating to such franchise area, and (ii) the percentage of the entity holding
such licenses which is owned directly or indirectly by the Issuer or the
Company, as the case may be.
"Equity Securities" of any Person means any shares, interests,
participations or other equivalents of corporate stock or other equity or
capital interests of such Person, including, without limitation, partnership
interests.
"guarantee" by any Person means any obligation, contingent or otherwise,
of such Person guaranteeing any Debt of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Debt, (ii) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or (iii) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
such Debt (and "guaranteed", "guaranteeing" and "Company" shall have meanings
correlative to the foregoing); provided, however, that the guarantee by any
Person shall not include endorsements by such Person for collection or deposit,
in either case, in the ordinary course of business, and shall not include
guarantees in the nature of, or in respect of, Trade Obligations.
"Guarantees" means any Guarantees of the Company endorsed on securities
authenticated and delivered pursuant to the Indenture and shall include the
form of Guarantee set forth in Section 206.
"Company" means the Person named as the "Company" in the first paragraph
of the Senior Notes Indenture until a successor Person shall have become such
pursuant to the applicable provisions of such Indenture and thereafter
"Company" shall mean such successor Person.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other
obligation (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing); provided, however, that a change
in generally accepted accounting principles that results in an obligation of
such Person that exists at such time becoming Debt shall not be deemed an
Incurrence of such Debt.
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"Interest Rate Protection Obligation" of any Person means any interest rate
swap agreement or other similar interest rate financial agreement or arrangement
designed to protect such Person against fluctuations in interest rates and
pursuant to which such Person is obligated or may become obligated to make
payments; provided that where such agreement or arrangement hedges Debt, it is
with respect to a notional principal amount that does not exceed the principal
amount of the Debt to which such Interest Rate Protection Obligation relates.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to any other Person (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Equity Securities, bonds, notes, debentures or other securities
or evidence of Debt issued by any other Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Material License" means a direct or indirect ownership interest in a
license to operate a cable television or a cable telephone system held by the
Issuer or any of its Restricted Subsidiaries or the Company or any of its
Restricted Subsidiaries, as the case may be, which license at the time of
determination covers a number of Equity Homes which equals or exceeds 10% of the
aggregate number of Equity Homes covered by all of the licenses to operate cable
television or cable telephone systems in which the Issuer or its Restricted
Subsidiaries or the Company or any of its Restricted Subsidiaries, as the case
may be, holds a direct or indirect ownership interest at such time.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash and readily marketable cash equivalents received (including by way of sale
or discounting of a note, instalment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other non-cash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (ii) all
payments made by such Person or its Subsidiaries on any Debt which is secured by
a Lien on such assets or on shares of the Person owning such assets in
accordance with the terms of any Lien upon or with respect to such assets or
which must be repaid out of the proceeds from such Asset Disposition under the
terms of such Debt or Lien, in order to obtain a necessary consent to such Asset
Disposition or by applicable law, and (iii) all distributions and other payments
made to minority interest holders in Subsidiaries of such Person or joint
ventures as a result of such Asset Disposition provided that minority holders
receive distributions and payments that are in the Issuer's good faith judgment
comparable in kind to that received by the Issuer or a Restricted Subsidiary.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
none of the Issuer, nor any of its Restricted Subsidiaries (a) provides credit
support (including any undertaking, agreement or instrument which would
constitute Debt); (b) is directly or indirectly liable; or (c) constitutes the
lender; and (ii) no default with respect to which (including any rights which
the holders thereof may have to take enforcement action against a
Non-Restricted Subsidiary) would permit (upon notice, lapse of time or both)
any holders of any other Debt of the Issuer or any of its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Non-Restricted Subsidiary" of a Person means a Subsidiary of such Person
that (i) at the time of its designation as a Non-Restricted Subsidiary has not
acquired any assets (unless the acquisition of such assets constitutes a
Restricted Payment permitted by the "--Certain Covenants --Limitation on
Restricted Payments" covenant), at any previous time, directly or indirectly
from such Person or any of its Subsidiaries and (ii) has no Debt other than Debt
that is, with respect to such Person, Non-Recourse Debt (unless the extent to
which such Person is the lender for, or is responsible for such Debt,
constitutes a Restricted Payment permitted by the "--Certain Covenants
- --Limitation on Restricted Payments" covenant); provided, however, that at the
time of such designation, after giving pro forma effect to such designation, the
Annualized Consolidated Debt to Cash Flow Ratio of such Person is equal to or
less than the Annualized Consolidated Debt to Cash Flow Ratio of such Person
immediately preceding such designation; provided, further, that if the
Annualized Consolidated Debt to Cash Flow Ratio of the Issuer immediately
preceding such designation is 7.0:1 or less, the Annualized Consolidated Debt to
Cash Flow Ratio of the Issuer after giving pro forma effect to such designation
may be up to 0.5:1 greater than such ratio immediately preceding such
designation. No Restricted Subsidiary may be redesignated as a Non-Restricted
Subsidiary unless at the time of such redesignation the provisions in Clauses
(i) and (ii) in this definition are currently met and the Board of Directors of
such Person has passed a certified resolution, delivered to the Trustee, to such
effect.
"Offer to Purchase" means a written offer (the "Offer") sent by the Issuer
by first class mail, postage prepaid, to each holder at his address, appearing
in the Security Register on the date of the Offer or provided to the Trustee by
such holder, offering to purchase up to the principal amount of Senior Notes
specified in such Offer at the purchase price
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specified in such Offer (as determined pursuant to this Senior Notes Indenture).
Unless otherwise required by applicable law, the Offer shall specify an
expiration date (the "Expiration Date") of the Offer to Purchase which shall be,
subject to any contrary requirements of applicable law, not less than 30 days or
more than 60 days after the date of such Offer and a settlement date (the
"Purchase Date") for purchase of Senior Notes within five Business Days after
the Expiration Date. The Issuer shall notify the Trustee at least 15 Business
Days (or such shorter period as is acceptable to the Trustee) prior to the
mailing of the Offer of the Issuer's obligation to make an Offer to Purchase,
and the Offer shall be mailed by the Issuer or, at the Issuer's request, by the
Trustee in the name and at the expense of the Issuer. The Offer shall contain
information concerning the business of the Company, the Issuer and its
Subsidiaries which the Issuer in good faith believes will enable such holders to
make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed with the
Trustee as described under the caption "--Reports" (which requirements may be
satisfied by delivery of such documents together with the Offer), (ii) a
description of material developments in the Company's and the Issuer's business
subsequent to the date of the latest of such financial statements referred to in
Clause (i) (including a description of the events requiring the Issuer to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the Issuer
to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein. The Offer shall contain all instructions
and materials necessary to enable such holders to tender Senior Notes pursuant
to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Senior Notes Indenture pursuant to which the
Offer to Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Senior Notes
offered to be purchased by the Issuer pursuant to the Offer to Purchase
(including, if less than all Outstanding Senior Notes, the manner by which
such amount has been determined pursuant to the Section of the Senior
Notes Indenture requiring the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Issuer for each pounds
sterling 1,000 aggregate principal amount (in the case of the Sterling
Senior Notes) and $1,000 principal amount (in the case of the Dollar
Senior Notes) of Senior Notes accepted for payment (as specified pursuant
to the Senior Notes Indenture) (the "Purchase Price");
(5) that the holder may tender all or any portion of the Senior
Notes registered in the name of such holder and that any portion of a
Senior Note tendered must be tendered in an integral multiple of pounds
sterling 1,000 principal amount (in the case of the Sterling Senior Notes)
and $1,000 principal amount (in the case of the Dollar Senior Notes);
(6) the place or places where Senior Notes are to be surrendered
for tender pursuant to the Offer to Purchase;
(7) that interest on any Senior Note not tendered or tendered but
not purchased by the Issuer pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the Purchase Price will become due
and payable upon each Senior Note being accepted for payment pursuant to
the Offer to Purchase and that interest thereon shall cease to accrue on
and after the Purchase Date;
(9) that each holder electing to tender a Senior Note pursuant to
the Offer to Purchase will be required to surrender such Senior Note at
the place or places specified in the Offer prior to the close of business
on the Expiration Date (such Senior Note, if a Registered Senior Note,
being, if the Issuer or the Trustee so requires, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to
the Issuer and the Trustee duly executed by, the holder thereof or his
attorney duly authorized in writing);
(10) that holders will be entitled to withdraw all or any portion
of Senior Notes tendered if the Issuer (or its Paying Agent) receives,
not later than the close of business on the Expiration Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Senior Note the holder tendered, the
certificate number of the Senior Note the holder tendered and a statement
that such holder is withdrawing all or a portion of his tender;
(11) that (a) if Senior Notes in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Issuer shall purchase all such
Senior Notes and (b) if Senior Notes in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn pursuant to
the Offer to Purchase, the Issuer shall purchase Senior Notes having an
aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments
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as may be deemed appropriate so that only Senior Notes in denominations of
pounds sterling 1,000 or $1,000 (as the case may be) or integral multiples
thereof shall be purchased); and
(12) that in case of any holder whose Senior Note is purchased only
in part, the Issuer shall execute, and the Trustee shall authenticate and
deliver to the holder of such Senior Note without service charge, a new
Senior Note or Senior Notes of the same type, of any authorized
denomination as requested by such holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the Senior
Note so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with
the Offer for such Offer to Purchase.
"Permitted Holder" means the Company, any of its Wholly Owned Subsidiaries
and European Cable Capital Partners L.P., a limited partnership organized under
the laws of Delaware, and any of its partners existing on the date of the
Senior Notes Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement, dated February 6, 1998, among the Issuer, the Company and the
Purchasers.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Common Equity of such Person or (b) 5%
or more of the Voting Interest of such Person.
"Restricted Group" means the Issuer together with its Restricted
Subsidiaries.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
other than a Non-Restricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which
has been or is being sold or transferred by such Person more than 365 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"Significant" means, with respect to any Subsidiary or Restricted
Subsidiary, a Subsidiary or Restricted Subsidiary that qualifies as a
"significant subsidiary" under Rule 1-02 of the Commission's Regulation S-X.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Interest of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Total Consolidated Debt" means, at any date of determination, an amount
equal to the aggregate amount of all Debt of the Issuer and its Restricted
Subsidiaries outstanding as of the date of determination, determined on a
consolidated basis.
"Trade Obligation" means (i) obligations to pay the purchase price of
assets or services purchased in the ordinary course of business including,
without limitation, obligations incurred in respect of any documentary letter
of credit or bill of exchange issued in respect of any such purchase; (ii)
obligations in respect of any bill of exchange or promissory note drawn, or
accepted, issued or endorsed in the ordinary course of business, including,
without limitation, indebtedness in respect of any monies raised by way of
sale, discounting or otherwise in respect of any such bill or note; and (iii)
obligations in respect of any guarantee of any obligation of the type specified
in Clause (i) or (ii) above, except to the extent that such obligation is
treated as indebtedness under generally accepted accounting principles.
"Voting Interest" of any Person means Equity Securities of such Person
which ordinarily have voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Disqualified Equity, the quotient obtained by dividing
(i) the sum of the products of the numbers of years from the date of
determination to
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the dates of each successive scheduled principal payments of such Debt or
redemption or repurchase payments on such Disqualified Equity and the amount of
such principal payments or redemption or repurchase payments, by (ii) the sum
of all such principal value or redemption or repurchase payments.
"Wholly Owned" with respect to any Subsidiary or Restricted
Subsidiary of any Person means a Subsidiary (or a Restricted Subsidiary) of
such Person all of the outstanding Equity Securities or other ownership
interests of which (other than directors' qualifying shares) shall at the time
be owned by such Person or by one or more Wholly Owned Subsidiaries (or
Restricted Subsidiaries) of such Person or by such Person and one or more
Wholly Owned Subsidiaries (or Restricted Subsidiaries) of such Person.
DESCRIPTION OF GUARANTEE BY DIAMOND CABLE COMMUNICATIONS PLC
The Company will unconditionally and irrevocably guarantee the due and
punctual payment of the principal of and interest on and other amounts payable
under the Senior Notes, when and as the same shall become due and payable,
whether at the stated maturity, by declaration of acceleration, upon redemption
or otherwise. At the written request of a holder of a Senior Note, the Trustee
shall promptly furnish such holder with a copy of the Guarantee. The obligations
of the Company under the Guarantee will be direct, unsecured and unsubordinated
obligations of the Company and will rank pari passu with other existing and
future direct, unsecured and unsubordinated obligations of the Company,
including the Discount Notes. The Guarantee will effectively rank junior to any
secured indebtedness of the Company to the extent of the assets securing such
indebtedness and to any indebtedness of the Company's subsidiaries to the extent
of the assets of such subsidiaries.
DESCRIPTION OF BOOK-ENTRY SYSTEM
GENERAL
The Book-Entry Depositary will hold the Dollar Global Senior Notes for the
benefit of DTC and its Participants and the Sterling Global Senior Notes for the
benefit of Euroclear and Cedel and their Participants, in each case as
hereinafter described. Pursuant to the terms of the Deposit Agreement, the
Global Senior Notes may be transferred only to a successor of the Book-Entry
Depositary. Beneficial interests in the Dollar Global Senior Notes are shown on,
and transfers thereof are effected only through, records maintained in
book-entry form by DTC (with respect to its Participants' interests) and its
Participants. Beneficial interests in the Sterling Global Senior Notes are shown
on, and transfers thereof are effected only through, records maintained in
book-entry form by Euroclear and Cedel (with respect to their Participants'
interests) and their Participants. Such beneficial interests are referred to
herein as "Book-Entry Interests". Ownership of the Book-Entry Interests will be
limited to Participants and Indirect Participants of the respective clearing
agencies. Procedures with respect to the ownership of Book-Entry Interests are
set forth below.
Upon receipt of each Global Senior Note, the Book-Entry Depositary will
issue (i) in the case of the Dollar Senior Notes, a certificateless depositary
interest (which represents a 100% interest in the underlying Global Senior
Note) to DTC by recording such interest in the Book-Entry Depositary's books
and records in the name of Cede & Co., as nominee of DTC and (ii) in the case
of the Sterling Senior Notes, a certificated depositary interest (which
represents a 100% interest in the underlying Global Senior Note) to The Bank of
New York, as common depositary for Euroclear and Cedel (the "Common
Depositary"), registered in the nominee name of the Common Depositary. Upon
such issuance, DTC, Euroclear or Cedel, as the case may be, will credit on
its book-entry registration and transfer system the Participants' accounts with
the respective interests owned by such Participants. Ownership of Book-Entry
Interests is shown on, and the transfer of such interests will be effected only
through, records maintained by DTC, Euroclear or Cedel and their respective
Participants (with respect to interests of Indirect Participants). The laws of
some countries and some states in the United States may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and such laws may impair the ability to own,
transfer or pledge the Book-Entry Interests.
Initially, investors may hold their Book-Entry Interests in the Dollar
Regulation S Global Note only through Cedel or Euroclear as Participants in
DTC, either directly, if such investors are account holders in Cedel or
Euroclear, or indirectly, through organizations which are account holders in
Cedel or Euroclear. After the expiration of the Restricted Period (as defined
below) but not earlier, investors may also hold such interests through
organizations other than Cedel and Euroclear that are Participants in DTC.
Cedel and Euroclear will hold such interests on behalf of their account holders
through securities accounts in their respective names on the books of their
respective depositaries, which, in turn, will hold such interests in securities
accounts in the depositaries' names on the books of DTC.
All interests in the Dollar Senior Notes, including those held through
Euroclear or Cedel, will be subject to the procedures and requirements of DTC.
Those interests, if held through Euroclear or Cedel, will also be subject to
the procedures and requirements of such system. All interests in the Sterling
Senior Notes will be subject to the procedures and requirements of Euroclear or
Cedel, as the case may be.
So long as the Book-Entry Depositary, or its nominee, is the holder of the
Global Senior Notes, the Book-Entry Depositary or such nominee, as the case may
be, will be considered the sole holder of such Global Senior Notes for all
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purposes under the Senior Notes Indenture. Except as set forth above under
"--Form of the Senior Notes", Participants or Indirect Participants are not
entitled to have Senior Notes or Book-Entry Interests registered in their
names, will not receive or be entitled to receive physical delivery of Senior
Notes or Book-Entry Interests in definitive form and will not be considered the
owners or holders thereof under the Senior Notes Indenture. Accordingly, each
person owning a Book-Entry Interest must rely on the procedures of the
Book-Entry Depositary and DTC, Euroclear or Cedel, as the case may be, and, if
such person is not a Participant in DTC, Euroclear or Cedel, as the case may
be, on the procedures of the Participant in DTC, Euroclear or Cedel, as the
case may be, through which such person owns its interest, to exercise any
rights and remedies of a holder under the Senior Notes Indenture. See
"--Actions by Owners of Book-Entry Interests" below. If any definitive Senior
Notes are issued to Participants or Indirect Participants, they will be issued
in registered form ("Definitive Registered Notes"), as described under "--Form
of the Senior Notes". Unless and until Book-Entry Interests are exchanged for
Definitive Registered Notes (as described under "--Form of the Senior Notes"),
the depositary interest held by DTC may not be transferred except as a whole by
DTC to its nominee or by its nominee to DTC or another nominee of DTC or by DTC
or any such nominee to a successor of DTC or a nominee of such successor, and
the depositary interest held by the Common Depositary may not be transferred
except as a whole by Euroclear or Cedel to the Common Depositary or by the
Common Depositary to Euroclear or Cedel, respectively, or another nominee of
Euroclear and Cedel or by Euroclear and Cedel or any such nominee to a
successor of Euroclear or Cedel or a nominee of such successor.
Although DTC, Euroclear and Cedel have agreed to certain procedures to
facilitate transfers of Book-Entry Interests in the Dollar Senior Notes among
participants of DTC and account holders of Euroclear and Cedel, they are under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Issuer, the Trustee,
the Book-Entry Depositary or any agent of the Issuer or the Trustee or the
Book-Entry Depositary have any responsibility or liability for any aspect of
the records relating to or payments made on account of Book-Entry Interests or
for maintaining, supervising or reviewing any records relating to such
Book-Entry Interests.
PAYMENTS ON THE GLOBAL SENIOR NOTES
Payments of any amounts owing in respect of the Global Senior Notes will
be made through one or more paying agents (the "Paying Agents") appointed under
the Senior Notes Indenture (which initially will include the Trustee) to the
Book-Entry Depositary, as the holder of the Global Senior Notes. Upon receipt
of any such amounts, the Book-Entry Depositary will pay such amounts in respect
of Dollar Senior Notes in dollars to DTC, and in respect of Sterling Senior
Notes in pounds sterling to Euroclear or Cedel, which will distribute such
payments to its respective Participants.
Payments of all such amounts will be made without deduction or withholding
for or on account of any present or future taxes, duties, assessments or
governmental charges of whatever nature except as may be required by law, and if
any such deduction or withholding is required to be made by any law or
regulation of the United Kingdom then, to the extent described under "--Payment
of Additional Amounts" above, such Additional Amounts will be paid as may be
necessary in order that the net amounts received by any holder of the Global
Senior Notes or owner of Book-Entry Interests after such deduction or
withholding will equal the net amounts that such holder or owner would have
otherwise received in respect of such Global Senior Note or Book-Entry Interest,
as the case may be, absent such withholding or deduction. DTC, Euroclear or
Cedel, as the case may be, upon receipt of any such payment, will immediately
credit Participants' accounts with payments in amounts proportionate to their
respective ownership of Book-Entry Interests, as shown on their records. The
Issuer expects that payments by Participants to owners of Book-Entry Interests
held through such Participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the account of customers in bearer form or registered in "street name",
and will be the responsibility of such Participants. In the event that DTC no
longer immediately credits Participants' accounts with U.S. dollar payments, the
Issuer will endeavor to cause payments of interest and principal to be paid in
U.S. dollars to be made by wire transfer to any owners of Book-Entry Interests
who so request whose aggregate ownership of Dollar Senior Notes exceeds $20
million in principal amount. In the event that Euroclear or Cedel no longer
immediately credit Participants' accounts with pounds sterling payments, the
Issuer will endeavor to cause payments of interest and principal to be paid in
pounds sterling to be made by wire transfer to any owners of Book-Entry
Interests who so request whose aggregate ownership of Sterling Senior Notes
exceeds pounds sterling 20 million in principal amount.
Because the provisions of the Senior Notes Indenture treat the holder of
the Global Senior Notes as the owner of the Senior Notes represented thereby for
the purpose of receiving amounts owing in respect of the Senior Notes, the
Issuer has no responsibility or liability for the payment of amounts owing in
respect of the depositary interests held by DTC or by the Common Depositary for
Euroclear and Cedel to owners of Book-Entry Interests representing interests in
the Global Senior Notes. Payments by DTC Participants or Euroclear or Cedel
Participants to owners of Book-Entry Interests held through such Participants
are the responsibility of such Participants as is now the case with securities
held for the account of customers in bearer form or registered in "street name".
None of the Issuer, the Trustee, the Book-Entry Depositary or any agent of
the Issuer or the Trustee or the Book-Entry Depositary has any responsibility
or liability for any aspect of the records relating to or payments made on
account of Book-Entry Interests or for maintaining, supervising or reviewing
any records relating to such Book-Entry Interests.
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INFORMATION CONCERNING DTC, EUROCLEAR AND CEDEL
The Issuer understands as follows with respect to DTC: DTC is a limited
purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. DTC was created to hold securities of its Participants and to
facilitate the clearance and settlement of transactions among its Participants
in such securities through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC Participants include securities brokers and dealers
(including the Purchasers), banks, trust companies, clearing corporations and
certain other organizations, some of whom (and/or their representatives) own
DTC. Access to the DTC book-entry system is also available to others, such as
banks, broker-dealers and trust companies, that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly.
The Issuer understands as follows with respect to Euroclear and Cedel:
Euroclear and Cedel each hold securities for their account holders and
facilitate the clearance and settlement of securities transactions by
electronic book-entry transfer between their respective account holders,
thereby eliminating the need for physical movements of certificates and any
risk from lack of simultaneous transfers of securities.
Euroclear and Cedel each provide various services including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Euroclear and Cedel each also deal with
domestic securities markets in several countries through established depository
and custodial relationships. The respective systems of Euroclear and Cedel have
established an electronic bridge between their two systems across which their
respective account holders may settle trades with each other.
Account holders in both Euroclear and Cedel are world-wide financial
institutions including underwriters, securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to both Euroclear
and Cedel is available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.
An account holder's overall contractual relations with either Euroclear or
Cedel are governed by the respective rules and operating procedures of
Euroclear or Cedel and any applicable laws. Both Euroclear and Cedel act under
such rules and operating procedures only on behalf of their respective account
holders, and have no record of or relationship with persons holding through
their respective account holders.
Because DTC, Euroclear and Cedel can only act on behalf of Participants,
who in turn act on behalf of Indirect Participants and certain banks, the
ability of an owner of a Book-Entry Interest to pledge such interest to persons
or entities that do not participate in the DTC, Euroclear or Cedel systems, or
otherwise take actions in respect of such interest, may be limited by the lack
of a definitive certificate for such interest. The laws of some countries and
some states in the United States require that certain persons take physical
delivery of securities in definitive form. Consequently, the ability to
transfer Book-Entry interests to such persons may be limited. In addition,
beneficial owners of Book-Entry Interests through the DTC system will receive
distributions attributable to the Dollar Global Senior Notes only through DTC
Participants and beneficial owners of Book-Entry Interests through Euroclear or
Cedel will receive distributions attributable to the Sterling Global Notes only
through Euroclear or Cedel Participants.
The Issuer understands that under existing industry practices, if either
the Issuer or Trustee requests any action of holders of Senior Notes or if an
owner of a Book-Entry Interest desires to give instructions or take any action
that a holder is entitled to give or take under the Senior Notes Indenture,
Euroclear, Cedel or DTC, as the case may be, would authorize their respective
Participants owning the relevant Book-Entry Interests to give instructions or
take such action, and such Participants would authorize Indirect Participants
to give instructions or take such action or would otherwise act upon the
instructions of such Indirect Participants.
REDEMPTION
In the event any Global Senior Note (or any portion thereof) is redeemed,
the Book-Entry Depositary will redeem, from the amount received by it in
respect of the redemption of any Global Senior Note, an equal amount of the
Book-Entry Interests. The redemption price payable in connection with the
redemption of Book-Entry Interests will be equal to the amount received by the
Book-Entry Depositary in connection with the redemption of the Global Senior
Notes (or any portion thereof). The Issuer understands that under existing
practices of DTC, Euroclear and Cedel, if less than all of the Dollar Senior
Notes are to be redeemed at any time, DTC will credit its Participants'
accounts on a proportionate basis (with adjustments to prevent fractions) or by
lot or on such other basis as DTC deems fair and appropriate; provided that no
beneficial interests of less than $1,000 principal amount may be redeemed in
part, and if less than all of the Sterling Senior Notes are to be redeemed at
any time, Euroclear or Cedel, as the case may be, will credit its Participants'
accounts on a proportionate basis (with adjustments to prevent fractions) or by
lot or on such other basis as Euroclear or Cedel, as the case may be, deems
fair and appropriate; provided that no beneficial interests of less than
pounds sterling 1,000 principal amount may be redeemed in part.
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TRANSFERS AND TRANSFER RESTRICTIONS
All transfers of Book-Entry Interests are recorded in accordance with the
book-entry system maintained by DTC, Euroclear or Cedel, as applicable, pursuant
to customary procedures established by each respective system and its
Participants.
ISSUANCE OF DEFINITIVE REGISTERED NOTES
Investors may, at their option, obtain Definitive Registered Notes as set
forth under "--Form of the Senior Notes". While a Global Senior Note is
outstanding, holders of Definitive Registered Notes may exchange their
Definitive Registered Notes for Book-Entry Interests in the applicable Global
Senior Notes by surrendering their Definitive Registered Notes to the Book-Entry
Depositary. The amount of the Book-Entry Interests will be increased or
decreased to reflect such transfers or exchanges. The Book-Entry Depositary will
request the Trustee to make the appropriate adjustments to the applicable Global
Senior Note or exchange such Global Senior Note for a new Global Senior Note in
an appropriate principal amount to reflect any such transfers or exchanges.
ACTION BY OWNERS OF BOOK-ENTRY INTERESTS
As soon as practicable after receipt by the Book-Entry Depositary of
notice of any solicitation of consents or request for a waiver or other action
by the holders of Sterling Senior Notes or Dollar Senior Notes, as the case may
be, or of any Offer to Purchase (as defined under "--Certain Definitions"
above), the Book-Entry Depositary will mail to DTC, Euroclear and Cedel a
notice containing (a) such information as is contained in such notice received
by the Book-Entry Depositary, (b) a statement that at the close of business on
a specified record date DTC, Euroclear and Cedel will be entitled to instruct
the Book-Entry Depositary as to the consent, waiver or other action, if any,
pertaining to such Senior Notes and (c) a statement as to the manner in which
such instructions may be given. In addition, the Book-Entry Depositary will
forward to DTC, Euroclear and Cedel, or, based upon instructions received from
DTC, Euroclear and Cedel, to owners of Book-Entry Interests, all materials
pertaining to any such solicitation, request, offer or other action. Upon the
written request of DTC, Euroclear and Cedel, as applicable, the Book-Entry
Depositary shall endeavor insofar as practicable to take such action regarding
the requested consent, waiver, offer or other action in respect of such Senior
Notes in accordance with any instructions set forth in such request. DTC,
Euroclear and Cedel may grant proxies or otherwise authorize their respective
Participants (or persons owning Book-Entry Interests through their respective
Participants) to provide such instructions to the Book-Entry Depositary so that
it may exercise any rights of a holder or take any other actions which a holder
is entitled to take under the Senior Notes Indenture. The Book-Entry Depositary
will not exercise any discretion in the granting of consents or waivers or the
taking of any other action relating to the Senior Notes Indenture.
REPORTS
The Book-Entry Depositary will immediately send to DTC, Euroclear and
Cedel a copy of any notices, reports and other communications received relating
to the Issuer, the Senior Notes or the Book-Entry Interests.
NOTICES
All notices regarding the Senior Notes will, so long as the rules of the
Luxembourg Stock Exchange require, be published in a daily newspaper of general
circulation in Luxembourg, which is expected to be the Luxemburger Wort.
RESIGNATION OF BOOK-ENTRY DEPOSITARY
The Book-Entry Depositary may at any time resign as Book-Entry Depositary
by written notice to the Issuer, the Trustee, DTC, Euroclear and Cedel, such
resignation to become effective upon the appointment of a successor book-entry
depositary, in which case the Global Senior Notes shall be delivered to that
successor. If no such successor has been so appointed within 120 days of such
notification, the Book-Entry Depositary may request the Issuer to issue
Definitive Registered Notes as described above.
CHARGES OF BOOK-ENTRY DEPOSITARY
The Issuer has agreed to indemnify the Book-Entry Depositary against
certain liabilities incurred by it and pay the charges of the Book-Entry
Depositary as agreed between the Issuer and the Book-Entry Depositary.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Deposit Agreement may be amended by the Issuer and the Book-Entry
Depositary without notice to or consent of DTC, Euroclear or Cedel or any owner
of Book-Entry Interests: (a) to cure any ambiguity, defect or inconsistency,
provided that such amendment or supplement does not adversely affect the rights
of DTC, Euroclear or Cedel or any holder of Book-Entry Interests, (b) to
evidence the succession of another person to the Issuer (when a
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similar amendment with respect to the Senior Notes Indenture is being executed)
and the assumption by any such successor of the covenants of the Issuer herein,
(c) to evidence or provide for a successor Book-Entry Depositary, (d) to make
any amendment, change or supplement that does not adversely affect DTC,
Euroclear or Cedel or the owners of Book-Entry Interests, (e) to add to the
covenants of the Issuer or the Book-Entry Depositary, or (f) to comply with the
United States Federal securities laws. No amendment that adversely affects DTC,
Euroclear or Cedel may be made to the Deposit Agreement without the consent of
DTC, Euroclear or Cedel, respectively. Upon the issuance of Definitive
Registered Notes in exchange for Book-Entry Interests constituting the entire
principal amount of Senior Notes, the Deposit Agreement will terminate. The
Deposit Agreement may be terminated upon the resignation of the Book-Entry
Depositary if no successor has been appointed within 120 days as set forth under
"--Resignation of Book-Entry Depositary".
SETTLEMENT
Any secondary market trading activity in the Book-Entry Interests is
expected to occur through the Participants of DTC, Euroclear and Cedel, and the
securities custody accounts of investors will be credited with their holdings
against payment in same-day funds on the settlement date.
CLEARANCE THROUGH CEDEL AND EUROCLEAR
The Sterling Senior Notes have been accepted for clearance by Cedel and
Euroclear under the common code --. The ISIN is --. The Dollar Senior Notes
have been accepted for clearance by Cedel and Euroclear under the common code
- --. The ISIN is --.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Issuer on February 6, 1998, in a private
placement. In connection with that placement, the Issuer entered into the
Registration Rights Agreement, which requires that the Issuer file a
registration statement under the Securities Act with respect to the Senior Notes
and, upon the effectiveness of that registration statement, offer to the holders
of the Old Notes the opportunity to exchange their Old Notes for a like
principal amount of Senior Notes, which will be issued without a restrictive
legend and may be reoffered and resold by holders that are not affiliates of the
Issuer without registration under the Securities Act. Upon the completion of the
Exchange Offer, the Issuer's obligations with respect to the registration of the
Old Notes and the Senior Notes will terminate. The Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Following the completion of the Exchange Offer, holders of
Old Notes not tendered will not have any further registration rights and those
Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected upon completion of the Exchange Offer.
Based on an interpretation by the Commission's staff set forth in
interpretive letters issued to third-parties unrelated to the Issuer, the Issuer
believes that, with the exceptions set forth below, Senior Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any person receiving such Senior Notes,
whether or not such person is the holder (other than any such holder or such
other person which is an "affiliate" of the Issuer within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the Senior
Notes are acquired in the ordinary course of business of the holder or such
other person and neither the holder nor such other person has an arrangement or
understanding with any person to participate in the distribution of such Senior
Notes. Any holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Senior Notes cannot rely on this
interpretation by the Commission's staff and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer that receives Senior Notes for
its own account in exchange for Old Notes, where the Old Notes were acquired by
that broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Senior Notes. See "Plan of Distribution".
EXCHANGE OF BOOK-ENTRY INTERESTS
In connection with the Exchange Offer by the Issuer, Book-Entry Interests
in the Certificateless depositary interests in the Old Notes ("Old Book-Entry
Interests") may be tendered to the Book-Entry Depositary in exchange for
Book-Entry Interests in the depositary interests in the Senior Notes ("New
Book-Entry Interests") which are traded, in the case of the Dollar Senior Notes,
through the facilities of DTC and, in the case of the Sterling Senior Notes,
through the facilities of Euroclear and Cedel (each of DTC, Euroclear and Cedel,
a "Book-Entry Transfer Facility"). In such case, the Book-Entry Depositary has
committed to exchange a like principal amount of New Book-Entry Interests of the
applicable class for the Old Book-Entry Interests of each class so tendered.
Other than as described below under "Procedures for Tendering Book-Entry
Interests", the terms and conditions for exchanging Old Book-Entry Interests for
New Book-Entry Interests are identical to the terms and conditions for
exchanging Old Notes for Senior Notes. In this regard, except as the context
otherwise requires, holders, as used below, includes, as appropriate, any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position as a holder of Book-Entry Interests, references to Senior
Notes or Old Notes include New Book-Entry Interests and Old Book-Entry
Interests, as appropriate, and provisions of the following discussion that apply
to the Issuer also apply, as appropriate, to the Book-Entry Depositary. The
Exchange Agent for the Issuer will also act as exchange agent for the Book-Entry
Depositary in effecting such exchange.
CONSEQUENCES OF FAILURE TO EXCHANGE
Following the completion of the Exchange Offer (except as set forth above),
holders of Old Notes not tendered will not have any further registration rights
and those Old Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for a holder's Old Notes
could be adversely affected upon completion of the Exchange Offer if the holder
does not participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuer will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Issuer will issue pounds sterling 1,000 principal
amount of Sterling Senior Notes in exchange for each pounds sterling 1,000
principal amount of outstanding Old Sterling Notes accepted in the Exchange
Offer and $1,000 principal amount of Dollar Senior Notes in exchange for each
$1,000 principal amount of outstanding Old Dollar Notes accepted in the Exchange
Offer. Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer.
The form and terms of each class of Senior Notes are identical to the form
and terms of the same class of Old Notes except that (i) the Senior Notes have
been registered under the Securities Act and will not bear any legends
restricting their transfer and
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<PAGE> 48
(ii) the Senior Notes will not contain certain provisions for an increase in the
interest rate on the Old Notes related to certain defaults in respect of the
Issuer's undertakings to carry out this Exchange Offer. Upon the completion of
the Exchange Offer, such undertakings will have been satisfied and therefore
such defaults will no longer be applicable. The Senior Notes will evidence the
same debt as the Old Notes and will be issued pursuant to, and entitled to the
benefits of, the Indenture pursuant to which the Old Notes were issued.
As of March --, 1998, Old Sterling Notes representing pounds sterling
135,000,000 aggregate principal amount were outstanding and there was one holder
(i.e., the common depositary for Euroclear and Cedel). At that date, Old Dollar
Notes representing $110,000,000 aggregate principal amount were outstanding and
there was one holder (i.e., a nominee of The Depository Trust Company). This
Prospectus, together with the Letter of Transmittal, is being sent to each such
holder and to others believed to have beneficial interests in the Old Notes. The
Issuer intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder.
The Issuer shall be deemed to have accepted validly tendered Old Notes
when, as, and if the Issuer has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Senior Notes from the Issuer. If any tendered
Old Notes are not accepted for exchange because of an invalid tender, the
occurrence of certain other events set forth herein or otherwise, certificates
for any such unaccepted Old Notes will be returned, without expense, to the
tendering holder thereof as promptly as practicable after the Expiration Date.
In order to participate in the Exchange Offer, a holder must represent to
the Issuer, among other things, that (i) the Senior Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving the Senior Notes, whether or not such person is the holder of
the Old Notes, (ii) neither the holder nor any such other person is engaging in
or intends to engage in a distribution of the Senior Notes, (iii) neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of the Senior Notes, and (iv) neither
the holder nor any such other person is an "affiliate", as defined under Rule
405 promulgated under the Securities Act, of the Issuer.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Issuer will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on --,
1998, unless the Issuer, in its sole discretion, extends the Exchange Offer, in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended. In order to extend the Exchange Offer, the
Issuer will notify the Exchange Agent and each registered holder of any
extension by oral or written notice prior to [9:00 a.m.], New York City time, on
the next business day after the previously scheduled Expiration Date. The Issuer
reserves the right, in its sole discretion, (i) to delay accepting any Old
Notes, to extend the Exchange Offer or, if any of the conditions set forth under
"-- Certain Conditions" shall not have been satisfied, to terminate the Exchange
Offer, by giving oral or written notice of such delay, extension or termination
to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any
manner.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender the Old Notes in the Exchange Offer.
To tender in the Exchange Offer a holder must complete, sign and date the Letter
of Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the Letter
of Transmittal or copy to the Exchange Agent prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, or (ii) in the case of
Book-Entry Interests, a timely confirmation of a book-entry transfer of such
Book-Entry Interests (a "Book-Entry Confirmation"), if that procedure is
available, into the Exchange Agent's account at a Book-Entry Transfer Facility
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the Holder
must comply with the guaranteed delivery procedures described below. To be
tendered effectively, the Letter of Transmittal and other required documents
must be received by the Exchange Agent at the address set forth under "The
Exchange Offer -- Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Issuer in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
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<PAGE> 49
THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES, OR NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the Letter of Transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in the beneficial owner's name or obtain a properly completed bond
power from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless Old Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. If signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, the guarantee must be by any eligible Company institution that
is a member of or participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program, the Stock
Exchange Medallion Program, or an "eligible Company institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations, or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Issuer of their authority to so act must be submitted with the Letter of
Transmittal unless waived by the Issuer.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined
by the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuer's acceptance of which would,
in the opinion of counsel for the Issuer, be unlawful. The Issuer also reserves
the right to waive any defects, irregularities, or conditions of tender as to
particular Old Notes. The Issuer's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within
such time as the Issuer shall determine. Although the Issuer intends to notify
holders of defects or irregularities with respect to tenders of Old Notes,
neither the Issuer, the Exchange Agent, nor any other person shall incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, the Issuer reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
Expiration Date or, as set forth under "-- Certain Conditions", to terminate
the Exchange Offer and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions, or otherwise.
The terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder will represent to the Issuer that, among other
things, (i) the Senior Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such Senior
Notes, whether or not such person is the holder, (ii) neither the holder nor
any such other person is engaging in or intends to engage in a distribution of
such Senior Notes, (iii) neither the holder not any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New 1997 Senior Notes, and (iv) neither the holder nor any such other
person is an "affiliate", as defined under Rule 405 of the Securities Act, of
the Issuer.
In all cases, issuance of Senior Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation into the Exchange Agent's account at a Book-Entry Transfer
Facility, a properly completed and duly executed Letter of Transmittal (or,
with respect to DTC and its participants, electronic instructions in which the
tendering holder acknowledges its receipt of and agreement to be bound by the
Letter of Transmittal), and all other required documents. If any tendered Old
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Book-Entry Interests, such non-exchanged Book-Entry Interests will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
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<PAGE> 50
PROCEDURES FOR TENDERING BOOK-ENTRY INTERESTS
Interests in the depositary interest in the Dollar Senior Notes must be
tendered for exchange through DTC's Automated Tender Offer Program ("ATOP").
ATOP is the only method of processing exchange offers through DTC. To exchange
Old Book-Entry Interests for New Book-Entry Interests through ATOP, participants
in DTC must send electronic instructions to DTC through DTC's communication
system in place of sending a signed, hard copy Letter of Transmittal. DTC is
obligated to communicate those electronic instructions to the Exchange Agent.
The electronic instructions sent to DTC and transmitted by DTC to the Exchange
Agent must contain the character by which the participant acknowledges its
receipt of and agrees to be bound by the Letter of Transmittal. Interests in the
depositary interests in the Sterling Senior Notes must be tendered in compliance
with procedures established by Euroclear or Cedel, as appropriate.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Issuer (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within [three] New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent within
five NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes or Book-Entry Interests to be
effective, a written or (for DTC participants) electronic ATOP transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Old Notes to be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee register
the transfer of such Old Notes to the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form, and eligibility (including time of receipt) of such notices
will be determined by the Issuer, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Exchange Offer. Any Old
Notes which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder as
soon as practicable after withdrawal, rejection of tender, or termination of
the Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering" at any time
on or prior to the Expiration Date.
CERTAIN CONDITIONS
Notwithstanding any other provisions of the Exchange Offer, the Issuer
shall not be required to accept for exchange, or to issue Senior Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer, if at
any time before the acceptance of such Old Notes for exchange or the exchange of
the Senior Notes for such Old Notes, such acceptance or issuance would violate
applicable law or any interpretation of the staff of the Commission.
The foregoing condition is for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any time
to exercise the foregoing rights shall not be deemed a waiver of any such right
and each such right shall be deemed an ongoing right which may be asserted at
any time and from time to time.
In addition, the Issuer will not accept for exchange any Old Notes
tendered, and no Senior Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to either the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Senior Notes Indenture under the
Trust Indenture Act of 1939, as amended.
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<PAGE> 51
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. The Bank of New York has been appointed as Exchange Agent for the
Exchange Offer. Questions, requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
For Information or
Confirmation by Telephone:
(212) 815-2742
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission By Hand or Overnight Delivery:
The Bank of New York (for Eligible The Bank of New York
101 Barclay Street Institutions Only): New York, New York 10286
New York, New York 10286 (212) 571-6339 Attention: Securities
Attention: Enrique Lopez Enrique Lopez Processing Window
Corporate Trust Ground Level
Operations, 7E Reorganization, 7E
</TABLE>
FEES AND EXPENSES
The Issuer will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Issuer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer and are estimated in the aggregate to be
approximately [$250,000], which includes fees and expenses of the Trustee,
accounting, legal, printing, and related fees and expenses.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who
instruct the Issuer to register Senior Notes in the name of, or request that
Old Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
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<PAGE> 52
PLAN OF DISTRIBUTION
Each broker-dealer that receives Senior Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Senior Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Senior Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making activities or
other trading activities. The Issuer has agreed that, starting on the
Expiration Date and ending on the close of business on the 90th day following
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
The Issuer will not receive any proceeds from any sale of Senior Notes by
broker-dealers. Senior Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options of the Senior Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Senior Notes. Any broker-dealer
that resells Senior Notes that were received by it for its own account pursuant
to the Exchange Offer and any broker or dealer that participates in a
distribution of such Senior Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Senior
Notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Issuer will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Issuer has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Old Notes) other than commissions or concessions of any brokers
or dealers and will indemnify the holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
The Issuer has not entered into any arrangements or understandings with
any person to distribute the Senior Notes to be received in the Exchange Offer.
This Prospectus is to be used by Goldman, Sachs & Co. ("Goldman Sachs") in
connection with offers and sales related to market-making transactions in the
Senior Notes effected from time to time. Goldman Sachs may act as principal or
agent in such transactions, including as agent for the counterparty when acting
as principal or as agent for both counterparties, and may receive compensation
in the form of discounts and commissions, including from both counterparties
when they act as agent for both. Such sales will be made at prevailing market
prices at the time of sale, at prices related thereto or at negotiated prices.
The Goldman Sachs Affiliates hold an 83.3% interest in ECCP, a Delaware
limited partnership which owns 66.7% of the outstanding ordinary shares of the
Issuer. In addition, the Goldman Sachs Affiliates directly hold another 4.2% of
the outstanding ordinary shares of the Issuer. For other information regarding
the involvement of Goldman Sachs and their affiliates in connection with the
Issuer, see "Risk Factors -- Control of the Group; Potential Conflicts of
Interest", Item 12. "Security Ownership of Certain Beneficial Owners and
Management" and Item 13. "Certain Relationships and Related Transactions".
Goldman Sachs or their affiliates have acted as financial advisor to the Issuer
from time to time pursuant to an exclusive assignment and receive separate fees
for the provision of such services. Goldman Sachs International served as
advisor to the Issuer in its acquisition of LCL and is acting as agent and
financial advisor in connection with the Senior Bank Facility. Richard
Friedman, a managing director of Goldman, Sachs & Co., Muneer Satter, a
managing director of Goldman Sachs International, and John Thornton, a managing
director of Goldman, Sachs & Co. are Directors of the Issuer.
The Issuer has been advised by Goldman Sachs that, subject to applicable
laws and regulations, Goldman Sachs currently intend to make a market in the
Senior Notes. However, they are not obligated to do so and any such
market-making may be interrupted or discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. There can be no assurance that an
active trading market will develop or be sustained. See "Risk Factors --
Absence of a Public Market for the Senior Notes; Possible Volatility of Senior
Note Price".
The Issuer has agreed to indemnify Goldman Sachs against certain
liabilities, including liabilities under the Securities Act of 1933.
Goldman Sachs have informed the Issuer that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority without
prior written approval of such transactions by the customer.
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TAXATION
The summary, set out below, of material U.K. tax consequences of the
acquisition, ownership and disposition of the Senior Notes by a "United States
Holder", as defined below, is based upon the opinion of Freshfields and that of
U.S. tax consequences is based upon the opinion of Sullivan & Cromwell. This
summary does not address the tax consequences of acquisition, ownership or
disposition of Senior Notes by anyone other than a United States Holder and, in
particular, does not address these issues for holders who are resident or who
carry on a trade, profession or vocation in the United Kingdom.
The statements regarding U.S. and U.K. tax laws and practices set forth
below, including the statements regarding the U.S./U.K. double taxation
convention relating to income and capital gains (the "Treaty"), assume that the
Senior Notes will be issued, and transfers thereof and payments thereon will be
made, in accordance with the applicable Indenture and the Deposit Agreement.
For purposes of the Treaty and the U.S. Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), United States Holders of Book-Entry
Interests will be treated as owners of the Senior Notes underlying such
Book-Entry Interests and, except as noted below, the tax consequences of owning
Book-Entry Interests will be the same as those applicable to ownership of Senior
Notes.
As used herein, the term "United States Holder" means a beneficial owner
that is (i) a citizen or resident of the United States, (ii) a domestic
corporation, (iii) an estate the income of which is subject to United States
federal income tax without regard to its source or (iv) a trust if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust.
PROSPECTIVE PURCHASERS OF SENIOR NOTES ARE ADVISED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE U.S., U.K. OR OTHER TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF SENIOR NOTES, INCLUDING THE EFFECT OF ANY STATE OR
LOCAL TAX LAWS.
UNITED KINGDOM TAXATION
The following summary describes the material U.K. tax matters with respect
to ownership of the Senior Notes and is based on the laws as in force and as
applied in practice on the date of this Prospectus, and, where relevant, takes
account of prospective changes in those laws as announced as part of the UK
Budget on March 17, 1998, assuming that these changes become law, and is subject
to changes to those laws and practices, and any relevant judicial decision,
subsequent to the date of this Prospectus.
PAYMENTS ON THE SENIOR NOTES
The Issuer will not be required to deduct or withhold on account of U.K.
income tax from payments of principal or, for so long as the Senior Notes are
represented by a Global Senior Note and are listed on the Luxembourg Stock
Exchange or some other stock exchange recognized by the U.K. Inland Revenue,
from payments of interest where:
(a) the payment of interest is made by a paying agent outside the
U.K.; or
(b) the payment of interest is made by or through a person who is in
the U.K. but the person beneficially entitled to the interest is not
resident in the U.K. and beneficially owns the Senior Notes from which the
interest derives and either the person by or through whom the payment is
made has received a declaration in a form prescribed by regulations
confirming that these requirements are satisfied or the Inland Revenue has
issued a notice to that person stating that they consider them satisfied.
In other cases, and in particular where paid in respect of Definitive
Registered Notes, interest will (subject to what is said below) be paid after
deduction of income tax at the lower rate (currently 20%). A United States
Holder of a Senior Note who is entitled to the protection of the Treaty will
normally be eligible to recover in full any U.K. tax withheld from payments of
interest to which such Holder is beneficially entitled by making a claim under
the Treaty on the appropriate form. Alternatively, a claim may be made by a
United States Holder in advance of a payment of interest. If the claim is
accepted by the Inland Revenue, they will authorize subsequent payments to that
United States Holder to be made without withholding for U.K. tax.
For so long as the Senior Notes are represented by a Global Senior Note
and are listed on a recognized stock exchange, where any person in the United
Kingdom, in the course of a trade or profession:
(i) acts as custodian of a Senior Note in respect of which he
receives any interest or interest is paid at his direction or with his
consent, or
(ii) collects or secures payment of or receives interest on a Senior
Note for another person,
(except in any case by means only of clearing a check or arranging for the
clearing of a check) that person is liable to account for United Kingdom income
tax at the lower rate (currently 20%) on such interest and is entitled to
49
<PAGE> 54
deduct an amount in respect thereof unless an exemption from such liability is
applicable including, for example, where the Senior Note and the interest is
beneficially owned by a person not resident in the United Kingdom and
applicable administrative and procedural requirements are satisfied, including
the making of declarations as to status and eligibility.
Except for any income tax deducted as described above (and except in the
case of non-United Kingdom resident trustees of a trust having an ordinarily
resident or resident beneficiary) a United States Holder will not be liable to
United Kingdom tax on interest on a Senior Note unless it is resident in the
U.K. or is chargeable to income tax or corporation tax on a branch or agency in
the United Kingdom through which it carries on a trade, profession or vocation
and in connection with which the interest is received or to which the Senior
Notes are attributable. There are certain exemptions for interest received by
certain specified categories of agent (such as some brokers and investment
managers).
Depending on the correct legal analysis of payments made by the Company as
a matter of U.K. tax law, it is possible that payments by the Company would be
subject to withholding on account of United Kingdom tax, subject to any claims
made by United States Holders pursuant to the Treaty.
SALE OR DISPOSITION (INCLUDING REDEMPTION)
For U.K. tax purposes, a disposal (which includes redemption and could
include the exchange of Old Notes for Senior Notes) of a Senior Note will
generally not be subject to U.K. tax unless the holder is resident or if an
individual ordinarily resident or, in certain circumstances and with effect from
March 17, 1998, has been resident in recent years for tax purposes in the U.K.
or carries on a trade, profession or vocation in the U.K. through a branch or
agency to which the Senior Note is attributable.
ANNUAL TAX CHARGES
Provisions of the Finance Act 1993 which could impose an annual charge on
corporate holders of Senior Notes by reference to exchange rate fluctuations,
and provisions of the Finance Act 1996 which could apply so as to charge
corporate holders to corporation tax on income on any profits (and give relief
for permitted losses) by reference to accounting periods on either an
authorized accruals or mark to market basis, will not apply to non-U.K.
resident corporate United States Holders without a branch or agency in the U.K.
STAMP DUTY AND STAMP DUTY RESERVE TAX
No U.K. stamp duty or stamp duty reserve tax is payable on the issue of
the applicable Global Senior Note or on the issue or transfer of a Senior Note
in definitive form or on its redemption. No U.K. stamp duty will be payable in
respect of any instrument of transfer of Book-Entry Interests, provided that
any instrument relating to such a transfer is not executed in the U.K., and
remains at all times outside the U.K. An agreement to transfer Senior Notes
should not give rise to stamp duty reserve tax in any event.
INHERITANCE TAX
Senior Notes represented by the applicable Global Senior Note that are not
treated as situated in the U.K. and are beneficially owned by an individual
domiciled outside the U.K. for U.K. inheritance tax purposes will not be
subject to U.K. inheritance tax. The status of Senior Notes held in the form of
Book-Entry Interests is, however, not free from doubt. If a Senior Note is
subject to U.K. inheritance tax and U.S. federal estate tax, the U.S./U.K.
double taxation convention relating to estate and gift taxes may entitle a
United States Holder to credit or relief in respect of the U.K. tax.
UNITED STATES TAXATION
The following summary of the principal U.S. federal income tax consequences
of ownership and disposition of the Senior Notes deals only with Senior Notes
held as capital assets by initial purchasers of Old Notes who purchased the Old
Notes at the offering price. It does not discuss all of the tax consequences
that may be relevant to a holder in light of its particular circumstances or to
special classes of holders, such as securities dealers, banks, tax-exempt
organizations, life insurance companies, persons that hold Senior Notes that are
part of a straddle or conversion transaction, persons that are not United States
Holders, or persons whose functional currency is not the U.S. dollar. The
summary is based on the Code, its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions, all as currently
in effect and all subject to change at any time, perhaps with retroactive
effect.
EXCHANGE OF OLD NOTES FOR SENIOR NOTES
Although the matter is not free from doubt, the exchange of Old Notes for
Senior Notes should not be an exchange or otherwise a taxable event to a United
States Holder for federal income tax purposes. Accordingly, a United States
Holder should have the same adjusted issue price, adjusted price, and holding
period in the Senior Notes as it had in the Old Notes immediately before the
exchange.
50
<PAGE> 55
PAYMENTS OF INTEREST
Interest on a Senior Note (including any U.K. tax withheld therefrom) will
be taxable to a United States Holder as ordinary income at the time it is
received or accrued, depending on the holder's method of accounting for tax
purposes.
For foreign tax credit limitation purposes, interest on the Senior Notes
will generally constitute "passive income", or in the case of certain United
States Holders, "financial services income". A United States Holder who is
entitled under the Treaty to a refund of U.K. tax, if any, withheld on interest
on the Senior Notes will not be entitled to claim a foreign tax credit with
respect to such withheld tax. See "Taxation -- United Kingdom Taxation --
Payments on the Senior Notes", above.
A United States Holder using the cash method of accounting who receives
interest in U.S. dollars will include in income the amount received. A cash
basis United States Holder who receives interest in sterling will, upon a
payment of interest, recognize the U.S. dollar value of the interest payment,
based on the exchange rate in effect on the date of receipt, regardless of
whether the payment is in fact converted into U.S. dollars.
An accrual basis United States Holder who receives interest in sterling
may determine the amount of income recognized in accordance with either of two
methods. Under the first method, the amount of income accrued will be based on
the average exchange rate in effect during the interest accrual period (or,
with respect to an accrual period that spans two taxable years, the part of the
period within the taxable year).
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all
debt instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service.
Upon the receipt of the interest payment (including a payment attributable
to accrued but unpaid interest upon the sale or retirement of a Senior Note),
the accrual basis United States Holder will recognize ordinary income or loss
measured by the difference between (x) the U.S. dollar value of interest income
that has accrued during the accrual period (as determined above) and (y) the
U.S. dollar value of the payment received (determined using the exchange rate
in effect on the date of receipt, regardless of whether the payment is in fact
converted into U.S. dollars).
PURCHASE, SALE AND RETIREMENT OF THE SENIOR NOTES
A United States Holder's tax basis in a Senior Note will generally be the
U.S. dollar value of the purchase price for the Senior Note on the date of
purchase.
A United States Holder will generally recognize gain or loss on the sale
or retirement of a Senior Note equal to the difference between the amount
realized on the sale or retirement and the tax basis of the Senior Note. The
amount realized on a sale or retirement for an amount in foreign currency will
be the U.S. dollar value of such amount on (i) the date payment is received in
the case of a cash basis United States Holder, (ii) the date of disposition in
the case of an accrual basis United States Holder or (iii) in the case of
Senior Notes traded on an established securities market, as defined in the
applicable Treasury Regulations, sold by a cash basis United States Holder (or
an accrual basis United States Holder that so elects), on the settlement date
for the sale. Except to the extent described in the next succeeding paragraph
or attributable to accrued but unpaid interest, gain or loss recognized on the
sale or retirement of a Senior Note will be capital gain or loss. Long-term
capital gain of a non-corporate United States Holder is generally subject to a
maximum tax rate of 28% in respect of property held for more than one year and
to a maximum rate of 20% in respect of property held in excess of 18 months.
Gain or loss recognized by a United States Holder on the sale or
retirement of a Senior Note that is attributable to changes in exchange rates
will be treated as ordinary income or loss. However, exchange gain or loss is
taken into account only to the extent of total gain or loss realized on the
transaction.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Senior Note and the proceeds of the
sale of a Senior Note before maturity within the United States to non-corporate
United States Holders, and "backup withholding" at a rate of 31% will apply to
such payments if the United States Holder fails to provide an accurate taxpayer
identification number or is notified by the "Service" (Internal Revenue Service)
that it has failed to report all interest and dividends required to be shown on
its federal income tax returns.
51
<PAGE> 56
VALIDITY OF THE SENIOR NOTES
The validity of the Old Notes and of the Senior Notes will be passed upon
for the Issuer by Sullivan & Cromwell, U.S. counsel to the Issuer, as to New
York law, and Katherine B. Wolfsohn, Legal Director of the Group, as to English
law.
EXPERTS
The consolidated financial statements of the Group as of December 31, 1996
and 1997 and for each of the years in the three-year period ended December 31,
1997 included in this Prospectus have been audited by KPMG, independent
auditors, to the extent and for the periods indicated in their reports thereon.
Such financial statements have been included in reliance upon the reports of
KPMG.
52
<PAGE> 57
GLOSSARY
Activation: see "Homes Activated" below.
BARB: Broadcasters' Audience Research Board.
Basic service: The basic cable television service, usually charged at a
flat monthly rate for a number of channels, without any premium channels which
are paid for individually.
Broadband: A general term used to describe wide bandwidth equipment or
systems which can carry a large proportion of the electromagnetic spectrum. A
broadband communications system can deliver multiple channels and other
services.
Broadcasting Act 1990: The Broadcasting Act 1990, which governs the
licensing and operation of the broadcasting industry (including the provision
of cable television services) in the United Kingdom, excluding broadcasting by
the British Broadcasting Corporation (the "BBC").
Broadcasting Act 1996: The Broadcasting Act 1996, which makes certain
amendments to the Broadcasting Act 1990 and contains new provisions (inter
alia) for the regulation of digital broadcasting in the U.K.
BSkyB: British Sky Broadcasting Group plc, the largest provider of
multichannel programming in the U.K. BSkyB was formed in November 1990 through
the combination of Sky and British Satellite Broadcasting ("BSB").
Build out: The process of digging, filling and covering underground
trenches in the streets which pass by the homes and businesses in a franchise,
constructing wiring ducts within the trenches, laying cable in the ducts and
installing and connecting the necessary electronic equipment.
Cable television/CATV: A broadband network employing radio-frequency
transmission over coaxial and/or fiber-optic cable to transmit multiple
channels carrying images, sound and data between a central facility and
individual customer's television sets. CATV networks may allow one-way or
two-way transmission.
Cable operator: An entity which has been granted licenses to build and
operate a system providing both cable television and telephone services.
Cable television license: A local delivery license ("LDL") granted by the
ITC pursuant to its authority under the Broadcasting Act or a prescribed
diffusion service license ("PDSL") issued under the CBA, in each case, for the
purpose of providing cable television services for a specific franchise area.
Cable television service: A service consisting of the sending of
television programs by hard wire to more than one home simultaneously.
CBA: The Cable and Broadcasting Act 1984, which was repealed by the
Broadcasting Act 1990.
Churn: Churn is a measure of the incidence of service terminations among
customers using a given service. Churn is calculated by dividing net
disconnections (total disconnections less the number of disconnected accounts
for which service is later restored) in a period by the average number of
subscribers in the period (calculated as a simple average of the number of
subscribers at the end of each month during the period).
Coaxial cable: Cable consisting of a central conductor surrounded by and
insulated from another conductor. It is standard material used in traditional
cable systems. Signals are transmitted through it at different frequencies,
giving greater channel capacity than is possible with twisted pair cable, but
less than is allowed by optical fiber.
Digital compression: The conversion of the standard analog signal into a
digital signal, and the compression of that signal so as to facilitate multiple
channel transmission through a single channel's bandwidth.
Director General: As used herein, the Director General of
Telecommunications heads the Office of Telecommunications ("OFTEL"), and is the
principal U.K. regulator of the telecommunications industry.
DTH: Abbreviation for "Direct-to-Home". Television programs are
transmitted to individual dwellings, each served by a single satellite dish, as
distinct from a cable or SMATV system.
DTI: The Department of Trade and Industry, the U.K. Government Department
responsible for overseeing telecommunications licenses to operate and use the
physical network over which cable television programs and telecommunications
services may be provided.
53
<PAGE> 58
Equity Homes: With respect to a given franchise area, the product of the
number of homes in the franchise area and the percentage of the direct or
indirect equity ownership of a company in the license(s) corresponding to the
franchise area.
Headend: A collection of satellite hardware, typically including a dish,
satellite receivers, modulators and amplifiers which collects, processes and
combines signals for distribution within the cable network.
Home: One person living alone or a group of people (who may or may not be
related) living, or staying temporarily, at the same address, with common
housekeeping.
Homes activated: The number of homes that can be connected to the cable
network without further extension of transmission lines, apart from the final
connection to the home.
Homes marketed: The number of homes passed for which the initial marketing
phase (including door-to-door direct marketing) has been completed.
Homes passed by civils construction: The number of homes that have had
ducting buried outside.
Interconnection: The point at which two telephone networks operated by
separate entities connect.
ITC: The Independent Television Commission, the body established by the
Broadcasting Act 1990 which oversees and licenses all types of television
broadcasting in the United Kingdom other than by the BBC and the Welsh
Authority.
LDL: A local delivery license granted since January 1, 1991 under the
Broadcasting Act 1990 which allows an operator to deliver television and other
licensed programming services by means of a licensed telecommunications network
including a cable network or microwave distribution system.
Microwave transmission: The transmission of voice or data using microwave
radio frequencies (generally above 1 GHz).
OFTEL: The Office of Telecommunications, the monitoring body established
following the enactment of the Telecommunications Act, headed by the Director
General.
Pay-per-view: A television programming service whereby payment is made for
a single viewing of a selected broadcast television program at a time chosen by
the cable operator or DTH satellite service provider (as compared with
video-on-demand).
PDSL: A prescribed diffusion service license granted under the CBA prior
to 1991 which allows an operator to provide cable television services by means
of a cable network.
Penetration rate: The measurement of the take-up of services. Penetration
rate of homes marketed is calculated by dividing the number of homes receiving
basic cable television or the number of residential telephone lines connected,
as the case may be, on the given date by the total number of homes marketed for
the given service as of such date, expressed as a percentage.
Premium service: Cable programming service available only for additional
subscription over and above the basic service.
PTO: A public telephone operator that is a provider of telecommunications
services designated under the Telecommunications Act and subject to certain
obligations such as to interconnect its network with other PTO networks.
SDH: Synchronous Digital Hierarchy, a set of standards for optical
communications transmission systems that define optical rates and formats,
signal characteristics, performance, management information to be embedded
within the signals and the multiplexing techniques to be employed in optical
communications transmission systems. SDH facilitates the inter-operability of
different vendors' equipment and benefits customers by minimizing the equipment
necessary for telecommunications applications.
Single fiber optic network infrastructure: A network comprising an overlay
of fiber optic cables (for the provision of cable television and
telecommunications services) which are laid simultaneously in the same duct.
SMATV: Satellite Master Antenna Television, a television delivery system
to multiple dwellings units that utilizes one large satellite dish to receive
signals and a small distribution network to distribute signals by cable to
individual homes.
Street Works Act: The New Roads and Street Works Act 1991.
54
<PAGE> 59
Telecommunications Act: The Telecommunications Act 1984, which governs the
licensing and operation of the telecommunications industry in the U.K.
Telecommunications license: A license granted under the Telecommunications
Act by the DTI which authorizes installation and operation of a
telecommunications network used to provide cable television and cable telephone
services.
Telephone number portability: The ability of a telephone customer to
retain its telephone number when changing telephone service providers.
Video-on-demand: A generic term applied to a range of services where a
customer has direct control over the timing and content of programming
received. The choice exercised over the potential range of programs and
particularly their start time distinguishes video-on-demand services from
services which are broadcast, such as pay-per-view.
AVAILABLE INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4 under the Securities Act
(together with all amendments and exhibits thereto, the "Registration
Statement") with respect to this Exchange Offer. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. The Registration Statement and other information filed
by the Company with the Commission are available for inspection and copying at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Northeast Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Midwest Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also will be available from the Public Reference Branch
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and fulfills its
obligations with respect to such requirements by filing periodic reports from
the Commission. Reference is made to the Company's 1997 Annual Report on Form
10-K which has been filed with the Commission and is available for inspection
and copying as described above.
The Company will furnish the Trustee with annual reports, which will
include a description of operations and annual audited consolidated financial
statements prepared in conformity with U.S. GAAP. The Company will agree to
furnish the Trustee with quarterly reports, which will include unaudited
quarterly consolidated financial information, prepared in conformity with U.S.
GAAP.
Such reports may be obtained, upon written request, from the Trustee at
its Corporate Trust Office located at 101 Barclay Street, New York, New York
10286. Such reports and other information may also be inspected and copied at
prescribed rates at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
55
<PAGE> 60
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, 1997 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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
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
------------------- ---------------------
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]
<PAGE> 61
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, Diamond
Holdings plc ("Diamond Holdings"). 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 the approximately 1.2
million homes and an estimated 60,600 businesses within its contiguous franchise
areas. As of December 31, 1997, the Group's cable television and
telecommunications network had passed by civils construction approximately
536,100 homes and an estimated 26,900 businesses, of which portions of the
network passing approximately 508,800 homes and an estimated 24,900 businesses
had been activated. As of that date, the Group also had approximately 157,200
residential telephone lines, 83,800 cable television customers and 27,100
business telephone lines. Through that date, pounds sterling 428 million had
been invested (at original cost) in the construction of the network and related
systems. For certain operating data as of December 31, 1997, 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 Annual Report contains certain forward-looking statements, identified
as such, with respect to which the Company is seeking to utilize the safe harbor
provided by the Private Securities Litigation Reform Act of 1995. These
statements are accompanied by, and should be read in conjunction with, an
explanation of important factors that could cause actual results to differ
materially from those in the forward-looking statements. Among other statements,
statements regarding the Group's operational and financial goals and objectives,
expectations regarding the construction of the Group's network and the marketing
and acceptance of its services, including those under Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" are forward looking in nature. Similarly, among
other statements, statements regarding the effects of changes in the competitive
environment and government regulation, including those under Item 1. "Business
- -- Competition" and "Business -- Milestones" and statements regarding the
expected technological and managerial strains of continued growth, service
enhancement and year 2000 information processing issues, including those under
Item 1. "Business -- Competition" and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Information Systems
- -- Year 2000", are forward looking in nature. By their nature, forward-looking
statements and forecasts involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future. There are a
number of factors that could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking statements
and forecasts. These factors include, among other things, changes in demand for
the products and services of the Group, changes in the cost and availability of
supplies to the Group, the rate and cost of the build out of the Group's
network, technological changes, the impact of competition and changes in
economic conditions in England.
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<PAGE> 62
The Company operates only in the United Kingdom and, accordingly, publishes
its financial statements in pounds sterling. References herein to "L.", "pounds
sterling", "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 $1.6427 per pounds sterling 1.00,
the noon buying rate in The City of New York for cable transfers in pounds
sterling as certified for customs purposes by the Federal Reserve Bank of New
York (the "Noon Buying Rate") on December 31, 1997. See Item 6. "Selected
Financial Data -- Exchange Rates" for information regarding the Noon Buying Rate
for the past five fiscal years. On March 18, 1997 the Noon Buying Rate was
$1.6711 per pounds sterling 1.00.
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<PAGE> 63
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
three-way conference calling, voicemail, call waiting, call forward, call
barring and Internet access, (ii) business telecommunications services which
include services similar to those 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, 1995, 1996 and 1997. The
operating data at and for the year ended December 31, 1995 reflects the
acquisition of LCL on a pro-forma basis as if it had been completed at the
beginning of 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1995(1) 1996 1997
------- ------- -------
Homes passed by civils construction(2) . 281,311 453,496 536,110
Homes activated(3) . . . . . . . . . . . 157,906 347,246 508,801
Homes marketed(4). . . . . . . . . . . . 126,607 252,601 405,787
Student service rooms marketed (5) . . . - - 1,805
BUSINESS TELECOMMUNICATIONS
Business customers accounts. . . . . . . 2,399 3,935 5,723
Business lines connected . . . . . . . . 9,879 18,932 27,124
Private circuits(6). . . . . . . . . . . 161 226 258
Average lines per business account(7). . 4.1 4.8 4.7
Average monthly revenue per line(8)(9) . L.70.23 L.50.17 L.46.26
Pro-forma average monthly revenue
per line(9). . . . . . . . . . . . . . L.67.70 L.51.25 L.46.26
RESIDENTIAL TELEPHONE(5)
Residential lines connected. . . . . . . 52,698 104,460 157,171
Penetration rate of homes marketed(10) . 41.6% 41.4% 38.6%
Average monthly revenue per
line(9)(11). . . . . . . . . . . . . . L.19.88 L.18.40 L.18.75
Pro-forma average monthly revenue
per line(9). . . . . . . . . . . . . . L.19.22 L.18.64 L.18.75
Churn(12)(13). . . . . . . . . . . . . . 15.0% 20.6% 16.3%
CABLE TELEVISION
Basic service subscribers. . . . . . . . 30,749 59,242 83,793
Penetration rate of homes marketed(14) . 24.3% 23.5% 20.6%
Average monthly revenue per
subscriber(15) . . . . . . . . . . . . L.17.62 L.18.03 L.19.84
Churn(12)(13). . . . . . . . . . . . . . 33.8% 40.9% 32.7%
</TABLE>
(1) Information for 1995 is pro-forma combined information including both
Diamond and LCL as if LCL had been acquired on January 1, 1995.
-4-
<PAGE> 64
(2) Homes passed by civils construction is the number of homes (excluding
student services rooms) that have had ducting buried outside.
(3) Homes activated is the number of homes (excluding student services rooms)
that are capable of receiving cable service without further extension of
transmission lines, apart from the final connection to the home.
(4) Homes marketed is the number of homes activated (excluding student
services rooms) for which the initial marketing phase (including
door-to-door direct marketing) has been completed.
(5) During 1997 the Group began to provide telephone services and internet
access to students at a number of large educational establishments in its
franchise area. Academic terms make this business seasonal in nature. In
order to fairly present the results, the Company has adopted the following
policy: (i) rental revenue is recognized evenly over a full twelve month
period (or the balance of the period to the start of the next academic
year if shorter), (ii) call revenue is recognised in the month in which it
is earned and is incorporated in residential telephone average monthly
revenue per line, (iii) a student services line is recognised as the
equivalent of 3/4 of a residential line, (iv) each student room at which
service is available is treated as a home marketed and incorporated in the
calculation of residential telephone penetration and, (v) any net decrease
in the number of students taking the service between one academic year and
another is ignored for the purposes of calculating residential telephone
churn.
(6) Private circuits are point-to-point customer specific connections for
which a fixed annual rental charge is made.
(7) 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.
(8) The average monthly business telecommunications revenue per line is
calculated by dividing (i) business telecommunications line and equipment
rental, outgoing call charges and incoming call charges (including revenue
from private circuits) for the period by (ii) the average number of
business telecommunications lines and private circuits (calculated as a
simple average of the number of subscribed lines and private circuits at
the end of each month during the period) and dividing that amount by
twelve.
(9) The calculation of the average monthly revenue per line (for both
residential telephone and business telecommunication revenues) for the
year to December 31, 1996 reflects the reduction in revenues stemming from
rebates to BT on incoming termination revenues relating in part to 1995
but recorded in full against revenues in 1996. The rebates were calculated
in accordance with revised interconnect agreements with BT that were made
effective retroactively from April 1995. The pro-forma average monthly
revenue per line (for both residential telephone and business
telecommunications revenues) gives effect to the revised interconnect
agreements as if they had been in effect from April 1995 and allocates to
each period the portion of the rebates that relates to such period.
(10) Penetration rate of homes marketed is calculated by dividing the number
of residential lines, including student services lines recognized at the
equivalent of 3/4 of a residential line, connected on the given date by
the total number of homes marketed and student services rooms marketed as
of such date, expressed as a percentage.
(11) 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 twelve. Call revenue from student services lines
is recognized in the month in which it is earned and is incorporated in
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residential telephone average monthly revenue per line, with each student
services line recognized as the equivalent of 3/4 of a residential line.
(12) 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). The calculation of churn excludes student
services lines.
(13) Since the beginning of 1997, the Group's reported churn has excluded from
net disconnected accounts subscribers who disconnect from the service when
moving residence and reconnect to the service in their new residence.
Previously, these subscribers were not identified under the Group's
information system and were therefore reported in the churn calculation as
disconnected accounts. If churn for the year ended December 31, 1997 was
calculated on the basis used in periods prior to 1997, annualized churn
would have been 21.3% and 36.9% for residential telephone and cable
television, respectively. The difference between churn on the new and
prior bases is not necessarily indicative of the adjustment that would
arise if churn for prior periods were restated.
(14) Penetration rate of homes marketed is calculated by dividing the number
of homes receiving basic cable television on the given date by the total
number of homes marketed as of such date, expressed as a percentage.
(15) 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 twelve.
INDUSTRY OVERVIEW
Following the initial granting of licenses in 1984, development of the
cable television and telecommunications industry in the U.K. proceeded slowly.
This occurred for a number of reasons, including high construction costs (due
in large part to the fact that cable networks in the U.K. generally must be
buried underground), limitations on the cable companies' ability to offer
telephone services, the lack of access to attractive programming and the lack
of access to capital.
Fundamental changes in the U.K. regulatory framework in 1990 and 1991,
combined with increased availability of programming, have resulted in
significant investment in the cable industry since that time. In 1991, the
Secretary of State completed the liberalization review of the U.K.
telecommunications market (the "Duopoly Review"), which resulted in major
policy changes designed, among other things, to foster competition in the local
telephone loop, where BT held almost all of the market share. Pursuant to such
policy changes (i) new entrants (including foreign companies) could apply to
the government to operate new telecommunications networks over fixed links,
(ii) cable operators were permitted to provide voice telephony services and to
switch their own telephone customers' calls, instead of acting as agents of BT
or Mercury, and (iii) cable operators were permitted to form expanded
telecommunications networks by interconnecting their systems with one another.
See " -- Certain Regulatory Matters -- Cable Telecommunications -- Duopoly
Review" and " -- Certain Regulatory Matters -- Cable Telecommunications --
Interconnect Arrangements".
To further encourage cable companies to construct cable television and
telephone networks, U.K. government policy, which was introduced by the
Conservative government that was in office until May 1, 1997, restricts the
ability of BT and CWC to use their telephone networks for conveying broadcast
entertainment to homes in cable franchise areas until at least 1998. The Labour
government which took office after May 1, 1997 has stated its intention to
review this policy and is expected to publish its proposals shortly. 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
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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 increased and 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 continued to
consolidate as evidenced by the 1995 merger of SBC CableComms and TeleWest
Communications plc, the 1997 merger of NYNEX CableComms Group plc, Videotron
Holdings Plc, Mercury and Bell Cablemedia plc and the proposed merger of NTL
and Comcast UK.
BUSINESS TELECOMMUNICATIONS AND RESIDENTIAL TELEPHONE
OVERVIEW
The Group derives its business telecommunications and residential
telephone revenues from connection charges, monthly line rental charges, call
charges, special residential service charges, special business service charges
(e.g., private business circuits) and interconnection fees payable to the
Group. In the U.K., the historical practice has been that all calls, local or
national, are charged by time and distance.
Switching its own traffic enables the Group to offer a wider range of
services than would otherwise be possible, to monitor usage and manage doubtful
accounts, to gather information about customer calling patterns and use this
information in its marketing programs, and to structure rates and discount
programs accordingly. As part of the Group's strategy of increasing the volume
of calls switched locally and minimizing interconnect charges payable to BT,
CWC 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 5,723 business telecommunications customer
accounts at December 31, 1997, including connections to a number of important
corporate and governmental entities such as The Boots Company, Imperial
Tobacco, Experian, the Nottinghamshire County Council, the Nottingham City
Council, Leicestershire County Council, Leicester City Council, Ashfield
District Council, North East Lincolnshire District Council, Lincoln County
Council, the Nottinghamshire Constabulary, the Leicestershire Constabulary and
the Lincolnshire Constabulary, the U.K. Inland Revenue national headquarters
and their main sites in Leicester, Nottingham, Lincoln and Mansfield, the
Nottingham Health Care N.H.S. Trust, the Nottingham City Hospital N.H.S. Trust,
Grantham Hospital, Lincoln Hospital N.H.S. Trust, the University of Nottingham,
Nottingham Trent University, Leicester University, Lincoln University, BBC
Radio Nottingham, Radio Trent, the Nottingham Building Society, Vision Express
Group, Knoll Pharmaceuticals, Pedigree Pet Foods, the Northcliff Newspaper
Group (four regional newspapers including Nottingham's Evening Post and the
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Leicester Mercury) and the Mansfield Chad Newspaper.
The focus of the business marketing effort in the Group's franchise areas
has been to attract large and medium-sized corporate and governmental
customers, which generate high volumes of traffic and revenue. At December 31,
1997, the Group provided 27,124 business lines to its 5,723 business accounts
giving the Group an average of approximately 4.7 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 Group 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
Group believes that its success in attracting these important customers has
fostered a positive image in the community and enhanced the Group's credibility
with other business customers.
The Group currently offers a range of special business services,
including:
-- Custom Calling Features. The Group offers business customers
three-way conference calling and fully itemized and analyzed monthly
billing at no extra fee. At an extra charge, the Group provides
services similar to those offered to residential customers including
call waiting, call barring, call forward and alarm calls. Additionally,
billing data on high density 3.5" floppy disks and CD ROM is made
available to customers.
-- Centrex. Centrex allows the customer to use the facilities of the
Group's central exchange instead of purchasing its own telephone
systems, 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
private telephone systems including reduced call charges and can
include data calls using ISDN instead of point-to-point data circuits.
-- DDI (Direct Dialing Inward). Direct Dialing Inward offers multiple
unique numbers at a customer's premises via a smaller number of access
lines.
-- Private Circuits. Private (leased) circuits permit the customer to
rent a circuit between two points, for example between two office
buildings, at fixed rates. This permits the rapid exchange of data
between customer owned computers or exchanges without passing through
the public network. The customer can choose from among different
circuit capacities, such as multiples of 64 KBit/s for low speed
applications, and 2, 8, 34, 50, 100 and 155 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
wide area networks (WANs) between local offices.
-- Digital Services. The Group offers digital connection to the
public network using DASS2 (Digital Access Signaling System) and Q931
(European specification). The Group offers Primary Rate ISDN (30 x 64
Kbit/s channels) for voice and data, or Basic Rate ISDN offering 2
channels of 64 Kbit/s and a 16 Kbit/s 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 Signaling System) where customers are linking privately
owned telephony systems over the public network.
-- Caller ID. Caller identification allows the customer to identify
the origin of the inbound call, which is essential for the successful
operation of computer telephony integration.
-- Calling Cards. The Group currently offers pre-paid disposable and
rechargeable calling cards, which enable cardholders to make calls from
any telephone and debit the cost of the call from the credit available
on their calling card. The Group offers this service to hospital staff
and patients as a co-branded service with the Queen's Medical Centre in
Nottingham and to students at the University of Nottingham and
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Leicester University, where the Group is installing private telephones
in over 8,000 student rooms.
-- Voicemail Services. The Group has recently launched its
residential voicemail service and its business voicemail service is now
in place and undergoing customer trials in advance of an expected
commercial launch in the first quarter of 1998.
-- Internet Service. The Group offers three alternative forms of
connection (analog dial-up, 64 Kbit/s ISDN and 64 Kbit/s or 2 Mbit/s
fixed) to its Internet service, known as Diamond Cable Online. The
Group also offers web space on its server, so it can offer customers
their own home page. It also offers backbone service capacity for a
number of Internet service providers, and for EMNET (the East Midlands
Network) a European-funded organization which seeks to bring the
benefits of commercial services on the Internet to the small and
medium-size enterprises (SME's) in the region.
-- Managed Data Network Services. Customers can either manage their
own data networks by buying leased circuits from the Group or ask the
Group to manage their network connections. The Group currently offers a
managed frame relay-based service, which uses a transmission technology
designed to provide a flexible bandwidth in accordance with the
customer's need. Frame relay is primarily designed for LAN/WAN
interconnect between speeds of 64 Kbit/s and 45 Mbit/s.
-- Closed Circuit Television. The Group supplies leased private
circuits to local authorities to support the provision of closed
circuit television services in the region.
-- Automatic Call Distribution ("ACD"). The Group offers enhanced
voice managed services including ACD, where the customer can utilize
the functionality of the Group's switches to queue and manage its
inbound calls, thereby creating a call center, with visual and
statistical reporting capabilities.
The Group is evaluating a range of intelligent network platforms to form
the basis of an expanded value-added service portfolio, including freecall
numbers, enhanced number portability, personal numbering, premium rate numbers
and enhanced pre-paid calling card facilities. The same platform could offer an
authentication gateway, televoting facilities, local call numbers, customized
announcements, foreign language announcements and split charging.
The Group plans to offer in the future additional transmission technology
services suitable for managing data transfer at high speeds, such as
asynchronous transfer mode ("ATM") and switched megabit data services ("SMDS").
In the business telecommunications area, the Group generally competes
primarily on the basis of the quality of services and to a lesser extent on
price, although the Group believes that its charges for services to business
customers are competitive with those of BT, CWC and other operators.
The Group believes it 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 Group 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 Group 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 customers changing to the Group historically have had to change
their telephone numbers. As a result certain business customers have been
reluctant to switch carriers because they would lose their existing telephone
numbers. In response to this, the Group has provided its business customers
with the opportunity to use its telephone service for their outgoing
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telephone calls, which carry higher revenues than incoming calls, and for their
specialized telecommunications needs, while retaining their existing service
provider (and their existing telephone number) for incoming telephone calls. For
a description of certain developments relating to number portability, see "--
Competition -- Business Telecommunications" and " -- Certain Regulatory Matters
- -- Cable Telecommunications -- Number Portability".
RESIDENTIAL TELEPHONE
The Group had residential telephone line penetration of 38.6% of homes
marketed at December 31, 1997. The Group believes it is achieving this
residential telephone penetration rate due to (i) Diamond's well-recognized
brand name and (ii) the Group's competitive rates (including free voice calls
between the Group's residential customers in the same local and adjacent
calling areas during off-peak evening and weekend hours). In the residential
telephone area, the Group generally competes on the following basis:
Reliability. The Group's fiber-optic network infrastructure provides
reliable, high-quality transmission across a modern network. In addition, the
Group believes that its 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. Fully itemized
monthly billing is provided to all customers at no extra fee. The Group
provides three-way conference calling free of charge to most residential
customers in order to stimulate additional call and/or termination charges.
Additional "Custom Calling Features" offered by the Group for an extra charge
include: call waiting, call barring (prevents unauthorized outgoing or incoming
calls), call diversion (i.e., call forward) and voicemail. The Group's network
architecture provides a flexible platform for the Group to offer additional
telephony services as they become available in the future.
Cost Savings. The Group seeks to provide residential telephone customers
with savings on the cost of line rental and usage charges compared to BT. In
order to encourage customers to subscribe to both television and telephone
services, the monthly line rental charge for customers who subscribe to both
services is offered at a discount to the monthly charge for customers who
subscribe to telephone service only.
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 Group believes that this
service has encouraged its customers to recommend its services to other
potential customers, particularly friends and family members, and is believed
by the Group to increase calling traffic generally. The Group believes this
word-of-mouth marketing reinforces its well-recognized brand name.
The Group regularly evaluates its pricing strategy and intends to remain
price competitive in its residential telephone business. The Group believes
competitive pricing is particularly important initially as it introduces
services and seeks to gain market share. However, over time the Group expects
new products and customer service to become a more important component of its
marketing strategy.
The Group operates an Internet access service, Diamond Cable Online, in
its operating area. This service, available to both Group telephone customers
and others, is the result of an alliance with Cable Online Ltd., a subsidiary
of NTL Ltd., and provides users with access to the Internet and World Wide Web.
The Group also offers expanded Internet services, including ISDN and leased
line connections.
CABLE TELEVISION
PROGRAMMING
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The Group 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 Group has
carried pay-per-view events and launched in March 1998, together with
several partners, a four channel movie pay-per-view service.
The Group believes that the availability of a wide variety of quality
programming is one of the most important factors influencing a consumer's
decision to subscribe for and retain cable television service. Consequently,
the Group devotes considerable resources to obtaining access to a wide range of
programming that it believes will be appealing to both existing and potential
customers 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 Group (giving effect to programming changes scheduled to take effect
through March 31, 1998).
<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ----------- -----------
<S> <C>
NEWS AND INFORMATION
CNN International 24-hour international news service
Parliamentary Channel Live coverage of the U.K. Parliament
Channel Guide Summary of programming schedule
Preview Channel Sampling of all cable channels
Diamond Vision/Cable 7 Local programming
BBC News 24 24-hour news services
GENERAL INTEREST
BBC1 U.K. terrestrial television
BBC2 U.K. terrestrial television
ITV U.K. terrestrial television
Channel 4 U.K. terrestrial television
Channel 5 U.K. terrestrial television
Bravo Films and television series
Trouble Television series
NBC Europe U.S. and world news and entertainment
QVC -- The Shopping Channel Home shopping
Sky One(1) Drama, films and serials
Discovery Channel Science and education programming
The Challenge Channel Game show programming
Discovery Home & Leisure Education and documentary programming
The History Channel History programming
Travel Channel Travel programming
U.K. Gold Classic U.K. television programming
Live TV 24 hour U.K. entertainment and news
The Sci-Fi Channel Science fiction programming
Christian Channel Religious programming
Carlton Select Classic U.K. Television programming
Carlton Food Network Food programming
Granada Plus Classic U.K. Television programming
Granada Men and Motors Male oriented programming
Paramount Comedy Channel Situation comedy programming
Granada Good Life Health, shopping and gardening programming
</TABLE>
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<TABLE>
<CAPTION>
PROGRAMMING DESCRIPTION
- ----------- -----------
<S> <C>
MOVIES
TNT Classic movies
Sky Movies Screen1(1)(2) 24-hour feature movies
Sky Movies Screen2(1)(2) 24-hour feature movies
Sky Movies Gold(1)(2) Classic movies
HVC(2) Cult thriller movies
The Adult Channel(2) Adult entertainment
TVX, the Fantasy Channel(2) Adult entertainment
CHILDREN
The Disney Channel(1)(2) Children's entertainment
Cartoon Network Children's cartoons
Nickelodeon Children's entertainment
MUSIC
VH-1 Music videos
MTV Europe Music videos
Performance Classical music and opera
The Box Music videos selected by customer requests
Landscape Classical music accompanying scenic videos
SPORTS
Eurosport International sporting events
Sky Sports1(1)(2) U.K. and international sports
Sky Sports2(1)(2) U.K. and international sports
Sky Sports3(1)(2) U.K. and international sports
INTERNATIONAL
Zee TV(2) Asian sub-continent related programming
Asia NET Asian programming
Namaste Asian programming
ATM Asian programming
SET Asia (2) Asian programming
SAT 1 German language programming
TV5 French language programming
CNE Chinese news and entertainment
</TABLE>
_____________
(1) Programming acquired from BSkyB and governed by the BSkyB rate card.
(2) These services are offered for an additional charge or upon subscribing
to other services requiring an additional charge.
(3) Some programming shares a single channel. The group currently has analog
capacity for at least 54 channels, including channels reserved for the
Group's pay-per-view movie service, Front Row.
The Group 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 is
constrained in its ability to offer a wider range of channel packages due to
requirements imposed by programming suppliers to provide certain channels to
all or a significant percentage of customers if provided to any. The Group has
negotiated with certain suppliers reductions in these requirements which have
provided the Group greater flexibility in designing the packages of channels it
can offer consumers in certain franchise areas.
The Group currently charges pounds sterling 13.99 per month (after a pounds
sterling 1 direct debit discount) for its basic cable television service (which
consists of approximately 50 programs 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 Group has introduced a
"Connect Pack", an entry-level package of 11 channels of television plus
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telephone line rental for pounds sterling 12.98 (pounds sterling 5.99 for cable
television and pounds sterling 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 customers as well as first time customers to multichannel
television. In these franchise areas, the Group also offers its Variety Pack,
which consists of 23 channels and is offered for pounds sterling 9.99 per month
(after a pounds sterling 1 per month direct debit discount). This package
provides customers access to premium channels without having to purchase a full
basic package. The Group also believes that these programming packages encourage
existing customers to remain as cable television customers by providing a less
costly alternative to a full programming package. The Group's ability to offer
these packages is limited by the minimum percentage of customers to which the
Group is obliged to offer a channel. In some areas, the Group is now approaching
these negotiated limits, and, once those limits are reached, will only be able
to offer these packages to additional customers by renegotiating the limits or
increasing its customer base.
As part of its efforts to reduce churn, the Group has instituted a pounds
sterling 9.95 installation charge for cable service. Generally, there is no
charge to the customer for service or repair of the cable television network or
customer premises equipment.
The Group obtains much 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 customers subscribing to the service. Some programming, such as
that provided by the BBC and other terrestrial broadcasters, is provided to the
Group without charge.
PAY PER VIEW
DCL is a shareholder of Front Row Limited ("Front Row"), a joint venture
with Telewest plc, General Cable plc and NTL, which launched a
four-channel pay-per-view service in March 1998. The joint venture has secured
contracts with several of the major Hollywood studios to provide movies for the
pay-per-view service and is in discussions with other studios regarding
additional contracts. This service will enable customers to order specific
feature films on a per viewing basis for an additional charge of pounds sterling
2.99 per viewing. Films will be available on a pay-per-view basis before they
become available on terrestrial television or any subscription movie channel but
approximately three months after their release in the video rental market.
BSKYB PROGRAMMING
British Sky Broadcasting Group plc and its wholly-owned subsidiary British
Sky Broadcasting Limited (collectively, "BSkyB") currently provide the Group
with 11 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. The Group intends to
reduce the number of BSkyB channels it offers from eleven to eight, including
dropping Sky News, by March 31, 1998. 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 customers. 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. BSkyB has
flexibility under its rate card to adjust, on 60 days notice, the prices it
charges for the programs it provides to the Group. In addition, BSkyB
distributes 27 other channels (some of which share a channel) on behalf of other
providers (including some providers partly owned by BSkyB). BSkyB is also
expected to supply programming to BDB.
The Group pays a monthly fee to BSkyB for programming based on the number
of the Group's customers 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, 1997 was pounds sterling 5.6 million.
It was reported on September 3, 1996 that the Independent Television
Commission ("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 completed its investigation. In the future, the Disney
Channel will be available as a separate premium channel. The ITC has, however,
begun a broader investigation into the effects of bundling in the pay television
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market, the results of which are expected to be published in the course of 1998.
The Cable Communications Association made a submission to the ITC recommending
banning percentage carriage requirements in programming supply contracts and
banning the imposition by programming wholesalers of retail bundling
requirements. The Group believes that a favorable outcome of the ITC's
investigation could give the Group greater flexibility in packaging programming.
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 Telecommunications (the "Director General")
of Fair Trading ("DGFT") following inquiries by the Office of Fair Trading
("OFT"). Under its rate cards, BSkyB implemented significant price increases.
BSkyB submitted a revised rate card to the OFT in July 1996, which was
operative from February 16, 1997 until October 1, 1997. With effect from
October 1, 1997, BSkyB introduced a separate charge for Sky Sports 2, which had
previously been supplied free of charge to customers subscribing to Sky Sports
1. BSkyB also withdrew its charge to cable operators for Sky Sports 3 (which
BSkyB had always supplied free of charge to DTH subscribers to Sky Sports 1).
As a result of these programming changes, BSkyB submitted and the OFT approved
a further revised rate card.
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
bonus 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 those 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 will
be reviewed by the end of 1998. 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.
-14-
<PAGE> 74
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.
Interactive services that may be offered by the Group in the future
include video games that would be transmitted periodically (or possibly upon
customer request) to a special converter box at a customer's home where they
would be available for use by the customer (as with a traditional video game)
and video-on-demand services that would enable individual customers to request
specific programming from the service provider's inventory for viewing at a
specific time. See "-- Competition -- Cable Television". Additional services
could include video telephone services and video conferencing, access to
on-line databases and interactive transactional services. However, there can be
no assurance that the Group will be able to develop and deliver any of these
products on a timely and competitive basis.
In addition, the Group believes that its network leaves it well placed to
provide digital television services if in the Group's view providing these
services in its franchise areas becomes commercially attractive. Digital
technology allows operators to provide more channels, through digital
compression, and higher quality pictures and sound. However, the Group has no
immediate plans to introduce digital television services.
The Group currently receives negligible revenues from advertising, and
does not expect to receive any significant advertising revenues from cable
television until its customer base has expanded significantly. The Group
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
Group and paid on a full commission basis. In order to improve the management
and quality of its residential sales force, in February 1997 the Group
terminated arrangements with its independent sales contractors and began to
develop its own internal sales force through direct hiring of residential sales
people. The Group now employs and trains residential sales people directly and
pays them on the basis of a salary plus sales commission. At December 31, 1997,
the Group employed approximately 135 residential sales people, including a
number of former contracted sales people who were hired by the Group in
accordance with its employment criteria following interviews.
The Group believes that improvements in the quality of its sales force
have contributed to a recent reduction in churn and enable the sales force to
market more sophisticated products and services including Internet service and
more advanced telephone features to residential customers.
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 Group'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 Group. This approach is designed to inform potential customers of
construction status, to minimize inconvenience during construction and to
foster a loyal customer base.
During 1997, the Group intentionally slowed the pace of civils
construction to reduce the gap between homes passed by civils construction and
homes activated. The number of homes passed by the Group's civils construction
substantially exceeded homes activated and homes marketed at December 31, 1996.
At that date, approximately 23% of the network passed by civils construction
had not been activated (as measured by homes activated as a percentage of homes
passed by civils construction), and approximately 27% of the homes activated by
the Group's network had not yet been marketed. At December 31, 1997 these
-15-
<PAGE> 75
percentages had fallen to 5% and 20%, respectively. As more homes are activated
the Group expects to accelerate the release of homes for marketing. This may
place additional stress on the Group's management and operational resources. If
the Group is unable to manage rapid growth and development successfully, the
Group's operating results and financial condition could be materially adversely
affected.
COMPETITION
The Group faces significant competition in each of its business
telecommunications, residential telephone and cable television business areas.
In addition, new forms of media distribution, including digital terrestrial and
satellite television are expected soon to enter the marketplace. The U.K.
telecommunications industry is highly competitive. The Office of
Telecommunications ("OFTEL") has pursued a policy of encouraging competition,
and over 150 public telecommunications operator ("PTO") licenses have been
granted, although many of these have not yet been used. The Group believes that
competition will continue to intensify in each of its business areas.
BUSINESS TELECOMMUNICATIONS
The Group competes primarily with BT and a number of other competitors,
the largest of which is CWC, in providing business telecommunications services
to businesses in its franchise areas. The Group competes largely on the basis
of quality of services and, to a lesser extent, price. The Group believes that
its call charges are competitive with those of BT and CWC.
Both BT and CWC have resources substantially greater than those of the
Group. In addition each of CWC and BT has a national presence which permit it
to offer telecommunications, data transmission and other services on a
nationwide basis to business telecommunications customers with nationwide
operations beyond those that the Group is currently able to offer on its own.
With effect from May 1997, Mercury was merged with three U.K. regional cable
companies, NYNEX CableComms Group plc, Bell Cablemedia plc and Videotron
Holdings plc, to create a new group held by CWC, which is a 52.6% owned
subsidiary of Cable and Wireless plc. While the effects of the merger cannot be
predicted, the Group does not believe that the merger has had a material effect
on the Group's competitive position in the Group's franchise areas.
In April 1997, the Group was granted a national telecommunications
license, which enables it to offer telecommunications services anywhere in the
U.K. The Group is currently evaluating opportunities to offer these services
outside its franchise areas.
The Group also faces competition from a number of recent entrants to the
business telecommunications market. For example, Energis operates a national
SDH fiber optic network constructed along the existing national electricity
transmission infrastructure in England and Wales. Energis has focused on the
business telecommunications market and does not currently offer residential
telephony services. Energis's service offering, along with indirect service
from ACC, MFS WorldCom, Esprit, and other, smaller, long distance operators,
and the success of international simple resellers have increased competition in
the long distance and international telecommunications markets. Other owners of
extensive infrastructure, including local electricity distribution companies
and the owner of the former rail telecommunications network, are currently
constructing telecommunications networks or offering telecommunications
services, and it is possible that other owners of extensive infrastructure,
such as other utilities, will seek to use their existing infrastructures to
construct telecommunications networks that will compete with the Group's
telecommunications business. The Group also faces competition from mobile
telecommunications providers.
The Group believes that the Group's ability to compete effectively with BT
had been adversely affected, particularly with respect to smaller 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 Group believes that this discouraged some customers from changing
from BT to the Group's service because of the costs and inconvenience associated
with changing numbers. In response to this, the Group 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
-16-
<PAGE> 76
portability in the U.K. See " -- Certain Regulatory Matters -- Cable
Telecommunications -- Number Portability". The Group 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 Group believes that number portability will be relatively
neutral in its effect on the Group's business.
RESIDENTIAL TELEPHONE
The Group's principal competitor in providing telephone services to
residential customers is BT, which has an established market presence, fully
built networks and resources substantially greater than those of the Group. As
the substantial majority of U.K. residential telephone customers are currently
customers of BT, the Group's growth in residential telephone services depends
upon BT customers changing to the Group's telephone system. The Group believes
that price is currently one of the most important factors influencing the
decision of U.K. customers to switch to a cable telephone service. As a result,
the Group currently seeks to provide its telephone customers with monthly
savings on the cost of calls compared to BT. BT regularly reviews its prices,
generally resulting in price reductions. The Group has generally reacted to
previous BT price reductions by reducing its rates in order to maintain its
competitive price advantage. The Group believes that BT will be required for
regulatory and competitive reasons to continue to reduce its prices for most
residential customers in the future. 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 and may be given
greater flexibility in the future.
BT currently is subject to regulatory controls over the prices it may
charge to residential customers, which last until 2001. See " -- Certain
Regulatory Matters -- Cable Telecommunications -- Price Regulation". These
current controls impose significant downward pricing pressure on charges in the
U.K. telephone service market. As a result, BT has implemented significant
price reductions and per second pricing, which has led to further price
reductions for certain users. The revised price controls on BT indicate that BT
will be required by its telecommunications license to reduce the average level
of its prices further in each of the next few years. The impact of BT's price
reductions on the financial performance of the Group has been partially offset
by reduced interconnection costs charged by BT for the conveyance of calls.
There can be no assurance, however, that any such price cuts will not adversely
impact the financial performance of the Group's telephone operations.
BT has also started to market its services more aggressively to maintain
its market position over other service providers. For example, BT recently
began providing voice mail services on a national basis and caller ID services
in digital switch areas, and has implemented on a national basis other services
currently offered by the Group in its franchises, such as itemized billing. BT
has also implemented extensive marketing campaigns to win back customers from
cable operators.
Ionica offers a residential telephone service based on radio technology in
certain of the Group's franchise areas.
The introduction of international facilities licensing in 1996 has
increased competition for international traffic, and the Group's telephone
customers can obtain access to these alternative international service
providers.
In addition to BT, CWC and Ionica, the Group competes with mobile
telecommunications operators, such as Vodafone, Cellnet, One2One and Orange,
international service providers and other service providers, and competition is
expected to intensify in the future.
-17-
<PAGE> 77
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 cable television customers within its franchise
areas. The Group does, however, compete directly with television programming
provided by terrestrial (over-the-air) broadcast television stations and analog
DTH satellite services and may be subject to competition from SMATV systems.
The Group's cable television programming also competes to varying degrees with
other entertainment media, including home video (generally video rentals). In
the future the Group will compete with digital terrestrial television, and
digital DTH satellite services and may also 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 Group 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 Group believes that the penetration of cable and DTH satellite services and
the widespread use of VCRs, indicates a willingness on the part of many
consumers in the U.K. to pay for additional programming.
In addition to the four previous terrestrial channels, an additional
commercial terrestrial channel (Channel 5) commenced broadcasting March 30,
1997.
The Group 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 Group 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 have been set aside for digital broadcasting by the existing
terrestrial broadcasters. The ITC has granted a license for three other
frequency ranges to British Digital Broadcasting Limited ("BDB"), a joint
venture owned by Carlton Communications and Granada Group, both of which are
major terrestrial broadcasters and programming producers. BSkyB has undertaken
to the ITC to supply programming to BDB for 5 years. BDB has announced its
intention to launch at least 15 channels in September 1998. Digital terrestrial
television will broadcast from land-based transmitters and could be received by
consumers with conventional aerials. A digital decoder box will be needed to
view the new channels, which will have digital picture and sound quality. BSkyB
has announced a joint venture with BT, Midland Bank and Matsushita, called
British Interactive Broadcasting ("BIB"), to develop and market a digital set
top decoder on a heavily subsidized basis. Both BDB and BIB are currently under
investigation by EU competition authorities. The introduction of digital
terrestrial, as well as digital DTH 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
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<PAGE> 78
retransmits the signal down to customers. In order to receive a satellite
service, the customer must have an outdoor reception dish.
Analog DTH satellite services are widely available in the U.K., and the
number of analog DTH satellite subscribers has increased from 500,000 in 1989
to approximately 4 million at September 30, 1997. 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 customers most 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 Group believes that it may become
less dependent on programming from BSkyB. See "-- Cable Television --
Programming".
The Group believes that DTH satellite services will continue to be
significant competitors in the future. However, the Group believes that cable
television has a number of competitive advantages over DTH satellite service,
including the following: (a) the higher up-front or ongoing costs for the
purchase or rental of a satellite dish and related equipment required for DTH;
(b) the perception that satellite dishes are unsightly; (c) the long-term
contracts (one-year) generally required for DTH satellite services; and (d) the
ability of cable networks to offer telephone services and in the future to
offer certain interactive and integrated entertainment, telecommunications and
information services over their existing networks.
The Group 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. Aggressive promotional activity by BSkyB has accentuated this advantage.
In addition, BSkyB has announced its intention to introduce a digital DTH
satellite service offering the possibility of over 200 television channels and
a range of interactive services in early summer 1998. The Group believes that
DTH satellite services may become more competitive with cable service if
digital services are successfully introduced in the U.K. such that satellite
services can provide more channels and direct specific programming to
particular subscribers.
On December 1, 1997, BSkyB launched a pay-per-view movie service,
broadcast on four of its DTH satellite channels, which will compete with Front
Row, the Group's pay-per-view movie service.
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 and others have conducted residential trials).
However, the successful introduction of a video-on-demand service in the
Group's franchise areas, particularly by a national PTO, would result in the
Group's services being subject to increased competition. See "-- Certain
Regulatory Matters -- Restrictions on National PTOs". SMATV systems can compete
with cable television within a franchise area, but currently there are no SMATV
systems licensed to provide service to more than 1,000 homes in the Group's
franchise areas.
New Technologies. The extent to which new media and technologies will
compete with cable television systems in the future cannot be predicted and
such media or technologies may become dominant in the future and render cable
television systems less profitable or even obsolete. Certain operators
currently are deploying digital compression technology in the U.S. If digital
compression technology is deployed successfully in the U.K., it will enable the
Group, as well as its terrestrial and digital DTH satellite competitors, to
increase significantly the number of channels they are currently able to offer
to their customers. An increase in the number of channels offered by
terrestrial and DTH satellite services at competitive costs could affect the
Group's current competitive position.
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<PAGE> 79
FRANCHISE AREAS
The Group has been granted cable television licenses to provide cable
television services in fifteen franchise areas that form a contiguous cluster
of approximately 1,229,900 equity homes. The Group has been granted eight
individual franchise telecommunications licenses and a national
telecommunications license which will enable the provision of business and
residential telecommunications in the Group's seven remaining franchises and
elsewhere in the U.K. The table below sets forth the number of homes in the
individual franchise areas according to CACI Information Services (for the
franchises governed by individual franchise telecommunications licenses and the
Burton-upon-Trent and Hinckley LDLs) and the ITC (for the other LDLs).
<TABLE>
<CAPTION>
OWNERSHIP EQUITY HOMES
--------- ------------
<S> <C> <C>
TELECOMMUNICATIONS LICENSES
Nottingham....................... 100% 270,000
Mansfield........................ 100% 85,000
Newark-on-Trent.................. 100% 42,000
Grantham......................... 100% 22,000
Melton Mowbray................... 100% 19,000
Lincoln.......................... 100% 52,000
Grimsby and Cleethorpes.......... 100% 64,000
Leicester and Loughborough....... 100% 203,000
LDLS(1)
Burton-upon-Trent................ 100% 94,000
Hinckley......................... 100% 45,000
Ravenshead....................... 100% 2,900
Bassetlaw........................ 100% 41,000
Lincolnshire and South Humberside 100% 174,000
Chesterfield..................... 100% 107,000
Vale of Belvoir.................. 100% 9,000
---------
Total............................ 1,229,900
=========
</TABLE>
(1) The Group has been granted an LDL for each of these franchise areas and a
national telecommunications license that covers all of the U.K. including
the LDL franchise areas but excluding the areas covered by the Group's
individual franchise telecommunications licenses.
Diamond's original franchise areas comprise a substantial regional market
centered around the City of Nottingham. In addition, the LCL franchises and the
Ravenshead, Bassetlaw, Lincolnshire and South Humberside, Chesterfield and Vale
of Belvoir franchise areas are contiguous to the original Diamond franchises.
All of the Group's franchises are concentrated in a single region and the Group
owns a 100% interest in the licenses associated with each franchise. The Group
believes that the Group's regional focus provides it with a number of
advantages, including the ability to (a) achieve significant cost benefits in
designing, constructing and managing a single network infrastructure and
providing telecommunications services over an extensive area, (b) be more
responsive to customer needs than its national competitors, thereby increasing
customer loyalty and (c) increase its name recognition.
Under present rules, the individual franchise telecommunications licenses
covering these franchises last for 23 years from the date from which the cable
system first becomes operative. Thereafter, these licenses are not extendable
and application must be made for a new license. The individual franchise
telecommunications license for the Nottingham franchise, which was the first to
become operative, expires in 2013. The individual franchise telecommunications
licenses currently held by the Group incorporate construction milestones which
are reviewed by OFTEL. LDLs include milestones which are reviewed by the ITC.
See "-- Milestones". The national telecommunications license lasts for an
initial period of 25 years from the date of grant, April 28, 1997, and is then
subject to revocation on 10 years' notice. For further descriptions of the
Group's licenses, see " -- Certain Regulatory Matters".
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<PAGE> 80
The Group 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 Group 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 which
serves approximately 16,000 council properties in Nottingham and approximately
7,000 council properties in Leicester. 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, 1997, approximately 563,000 of the premises in the
Group's franchise areas had been passed by civils construction and a portion of
the network passing approximately 533,700 premises had been activated. The
number of premises activated represents approximately 52% of the Group's
aggregate milestone requirements. Construction has now commenced in twelve 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
Group'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. As of December 31, 1997, the Group's cable television
and telecommunications network had passed by civils construction approximately
536,100 homes and an estimated 26,900 businesses, of which portions of the
network passing approximately 508,800 homes and an estimated 24,900 businesses
had been activated. During 1997, the Group intentionally slowed the pace of
civils construction to reduce the large numbers of homes passed by civils
construction which were yet to be activated and/or marketed. During 1997,
approximately 82,000 homes were passed by civils construction by the Group's
cable network, as compared with approximately 173,000 and 172,000 homes passed
by civils construction in 1995 and 1996, respectively. The pace of civils
construction was also impacted by the phase out of one of the Group's largest
contractors, which went into liquidation. The Group may encounter difficulty in
obtaining qualified contractors and may encounter cost overruns or further
delays in construction. Although the Group believes it will be able to continue
to negotiate construction contracts at competitive rates, construction costs
could increase significantly over the next few years in light of the demand for
cable construction services as the industry seeks to meet milestone
requirements. As with other U.K. cable operators, the Group is generally
required to use underground construction, which is more expensive and time
consuming than aerial construction. The Group cannot broadly employ mechanized
construction methods due to existing underground utility infrastructure, and
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<PAGE> 81
is responsible for the expense of restoring surface area after construction is
completed. Given the current high levels of cable construction in the U.K. and
the corresponding demand for materials, the Group has from time to time
experienced (and may in the future experience) shortages or price increases for
critical components such as fiber optic cable, ducting and cabinets.
The Group originally relied on its own construction team for the build out
of its network. Since 1994, the Group has primarily used outside contractors
and now uses outside contractors for almost all of the build out of its
network. The Group maintains a small in-house construction team primarily for
building out particularly difficult areas.
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 Group'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 individual franchise
telecommunications licenses and LDLs to construct and activate 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 milestones specified
in telecommunications licenses for eight of the Group's franchise areas where
building was due to have commenced. Compliance with the milestones in these
areas is monitored by OFTEL. During June 1996, OFTEL informed the Group that it
did not agree with the Group's historical method for calculating compliance
with its milestone obligations. Based on OFTEL's method of calculating premises
passed, the Group failed to meet its year-end 1995 milestones for six of its
eight telecommunications licenses.
The Group has renegotiated its milestone obligations with OFTEL, and at
December 31, 1997, the Group met the required milestone obligations under each
of its telecommunications licenses.
Principally because of delays by the Department of Trade and Industry in
granting the Group a national telecommunications license, and consequent delays
in the commencement of construction, the Group did not meet its current LDL
milestones in six of the seven LDL franchises at the end of 1997, although
construction has commenced in five of the seven LDL franchises. The Group has
applied to the ITC to modify its milestone obligations in all of its LDL
franchise areas except Vale of Belvoir. The Group understands that the ITC
intends to grant the requested modifications. See " -- Certain Regulatory
Matters -- Cable Telecommunications -- Network Construction and Service
Obligations".
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<PAGE> 82
The following table sets forth the milestones that are incorporated into
the Group's telecommunications licenses and LDLs. Since the actual milestones
that the Group is required to meet are specified individually for each of the
franchises, the Group could meet the aggregate milestones but still fail to
meet one or more individual franchise milestones and therefore subject a
telecommunications license or LDL to the risk of revocation or termination.
<TABLE>
<CAPTION>
AFTER
GROUP FRANCHISE AREAS 1996 1997 1998 1999 2000 2000
- --------------------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
TELECOMMUNICATIONS LICENSE
MILESTONES(1)(2)
Nottingham...................... 132,000 190,000 230,000 230,000 230,000 230,000
Mansfield....................... 42,000 66,000 66,000 66,000 66,000 66,000
Newark-on-Trent................. 13,500 13,500 13,500 13,500 13,500 13,500
Grantham........................ 14,000 14,000 14,000 14,000 14,000 14,000
Melton Mowbray.................. 10,000 10,000 10,000 10,000 10,000 10,000
Lincoln......................... 18,000 43,000 43,000 43,000 43,000 43,000
Grimsby and Cleethorpes......... 35,000 57,000 63,000 63,000 63,000 63,000
Leicester and Loughborough...... 76,000 100,000 149,000 200,670 200,670 200,670
LDL MILESTONES(2)
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 340,500 529,000 701,000 837,670 922,419 1,021,894
======== ======= ======= ======= ======= =========
Aggregate Annual Totals 188,500 172,000 136,670 84,749
</TABLE>
- -----------
(1) Although reflected above on an annual basis, the Group's individual
franchise telecommunications license milestones are measured on a
quarterly basis.
(2) Telecommunications license milestones refer to premises and LDL
milestones refer to homes.
The table below sets forth by franchise and date the number of premises
activated.
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31
1996 1996 1997 1997 1997 1997
--------- -------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Nottingham................. 123,910 139,286 145,402 171,922 182,254 194,370
Mansfield.................. 40,474 46,916 50,879 57,071 61,632 69,707
Newark-on-Trent............ 12,707 13,509 13,509 13,509 13,509 13,509
Grantham................... 11,515 14,894 15,719 15,719 15,719 15,719
Melton Mowbray............. 9,819 10,045 10,045 10,045 10,045 10,045
Lincoln.................... 16,887 20,131 23,389 34,089 34,997 44,619
Grimsby and Cleethorpes.... 30,699 37,130 40,885 46,618 49,912 58,894
Leicester and Loughborough. 77,017 83,280 85,562 96,271 107,008 118,721
Vale of Belvoir............ -- -- -- -- -- 1,652
Burton-upon-Trent.......... -- -- -- -- -- 2,422
Hinckley................... -- -- -- -- -- 2,012
Ravenshead................. -- -- -- -- -- 2,050
------- ------- ------- ------- ------- -------
Cumulative Total....... 323,028 365,191 385,390 445,244 475,076 533,720
======= ======= ======= ======= ======= =======
</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. 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.
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<PAGE> 83
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 Group believes that it 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 its switches, primary multiplexers and certain
telephone transmission equipment. LCL has obtained such equipment from Nortel
Limited. The Group obtains all of its cable television transmission equipment
and set top converters from Scientific Atlanta. Scientific Atlanta, GPT and
Nortel Limited are among the largest providers of cable television and
telephone equipment in their respective markets. While the Group to date has
experienced no significant difficulty in receiving products from these
companies, the failure or inability of any of these companies to continue to
supply the Group with these products in the future could have a material
adverse effect on the Group.
The Group has not experienced significant difficulty in obtaining timely
deliveries of equipment and services. In order to reduce warehousing expenses,
maximize inventory control and minimize the possibility that the Group will not
have the required inventory to proceed with construction in a timely manner,
the Group centralized its warehouse operations. Due to the high level of
construction in the U.K. cable industry, delays may be encountered in obtaining
certain supplies such as fiber optic cable; however the Group is making efforts
to avoid such delays.
NETWORK ARCHITECTURE
The network being constructed by the Group comprises an overlay of a cable
television network and a telecommunications network. Portions of the network
currently in the ground utilize conventional tree and branch architecture and
the other portions utilize optical fiber node architecture with nodes serving
up to 2,500 homes. Both of these portions of the network may need to be
upgraded to achieve higher capability and reliability. This upgrading is not
expected to require significant additional capital expenditure.
The Group is now constructing a cable system in which optical fiber is
employed to areas serving approximately 500 homes for both cable television and
telecommunications services. The geography of the Group's franchise areas and
the location of the cable television network's headends and the
telecommunications network's switches dictate to some degree the physical
construction of the cable television and telecommunications network. The
Nottingham central network control office will control and monitor all other
locations which will be interconnected to Nottingham supertrunking fiber
network.
Five switches are currently in operation in Nottingham, which is presently
interconnected with three other switches in Mansfield, Lincoln and Grimsby.
Leicester is interconnected with 2 Mbit/s circuits to Nottingham. Two switches
in Leicester are in service, with a third commissioned in nearby Shepshed. The
Group 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 Group 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.
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<PAGE> 84
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 Group
has begun the deployment of 750 MHZ Scientific Atlanta set top converters, with
analog 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 Mbit/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
Mbit/s ("STM 4") will support four STM 1 rings. The telecommunications network
has been designed so that as penetration and traffic intensifies, ring
splitting will enable additional capacity to be carried. All network equipment,
both cable television and telephone, is powered by battery backed-up power
supplies.
Telecommunications and cable television services are transmitted to the
home through the same "Siamese" drop cable. The "Siamese" cable consists of two
twisted pair telephone cables and a cable television coaxial drop cable
manufactured in the same cable housing/insulation package so that both services
are installed at the same time. From a subscriber's home, the telephone cable
is run through the street cabinet up to the 500 home hub cabinet where calls
are processed through a primary multiplexer which handles many calls and
transmits them to the telephone switching equipment. The calls are then routed,
if possible, to their final destination via the lowest cost routing, be it BT,
Mercury, Energis, Global One, ACC 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
customer 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 Group believes that its 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 Group 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 are being integrated in phases. The
initial objective was to physically connect the two networks through a fiber
interconnect and this has been achieved. The main purpose of the interconnect
is for the central network control office (located in Nottingham) to have the
ability to control the Nortel switches in Leicester, mainly for telephone
purposes. This interconnect also enables Nottingham to monitor the Leicester
cable television headend and transfer data of route forwarding information
between the two locations.
The physical connection point is in Shepshed, which is located between
Nottingham and Leicester and is the location of the third switch for the LCL
franchise areas.
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<PAGE> 85
The retail billing processes in the Diamond and LCL franchises have been
fully integrated and the integration of wholesale billing processes is planned
for 1998.
EMPLOYEES
As of December 31, 1997, the Group had 953 employees, including 913
employees in operations and 40 employees in civils construction. With effect
from February 1997, DCL began to directly employ residential salespeople, which
increased the number of its employees. Previously salespeople had been employed
by independent companies engaged by the Group on a subcontracting basis. The
Group has not entered into any collective bargaining agreement with employees
and the Group currently believes that its 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
(b) a cable television license, which authorizes the provision of
broadcasting services within a defined geographical area and which may be
either:
(i) a Prescribed Diffusion Service License ("PDSL"), granted
under the CBA prior to 1991, which allows an operator to provide
cable television and other entertainment services by means of a
cable network, or
(ii) an LDL granted since January 1, 1991 under the
Broadcasting Act 1990, which allows an operator to deliver
television and other programming services by means of a licensed
telecommunications network including a cable network.
Each type of license described above contains various conditions, and in
the event of the breach of such conditions, the Director General or the ITC, as
appropriate, could issue an enforcement order and ultimately commence
proceedings to require compliance or to revoke such licenses.
Under the Broadcasting Act 1990, cable operators may elect to replace
certain PDSLs with LDLs with similar terms.
The regulatory environment in the U.K. has generally encouraged the
development of the cable telecommunications and the cable television industry
by, among other things, licensing only one operator for each cable franchise
area and restricting the national PTOs from using existing telecommunications
networks to carry broadcast entertainment.
The Labour Party stated in November 1997 that it will review the existing
regulatory structure and that it expects to publish its proposals regarding the
restrictions on BT carrying broadcast entertainment over the existing network
in the near future. It is not currently possible to predict the nature of any
such proposals. See "-- Cable Telecommunications -- Restrictions on National
PTOs".
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<PAGE> 86
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 15, 1997, cable television licenses had been
granted for franchise areas covering approximately 16.8 million out of
approximately 22 million total homes in the U.K. The ITC has indicated that it
will grant only one cable television license for each geographical area for the
foreseeable future. The ITC also has indicated that certain areas, for which
cable television licenses have yet to be awarded, may be advertised at the
request of applicants. Such licenses (LDLs) are generally awarded after
competitive bids. Before awarding an LDL, the ITC must be satisfied as to
certain matters, including the technical specification of the proposed system;
that the applicant has sufficient funding to run the franchise; and that the
applicant is a fit and proper person to be awarded a license. The ITC will
award the LDL to the highest bidder unless there are exceptional circumstances,
including that the coverage proposed to be achieved by another applicant is
substantially greater than that indicated in the technical plan of the highest
bidder, such that it is appropriate to award the license to that other
applicant. In addition, all applicants must undertake to pay a percentage of
qualifying revenue ("PQR") to the ITC in each year of the license.
Cable operators may carry U.K. licensed broadcast services, foreign
satellite programs 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.
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<PAGE> 87
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 as
amended by the Broadcasting Act 1996 (see below) and can impose fines and
shorten the license period of LDLs.
A cable television license is transferable only with the consent of the
ITC, and several of the Group's cable television licenses were transferred to
DCL from various of the Group's wholly-owned subsidiaries with that consent.
The Group also holds two licenses to provide television program services
under the Broadcasting Act 1990. The license for the Leicester Community
Channel came into force on June 29, 1992 and the license for Diamond Vision on
August 29, 1995. Both licenses are for a period of 10 years.
Ownership Restrictions. The ITC has a general duty to ensure that cable
television licenses are held by "fit and proper" persons and may exercise
control over who may hold a license where financial assistance is provided to,
or influence is exercised over, a licenseholder which may produce results which
it considers adverse to the public interest. The Broadcasting Act 1990 also
contains specific restrictions on the types of entities which may hold cable
television licenses or significant interests therein. Cable television licenses
may not be held by a local authority, an advertising agency, a religious or
political body (or one of its officers) or any entity controlled by them.
Ownership restrictions also apply to ownership of different licensed services
(including local delivery services, television, satellite and radio services
and newspapers), or associates of entities operating such services. See "--
Media Ownership". While PDSLs in most respects continue to be regulated under
the Broadcasting Act 1990 and the Broadcasting Act 1996 as if the CBA remained
in force, the ownership restrictions for PDSLs and LDLs are substantially
similar.
There is currently no restriction on the number of cable television
licenses which may be held by any person.
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).
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<PAGE> 88
Telecommunications Licenses
The Group holds eight individual franchise telecommunications licenses and
a national telecommunications license which covers those areas of the U.K. for
which it does not hold an individual franchise telecommunications license,
including the areas for which it has been granted LDLs. A telecommunications
license authorizes a cable operator to install and operate the physical network
used to provide cable television and cable telecommunications services. It also
authorizes the operator to connect its system to other television and
telecommunications systems, including those operated by the PTOs, the
terrestrial broadcasting authorities and satellite broadcasting systems.
Although individual franchise telecommunications licenses granted to a cable
operator are for a particular area, they are not exclusive and, as a result, a
cable telephone operator is subject to competition with respect to the
provision of telephone services from national PTOs such as BT and Mercury and
other telephone service providers in its franchise area. There are now over 200
telecommunication licensed operators in the U.K. See "Competition -- Business
Telecommunications" and " -- Competition -- Residential Telephone". Following
the Duopoly Review, the Government has granted a telecommunications license to
any applicant provided the applicant has satisfied certain requirements,
including with respect to financial viability and, in some cases, service
commitments. See "-- Duopoly Review".
A cable operator's telecommunications license contains conditions
regulating the manner in which the licensee operates its telecommunications
system, provides telecommunications services, connects its systems to others
and generally operates its business. A cable operator's telecommunications
license also contains a number of detailed provisions relating to the technical
aspects of the licensed system (e.g., numbering, metering and the use of
standard technical interfaces) and the manner in which the licensee conducts
its business (e.g., publication of certain prices, terms and conditions). In
addition, a cable operator's telecommunications license contains prohibitions
on undue preference and discrimination in providing service. The cable
operator's telecommunications license also requires the licensee to provide any
information which the Director General may require for the purposes of carrying
out his statutory functions. Failure to comply with an enforcement order in
respect of a breach of a telecommunications license condition might give rise
to revocation, an injunction by the Director General or to a third party's
right to damages. In September 1997 OFTEL completed its review of the PTO
licenses held by cable operators to convert them to the standard "slimline"
format of non-dominant PTOs which Mercury's modified license now follows to a
large extent. Modifications to these cable operators licenses have now been
issued and have come into effect. This has resulted in the deletion of a number
of conditions in the Group's individual franchise telecommunications licenses,
for example, those relating to the pre-notification of prices and the
prohibition on unfair cross-subsidies although such conduct may fall within the
fair trading condition. See below.
The telecommunications licenses of BT and Mercury now contain a condition,
referred to as the fair trading condition, which prohibits any abuse of their
dominant position and any agreement or concerted practice between the licensee
and other entities restricting or distorting competition in the
telecommunications market. This condition has been incorporated into new
telecommunications licenses issued since 31 December 1996 including the Group's
national telecommunications license. The Group's individual licenses have now
also been modified to include the fair trading condition.
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.
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<PAGE> 89
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 individual franchise telecommunications licenses
prescribes milestones which require the Group to construct its network to pass
a specified number of premises within prescribed time periods. The milestones
may be varied by the Director General if he considers that the variation would
enable the licensee to meet the final milestone more easily. The final
milestones can be modified only following a public consultation period and with
the approval of the Director General. If the milestones prescribed by a
telecommunications license are not met, the Director General may take
enforcement action which, if not complied with, could result in the revocation
of such license. Similarly, the LDLs which the Group has acquired contain build
milestones which may be varied by the ITC. See " -- Construction" and " --
Milestones". The Group understands that all milestones from now on will be
contained in LDLs. The Group also understands that the ITC will have
jurisdiction to enforce these milestones. To date, the ITC has not published
any guidelines on enforcement of milestones.
Where a cable network has been installed, a licensee must provide a cable
television service to anyone who reasonably requests it. A cable operator is
not required to provide telephony services, but where it does so, and achieves
a 25% or more share of the relevant market for such services (as determined by
the Director General) within its licensed area, the licensee may, at the
direction of the Director General, be required to ensure that telephone
services are available to anyone in the licensed area who reasonably requests
them. The Group has not received any such direction from the Director General.
Under a telecommunications license, the cable operator is subject to and
has the benefit of the Telecommunications Code promulgated under the
Telecommunications Act. The Telecommunications Code provides certain rights and
obligations with respect to installing and maintaining equipment such as ducts,
cables and cabinets on public or private land (including the installation of
equipment on public highways). The activities of cable operators under the
Telecommunications Code are also subject to planning legislation.
Cable operators have the benefit of, and must comply with, the Street
Works Act, which provides them with the same rights and responsibilities with
respect to construction on public highways as other public utilities. The
Street Works Act standardizes fees for inspections of construction works by
local governmental authorities and standardizes specifications for
reinstatement of property following excavation. As a result, construction
delays previously experienced by cable operators because of separate and often
lengthy negotiations with local governmental entities have been reduced.
Cable operators are required to post bonds for local authorities in
respect of their obligation to ensure reinstatement of roads and streets in the
event the operators become insolvent, cease to carry on business or have their
telecommunications license terminated. In order to install equipment on private
property cable operators must obtain legal permission from occupiers, property
owners and others.
Term, Renewal and Revocation of Telecommunications Licenses
To date, telecommunications licenses have generally been granted for
periods of 15 or 23 years. Seven of Diamond's individual franchise
telecommunications licenses were granted for an initial period of 23 years, and
one was granted for an initial period of 15 years, both periods commencing on
the date specified by the Secretary of State (which, in practice, is the date
on which the cable system first becomes operative). The 15-year
telecommunications license was subsequently amended to a 23-year license. The
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<PAGE> 90
Group's national telecommunications license is for an initial 25-year term and
continues thereafter subject to a 10-year notice period.
Upon expiration, a telecommunications license cannot be extended and
application must be made for a new license.
A telecommunications license may be revoked if the licensee fails to pay
the license fees when due, fails to comply with an enforcement order, upon the
occurrence of certain insolvency-related events or if the cable television
license relating to the licensee's system is revoked. A telecommunications
license may also be revoked if, among other things, the licensee fails to give
the required notification to the DTI of changes in shareholdings and changes in
control and agreements affecting control of the licensee, or if the DTI
concludes that any such change would be against the interests of national
security or the U.K. Government's international relations.
Duopoly Review
In 1991, the U.K. Government concluded in its Duopoly Review that the
termination of the duopoly policy (which permitted only BT and Mercury to
operate local, national or international fixed-link networks in the U.K. to
provide public telephone services) might increase competition and benefit
consumers in the U.K. telecommunications market. As a result, the U.K.
Government revised its policy and determined that application for licenses
would be considered from any person seeking to operate new telecommunications
networks over fixed links within the U.K. Such licenses normally would be
granted subject to the general statutory duties of the DTI and the Director
General to ensure the provision of telecommunications services, to satisfy all
reasonable demands for them and the ability of a person providing the services
to finance their operations.
The Duopoly Review also recommended specific amendments to license
conditions that are particularly important to cable operators. Until the
Duopoly Review, for a cable operator to provide telephone services it had to
enter an agreement with BT or Mercury with respect to the terms and conditions
(including price) under which the operator would provide telephone services,
obtain a determination from the Director General that services could be
provided and operate its network as agent for either BT or Mercury. Since the
Duopoly Review, cable operators have been permitted to provide all forms of
wired telecommunications services in their own right, including the ability to
switch their own traffic. The Duopoly Review also recommended changes to and
further study of arrangements relating to interconnection, number portability
and equal access (discussed below).
As a result of the Duopoly Review, the Group applied for and received
modified telecommunications licenses to enable the Group to provide wired
telecommunications services in its own right.
Interconnect Arrangements
The ability of cable operators to provide viable voice and other
telecommunications services is dependent on their ability to interconnect
cost-effectively with other PTO's telecommunications networks in order to
complete calls that originate from a customer on their cable network but that
terminate off their network or that originate from a customer off their cable
network and terminate on their network. Since the Duopoly Review, cable
operators with contiguous franchises have been able to connect their networks
without regard to whether they are under common ownership without using the
services of BT or Mercury.
The Telecommunications (Interconnection) Regulations came into force on
December 31, 1997. These implement the Interconnection Directive (Directive
97/33/EC), which will extend, to a certain extent, the categories of operator in
the U.K. who will have the right to request interconnection and a reciprocal
obligation to provide it. These rights and obligations may extend to certain
operators who operate under class licenses. It is not currently possible to
predict accurately which categories of operator/service provider will fall
within the criteria set out in these regulations and therefore to which
operators interconnection rights and obligations will be extended. Operators
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wishing to benefit from such interconnection rights and obligations will be
required to apply to OFTEL which will assess whether the relevant criteria have
been met.
The DTI is able to consider applications by cable operators to join more
distant franchises, and Diamond has a license to link two of its franchises
which are not adjacent to one another. DCL is now able to link non-contiguous
franchises under its national telecommunications license without the need to
apply to the DTI.
PTOs are required under their telecommunications licenses to enter into
interconnection agreements with other PTOs such as the Group (if requested to
do so by such a PTO), and the Group has interconnection agreements with BT,
Mercury, Energis, Global One and ACC. The BT agreements may be terminated by
either party upon two years' notice; the Mercury agreement may be terminated by
either party upon two 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. In 1995 a House of
Lords decision 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.
Until October 1, 1997 OFTEL determined standard interconnect charges. The
first interim charge determination covered the period from April 1, 1995 to
March 31, 1996. Interim charges were based on BT's forecast financial
statements (on a fully allocated costs basis). OFTEL has now assessed final
charges based on BT's final financial statements for that period. 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 Group 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, 1997 -- Revenue". 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. OFTEL will be
issuing its determination of final charges for consultation in the very near
future. OFTEL has now determined interim charges up until September 30, 1997
and is expecting to publish final charges for that period in about March 1998
once BT publishes its first half year financial statements for 1998.
As from October 1, 1997 the twice yearly determination by OFTEL of BT's
network charges has been replaced by a system of network price controls and the
cost base for interconnection charges has been changed from fully allocated
costs to long run incremental costs. After a lengthy consultation period begun
in December 1995, in July 1997 OFTEL issued its final proposals which have been
accepted by BT and the necessary modifications have been incorporated into BT's
license. The new system provides for the application of price controls
depending on the level of competitiveness of the service. Services which are
not competitive are divided into baskets, each basket being subject to a charge
cap of RPI minus X. The July 1997 document determined the value of X for each
basket at 8%. 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
were 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 July 1997 document also sets out the starting
charges for the services in the network baskets which are based on BT's long
run incremental costs. The new system which commenced from October 1, 1997 will
run for four years.
In November 1997 OFTEL published non-legally binding guidelines on the
structure and operation of the new network charge control arrangements and on
OFTEL's approach to complaints about charges and other interconnect terms and
conditions. In respect of complaints that BT's charges are unreasonable, OFTEL
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will first test whether the charge falls between a cost floor and ceiling
determined by BT using a methodology prescribed by OFTEL and designed to
indicate whether the charge may be anti-competitive. Floors and ceilings for all
non-competitive services will be published each year by BT as part of their long
run incremental costs financial statements.
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, 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 X (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 price
cap is RPI minus 4.5% on the narrower basket of services described above.
Safeguard caps of RPI plus 0% have been imposed on certain services. OFTEL has
indicated that this is likely to be the last retail price control imposed on
BT. 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.
The telephone service prices charged by the Group currently are not
regulated by the Director General, although they are subject to the fair
trading condition.
Indirect and Equal Access
Indirect access is access to a customer through another operator whereas
equal access means preselection by the customer of the indirect access operator
or dialing parity, where the number of digits dialed for calls over the first
(access) network is the same as for calls over the second (indirect) network.
In July 1996, OFTEL released a statement setting out its policy on indirect and
equal access, dealing with the continued provision by BT of indirect access to
Mercury and other operators, the possible extension of the obligation imposed
on BT to include equal access, and the possible extension of an indirect access
obligation to Mercury and other "non-dominant" operators.
OFTEL concluded in its statement that indirect access will remain an
important route for many customers who are not yet able to take advantage of
competition in direct connections to receive the benefits of competitive
provision of telecommunication services and that, given BT's continuing dominant
position in the direct access network, BT should continue to be obligated to
provide indirect access to other operators. However, OFTEL also concluded that
this obligation on BT should not extend to providing equal access to other
operators. OFTEL, having commissioned a cost benefit analysis, concluded that,
rather than a cost benefit, there would be a significant net cost in
implementing equal access. Further, OFTEL concluded that "non-dominant"
operators (such as Mercury and the cable operators) should not be required to
give indirect access to other operators. Although all PTO licenses include a
condition regarding the provision of indirect access, it is subject to a number
of tests including the need to ensure that the requirements of fair competition
are satisfied and that indirect access, in all the circumstances, is reasonably
required. OFTEL considered that these tests were not satisfied. However, OFTEL
stated that it considers the "well established" operator threshold of 25% of
customer connections in a relevant market to be a useful guide in determining
whether a "non-dominant" operator should, in the future, be required to grant
indirect access to other operators. OFTEL stated that this threshold would not
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automatically mean that the operator would be required to grant indirect
access, but that OFTEL would investigate the issue further in respect of that
operator and market conditions generally once that threshold was reached. On
December 1, 1997 the EC Council of Telecommunications Ministers reached
political agreement on a draft directive to amend the Interconnection Directive
(Directive 97/33/EC) with regard to number portability and carrier
pre-selection. This will require member states (except those which have been
granted a derogation under the Full Competition Directive (Dir 96/19/EC)) to
introduce carrier pre-selection by January 1, 2000, for operators with
significant market power. Member states may request a deferment of this
obligation if they can show that it would impose "an excessive burden on
certain organizations or classes of organization". The U.K. government has
indicated that it is satisfied that this leaves it open for it to argue the
case for a deferment in respect to U.K. operators.
Number Portability
Telephone subscribers changing their telephone service to a cable operator
have historically had to change their telephone numbers. As a result certain
customers have been reluctant to switch carriers because they would lose their
existing telephone numbers. In response to this, Diamond has provided its
business customers with the opportunity to use the Group's telephone service for
their outgoing telephone calls, which generally carry higher revenues than
incoming calls, and for their specialized telecommunications needs, while
retaining their existing service provider (and their existing telephone number)
for incoming telephone calls.
In January 1994, the Director General announced that OFTEL was working on
directives to require BT to introduce number portability for the cable operators
who had provided OFTEL with the necessary information as to 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.
On April 9, 1997, OFTEL issued a statement which set out OFTEL's proposals
to modify the license conditions of Mercury and other fixed operators including
cable operators to ensure that they too provide number portability for all
users of fixed phones including portability of specially tariffed services such
as toll-free (0800), premium rate and national rate services.
Appropriate license modifications were made on December 17, 1997. These
take full account of the MMC report and are based on the current license
condition in BT's PTO license. They also apply the MMC's principles on the
charges which operators can make to each other for providing portability. In
particular, the following principles are applied:
(i) the licensee would be required to provide portability on request
from another qualifying licensee;
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(ii) the principle of reciprocity would apply;
(iii) each licensee would be required to pay the initial costs of
modifying its network;
(iv) each licensee would be able to pass on to the other licensee
concerned the costs of enabling individual customers to port their numbers;
(v) the exporting licensee would not directly charge the importing
licensee for any additional conveyance costs associated with routing a call
to a ported number; and
(vi) if requested, the Director General would determine the
reasonableness of the terms and conditions upon which portability was
offered.
These license modifications came into effect on December 17, 1997.
The draft directive amending the Interconnection Directive referred to
above also requires member states to introduce number portability in respect of
geographic and non-geographic numbers on the fixed public telephone network.
This obligation is also subject to the deferment provision mentioned above.
Restrictions on National PTOs
The Duopoly Review maintained restrictions upon BT and other national PTOs
from conveying or providing entertainment services (such as the cable
television services currently provided by the Group) over their national
telecommunications networks. The new Labour government started reviewing the
restrictions upon the conveyance and provision by BT and Mercury of broadcast
entertainment ahead of the schedule set by the former Conservative government,
which did not intend to review the restrictions on conveyance and on provision
until 2001 although the government was prepared to reconsider the conveying
aspect after March 1998 on the advice of the Director General of
Telecommunications. In November 1997 the Labour government stated that it
expects to publish proposals in the near future. See " -- Certain Regulatory
Matters -- General". The Duopoly Review policy did not prevent the national
PTOs from providing cable television services of the kind currently provided by
the Group, but it did require that such services be provided through separate
systems by separate subsidiaries of the national PTOs under separate licenses
similar to those held by the Group. The ITC's policy of granting one cable
television license for each geographic area has ensured that no national PTO
subsidiaries compete with the Group in the provision of cable television
services in the same area. BT currently owns and operates two cable franchises
in the U.K., in Westminster (central London) and Milton Keynes. 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.
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
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services of the kind provided by the Group for simultaneous reception in
multiple residential households. The ITC noted that its conclusions were shared
by other regulatory bodies (i.e., the DTI and OFTEL), but that its conclusions,
if disputed, could only be definitively resolved in the courts.
Currently, no video-on-demand service is commercially available from any
PTO. However, BT ran a pilot program for this service to the homes of a limited
number of BT employees and is understood to have run an interactive TV,
including video-on-demand, commercial pilot program. Mercury has also announced
that it is considering a video-on-demand pilot program. In July 1994, the House
of Commons Trade and Industry Select Committee issued a report on optical fiber
networks in which it recommended, among other things, (i) that national PTOs be
permitted to apply to provide broadcast entertainment on a franchise by
franchise basis, subject to all existing franchises being exclusive for seven
years from the grant of the original licenses, (ii) that all restrictions on
national PTOs conveying or providing entertainment be lifted by the end of
2002, provided that the PTOs permit fair and open access to their networks and
(iii) that national PTOs (amongst others) be entitled to bid for cable
television franchises in unfranchised areas by the end of 1995. The DTI, OFTEL
and the ITC have stated that lifting these restrictions would limit competition
by jeopardizing the investment programs of cable operators. The Labour
Government policy is to review the restrictions on national PTOs, and in a
speech by the Labour Party leader on October 3, 1995, it was proposed that a
Labour government might increase BT's regulatory freedom. The Labour government
has stated its intention to publish proposals in the near future.
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 distinguishes between "multiplex" providers, the
providers of the frequency ranges on which the television channels will be
carried, and the digital program service providers, who provide the programs to
be broadcast on the multiplexes. Each must be licensed by the ITC. Licensed
digital multiplex providers will be required to contract with licensed digital
program providers to carry their services on the multiplexes on a fair and
non-discriminatory basis.
Initially six multiplexes are available for digital terrestrial
television. Each of the existing terrestrial broadcasters have reserved
capacity on these multiplexes, being offered half a multiplex for each existing
channel. This means that the BBC has full control of one multiplex, Channel 3
and Channel 4 have joint control of a multiplex and Channel 5 and S4C each have
half of a third multiplex. Existing terrestrial broadcasters have obligations
to simulcast their existing analog channels and will be able to use their
remaining multiplex capacity to provide new free-to-air or pay services.
Following a competitive tender, the ITC announced in June 1997 that the
remaining three multiplexes would be awarded to British Digital Broadcasting
(BDB), a joint venture between Carlton Communications and Granada Group. BSkyB
was also originally a member of the joint venture but because of competition
concerns the ITC required it to divest itself of the shareholding which was
transferred equally to Carlton and Granada. BSkyB however will remain a major
supplier of programming to BDB. The joint venture arrangements are currently
being investigated by the EC competition authorities. The licenses were
formally granted by the ITC on December 19, 1997 following conclusion of the
ITC's own discussions with the EC competition authorities regarding their
concerns. The licenses contain conditions which are intended to address, among
other things, concerns over program service contracts with BSkyB. The
conditions include the limitation of program supply agreements to five years, a
requirement for the licensee to support open technical standards on integrated
TV sets and conditions to ensure that BDB is not prevented from competing with
BSkyB.
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Conditional Access
Pay television broadcasters need to use conditional access systems to
ensure that only subscribers receive their services. Conditional access systems
provide two main types of services: encryption services and customer management
services. The EC Advanced Television Standards Directive (Directive 95/47/EC)
requires, amongst other things, that conditional access services for digital
television services should be available to broadcasters on a fair, reasonable
and non-discriminatory basis. This Directive was implemented in the U.K. by the
Advanced Television Services Regulations which came into force on January 7,
1997. In addition to the requirement that conditional access services must be
offered on a fair, reasonable and non-discriminatory basis, the Regulations
provide that broadcasters may obtain information on the conditional access
system prior to its being put on the market. Further, the Regulations provide
that conditional access operators are required to cooperate with cable
operators so that cable operators are able to receive and rebroadcast
television services using their own conditional access system without incurring
unnecessary or unreasonable expense.
The Regulations also modify the Telecommunications Act 1984 to provide for
conditional access systems which make available conditional access services
including encryption, subscriber management or subscriber authorization
services to be treated as telecommunications systems. Each such system must be
licensed and the U.K. Secretary of State granted a Class License to authorize
the running of these conditional access systems which came into force also on
January 7, 1997 and runs until July 31, 2001 unless previously revoked. The
license contains similar provisions to those in the Regulations set out above
and, in addition, includes the fair trading condition.
Under the Class License, the Director General can order a licensee to make
available its intellectual property rights if the licensee is using them to
prevent or obstruct products from being made available. The Director General
can also designate an interface between the licensed system and a broadcaster's
conditional access or other transmission system as an "essential interface" and
thereafter the licensee must comply with any relevant standard specified by a
broadcaster which includes applicable European standards or other standards
specified by the Director General.
Following public consultation, OFTEL published guidelines on the
regulation of conditional access services for digital television. The
guidelines set out how OFTEL would propose to deal with anti-competitive
behavior in relation to the provision of conditional access services. The
guidelines are not legally binding and are expected to be reviewed where market
developments so require.
In July 1997 the DTI and OFTEL issued a joint consultation proposing the
extension of the current conditional access regime for digital television
broadcasts to digital non-television broadcasts and non-broadcast services in
the light of the convergence of the technologies and markets in broadcasting
and telecommunications. The services to be covered include non-broadcast
interactive services such as home-shopping and non-broadcast information
services. Conditional access systems for analog services are not included.
In addition, in October 1997, OFTEL issued a consultative document
relating to guidance on the pricing of conditional access systems to ensure
that they are offered on a fair, reasonable and non-discriminatory basis. The
aim is to ensure that prices are reasonable and that comparable broadcasters
receive comparable treatment by not being subject to differential pricing.
OFTEL proposes to group together providers of subscription services and to
assess whether they are comparable by reference to number of subscribers and
number of different services (or combination of services) offered to
subscribers.
BSkyB has entered into a joint venture, BIB, with BT, Midland Bank and
Matsushita (one of the manufacturers of decoders for accessing digital
television channels) to create and operate a platform for the provision of
digital interactive television services to U.K. viewers. The interactive
services which it hopes to offer include home banking, home shopping and
Internet access via TV screens. BIB intends to subsidize the costs of the
manufacture and installation of the decoders needed to access the services. The
joint
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venture arrangements are currently under investigation by the EC competition
authorities, having been notified by the parties and also being the subject of
a complaint.
Media Ownership
The Broadcasting Act 1996 amends the media ownership rules contained in
the Broadcasting Act 1990. It relaxes the earlier rules limiting ownership
between terrestrial television, satellite and cable broadcasters, except for
those broadcasters which are already more than 20% owned by a newspaper with
more than 20% national newspaper circulation. Qualifying terrestrial
broadcasters are now allowed to have controlling interests in cable and
satellite companies, provided their total interests do not exceed 15% of the
total television market (defined by audience share including public service
broadcasters) and qualifying cable companies will be able to control
terrestrial television companies, subject to the 15% total television market
limit and certain restrictions on the number of terrestrial licenses held.
Newspaper groups with less than 20% national newspaper circulation are now able
to control television broadcasters constituting up to 15% of the total
television market, subject to a limit on the number of terrestrial licenses
held, unless the ITC decides that such control would be against the public
interest. Newspaper companies, the license holders of Channel 3 and Channel 5
and satellite and cable broadcasters, are to have the ability to control any
number of digital terrestrial television licenses, in addition to any analogue
licenses.
BSM Services
In August 1995 OFTEL issued a consultative document which addressed the
potential development of broadband switched mass-market ("BSM") services in the
U.K. and related regulatory issues. BSM services involve the delivery of
video-quality images over a switched system, at prices intended to encourage
the development of a mass market. The consultative document suggested that
dominant operators (potentially including cable operators) should be required
to provide, on transparent and non-discriminatory terms, broadband conveyance
(including switching) as a network business to service providers which could
have direct commercial relationships with individual customers. Requirements
for accounting separation and the possible need for some form of price control
were also considered. OFTEL suggested that BT is likely, at an early stage, to
be considered a dominant operator, possibly when it starts to roll out BSM
services aimed at covering a significant portion of the U.K., either nationally
or in a specific regional market. OFTEL suggested that such regulation should
only be applied to the cable sector when it becomes dominant, either nationally
or in a specific regional market, and is able to compete on equal terms with BT
and any other BSM services distributor. In the meantime the document recognized
the importance of encouraging continuing local investment in the cable
industry's infrastructure. The document also raised the question whether
license obligations on cable operators to provide cable television services
where their systems have been installed should not apply to BSM services (other
than the broadcast entertainment services for which they have exclusive cable
distribution rights in their franchise areas) until they become dominant in
their relevant markets. The stated purpose of the consultative document was to
raise issues in order to stimulate debate to assist in the development of the
kind of regulatory regime that will best promote the new services. The August
1995 consultative document was followed by a consultative document in February
1996 and by a statement by the Director General in June 1996, both of which
were concerned with promoting competition in the current market for services
such as on-line information, electronic data interchange and voice messaging.
Accounting Separation
The EC Interconnection Directive (mentioned above) requires that operators
who have special or exclusive rights for the provision of services in sectors
other than telecommunications in the same or another member state must keep
separate accounts of their telecommunications activities if their turnover from
the provision of public telecommunications networks or publicly available
telecommunications services is more than 50 million ecus. This requirement has
been implemented in the U.K. by the Telecommunications (Interconnection)
Regulations. See "-- Cable Telecommunications -- Interconnect Arrangements".
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The DTI and OFTEL take the view that cable operators have special or
exclusive rights for the provision of entertainment services over their cable
systems and therefore fall within this obligation. Several cable operators,
including the Group have challenged this interpretation because they are
subject to competition in their franchise areas from DTH satellite service
operators and will in the near future be subject to competition from digital
terrestrial television.
The implementing regulations do not set out detailed guidelines for the
accounting separation requirements.
Separation of Cable and Telecommunications Operations
The EC Commission is of the view that accounting separation provided for
under the existing Cable TV Directive (95/51/EC) is not sufficient to ensure
competition and is proposing an amending directive under its powers in Article
90 of the EC Treaty, relating to the structural separation of operators' cable
television and telecommunications activities. The draft directive was adopted
by the United States Securities and Exchange Commission (the "Commission") on
December 16, 1997 and will be subject to a two month period of consultation
commencing on the date the draft text is published in the Official Journal. At
the end of the consultation period the Commission can then formally adopt the
directive with or without taking into account comments of third parties, the
European Parliament or the European Council received during that period. The
amending directive should enter into force twenty days after its publication.
As it is still in draft form, any impact of the amending directive on UK cable
operators cannot yet be predicted. However, it would appear that the
requirement for legal separation of the provision of public telecommunications
and cable TV networks will apply to dominant telecommunications operators which
also have special/exclusive rights in respect of the provision of cable TV
networks and (if the operator is not state-controlled) in respect of the use of
relevant radio frequencies. In a footnote in a relevant Communication, the
Commission specifically described the situation in the U.K. where BT, Mercury
and Kingston Communications can operate cable TV networks, if they obtain a
franchise, but the networks have to be run separately from the main
telecommunications activities of those entities. In addition, the Commission
takes the view that full divestment could still be required in specific cases.
In its current form, the directive would not appear to require any structural
separation by the Group given the nature and extent of its current authorized
activities.
Convergence
Technological developments are leading to a convergence of the
telecommunications, broadcasting and information technology sectors. At the
beginning of December 1997 the EC Commission adopted a Green Paper addressing
this issue aimed at stimulating debate on how these markets should be regulated
in the future. The Green Paper does not suggest any solutions but merely raises
a series of questions on which it invites comment. Following consultation it is
expected that a report will be produced by June 1998.
Competition Bill
The U.K. Government has introduced a Competition Bill which proposes to
grant concurrent powers to the industry specific regulators and the Director
General of Fair Trading for the enforcement of prohibitions modeled on Article
85 and 86 of the European Community Treaty. The Bill introduces a prohibition
on the abuse of a dominant position and on anti-competitive agreements, and
introduces third party rights, stronger investigative powers, interim measures
and effective enforcement powers.
The Bill proposes that the Director General of Telecommunications is able,
but not required, to exercise concurrent powers with the Director General of
Fair Trading in relation to "commercial activities connected with
telecommunications". The Bill will enable third parties to bring enforcement
actions directly against telecommunications operators who are in breach of the
prohibitions and seek damages rather than have to wait for the Director General
of Telecommunications to make an enforcement order.
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ITEM 2. PROPERTIES
PROPERTIES
At December 31, 1997, the Group leased or rented 26 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
190,256 square feet of real property, of which approximately 103,700 square feet
consisted of external equipment and warehouse storage space. The Group owns its
44,000 square-foot head office and head-end/switch site in Nottingham, which was
constructed in 1995 at a cost of approximately pounds sterling 3 million. The
Group also owns a switch site property of 4,688 square feet located at Shepshed.
ITEM 3. LEGAL PROCEEDINGS
No member of the Group is a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY - HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
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ITEM 6. SELECTED FINANCIAL DATA
The selected data set forth below for the Group as of December 31, 1993,
1994, 1995, 1996 and 1997 and for each of the years in the five-year period
ended December 31, 1997 have been excerpted or derived from the audited
financial statements of the Group, which as of December 31, 1996 and 1997 and
for each of the years in the three-year period ended December 31, 1997 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 and the related Notes
thereto, which are included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
DECEMBER 31,
________________________________________________________________
1993 1994 1995(1) 1996 1997 1997(2)
________ ________ ________ ________ ________ _______
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Business telecommunications........ L.1,237 L. 3,402 L. 5,852 L. 9,763 L. 14,208 $23,339
Residential telephone.............. 1,251 2,545 6,662 17,723 29,495 48,452
Cable television................... 719 1,324 3,479 10,091 16,602 27,272
Other revenues..................... 20 35 -- -- -- --
________ ________ _________ _________ _________ ________
Total revenues..................... 3,227 7,306 15,993 37,577 60,305 99,063
Operating costs and expenses:
Telephone.......................... (1,097) (3,067) (5,454) (9,776) (12,088) (19,857)
Programming........................ (324) (701) (1,844) (6,041) (9,749) (16,015)
Selling, general and
administrative..................... (1,632) (4,562) (13,020) (22,391) (27,192) (44,668)
Depreciation and amortization...... (2,520) (4,038) (8,867) (21,380) (27,620) (45,371)
_________ ________ _________ _________ ________ ________
Total operating costs
and expenses....................... (5,573) (12,368) (29,185) (59,588) (76,649) (125,911)
________ ________ _________ _________ _________ ________
Operating loss..................... (2,346) (5,062) (13,192) (22,011) (16,344) (26,848)
Interest income.................... _ 1,415 3,887 3,441 6,440 10,579
Interest expense, and
amortization of debt discount
and expenses....................... (231) (3,836) (17,118) (40,334) (66,367) (109,021)
Foreign exchange gains/(losses)
net............................... (221) (1,196) 925 31,018 (12,555) (20,624)
Unrealized gains/(losses) on
derivative financial instruments... _ _ (868) (7,944) 669 1,099
Other expenses..................... _ _ (1,241) _ _ _
Realized gains on derivative
financial instrument............... _ _ _ _ 11,553 18,978
________ ________ _________ _________ _________ ________
Loss before income taxes........... (2,798) (8,679) (27,607) (35,830) (76,604) (125,837)
Income taxes _ _ _ _ _ _
________ ________ _________ _________ _________ _________
Net loss........................... L.(2,798) L.(8,679) L.(27,607) L.(35,830) L.(76,604) $(125,837)
________ ________ _________ _________ _________ _________
________ ________ _________ _________ _________ _________
BALANCE SHEET DATA:
Property and equipment, net........ L.18,021 L.35,127 L.163,721 L.277,301 L.365,636 $600,630
Total assets....................... 19,882 138,606 374,172 416,819 556,357 913,928
Total debt(3)...................... 21,889 103,068 319,492 325,041 545,325 895,805
Shareholders' equity(4)............ (5,660) 26,092 25,133 54,100 (22,511) (36,978)
OTHER DATA:
EBITDA(5).......................... L. 174 L.(1,024) L. (5,566) L. (631) L. 11,276 $18,523
Net cash (used in)/provided by
operating activities............... 37 496 (4,113) (1,348) 20,876 34,293
Net cash used in investing
activities........................ (9,937) (71,941) (155,517) (128,210) (110,086) (180,838)
Net cash provided by financing
activities........................ 9,759 112,485 212,202 54,428 146,586 240,797
Deficiency of earnings to
fixed charges(6).................. (2,798) (8,679) (27,607) (35,830) (76,604) (125,837)
Capital expenditures............... 11,880 21,252 136,314 130,140 111,252 182,754
</TABLE>
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
$1.6427 = pounds sterling 1.00, the Noon Buying Rate on December 31, 1997.
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(3) Total debt at December 31, 1994 consisted of the accreted value of the
1994 Notes and capital lease obligations. Total debt at December 31, 1995
and 1996 and at September 30, 1996 consisted of the accreted value of the
1994 Notes, the accreted value of the 1995 Notes and capital lease
obligations and the mortgage loan, and total debt at December 31, 1997
included in addition to such indebtedness the accreted value of the 1997
Notes.
(4) The Group raised additional equity financing of pounds sterling 40.4
million, pounds sterling 27.0 million and pounds sterling 64.6 million in
the years ended December 31, 1994, 1995 and 1996, respectively.
(5) Earnings before interest, taxes, depreciation and amortization, foreign
exchange translation gains and losses, and realized and unrealized gains
and losses on derivative financial instruments ("EBITDA") is presented
because it is a widely accepted financial indicator of a leveraged
company's ability to service and incur indebtedness. EBITDA is not,
however, a measure of financial performance under GAAP, may not be
comparable to other similarly titled measures of other companies and should
not be considered as a substitute for net income as a measure of operating
results or for cash flows as a measure of liquidity. EBITDA for 1995
includes the costs of pounds sterling 1.24 million incurred in an abandoned
equity flotation.
(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 Group 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 pounds sterling 1.00:
<TABLE>
<CAPTION>
YEAR AVERAGE(1) HIGH LOW PERIOD-END
____ __________ ____ ____ __________
<S> <C> <C> <C> <C>
1993 1.49 1.59 1.42 1.48
1994 1.54 1.64 1.46 1.57
1995 1.58 1.64 1.53 1.55
1996 1.57 1.71 1.48 1.71
1997 1.64 1.70 1.58 1.64
1998 (through March 18) 1.64 1.67 1.61 1.67
__________ ____ ____ __________
</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 18, 1998 was $1.6711 = pounds sterling 1.00.
For a discussion of the impact of exchange rate movements on the Group's
financial condition and results of operations as well as its ability to service
its U.S. dollar-denominated obligations, see Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Foreign
Exchange".
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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, 1997, approximately pounds sterling 428 million had
been invested (at original cost) in the construction of the Group's network and
related systems. As of December 31, 1997, approximately 563,000 of the premises
(homes and businesses) in the Group's franchise areas had been passed by civils
construction, of which approximately 533,700 premises had been activated,
representing approximately 52% 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
Group 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 customers, the Group's
experience to date has been that the likelihood of churn for a given customer
is highest in the period shortly after the customer commences subscription for
the service. In addition, cable television churn is subject to seasonal
pressures tending to be highest in the early months of each year.
LIQUIDITY AND CAPITAL RESOURCES
The Group expended net cash to fund investing activities of pounds sterling
155.5 million, pounds sterling 128.2 million and pounds sterling 110.1 million
in the years ended December 31, 1995, 1996 and 1997, respectively. In 1995, the
Company received net sale proceeds of pounds sterling 56.2 million from
marketable securities and invested net cash of pounds sterling 108.8 million in
the LCL acquisition, which was funded by new equity and a banking facility which
was repaid from the proceeds of the sale of the Company's 11 3/4% Senior
Discount Notes Due 2005 (the "1995 Notes") in December 1995. In 1995 and 1996,
the Group's net cash used in operating activities was pounds sterling 4.1
million and pounds sterling 1.3 million respectively, and in 1997 the Group's
net cash provided by operating activities was pounds sterling 20.9 million. In
1996 and 1997, the Group's investing activities consisted almost exclusively of
the ongoing construction of the network. Net cash provided by financing
activities was pounds sterling 212.2 million, pounds sterling 54.4 million and
pounds sterling 146.6 million in the years ended December 31, 1995, 1996 and
1997. The Group's cash and funding requirements historically have been met
principally through the issuance of the Company's senior discount notes in
September 1994,
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<PAGE> 104
December 1995 and February 1997 (the "Discount Notes") as well as from equity
capital, advances from its shareholders, and from bank and lease financing. In
February 1998, a subsidiary of the Company, Diamond Holdings plc, issued two
new series of notes (the "1998 Notes"), raising net proceeds of approximately
pound sterling 195 million. The 1998 Notes are guaranteed by the Company as to
payment of principal, interest and any other amounts due. See "--Description of
Company Debt". In connection with the issuance of the 1998 Notes, the Group
terminated its existing bank facility.
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
LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. Failure by the Group to meet its
milestones could potentially subject the Group to enforcement orders from OFTEL
or the ITC, which could lead to revocation of the relevant licenses or a
shortening of an LDL period or fines. The Group met the required quarterly
milestone obligations under each of its telecommunications licenses as at
December 31, 1997. Principally because of delays by the Department of Trade and
Industry in granting the Group a national telecommunications license, and
consequent delays in the commencement of construction, the Group did not meet
its current LDL milestones in six of its seven LDL franchises at the end of
1997, although construction has commenced in five of the seven LDL franchises.
The Group has applied to the ITC to modify its milestone obligations in
all of its LDL franchise areas except Vale of Belvoir. The Group understands
that the ITC intends to grant the requested modifications.
The Group expects that its 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
Group expects the network to be substantially completed by the end of 2001. The
Group currently estimates that the additional capital expenditures from December
31, 1997 required for the Group to substantially complete construction
sufficient to satisfy its aggregate milestone obligations of approximately 1.02
million premises (including estimated subscriber connection expenses) will be
approximately pounds sterling 435 million, although further capital expenditures
would be required to substantially complete the network. These expenditures
could vary significantly depending on the number of customers actually connected
to the network, the availability of construction resources and a number of other
factors described below. See Item 1. "Business -- Milestones".
At December 31, 1997, the Group had constructed and activated a network
comprising approximately 52% of its aggregate milestones. The Group estimates
that the net proceeds from the sale of the 1998 Notes, existing cash resources
and future cash flows from operations will be sufficient to complete the
construction and activation of its network to approximately 84% of its aggregate
final milestones, which level the Group estimates it will achieve by the end of
1999. Thereafter, the Group will be required to obtain further debt and/or
equity financing to complete construction sufficient to satisfy its aggregate
milestones. To the extent that (i) the amounts required to construct the Group's
network to meet its milestones exceed its estimates, (ii) the Group's cash flow
does not meet expectations or (iii) the Group continues its construction of the
network beyond its milestone obligations, the amount of further debt and/or
equity financing required will increase. There can be no assurance that any such
debt or equity financing will be available to the Group 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 a number of factors, including those identified in the preceding
paragraph and below, actual results may differ materially from expected results.
In particular, the anticipated further funding requirements will depend upon the
Group's cash flow which, in turn, will depend upon a number of variables,
including revenue generated from business telecommunications, residential
telephone and cable television services, churn, expenses such as programming
costs and interconnect charges, network construction and development
expenditures and financing costs. Adverse developments in any of these or other
areas could adversely affect the Group's cash flow. Moreover, there can be no
assurance that (i) conditions precedent to the availability of funds under any
future 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
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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, each of which factors would increase the Group's funding needs.
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1997
The Group experienced significant increases in its customers, revenues and
expenses during the three years ended December 31, 1997. In general, such
increases were attributable to the Group's continued network construction,
marketing of new homes and businesses and the acquisition of LCL in 1995.
During the three-year period from December 31, 1994 to December 31, 1997 homes
passed by civils construction increased by 480,191 homes (859%), homes
activated increased by 476,768 homes (1,488%) and homes marketed increased by
374,457 homes (1,195%). The number of homes that had been passed by civils
construction at December 31, 1997 exceeded homes activated by 27,309, compared
to a difference of 106,250 homes at December 31, 1996. During 1997, the Group
intentionally slowed the pace of civils construction to reduce the gap between
homes passed by civils construction and homes activated. In addition, during
the early part of the year the pace of civils construction was affected by the
phase out of one of the Group's largest civils contractors, which went into
liquidation. The Group has continued to focus on its milestone obligations,
which are measured in terms of homes activated. The Group met the required
quarterly milestone obligations under each of its telecommunications licenses
as at December 31, 1997. Principally because of delays by the Department of
Trade and Industry in granting the Group a national telecommunications license,
and consequent delays in the commencement of construction, the Group did not
meet its current LDL milestones in six of the seven LDL franchises at the end
of 1997 although construction has commenced in five of the seven LDL
franchises. The Group has applied to the ITC to modify all of its milestone
obligations in all of its LDL franchise areas except Vale of Belvoir.
In addition, in order to improve the management and quality of its
residential sales force, in February 1997 the Group terminated arrangements
with its independent sales contractors and began to develop its own internal
sales force through direct hiring of residential sales staff. Prior to this
reorganization, the sales force consisted of approximately 150 residential
sales staff who were employed by independent contractors that the Group paid on
a full commission basis. The Group now employs residential sales staff directly
and pays them on the basis of a salary plus sales commission. At December 31,
1997, the Group employed approximately 135 residential sales staff, including
some former contracted sales staff who were hired by the Group in accordance
with its employment criteria following interviews. All of these sales staff
have now undergone a training process which the Group believes has increased
their long-term effectiveness but which has delayed their productivity in the
short term. The reorganization delayed the progress of marketing and affected
penetration in the areas being marketed during this transitional period.
Penetration was also negatively impacted during 1997 by increased competitive
activity, in particular from BT, Ionica, CWC and BSkyB. At December 31, 1997,
residential telephone line penetration was 38.6% and cable television
penetration was 20.6%, compared with 41.4% and 23.5%, respectively, at December
31, 1996.
REVENUE
The Group's total revenues were pounds sterling 16.0 million in 1995,
pounds sterling 37.5 million in 1996 and pounds sterling 60.3 million in 1997.
This growth is attributable to increases in revenues in all three of the Group's
primary lines of business and additional revenues of pounds sterling 2.25
million and pounds sterling 10.9 million attributable to the inclusion of LCL's
results for the last quarter of 1995 and the full year 1996, respectively.
As a result of entering into revised interconnect agreements with BT which
apply retroactively, the Group will receive outgoing interconnect charge rebates
relating to all periods prior to December 31, 1996 and must pay incoming
termination rebates relating to the period from April 1, 1995 to December 31,
1996. Based on interim rates for the period from January 1, 1997, no rebates
will be due from or payable to BT for the year to December 31, 1997. The rebates
that will be given to BT relating to the incoming termination element amount to
an estimated pounds sterling 1,351,000, based on final rates for the twelve
month period from April 1, 1995 and interim rates for the nine month period
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<PAGE> 106
from April 1, 1996. This amount has been provided by reducing residential
telephone and business telecommunications revenues in 1996 by pounds sterling
776,000 and pounds sterling 575,000 respectively. The total amount of rebates to
be received by the Group will be determined by the parties once BT has furnished
to the Group a proposed calculation and supporting data and OFTEL has determined
the final rates applicable for the nine month period from April 1, 1996. The
Group has estimated that the amount of the rebate due to the Group from BT will
exceed the amount of the rebates to be provided by the Group to BT. Pending
final determination of rebates, the Group 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
pounds sterling 1,351,000 was recorded in 1996.
The analysis of revenue and average revenue per line is provided below on
the basis of revenues as reported as well as on a pro-forma basis adjusting for
the incoming termination rebates in the appropriate periods as if the revised
interconnect agreements and the final and interim rates had been in effect
since April 1995.
Business Telecommunications. Business telecommunications revenues were
pounds sterling 5.9 million in 1995, pounds sterling 9.8 million in 1996 and
pounds sterling 14.2 million in 1997, representing increases of 67% and 46%,
respectively. The growth in reported revenues is due primarily to (i) an
increase in the number of Diamond's business lines installed from 7,036 at
December 31, 1995 to 14,737 at December 31, 1996, (ii) an increase in the number
of the Group's business lines installed from 18,932 at December 31, 1996 to
27,124 at December 31, 1997 and (iii) the inclusion of pounds sterling 0.5
million and pounds sterling 2.2 million of revenue attributable to LCL in the
last quarter of 1995 and the full year of 1996, respectively. The growth in the
number of business lines has been partially offset by lower monthly revenue per
line. The monthly revenue per line for Diamond decreased from pounds sterling
74.60 in 1995 (pounds sterling 72.02 on a pro-forma basis) to pounds sterling
49.81 (pounds sterling 51.03 on a pro-forma basis) in 1996. The monthly revenue
per line for the Group decreased from pounds sterling 50.17 in 1996 (pounds
sterling 51.25 on a pro-forma basis) to pounds sterling 46.26 in 1997. This
decline was due to a combination of (i) success in marketing Centrex services
which has the effect of increasing the average number of lines held by existing
and new customers taking those services (the Group operated 11,971 Centrex
lines at December 31, 1997 compared to 7,414 Centrex lines at December 31, 1996
representing 44% and 39% of the total number of business lines at those dates,
respectively), (ii) a reduction in certain tariffs in response to price
reductions by competitors, including BT, the Group's principal competitor for
business telecommunications services, which reduced in each of June 1996 and May
1997 its prices by an average of about 10% for most of its business customers
and made smaller price reductions at other times during 1996 and 1997, 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. The Group may lower prices in the future if considered
appropriate for competitive reasons.
Residential Telephone. Residential telephone revenues were pounds sterling
6.7 million (pro-forma pounds sterling 6.4 million) in 1995, pounds sterling
17.7 million (pro-forma pounds sterling 18.0 million) in 1996 and pounds
sterling 29.5 million in 1997, representing increases of 166% and 66%,
respectively. The growth in residential telephone revenue was due primarily to
(i) an increase in the number of Diamond's residential telephone lines from
36,122 at December 31, 1995 to 76,979 at December 31, 1996, (ii) an increase in
the number of the Group's residential telephone lines from 106,460 at December
31, 1996 to 157,171 at December 31, 1997 and (iii) the inclusion of pounds
sterling 1.1 million and pounds sterling 5.5 million of residential telephone
revenue from the LCL operation for the last quarter of 1995 and the full year
1996, respectively. Monthly revenue per line for Diamond was pounds sterling
18.68 in 1995 and pounds sterling 17.59 in 1996. The Group's average monthly
revenues per line increased slightly from pounds sterling 18.40 in 1996 (pounds
sterling 18.64 on a pro-forma basis) to pounds sterling 18.75 in 1997. The
Group's churn rate (annualized) was 16.3% for 1997 (21.3% before taking into
account the adjustments described in note 13 to the table under Item 1.
"Business -- Certain Operating Data") as compared to 20.6% for 1996.
Cable Television. Cable television revenues increased from pounds sterling
3.5 million in 1995 to pounds sterling 10.1 million in 1996 and pounds sterling
16.6 million in 1997, representing increases of 190% and 65%, respectively. This
growth in cable television revenue was primarily due to a combination of (i) an
increase in the number of Diamond's cable television customers which rose from
20,261 at December 31, 1995 to 42,419 at December 31, 1996 and an increase in
the number of the Group's cable television customers from 59,242 at December 31,
1996 to 83,793 at December 31, 1997, (ii) an increase in Diamond's average
monthly revenue per subscriber from pounds sterling 16.80 for 1995 to pounds
sterling 17.70 for 1996 and an increase in the Group's average monthly revenue
per subscriber from pounds sterling 18.03 for 1996 to pounds sterling 19.84 for
1997 and (iii) the inclusion of cable television revenue of pounds sterling 0.6
million and pounds sterling 3.1 million for the LCL operation for the last
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<PAGE> 107
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 32.7% for 1997 (36.9% before taking into
account the adjustments described in Note 13 to the table under Item 1.
"Business -- Certain Operating Data") as compared to a churn rate of 40.9% in
1996 and 33.8% in 1995. The Group's churn rate was 25.5% (annualized) in the
six months to December 31, 1997 (30.5% before taking into account the
adjustments mentioned above) compared to 43.5% in the six months to December 31,
1996. The Group believes that the reduction in churn in 1997 is largely the
result of new policies introduced by the Group to reduce churn, including that
it now requires subscribers to pay an installation fee in connection with new
residential services. In addition, the Group has introduced other policies
which contributed to the reducing trend in churn during 1997, including
improvements in the management and quality of the sales force, the introduction
of more program packaging choice for customers and increased focus on the
retention of customers.
The Group believes that relatively high churn in 1996 and the first half of
1997 was due in part to the effect of increases in the fourth quarter of 1996
in premium channel subscription rates which led certain longer-term customers
who had previously benefitted from grandfathered rates to disconnect service,
the effect of an increase in basic channel subscription prices, additional price
increases resulting from the Group passing on to its customers a new BSkyB
charge for Sky Sports 3 (which BSkyB provided to its own sports subscribers at
no additional charge) and other aggressive promotional activity of BSkyB, as
well as to the application of a stricter disconnect policy relating to
non-payment.
OPERATING COSTS AND EXPENSES
Telephone expenses, consisting principally of interconnect charges payable
to BT, Mercury, Energis and Global One, increased from pounds sterling 5.5
million in 1995 to pounds sterling 9.8 million in 1996 and pounds sterling 12.1
million in 1997, representing increases of 79% and 24%, respectively. 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 pounds sterling 5.0
million and pounds sterling 10.2 million during 1995 and 1996, respectively.
These increases reflect the substantially larger volume of telephone business
generated by the Group. As a percentage of combined business telecommunications
and residential telephone revenues, these direct costs decreased from 44% in
1995 to 36% in 1996 and 28% in 1997, due primarily 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 customers, the number of channels and per-subscriber rates charged
by programming suppliers, increased from pounds sterling 1.8 million in 1995 to
pounds sterling 6.0 million in 1996 and pounds sterling 9.7 million in 1997,
representing increases of 228% and 61%, respectively. As a percentage of cable
television revenues, these direct costs were 53% in 1995, 60% in 1996 and 59% in
1997. The 61% increase in 1997 compared to 1996 was attributable in large part
to the increased number of customers. The 228% 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
customers. 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 Group increased its prices for premium programming, and it increased the
price of its basic package in November 1996. The Group also introduced two
lower-priced basic packages during November 1996 available to customers in two
of the Group's franchise areas only.
Selling, general and administrative expenses increased by 72% from 1995 to
1996 and by 21% from 1996 to 1997. The increase in 1996 was due to a
combination of increased sales commissions and higher administrative costs
associated with the expansion of the Group's business and the inclusion of
expenses related to LCL during the last quarter of 1995 and the full year 1996.
In February 1997, the Group began employing residential salespeople directly
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and paying them on the basis of a salary plus sales commissions, resulting in a
reduction in these combined costs in 1997 compared to 1996. However, these cost
reductions were more than offset by increases in administrative costs and
marketing expenditures as the Group continued to expand its business.
Depreciation and amortization expenses increased by 141% from 1995 to 1996
and by 29% from 1996 to 1997. These increases were attributable to the
increasing size of the Group's network as well as the LCL acquisition.
The Group continues to review the potential consequences of changes in
technology, its network infrastructure and the industry structure within the UK
in general for its plans, operations and the assessment of the useful lives of
its assets.
INTEREST INCOME/EXPENSES AND OTHER EXPENSES
Interest expense was pounds sterling 17.1 million, pounds sterling 40.3
million and pounds sterling 66.4 million for 1995, 1996 and 1997, respectively.
The 1996 increase was due primarily to the accretion of the discount on the 1994
Notes and 1995 Notes of pounds sterling 38.2 million during 1996 compared to
pounds sterling 14.3 million during 1995, as well as other interest expense of
pounds sterling 1.2 million in 1996. In addition, amortization of debt financing
costs was pounds sterling 0.9 million in 1996 compared to pounds sterling 0.3
million in 1995. The 1997 increase is due primarily to the accretion of the
discount on the Discount Notes of pounds sterling 55.0 million, which included
accretion of discount on the Company's 10 3/4% Senior Discount Notes due
February 15, 2007 (the "1997 Notes") in addition to the 1994 Notes and 1995
Notes. In addition, interest expense in 1997 includes pounds sterling 0.9
million for commitment fees, pounds sterling 1.2 million for amortization of
bank debt financing costs, and pounds sterling 6.9 million for the write off of
financing costs, all of which relate to a senior bank facility which was
terminated in February 1998 as a condition of the issue of the 1998 Notes. 1997
interest expense also includes pounds sterling 1.1 million of other interest
expense, and pounds sterling 1.3 million for amortization of Discount Note
financing costs. Interest received was pounds sterling 3.9 million in 1995,
pounds sterling 3.4 million in 1996 and pounds sterling 6.4 million in 1997,
through temporary investment of the proceeds of the Discount Notes.
Other expenses of pounds sterling 1.2 million in 1995 included
costs incurred in connection with an abandoned share offering.
FOREIGN EXCHANGE GAINS/(LOSSES), NET
A substantial portion of the Group's existing debt obligations are
denominated in U.S. dollars, while the Group's revenues and accounts are
generated and stated in pounds sterling. Foreign currency translation
gains and losses, except for unrealized gains and losses on available-for-sale
securities, are reported as part of the profit or loss of the Group. In the
year ended December 31, 1995, the Group recognized an unrealized foreign
exchange gain on the translation of its dollar-denominated indebtedness of
pounds sterling 0.6 million, an unrealized loss on its short-term securities of
pounds sterling 0.3 million and a net realized foreign exchange gain of pounds
sterling 0.3 million relating to its operations and the sale of dollar
denominated available-for-sale securities. In the year ended December 31, 1996,
the Group recognized an unrealized foreign exchange gain on the translation of
its liability on the 1994 Notes and the 1995 Notes of pounds sterling 31.5
million, an unrealized gain on its short-term securities of pounds sterling 0.1
million and a net realized foreign exchange loss of pounds sterling 0.4 million
relating to its operations. In the year ended December 31, 1997 the Group
recognised an unrealized foreign exchange loss on the translation of its
liability on the 1994 Notes, the 1995 Notes and the 1997 Notes of pounds
sterling 11.7 million, and a net realized foreign exchange loss of pounds
sterling 0.8 million relating to its operations and the sale of dollar
denominated available-for-sale securities.
GAIN/LOSSES ON DERIVATIVE FINANCIAL INSTRUMENTS
Losses on derivative financial instruments include an unrealized loss of
pounds sterling 0.9 million in 1995, an unrealized profit of pounds sterling 0.2
million in 1996 and an unrealized loss of pounds sterling 0.1 million in 1997 on
the mark-to-market valuation of an interest rate swap commitment.
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<PAGE> 109
The Group entered into a foreign exchange forward contract on November 1,
1996 for settlement on May 6, 1997 to sell pounds sterling 200 million at a rate
of $1.6289 to pounds sterling 1. On January 31, 1997 an offsetting agreement was
entered into at a rate of $1.6014 to pounds sterling 1. The offsetting contracts
were settled on February 6, 1997 with a payment of approximately pounds sterling
3.4 million to the Group. Because of changes in prevailing rates, the Group
recorded for the year ended December 31, 1996, an unrealized loss of
approximately pounds sterling 8.1 million on the pounds sterling sell forward
contract which partially offset the gain that was recorded on the translation of
the U.S. dollar denominated obligations on the 1994 Notes and 1995 Notes during
the same period. During the first quarter of 1997, the Group recorded a gain of
approximately pounds sterling 11.5 million on the two offsetting forward
contracts, reflecting the reversal of the pounds sterling 8.1 million loss
referred to above and the approximately pounds sterling 3.4 million cash payment
on settlement of the contracts. The realized gain on the foreign exchange
forward contract in the first quarter of 1997 largely offset the unrealized loss
that was recorded in the same period on the translation of the U.S. dollar
denominated obligations on the Senior Notes. The Company entered into a foreign
exchange forward contract on June 23, 1997 for settlement on June 25, 1998 to
sell pounds sterling 50 million at a rate of $1.6505 to pounds sterling 1. The
Company also entered into a foreign exchange forward contract on June 27, 1997
for settlement on July 1, 1998 to sell pounds sterling 50 million at a rate of
$1.6515 to pounds sterling 1. An unrealized gain of pounds sterling 0.7 million
has been recorded in the year to December 31, 1997 on these two contracts. The
Company has the opportunity to roll forward these contracts in order to cover
specific dollar liabilities when they arise or to crystallize a profit at any
stage thought appropriate. Therefore the accounting treatment of these
contracts, 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. The Company
continues to monitor conditions in the foreign exchange market and may from time
to time enter into 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 Group's ability to satisfy its 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 pounds
sterling 27.6 million, pounds sterling 35.8 million and pounds sterling 76.6
million in 1995, 1996 and 1997, respectively.
INFORMATION SYSTEMS - YEAR 2000
The Group is actively reviewing its information systems in light of year
2000 information processing requirements. The Group believes that its main
hardware and operating systems are currently compliant and expects that its key
subscriber management and financial systems will be compliant by the end of
1998. The costs of investigating and correcting year 2000 information
processing problems has not been and is not expected by the Group to be
material. Although the Group intends to ensure that all of its systems will be
year 2000 compliant, it is generally reliant on third party suppliers for
delivery of appropriate system solutions. In addition, the Group may be
affected by year 2000 problems encountered by its primary suppliers or
customers. Significant year 2000 information processing problems encountered
by the Group or certain of its customers or suppliers could have a material
adverse effect on the Group.
FOREIGN EXCHANGE RISK
The principal form of market risk to which the Group is exposed is foreign
exchange rate risk. The Company's 1994 Notes, 1995 Notes and 1997 Notes and
Diamond Holdings' dollar denominated notes, which constitute the substantial
portion of the Group's existing debt obligations, are denominated in U.S.
dollars, while the Group's revenues and accounts are generated and stated in
pounds sterling. Foreign currency translation gains and losses, except for
unrealized gains and losses on available-for-sale securities, are reported as
part of the profit or loss of the Group. Accordingly, as noted above, movements
in the dollar/pound sterling exchange rate can significantly affect the Group's
reported results of operations. For example, based on the aggregate accreted
value of the Discount Notes at December 31, 1997, a ten percent decrease in the
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dollar/pound exchange rate would have increased the Group's reported senior
discount note liability by approximately pounds sterling 59.4 million. In the
future, the Group will also be subject to transaction risk with respect to the
Discount Notes when the Group is obligated to commence making cash interest
payments under the Discount Notes in dollars. Such cash payments with respect to
the 1994 Notes commence in 2000.
The Group's results have in the past been affected by the foreign exchange
contracts described above, which the Group entered into based on its assessment
of foreign currency market conditions and a desire to manage currency exchange
exposure risks associated with the dollar-denominated senior discount note
liabilities. The Group 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
Group and the Group's ability to satisfy its obligations, including obligations
under outstanding debt instruments, as they become due.
The Group is a party to two foreign exchange forward contracts entered into
in June 1997. Effective March 17, 1998, the Group closed an interest rate swap
agreement that LCL had entered into prior to its acquisition by the Company at a
cost to the Group of pounds sterling 1,258,200. See Note 17 to the Notes to the
Consolidated Financial Statements. Neither this nor any other similar instrument
currently held by the Group is expected to materially affect the Group's results
of operations.
DESCRIPTION OF COMPANY DEBT
Description of 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 pounds sterling 91 million after issuance costs of pounds sterling 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 pounds sterling 187
million after issuance costs of pounds sterling 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 pounds
sterling 149 million after issuance costs of approximately pounds sterling 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.
Description of 1998 Notes
On February 6, 1998, Diamond Holdings plc, a subsidiary of the Company,
issued pounds sterling 135,000,000 in principal amount of its 10% Senior Notes
due February 1, 2008 and $110,000,000 in principal amount of its 9 1/8% Senior
Notes due February 1, 2008. Net proceeds received by the Company amounted to
approximately pounds sterling 195 million after issuance costs of approximately
pounds sterling 8 million.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Group intends to address this item in its 1998 annual report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-28 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning the directors of the Company and senior
management of the Group is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Lord Pym 75 Director and Non-Executive Chairman
Robert T. Goad 43 Director, Chief Executive Officer
Richard A. Friedman 40 Director
John L. McDonald 23 Director*
Thomas Nilsson 49 Director
Muneer A. Satter 37 Director
John L. Thornton 44 Director
Nicholas R. Millard 47 Chief Financial Officer
J.A. Duncan Craig 42 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 Defense from 1979 to
1981 and Foreign and Commonwealth Secretary from 1982 to 1983. He was President
of the Atlantic Treaty Association from 1985 to 1988. Lord Pym is also a
director of Christie Brockbank Shipton Ltd., St. Andrews (Ecumenical Trust)
Ltd. and The Landscape Foundation.
Mr. Goad has been a Director and Chief Executive Officer since May 1994
and served as Chief Financial Officer from May 1994 until July 1995. Mr. Goad
is a founder of and principal in ECE Management International, LLC ("ECE
Management International") and has been President of Columbia Management since
1984.
Mr. Friedman has been a Director since May 1994. Mr. Friedman is a
managing director of Goldman, Sachs & Co. and head of that firm's Principal
Investment Area. Mr. Friedman is Chairman of AMF Bowling, Inc., Chairman of AMF
Worldwide Bowling, Inc. and on the Advisory Committee or Board of Directors of
Globe Manufacturing Co., Marcus Cable Company, L.P., and Polo Ralph Lauren
Corporation.
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 and a member of the Executive Committee of Investor AB and
was Managing Director of AB Export Invest from 1985 to 1994. He is also a Board
Member of European Acquisition Capital, WM Data, Svenska Dagbladet, Compagnie
Immobiliere de Belgique, STORA Finance and Tufton Oceanic Investments Ltd.
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
- -----------
*On March 10, 1998, Mr. McDonald resigned as Director of Diamond Cable
Communications Plc and as a Director of Diamond Holdings Plc.
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<PAGE> 113
Sachs in 1988. Mr. Satter is also on the Advisory Committee or Board of
Directors of Bran + Luebbe GmbH, Empe Holdings GmbH and Point Holdings Limited.
Mr. Thornton has been a Director since May 1994. Mr. Thornton joined
Goldman Sachs in 1980. He is currently Chairman of Goldman Sachs Asia and is
also a member of the six-person Executive Committee that manages Goldman Sachs
and its global operations. Mr. Thornton is also non-Executive Chairman of Laura
Ashley plc and a Director of the Ford Motor Company, British Sky Broadcasting
Group plc and the Pacific Century Group (Hong Kong and Singapore).
Mr. Millard has been Chief Financial Officer since July 1995. Prior to
joining the Group, 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 Group, 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 Group is
set forth below:
<TABLE>
<S> <C> <C>
NAME AGE POSITION HELD
---- --- -------------
Nicholas J. Dearden 48 Management Information Systems Director
Mark L. Harris 43 Technical Services Director
John W. McAuley 50 Marketing and Programming Director
Susan L. Milner 41 Customer Services Director
Stuart Roberts 46 Residential Sales Director
Stephen D. Rowles 44 Executive Director
Peter C. Savage 39 Human Resources and Administration Director
Katherine B. Wolfsohn 36 Legal Director and Company Secretary
</TABLE>
Mr. Dearden joined the Group in May 1997 as Management Information Systems
Director. Mr. Dearden has held senior management and director positions in
American Express Europe, Mercury and Action Computer Supplies.
Mr. Harris joined the Group 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 Group in August 1995 as Marketing and Programming
Director. Prior to joining the Group, Mr. McAuley had six years experience at
IBM where he held various marketing management positions. Mr. McAuley has
previous experience in Cadware Incorporated, a PC software development company
where he held the post of Vice President of Marketing, Hudson Technologies, a
PC software publisher where he held a similar position and at Philip Morris
where he held a number of senior management/director level appointments in the
marketing field over a 12-year period.
Ms. Milner joined the Group 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. Roberts joined the Group in May 1997 as Residential Sales Director.
Prior to joining the Group, Mr. Roberts held senior sales and marketing
positions at Rank Xerox, BAT Industries and G.E.C.
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<PAGE> 114
Mr. Rowles joined the Group in January 1992 as Telecommunications Director
and became Executive Director in 1997. Prior to joining the Group, 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 Group in June 1993 as Human Resources Director.
Prior to joining the Group 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 Group in November 1996 as Legal Director and
Company Secretary. Prior to joining the Group, 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 seven members.
The Shareholders Agreement grants ECCP the right pursuant to the Articles
to appoint up to four members of the Company's board of directors, one of whom
may exercise voting control at meetings of the directors. The McDonald
Interests are given the right to appoint one director. Under the Relationship
Agreements between ECCP and Investor Investments and ECCP and DCI Capital
Partners ("DCI") dated October 12, 1994 and June 21, 1996 respectively (the
"Relationship Agreements"), Investor Investments and DCI each have the right to
require ECCP to procure (so far as it is legally able) that the Company
appoints one director designated by each of them. Presently Messrs. Goad,
Friedman, Thornton and Satter are the ECCP appointees, Mr. Nilsson is the
Investor Investments appointee and, until March 10, 1998, Mr. McDonald had been
the McDonald Interests appointee. DCI has not yet made an appointment. Prior to
obtaining a listing of or making trading arrangements in respect of the
Company's ordinary shares of 2.5 pence each ("Shares"), the parties to the
Shareholders Agreement have agreed to discuss the practicality of continuing
such rights (in so far as they arise out of the Shareholders Agreement) in
force after the listing becomes effective.
MANAGEMENT AGREEMENT
DCL entered into a 10-year management agreement with effect from June 1,
1994 (the "Management Agreement") with ECE Management Company ("ECE
Management"), a company controlled by Ralph H. Booth II and Robert T. Goad. As
of April 4, 1996, ECE Management assigned its rights and obligations under the
Management Agreement to ECE Management International, also controlled by Ralph
H. Booth II and Robert T. Goad. As of July 1, 1996 DCL assigned its rights and
obligations under the Management Agreement to the Company. Pursuant to the
Management Agreement, ECE Management International will manage and act as agent
(under the supervision and control of the Company's board of directors) in
connection with the strategic activities of the Group, 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 Management Agreement provides for an annual
management fee of $200,000 and reimbursement of ECE Management International's
expenses. Under a separate agreement between, among others, the Company and
DCL, the Group is entitled to recharge to DCL fees and expenses incurred under
the Management Agreement up to a maximum amount.
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
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<PAGE> 115
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. 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. See "Certain Transactions --
Management Agreement". Principals of ECE Management hold options over 110,000
shares, granted on February 23, 1995 and 220,000 shares granted on October 24,
1995 under the Senior Management Options Scheme (described below) with an
exercise price of pounds sterling 3.44 per Share and pounds sterling 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, 1995, 1996 and 1997 for Gary L. Davis (the Managing
Director of the Group during these years); and for Nicholas R. Millard. 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, 1995,
1996 and 1997 for Stephen D. Rowles, for Mark Harris for the years ended
December 31, 1995,1996 and 1997 and during the year ended December 31, 1997 for
John W. McAuley, who, while not executive officers of the Group, would have been
among the most highly compensated executive officers during 1995, 1996 and 1997
had they been such.
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<PAGE> 116
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------------------------
SECURITIES
UNDERLYING
OTHER ANNUAL OPTIONS
Name and Principal Position YEAR SALARY BONUS COMPENSATION (2) (#)
- --------------------------- ---- -------- -------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Gary L. Davis,
Managing Director(3).............. 1997 $61,601 -- $96,554 --
1996 $256,845 $111,300 $37,715 --
1995 $233,025 $77,675 $31,547 218,000
Nicholas R. Millard,
Chief Financial Officer........... 1997 $70,700 $106,297 $150,114 --
1996 $162,669 $95,889 $36,076 --
1995 $69,908 $34,954 $16,223 60,000
John W. McAuley
Marketing and Programming Director 1997 $147,843 $51,745 $39,702 --
Stephen D. Rowles,
Executive Director................ 1997 $200,257 -- $22,019 --
1996 $153,900 $17,230 $17,760 --
1995 $76,620 $46,605 $14,281 --
Mark Harris,
Technical Director................ 1997 $147,843 $82,135 $31,290 30,000
1996 $145,544 $85,615 $35,912 --
1995 $125,663 $40,391 $23,025 30,000
</TABLE>
(1) Payments made in 1995, 1996 and 1997 in pounds sterling are presented in
U.S. dollars based on an exchange rate of $1.5535 to pounds sterling 1.00,
$1.7123 to pounds sterling 1.00 and $1.6427 to pounds sterling 1.00, the
Noon Buying Rates on December 29, 1995, December 31, 1996 and December 31,
1997 respectively.
(2) Mr. Davis' "Other Annual Compensation" for 1997 includes $164,270
received in connection with his retirement as Managing Director of the
Company and subsequent resignation as a Director, $3,285 for house rental,
$5,897 for the lease of a car, $296 for health insurance, $17,537 for
travel expenses, $82 for use of mobile phone and $5,186 for other living
expenses, 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, and 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. Mr. Millard's "Other Annual Compensation" for 1997 includes
$12,813 for home rental, $11,663 for the provision of a car, $749 for
health insurance, $124,320 in pension contributions, $329 for use of
mobile phone and $240 for other living expenses, 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. McAuley's "Other
Annual Compensation" for 1997 includes $9,856 for house rental, $9,582 for
the provision of a car, $749 for health insurance, $16,624 for school
fees, $329 for use of mobile phone and $2,563 for travel expenses. Mr.
Rowles' "Other Annual Compensation" for 1997 includes $11,418 for the
provision of a car, $416 for health insurance, $9,856 in pension
contributions and $329 for use of mobile phone, 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. Mr. Harris' "Other Annual Compensation" for 1997
includes $9,856 for home rental, $16,969 for the provision of two cars,
$665 for health insurance, $3,471 for school fees and $329 for use of
mobile phone, for 1996 includes $20,385 for the provision of two cars,
$4,101 for school fees, $810 for health insurance, $10,274 for home rental
and $342 for other living expenses and for 1995 includes $19,747 for the
provision of two cars, $2,455 for school fees and $823 for health
insurance.
(3) Mr. Davis retired from his day-to-day responsibilities as Managing Director
of the Company effective March 12, 1997 and resigned as a Director as of
April 26, 1997. Mr. Davis received a termination payment of $164,270.
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 pounds 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
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<PAGE> 117
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 pounds 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 pounds sterling 4.11
per share. On May 7, 1997, options over a total of 30,000 shares were granted to
Mark Harris under the Senior Management Option Scheme with an exercise price of
pounds sterling 4.11 per share. On November 19, 1997, options over a total of
47,500 shares were granted to senior management under the Senior Management
Option Scheme with an exercise price of pounds 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 pounds
sterling 3.44 and are exercisable at any time up to January 5, 2002. These
options were not granted under the Senior Management Option Scheme but are
subject to some of the provisions of the Senior Management Option Scheme.
According to the rules of the Senior Management Option Scheme, the
aggregate number of shares which have been or may be issued pursuant to options
granted under the Senior Management Option Scheme and options granted under any
other option scheme of the Company may not exceed 10% of the Company's then
current issued share capital.
Except as stated above and in the table below, the Company granted no
options to the executive officers and employees whose compensation is disclosed
above during its fiscal years ended December 31, 1996 and 1997.
Set forth below is certain information regarding options granted to the
executive officers and employees whose compensation is disclosed above.
OPTIONS GRANTED IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE ---------------------
NAME GRANTED (#) YEAR 1997 (L./SHARE) EXPIRATION DATE 5% (L.) 10% (L.)
- ---- ----------- ---------- ---------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mark Harris....... 30,000 39% L.4.11 May 7, 2004 L.50,196 L.116,976
</TABLE>
COMPENSATION OF DIRECTORS
The Articles of Association of the Company provide that the ordinary
remuneration to directors who are not executive officers shall not exceed in
aggregate pounds sterling 300,000 per year (excluding amounts payable under any
other provision of the Articles of Association) or such higher amount as the
shareholders may determine by an ordinary resolution. Such directors may be paid
extra remuneration by way of salary, commission or otherwise as the Board may
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<PAGE> 118
determine. The aggregate remuneration paid to Directors of the Company during
1995, 1996 and 1997 was pounds sterling 250,307, pounds sterling 267,026, and
pounds sterling 307,436, respectively (excluding loans to Mr. Davis by MMI
described below).
The Board may appoint one or more directors to executive offices on such
terms as it may determine. All Directors are also entitled to reimbursement for
all reasonable traveling, hotel and other expenses properly incurred in the
performance of their duties as directors, including any expenses incurred in
attending meetings of the Board or of committees of the Board or general
meetings or separate meetings of the holders of any class of shares or
debentures of the Company.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
DCL entered into a Service Agreement with Mr. Davis, on May 17, 1994 (the
"Service Agreement"), which provided that Mr. Davis would act as Managing
Director of the Company for a period of two years from May 6, 1994 and
thereafter unless and until terminated by six months' notice. The Service
Agreement further provided that in carrying out his duties, Mr. Davis would act
under the direction of DCL's board of directors. The Service Agreement provided
that Mr. Davis' initial salary was pounds sterling 150,000 a year plus a bonus
of up to half his salary calculated by performance criteria determined annually
by the board of directors of DCL.
From 1990 through May 1994, Mr. Davis received advances totaling
approximately $640,000 from MMI. At the time of the acquisition by ECCP, the
McDonald Interests made a capital contribution of $1.3 million to DCL for the
purpose of having DCL repay Mr. Davis' outstanding loan, inclusive of estimated
tax liabilities. The Company declared a bonus to Mr. Davis in December 1995 in
an amount sufficient to repay the loan and meet any related tax liabilities
(together amounting to approximately $1.2 million) and such amount has been
charged against income in the Company's Consolidated Statement of Operations in
applicable years. The related tax liabilities have been agreed upon with the
Inland Revenue and were paid by the Company on March 8, 1996. The loan from MMI
to Mr. Davis remains outstanding.
The Group has entered into a service contract which commenced as of July
1, 1995 with Mr. Millard, which can be terminated by Mr. Millard on six months
notice and by the Group 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 1997, Mr. Goad and Mr. Davis were the only officers and employees of the
Company who participated in deliberations of the Board of Directors concerning
executive officer compensation.
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<PAGE> 119
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 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>
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT(1)
- ------------------------------------ ---------- ----------
<S> <C> <C>
European Cable Capital Partners, L.P.(2)
85 Broad Street, New York, NY 10004 39,447,443 66.7%
AmSouthBank of Alabama, as Trustee (3)
1901 Sixth Avenue North, Third Floor,
Harbert Plaza, Birmingham, AL 35203 8,750,238 14.8%
DCI Capital Partners
9830 Wilshire Boulevard,
Beverly Hills, California CA 90212 3,909,754 6.6%
Investor Investments AB
Arsenalsgatan 8c, P.O. Box 161574, S-103 24
Stockholm, Sweden 3,909,754 6.6%
Booth English Cable Inc.(4)
33 West Fort St., Suite 1230 Detroit, MI 48226 4,118,601 6.9%
Robert T. Goad(5)
c/o Columbia Management, Inc. P.O. Box 499,
Carmel, IN 46032 2,991,099 5.1%
All directors and executive officers of the
Company as a group (6) 2,991,099 5.1%
</TABLE>
(1) The percentage of Shares owned has been calculated based on the
59,138,791 Shares which are outstanding. The number of Shares outstanding
does not include 1,534,500 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, Goldman,
Sachs & Co. or its affiliates (the Goldman Sachs Affiliates) effectively
control 70.9% of the currently outstanding Shares.
-60-
<PAGE> 120
(3) AmSouth Bank of Alabama holds Shares as trustee for the Kathryn A.
McDonald Grantor Trust, the John L. McDonald Grantor Trust, the Jennifer
C. McDonald Grantor Trust and the Allan J. McDonald, Jr. Grantor Trust.
Pursuant to the Shareholders Agreement (discussed below), the McDonald
Interests have the right to appoint one member of the board of directors
of the Company. Otherwise, the McDonald Interests maintain no active role
in the management or operation of the Company.
(4) Booth English Cable, Inc. indirectly maintains an interest in Shares
through the 9.1% interest maintained by Booth English Cable, Inc. in ECCP
and directly maintains a 0.9% interest in Shares held by Booth English
Cable, Inc.
(5) Mr. Goad indirectly maintains an interest in Shares through the 7.6%
interest maintained by Columbia Management, Inc. in ECCP.
(6) Includes the interests held by Mr. Goad, but does not include 2,187,556
Shares of the John L. McDonald Grantor Trust of which John L. McDonald is
the beneficiary.
The authorized share capital of the Company consists of pounds sterling
3,750,001.50 divided into 150,000,000 Shares with voting rights, of which
59,138,791 Shares are outstanding, and six non-voting deferred shares of 25
pence each, all of which are outstanding but none of which carry voting rights.
Five of the non-voting deferred shares are held by AmSouth Bank of Alabama, as
trustee for the McDonald Interests ("AmSouth"), and one is beneficially owned by
CGT, a company in which Mr. Davis (former Managing Director) and his family are
interested. The non-voting deferred shares entitle the holders thereof only to
the repayment of the amounts paid up on such shares after payment to the holders
of Shares of pounds sterling 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 that may jeopardize a material
license of the Company and (vii) the winding up of the Company or any equity
repayment by the Company.
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<PAGE> 121
As to other provisions see Item 13. "Certain Relationships and Related
Transactions -- Shareholders Agreement."
RELATIONSHIP AGREEMENTS
Investor Investments and DCI entered into Relationship Agreements (the
"Relationship Agreements") with ECCP dated October 12, 1994 and June 21, 1996,
respectively. Under the Relationship Agreements, Investor Investments and DCI
each have the right to appoint one director to the board of the Company.
Pursuant to each of the Relationship Agreements (as well as its obligations
under the Shareholders Agreement), prior to an admission of ordinary shares to
listing or similar arrangements (an "IPO"), ECCP has agreed to procure (so far
as it is legally able) that the Company will invite Investor Investments and
DCI to subscribe for a proportion of any further shares which the Company may
issue wholly for cash, such proportion to be equivalent to Investor
Investments' or DCI's (as the case may be) percentage interest in the Shares.
Pursuant to the Relationship Agreements, ECCP has agreed to procure (so
far as it is legally able) that the Company will not, prior to an IPO, take
certain actions without the prior written approval of Investor Investments and
DCI. These actions are: (i) any capital reconstruction or reorganization, if
unfairly prejudicial to Investor Investments or DCI, as the case may be, (ii)
any transaction by the Company with ECCP or its affiliates on any basis other
than on commercial arm's-length terms, and (iii) the winding up of the Company
or any equity repayment by the Company.
For a discussion of certain provisions of the Relationship Agreements, see
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
Group, 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 Group believes that the terms of the
Management Agreement are, taken as a whole, as favorable to the Group as those
which could have been obtained from an unaffiliated third party through
arm's-length negotiation. During 1995, 1996 and 1997, the Group recorded
expenses of pounds sterling 1,085,000, pounds sterling 1,610,000 and pounds
sterling 2,061,000, respectively, as amounts paid or payable to ECE Management
and/or ECE Management International in connection with management services
provided to the Group and all related expenses incurred. The Management
Agreement will terminate if Mr. Goad dies or ceases to perform services under
the agreement for more than 3 months. In addition, the Group may terminate the
Management Agreement (after consultation with ECE Management International) if
Diamond materially underperforms compared to ECE Management International's
business plan, provided such underperformance is not caused by events which are
beyond ECE Management International's control.
-62-
<PAGE> 122
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".
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 Group 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 Group are not taken
without the prior written approval of Investor Investments and DCI. See Item
12. "Security Ownership of Certain Beneficiary Owners and Management".
The Relationship Agreements also provide that each party thereto will (so
far as it is able) procure that any contract between the Group (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 Group 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. and Goldman Sachs International acted as purchasers
in connection with the 1998 Notes offering and received aggregate underwriting
commissions of approximately $9,950,000. 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
pounds sterling 1,091,000. Goldman Sachs International acted as agent and
financial advisor in connection with the negotiation of a recently terminated
bank facility for which it has charged fees of approximately pounds sterling
400,000 in 1996. In 1995, Goldman, Sachs & Co. charged a fee of $750,000 for
financial advisory services that Goldman, Sachs & Co. rendered to the Group.
Goldman, Sachs & Co. was the counterparty to foreign exchange contracts entered
into by the Group in 1996 and 1997. See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Gains/Losses on
Derivative Financial Instruments".
John Thornton, who is a managing director of Goldman Sachs International
and a Director of the Company, is also a director of BSkyB, a principal
supplier of programming to the Group and a principal competitor of the Group.
See 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
also has an indirect minority interest in NTL, which has significant cable
interests in the U.K.
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<PAGE> 123
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS 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, 1997... F-3
Consolidated Balance Sheets at December 31, 1996 and 1997 F-4
Consolidated Statements of Shareholders' Equity/(Deficit)
for each of the years in the three year period ended
December 31, 1997........................................ F-5
Consolidated Statements of Cash Flows for each of the
years in the three year period ended December 31, 1997... F-6
Notes to the Consolidated Financial Statements........... F-7
</TABLE>
2. Not applicable.
3. Exhibits:
<TABLE>
<S> <C>
*3.1 Memorandum and Articles of Association of Diamond Cable
Communications Plc.
*3.2 Memorandum and Articles of Association of Diamond Holdings Plc.
(incorporated by reference to the Company's registration statement on
Form S-4 (Exhibit No. 3.2)).
*10.1 Indenture dated as of February 27, 1997 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
*10.2 Senior Notes Depositary Agreement, February 27, 1997 between Diamond
Cable Communications Plc and the Bank of New York, as Book-Entry
Depositary.
*10.3 Shareholders Agreements, dated as of September 1, 1994 among ECCP,
AmSouth, as trustee for the McDonald Interests, CGT Family
Corporation, GS Capital Partners, L.P., William W. McDonald and
Diamond Cable Communications Plc. (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-83740,
Exhibit No. 10.1)).
*10.4 Management Agreement, dated July 5, 1994, between ECE Management
Company and Diamond Cable (Nottingham) Limited (incorporated by
reference to the Company's registration statement on Form S-1 (File
No. 33-83740, Exhibit No. 10.2)).
*10.5 Service Agreement, dated May 17, 1994, between Gary L. Davie and
Diamond Cable (Nottingham) Limited (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-83740,
Exhibit No. 10.3)).
*10.6 Service Contract, dated March 1, 1994, between Duncan Craig and
Diamond Cable (Nottingham) Limited (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-83740;
Exhibit No. 10.4)).
*10.7 Loan Facility agreement, dated February 13, 1997, among Diamond Cable
Communications (UK) Ltd, Jewel Holdings Limited, Natwest Markets and
National Westminster Bank plc, filed as an exhibit to the Company's
1996 Annual Report on Form 10-K, file No. 33-83740, and incorporated
by reference herein.
*10.8 Service Contract, dated as of April 1, 1996, between Diamond Cable
(Nottingham) Ltd. and Stephen Rowles, filed as an exhibit to the
Company's 1996 Annual Report on Form 10-K, File No. 33-83740, and
incorporated by reference herein.
*10.9 Service Agreement, dated July 1, 1995, between Diamond Cable
Communications Plc and Nicholas Millard, filed as an exhibit to the
Company's 1996 Annual Report on Form 10-K, File No. 33-83740, and
incorporated by reference herein.
*10.10 Senior Management Option Scheme, adopted on October 29, 1994, filed as
an exhibit to the Company's 1994 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.11 Form of Subscription Agreement among Company and Shareholders relating
to equity commitment (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 33-98374; Exhibit No.
10.7)).
*10.12 Form of Indenture, dated as of December 15, 1995, between Diamond
Cable Communications Plc and The Bank of New York, as Trustee
(incorporated by reference to the Company's registration statement on
Form S-1 (File No. 33-98374; Exhibit No. 4.1)).
*10.13 Form of Senior Notes Depositary Agreement, dated as of December 16,
1995, between Diamond Cable Communications Plc and The Bank of New
York, as Book-Entry Depositary (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 32-98374;
Exhibit No. 4.2)).
*10.14 Indenture, dated as of September 29, 1994 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee (incorporated
by reference to the Company's registration statement on Form S-1 (File
No. 33-83740, Exhibit No. 4.1)).
*10.15 Senior Notes Depositary Agreement, dated as of September 29, 1994
between Diamond Cable Communications Plc and The Bank of New York, as
Book-Entry Depositary (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 33-83740; Exhibit No.
4.2)).
*10.16 First Supplemental Indenture, dated as of May 31, 1996 between Diamond
Cable communications Plc and The Bank of New York, as Trustee
(incorporated by reference to the Company's registration statement on
Form S-1 (File No. 33-83740; Exhibit No. 4.3)).
*10.17 Service Contract, dated September 18, 1996, between Diamond Cable
(Nottingham) Ltd. and Stephen Rowles (incorporated by reference to the
Company's registration statement on Form S-4 (Exhibit No. 10.9).
*10.18 Supplemental Management Agreement, dated February 27, 1997, among
Diamond Cable Communications Plc, Diamond Cable Communications (UK)
Ltd and ECE Management International, LLC.
*10.19 Second Supplemental Agreement, dated 4 April 1997, relating to a Loan
Facility Agreement among Diamond Cable Communications (UK) Ltd,
Natwest Markets and CIBC Wood Gundy PLC.
*10.20 Indenture, dated as of February 6, 1998 among Diamond Holdings Plc,
Diamond Cable Communications Plc and The Bank of New York, as Trustee
(incorporated by reference to the Company's registration statement on
Form S-4 (Exhibit No. 4.1)).
*10.21 Senior Note Depositary Agreement, dated February 6, 1998, among Diamond
Holdings, the Bank of New York, as Global Depositary, and the Owners
of Book-Entry Interests (incorporated by reference to the Company's
registration statement on Form S-4 (Exhibit No. 4.2)).
*12 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of Registrant (incorporated by reference to the Company's
registration statement on Form S-1 (File No. 33-98374, Exhibit No.
21.1)).
*23.1 Consent of Sullivan & Cromwell (included in Exhibits 5.1 and 8.1).
*23.2 Consent of Freshfields (also included in Exhibit 8.2).
*23.3 Consent of KPMG.
*23.4 Consent of Katherine B. Wolfsohn (included in Exhibit 5.2).
*25 Statement of Eligibility of Trustee on Form T-1.
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
*99.3 Form of Letter to DTC Participants from the Book-Entry Depositary
*99.4 Form of Exchange Agent Agreement
- ----------------------------
* Previously filed or incorporated by reference to a concurrent filing.
</TABLE>
(b) The Company filed no Reports on Form 8-K during the three month period
ended December 31, 1997.
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<PAGE> 124
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 /s/ Robert T. Goad
------------------------------
Robert T. Goad
Chief Executive Officer
March 20, 1998
<PAGE> 125
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> /s/Robert T. Goad <C> <C>
_________________________ Director and Chief Executive Officer March 20, 1998
Robert T. Goad
/s/Lord Francis Pym
_________________________ Director and Non-Executive Chairman March 20, 1998
Lord Francis Pym
/s/Richard A. Friedman
_________________________ Director March 20, 1998
Richard A. Friedman
/s/Muneer A. Satter
_________________________ Director March 20, 1998
Muneer A. Satter
/s/John L. Thornton
_________________________ Director March 20, 1998
John L. Thornton
_________________________ Director March 20, 1998
Thomas Nilsson
/s/Nicholas R. Millard
_________________________ Chief Financial Officer March 20, 1998
Nicholas R. Millard
/s/J. A. Duncan Craig
_________________________ Chief Accounting Officer March 20, 1998
J.A. Duncan Craig
</TABLE>
<PAGE> 126
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, 1997............................... F-3
Consolidated Balance Sheets at December 31, 1996 and 1997...................... F-4
Consolidated Statements of Shareholders' Equity/(Deficit) for each of the years
in the three year period ended December 31, 1997............................... F-5
Consolidated Statements of Cash Flows for each of the years in the
three year period ended December 31, 1997...................................... F-6
Notes to the Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE> 127
INDEPENDENT AUDITORS' REPORT
To 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, 1996 and
1997 and the related consolidated statements of operations, shareholders'
deficit and cash flows for each of the years in the three year period ended
December 31, 1997. 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 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, 1996 and 1997 and the results of their operations and their
cash flows for each of the years in the three year period ended December 31,
1997 in conformity with generally accepted accounting principles in the United
States of America.
KPMG
Chartered Accountants
Registered Auditors
Nottingham, England
March 12, 1998
F-2
<PAGE> 128
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
_______________________________________________
1995 1996 1997 1997
__________ __________ ___________ __________
<S> <C> <C> <C> <C>
(note 1)
(in thousands)
REVENUE
Business telecommunications...................... L. 5,852 L. 9,763 L. 14,208 $23,339
Residential telephone............................ 6,662 17,723 29,495 48,452
Cable television................................. 3,479 10,091 16,602 27,272
---------- --------- ---------- ---------
15,993 37,577 60,305 99,063
---------- --------- ---------- ---------
OPERATING COSTS AND EXPENSES
Telephone........................................ (5,454) (9,776) (12,088) (19,857)
Programming...................................... (1,844) (6,041) (9,749) (16,015)
Selling, general and administrative.............. (13,020) (22,391) (27,192) (44,668)
Depreciation and amortization.................... (8,867) (21,380) (27,620) (45,371)
---------- --------- ---------- ---------
(29,185) (59,588) (76,649) (125,911)
---------- --------- ---------- ---------
OPERATING LOSS................................... (13,192) (22,011) (16,344) (26,848)
Interest income.................................. 3,887 3,441 6,440 10,579
Interest expense and amortization of
debt discount and expenses....................... (17,118) (40,334) (66,367) (109,021)
Foreign exchange gains/(losses), net (note 17)... 925 31,018 (12,555) (20,624)
Unrealized (losses)/gains on derivative financial
instruments (note 3)............................. (868) (7,944) 669 1,099
Realized gain on derivative financial
instruments (note 4)............................. - - 11,553 18,978
Other expenses (note 5).......................... (1,241) - - -
---------- --------- ---------- ---------
Loss before income taxes......................... (27,607) (35,830) (76,604) (125,837)
Income taxes (note 6)............................ - - - -
---------- --------- ---------- ---------
NET LOSS......................................... L. (27,607) L.(35,830) L. (76,604) $(125,837)
========== ========= ========== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-3
<PAGE> 129
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
_____________________________________
1996 1997 1997
___________ ___________ ___________
<S> <C> <C> <C>
(note 1)
(in thousands except share data)
ASSETS
Cash and cash equivalents (note 7)................................ L. 18,311 L. 75,680 $124,320
Trade receivables (net of allowance for doubtful
accounts of pound sterling 1,691 and pound sterling 2,788 at
December 31, 1996 and 1997 respectively (note 8))................. 6,389 8,569 14,076
Other assets...................................................... 3,904 4,470 7,343
Deferred financing costs (less accumulated amortization of
pound sterling 1,325 and pound sterling 2,627 at
December 31, 1996 and 1997 respectively).......................... 19,573 15,533 25,516
Property and equipment, net (note 9).............................. 277,301 365,636 600,630
Goodwill (less accumulated amortization of pound sterling 6,064
and pound sterling 10,914 at December 31, 1996 and 1997
respectively)..................................................... 90,896 86,046 141,348
Franchise costs (less accumulated amortization of
pound sterling 91 and pound sterling 116 at December 31,
1996 and 1997 respectively)....................................... 445 423 695
--------- --------- --------
TOTAL ASSETS...................................................... L.416,819 L.556,357 $913,928
========= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Accounts payable.................................................. L. 18,528 L. 22,319 $36,663
Other liabilities................................................. 19,150 11,224 18,438
Senior discount notes (note 10)................................... 314,418 534,861 878,616
Capital lease obligations (note 11)............................... 8,146 8,041 13,209
Mortgage loan (note 12)........................................... 2,477 2,423 3,980
Shareholders' equity/(deficit) (note 13)
Ordinary shares: 70,000,000 authorized;
59,138,791 shares issued at December 31, 1996 and 1997............ 1,478 1,478 2,428
Non-voting deferred shares:
6 shares authorized and issued at December 31, 1996 and 1997...... - - -
Additional paid-in-capital........................................ 134,466 134,466 220,888
Unrealized loss on securities..................................... (197) (204) (335)
Accumulated deficit............................................... (81,647) (158,251) (259,959)
--------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT).............. L.416,819 L.556,357 $913,928
========= ========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-4
<PAGE> 130
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
Non-voting
Ordinary share deferred shares (i) Total
______________________ __________________ Additional Unrealized Accum- Shareholders'
Pound Pound Paid-in- loss on ulated Equity/
Number sterling Number sterling capital securities Deficit (Deficit)
__________ ________ ______ ________ __________ __________ _________ _____________
(in thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1995........ 31,903,232 L. 797 6 L. - L.43,505 L. - L.(18,210) L.26,092
Shares issued and
capital contributions
(net of expenses)...... 9,437,428 236 - - 26,742 - - 26,978
Bonus shares issued 2,413,515 61 - - (61) - - -
Unrealized loss on
securities............. - - - - - (330) - (330)
Net loss............... - - - - - - (27,607) (27,607)
---------- -------- ------ ------ -------- -------- --------- --------
BALANCE AT
DECEMBER 31, 1995...... 43,754,175 L. 1,094 6 L. - L.70,186 L. (330) L.(45,817) L.25,133
========== ======== ====== ====== ======== ======== ========= ========
BALANCE AT
JANUARY 1, 1996........ 43,754,175 L. 1,094 6 L. - L.70,186 L. (330) L.(45,817) L.25,133
Shares issued and
capital contributions
(net of expenses)...... 15,384,616 384 - - 64,280 - - 64,664
Unrealized gain on
securities............. - - - - - 133 - 133
Net loss............... - - - - - - (35,830) (35,830)
---------- -------- ------ ------ -------- -------- --------- --------
BALANCE AT
DECEMBER 31, 1996...... 59,138,791 L.1,478 6 L. - L.134,466 L. (197) L.(81,647) L.54,100
========== ======== ====== ====== ======== ======== ========= ========
BALANCE AT
JANUARY 1, 1997........ 59,138,791 L.1,478 6 L. - L.134,466 L. (197) L.(81,647) L.54,100
Unrealized loss on
securities............. - - - - - (7) - (7)
Net loss............... - - - - - - (76,604) (76,604)
---------- -------- ------ ------ -------- -------- --------- --------
BALANCE AT
DECEMBER 31, 1997...... 59,138,791 L.1,478 6 L. - L.134,466 L. (204) L.(158,251) L.(22,511)
========== ======== ====== ====== ======== ======== ========= ========
</TABLE>
(i) On September 4, 1995, the six A shares were automatically converted into
six non-voting deferred shares in accordance with the Articles of the
Company.
See accompanying Notes to the Consolidated Financial Statements
F-5
<PAGE> 131
DIAMOND CABLE COMMUNICATIONS PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
______________________________________________
1995 1996 1997 1997
__________ __________ __________ __________
<S> <C> <C> <C> <C>
(note 1)
(in thousands)
Cash flows from operating activities:
Net loss............................................ L. (27,607) L.(35,830) L.(76,604) $(125,837)
Adjustments to reconcile net loss to net cash
(used in)/provided by operating activities:
Depreciation and amortization....................... 8,867 21,380 27,620 45,371
Foreign exchange (gains)/losses..................... (613) (31,468) 11,714 19,242
(Profit)/loss on disposition of assets.............. (11) (11) 110 181
Provision for losses on accounts receivable......... 407 918 1,097 1,802
Amortization of deferred financing costs............ 312 943 9,301 15,279
Accretion of senior note discount................... 14,335 38,157 55,038 90,411
Accretion of investment income...................... 524 - - -
Profit on disposition of investments................ (2,733) - - -
Change in operating assets and liabilities:
Change in trade receivables......................... (1,577) (3,724) (3,277) (5,383)
Change in other assets.............................. (2,175) 1,300 (566) (930)
Change in accounts payable.......................... 4,532 (1,680) 4,255 6,990
Change in other liabilities......................... 1,626 8,667 (7,812) (12,833)
--------- --------- --------- --------
Net cash (used in)/provided by operating activities. (4,113) (1,348) 20,876 34,293
--------- --------- --------- --------
Cash flows from investing activities:
Cash invested in property and equipment............. (102,899) (128,246) (110,145) (180,935)
Cash invested in marketable securities.............. (17,445) - - -
Proceeds from disposition of assets................. 72 65 62 102
Proceeds from disposition of investments............ 73,644 - - -
Cash paid for franchises............................ (45) (29) (3) (5)
Payment for purchase of LCL (net of cash acquired).. (108,844) - - -
--------- --------- --------- --------
Net cash used in investing activities............... (155,517) (128,210) (110,086) (180,838)
--------- --------- --------- --------
Cash flows from financing activities:
Proceeds of issue of debt........................... 194,881 - 153,691 252,468
Debt financing costs................................ (7,924) (9,096) (5,375) (8,829)
New loans........................................... 94,000 - - -
Repayment of loans.................................. (94,119) (23) (54) (89)
Capital element of capital lease obligations........ (841) (1,117) (1,676) (2,753)
Issue of shares and capital contributions
(net of expenses)................................. 26,978 64,664 - -
Net decrease in short-term borrowings............... (773) - - -
--------- --------- --------- --------
Net cash provided by financing activities........... 212,202 54,428 146,586 240,797
--------- --------- --------- --------
Net increase/(decrease) in cash..................... 52,572 (75,130) 57,376 94,252
Cash and cash equivalents at beginning of year...... 41,066 93,308 18,311 30,079
Effect of exchange rate changes on cash and
cash equivalents.................................... (330) 133 (7) (11)
--------- --------- --------- --------
Cash and cash equivalents at end of year (note 7)... L. 93,308 L. 18,311 L. 75,680 $124,320
========= ========= ========= ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
F-6
<PAGE> 132
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 1997 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 = $1.6427, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 1997.
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 Standard ("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. The prematurity period
covers the period between connecting the first customer and substantial
completion of the network. Initial subscriber installation costs are
capitalized and depreciated over a period of 7 years. A proportion of the
costs of the installation department representing the costs of disconnecting
and reconnecting subscribers is charged to expenses.
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
consolidated statement of operations. Interest rate swaps which are designated
to assets and liabilities are accounted for on an accruals basis.
F-7
<PAGE> 133
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES - Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the consolidated
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.
IMPAIRMENT OF CABLE SYSTEMS AND GOODWILL - The Company assesses the
recoverability of these assets by determining whether the carrying value can be
recovered through projected undiscounted future operating cash flows. The
amount of impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the average cost of funds
of financing such assets. The assessment of the recoverability will be
impacted if changes in technology or other market conditions result in the
projected future operating cash flows not being 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 consolidated 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 consolidated statement of operations.
PENSION COSTS - The Group operates a defined contribution pension scheme
and also contributes up to specified limits to the third party plan of the
employee's choice. Pension costs of pound sterling 55,000, pound sterling
125,000 and pound sterling 196,000 in 1995, 1996 and 1997 respectively,
represent the contributions payable to the selected plans.
SENIOR DISCOUNT NOTES - The debt discount is amortized to the consolidated
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 consolidated 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". Compensation expense is measured as the difference between the
exercise price and the market price of the stock on the date of the grant of
the option and is amortized as a charge to the consolidated statement of
operations over the vesting period of the option. The disclosure requirements
of SFAS No. 123, "Accounting for Stock-Based Compensation" are set out in note
18.
F-8
<PAGE> 134
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NEW ACCOUNTING STANDARDS APPLICABLE TO THE GROUP - SFAS No. 129,
"Disclosure of Information about Capital Structure" was issued in February 1997
and lists the requirements for disclosures about the characteristics of the
shares in issue. SFAS No. 129 is effective for financial statements for
periods ending after December 15, 1997. No significant changes to the
disclosure in the consolidated financial statements have been necessary to
comply with this statement.
SFAS No. 130, "Reporting Comprehensive Income" was issued in June 1997, and
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. It requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. It requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid in capital in the equity
section of a statement of financial position. The Group has not yet evaluated
the likely impact of the level of disclosure required.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" was issued in June 1997, and is effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. It requires that
companies disclose segment data based on how management makes decisions about
allocating resources to segments and measuring their performance. It also
requires entity wide disclosures about the products and services the entity
provides, the material countries in which it holds assets and reports revenues
and its major customers. The Group has not yet evaluated the extent of any
additional disclosure or changes to existing disclosure which may be required.
3. UNREALIZED (LOSSES)/GAINS ON DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Year ended December 31
________________________________
1995 1996 1997
__________ __________ ________
<S> <C> <C> <C>
(in thousands)
Unrealized (loss)/gain on interest rate swap (note 17) L. (868) L. 174 L. (57)
Unrealized (loss)/gain on foreign exchange forward
contracts (note 17)................................... - (8,118) 726
---------- ---------- --------
L. (868) L. (7,944) L. 669
========== ========== ========
</TABLE>
4. REALIZED GAIN ON DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
Year ended December 31
______________________________
1995 1996 1997
_________ _________ ________
<S> <C> <C> <C>
(in thousands)
Realized gain on foreign exchange forward contract (note 17) L. - L. - L.11,553
========= ========= ========
</TABLE>
5. OTHER EXPENSES
Other expenses in 1995 represent costs incurred in an aborted flotation of
equity.
F-9
<PAGE> 135
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. 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 296 million and approximately pound sterling 1 million of capital
losses carried forward at December 31, 1997.
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 consolidated
financial statements and the expected tax benefit at the United Kingdom
statutory rate of 31% (1995 and 1996: 33%) are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31
______________________________________
1995 1996 1997
_________ __________ __________
(in thousands)
<S> <C> <C> <C>
Tax benefit of net losses at 31% (1995 and 1996: 33%) L.(9,110) L.(11,824) L.(23,747)
Non-deductible expenses.............................. 367 1,695 1,915
Valuation allowance.................................. 8,743 10,129 21,832
-------- --------- ---------
Net tax benefit...................................... L. - L. - L. -
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31
________________________
1996 1997
_________ _________
(in thousands)
<S> <C> <C>
Deferred tax assets relating to:
Net losses............................................. L. 45,736 L. 91,882
Other.................................................. 447 1,173
--------- ---------
Deferred tax asset..................................... 46,183 93,055
Valuation allowance.................................... (27,299) (54,650)
--------- ---------
18,884 38,405
--------- ---------
Deferred tax liabilities relating to:
Property and equipment................................. (18,087) (38,405)
Financing costs........................................ (155) -
Other.................................................. (642) -
--------- ---------
Deferred tax liability................................. (18,884) (38,405)
--------- ---------
Deferred tax per consolidated balance sheet............ L. - L. -
========= =========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, the level of
historical taxable
F-10
<PAGE> 136
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
losses, and tax planning strategies in making its assessment as to the
appropriateness of the reported valuation allowance.
F-11
<PAGE> 137
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
December 31
___________________
1996 1997
_________ ________
<S> <C> <C>
(in thousands)
Cash at bank and in hand..... L. 1,241 L. 3,723
Short term securities........ 17,070 71,957
--------- --------
L.18,311 L.75,680
========= ========
</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.
8. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
charged to
Balance at Arising on costs and Amounts Balance at
January 1 acquisition expenses written off December 31
__________ ___________ __________ ___________ ___________
(in thousands)
<S> <C> <C> <C> <C> <C>
1995
Allowance for doubtful accounts L. 233 L. 133 L. 439 L. (32) L. 773
========== =========== ========== =========== ===========
1996
Allowance for doubtful accounts L. 773 L. - L.1,143 L. (225) L. 1,691
========== =========== ========== =========== ===========
1997
Allowance for doubtful accounts L. 1,691 L. - L.1,204 L. (107) L. 2,788
========== =========== ========== =========== ===========
</TABLE>
F-12
<PAGE> 138
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Land and Cable Office Motor
buildings network equipment vehicles Total
_________ __________ _________ _________ _________
(in thousands)
<S> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1996.. L. 3,863 L. 170,660 L. 4,701 L. 644 L.179,868
Additions................... 688 127,454 1,979 19 130,140
Dispositions................ - (42) (154) (228) (424)
Reclassification............ 467 (10) (457) - -
--------- ---------- --------- --------- ---------
Balance at December 31, 1996 5,018 298,062 6,069 435 309,584
--------- ---------- --------- --------- ---------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996.. 74 14,295 1,450 328 16,147
Charge for year............. 150 14,737 1,524 95 16,506
Dispositions................ - (41) (154) (175) (370)
Reclassification............ 90 (50) (40) - -
--------- ---------- --------- --------- ---------
Balance at December 31, 1996 314 28,941 2,780 248 32,283
--------- ---------- --------- --------- ---------
1996 NET BOOK VALUE......... L. 4,704 L.269,121 L. 3,289 L. 187 L.277,301
========= ========== ========= ========= =========
ACQUISITION COSTS
Balance at January 1, 1997.. 5,018 298,062 6,069 435 309,584
Additions................... 93 107,844 2,948 367 111,252
Dispositions................ - (254) - (196) (450)
--------- ---------- --------- --------- ---------
Balance at December 31, 1997 5,111 405,652 9,017 606 420,386
--------- ---------- --------- --------- ---------
ACCUMULATED DEPRECIATION
Balance at January 1, 1997.. 314 28,941 2,780 248 32,283
Charge for year............. 164 20,886 1,589 106 22,745
Dispositions................ - (132) - (146) (278)
--------- ---------- --------- --------- ---------
Balance at December 31, 1997 478 49,695 4,369 208 54,750
--------- ---------- --------- --------- ---------
1997 NET BOOK VALUE......... L. 4,633 L.355,957 L. 4,648 L. 398 L.365,636
========= ========== ========= ========= =========
</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 11,543,000 and pound sterling
13,042,000 at December 31, 1996 and 1997 respectively. Accumulated depreciation
charged against these assets was pound sterling 3,882,000 and pound sterling
5,238,000 at December 31, 1996 and 1997 respectively.
Depreciation on assets held under capital lease arrangements charged to the
consolidated statement of operations during the year was pound sterling 863,000,
pound sterling 1,375,000 and pound sterling 1,535,000 in 1995, 1996 and 1997
respectively.
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.
F-13
<PAGE> 139
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. DEBT (continued)
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.
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.
The 1994 Notes, 1995 Notes and the 1997 Notes (collectively "the Discount
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 Discount Notes are stated net of unamortized discount of approximately
pound sterling 162 million ($278 million) and pound sterling 218 million ($358
million) at December 31, 1996 and 1997 respectively. The discount is being
accreted through the consolidated statement of operations such that the Company
recognizes a fixed rate of interest, the total accretion for the year being
pound sterling 38 million ($65 million) and pound sterling 55 million ($90
million) in 1996 and 1997 respectively.
The costs relating to the issue of the Discount Notes have been deferred
and are shown as deferred financing costs in the consolidated balance sheet.
These costs are being amortized over the term of the Discount Notes, where
appropriate, as an adjustment of yield.
The Discount 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 (note 16).
The Discount Notes all mature after more than five years.
On February 6, 1998 Diamond Holdings plc, a wholly-owned subsidiary of the
Company, issued pound sterling 135,000,000 of 10% Senior Notes due February 1,
2008 and $110,000,000 of 9 1/8% Senior Notes due February 1, 2008 (together "the
Senior Notes") at par. The Senior Notes are unconditionally guaranteed as to
principal, interest and any other amounts due by the Company. Total proceeds
received by Diamond Holdings plc amounted to pound sterling 195 million after
issuance costs of pound sterling 7 million. Interest on the Senior Notes is
payable in arrears on February 1 and August 1 of each year commencing August 1,
1998.
F-14
<PAGE> 140
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 733,000, pound sterling 1,158,000
and pound sterling 1,246,000 in 1995, 1996 and 1997 respectively.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1997:
<TABLE>
<CAPTION>
Capital Operating
leases leases
________ _________
(in thousands)
<S> <C> <C>
1998............... L. 2,633 L. 1,027
1999............... 2,521 809
2000............... 2,325 556
2001............... 1,342 277
2002............... 350 200
2003 and thereafter - 1,969
Imputed interest... (1,130) -
-------- --------
L. 8,041 L. 4,838
======== ========
</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 ("LDLs"), to construct
cable systems passing a predefined number of premises. Should the Group fail to
achieve these milestones, without license modifications, the Director General of
Telecommunications could commence proceedings to require compliance. Similarly
the Independent Television Commission ("ITC") may commence proceedings to
require compliance with the build milestones in the LDLs.
If the 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
The consolidated financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the consolidated financial
statements during the years ended December 31, 1995, 1996 and 1997 the Group
incurred net losses of pound sterling 27.6 million, pound sterling 35.8 million
and pound sterling 76.6 million respectively.
The Group is obligated by the milestones in its telecommunications licenses
and LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. The Group's continuation to build out
its network is dependent upon its ability to obtain sufficient debt and/or
equity financing in order to meet its network milestones. The inability of the
Group to secure financing in addition to that currently available, including the
proceeds of the issue of the Senior Notes, could result in a failure to comply
with the build milestones set forth in its licenses to operate, and ultimately
could lead to the revocation of such licenses. Under such conditions the Group
may be unable to continue to operate. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
liabilities that might be necessary should the Group be unable to continue to
operate.
F-15
<PAGE> 141
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENT AND CONTINGENCIES (continued)
To the extent that the amount required to complete the Group's network to
meet its milestones exceeds its estimates, the annualized cash flow of certain
subsidiaries does not meet expectations, or the Group continues constructing
the network beyond its milestone obligations, the amount of additional debt or
other financing required will increase.
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/(DEFICIT)
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 of 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.
F-16
<PAGE> 142
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. SHAREHOLDERS' EQUITY/(DEFICIT) (continued)
At September 1, 1994 the authorized share capital of the Company was
70,000,000 ordinary shares of 2.5 pence each and six A shares of 25 pence each
of which 29,016,630 ordinary shares and six A shares 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 pound 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.
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 2,376,000, pound sterling
1,060,000 and pound sterling 2,148,000 for the years ended December 31, 1995,
1996 and 1997.
F-17
<PAGE> 143
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1996 and 1997, the
Group recorded expenses of pound sterling 1,610,000 and pound sterling
2,061,000, respectively, as amounts paid or payable to 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, 1997. 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, 1997.
OTHER RELATIONSHIPS
Goldman, Sachs & Co and Goldman Sachs International acted as purchasers in
connection with the offering of the Senior Notes and received underwriting
commissions of approximately $9,600,000 . 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 the 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.
F-18
<PAGE> 144
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1997 was pound
sterling 24.0 million. Following acquisition by the Company, the interest rate
swap has been retained and has been recorded on the consolidated balance sheet
in other liabilities at its market value at December 31, 1997 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 1997 was pound sterling 339,000.
FOREIGN EXCHANGE FORWARD CONTRACTS - 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. For the year ended
December 31, 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.
The Company entered into a foreign exchange forward contract on June 23,
1997 for settlement on June 25, 1998 to sell pound sterling 50 million at a rate
of $1.6505 to pound sterling 1. The Company also entered into a foreign
exchange forward contract on June 27, 1997 for settlement on July 1, 1998 to
sell pound sterling 50 million at a rate of $1.6515 to pound sterling 1. For
the year ended December 31, 1997 the Company has recorded an unrealized gain of
approximately pound sterling 726,000 on the contracts.
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
__________________________________________
1996 1997 1996 1997
Carrying Carrying Fair Fair
value value value value
_________ _________ _________ _________
(in thousands)
<S> <C> <C> <C> <C>
1994 Notes.......... L.117,062 L.138,726 L.136,740 L.155,333
1995 Notes.......... 197,356 230,599 220,726 249,688
1997 Notes.......... - 165,536 - 174,067
--------- --------- --------- ---------
L.314,418 L.534,861 L.357,466 L.579,088
========= ========= ========= =========
</TABLE>
F-19
<PAGE> 145
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. FINANCIAL INSTRUMENTS (continued)
FOREIGN EXCHANGE FORWARD CONTRACTS - The foreign exchange forward contracts
have been marked to market and the resulting carrying amounts approximates their
fair values. The fair values of the instruments have been calculated based on
the difference between the forward rate available at December 31, 1997 for the
remaining maturity of the contracts 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 Group's customer base. At December 31, 1997, 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 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 foreign exchange forward contracts during
1996 and 1997 (discussed herein). Changes in currency exchange rates may
continue to have a material effect on the results of operations of the Group.
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.
F-20
<PAGE> 146
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SHARE OPTIONS (continued)
Options over a total of 77,500 shares were granted to directors and senior
management on May 7, 1997 and November 19, 1997 under the Senior Management
Option Scheme with an exercise price of pound sterling 4.11 per share.
Options were granted on January 5, 1995 to CGT, in which Mr. Davis and his
family are shareholders, over 654,000 shares with an exercise price of pound
sterling 3.44 and are exercisable at any time up to January 5, 2002. These
options were not granted under the Senior Management Option Scheme but are
subject to some of the provisions of the Senior Management Option Scheme.
The following table sets forth the number of options in issue:
<TABLE>
<CAPTION>
At At At At
January Granted December Forfeited December Granted Forfeited December
1, 1995 in 1995 31, 1995 in 1996 31, 1996 in 1997 in 1997 31, 1997
_______ _______ ________ _________ ________ _______ _________ ________
(number in thousands)
<C> <C> <C> <C> <C> <C> <C> <C>
- 1,872 1,872 (45) 1,827 77 (370) 1,534
======= ======= ======== ========= ======== ======= ========= ========
</TABLE>
Options over 654,000 shares were exercisable at December 31, 1995, 1996 and
1997.
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 of 6.25% for options granted in 1995 and 7.5% for options granted in 1997
and assuming options are exercised on the seventh anniversary of the date of the
grant. The pro-forma compensation cost for 1995, 1996 and 1997 is pound
sterling 0.22 million, pound sterling 0.33 million and pound sterling 0.15
million respectively. The effects of applying SFAS No. 123 may not be
representative of the effects on reported net income/loss for future years.
<TABLE>
<CAPTION>
Year ended
December 31
____________________________________
1995 1996 1997
__________ ___________ ___________
(in thousands)
<S> <C> <C> <C>
Pro-forma net loss... L.(27,812) L. (36,164) L. (76,754)
========== =========== ===========
</TABLE>
F-21
<PAGE> 147
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. SENIOR BANK FACILITY AND RESTRICTION OF NET ASSETS
In August 1996, certain of the Company's subsidiaries entered into a senior
bank lending agreement, which provided for a borrowing facility of up to an
aggregate amount of pound sterling 340 million. In February 1997, the Senior
Bank Facility was amended, and the Group has subsequently negotiated further
amendments to the facility. These amendments included a reduction in the amount
to be available for borrowing under the facility to pound sterling 175 million
to reflect the additional proceeds available to the Group through the issuance
of the 1997 Notes. No funds were drawn under the facility. The issuance of the
Senior Notes in February 1998 replaces, in large part, the expected borrowing
under the Senior Bank Facility. As a condition to the issuance of the Senior
Notes, therefore, the Group provided notice to terminate the Senior Bank
Facility on February 6, 1998. For the year ended December 31, 1997 the Group
has recorded a charge of pound sterling 8.0 million representing the write-off
of the deferred financing cost (principally origination fees and expenses) that
had been carried on the consolidated balance sheet.
Indebtedness under the Senior Bank Facility was to be incurred and
guaranteed by certain of the Company's subsidiaries and secured by a lien on
their assets. The Senior Bank Facility contained 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 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.
As a result of the above restrictions, certain subsidiaries were subject
to restrictions on their ability to make dividend payments, loans or other
transfers of cash to the Company as at December 31, 1997. 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, 1997, 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.
F-22
<PAGE> 148
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
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.
They also represent the financial statements of the Guarantor of the offering
of Senior Notes by Diamond Holdings plc in February 1998.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31
____________________________________________________
1995 1996 1997 1997
_____________ ___________ ___________ ___________
<S> <C> <C> <C> <C>
(note A)
(in thousands)
Selling, general and administrative................. L. - L. (1,468) L. (2,285) $ (3,753)
Equity accounted share of net losses of subsidiaries (16,832) (25,391) (87,672) (144,019)
Interest income..................................... 3,543 40,119 56,417 92,676
Interest expense and amortization of
debt discount and expenses.......................... (14,646) (39,100) (56,393) (92,637)
Foreign exchange gains/(losses), net................ 909 (1,542) 1,016 1,669
Unrealized (loss)/gain on derivative financial
instruments......................................... - (8,118) 726 1,193
Realized gain on derivative financial instruments... - - 11,553 18,978
Other expenses...................................... (911) - - -
------------- ----------- ----------- -----------
Loss before income taxes............................ (27,937) (35,500) (76,638) (125,893)
Income taxes........................................ - - - -
------------- ----------- ----------- -----------
NET LOSS............................................ L.(27,937) L. (35,500) L. (76,638) $(125,893)
============= =========== =========== ===========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-23
<PAGE> 149
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
______________________________________
1996 1997 1997
______________________________________
<S> <C> <C> <C>
(note A)
(in thousands except share data)
ASSETS
Investments in and advances to subsidiaries...................... L. 349,676 L. 468,167 $769,058
Cash and cash equivalents........................................ 16,032 28,697 47,141
Other assets..................................................... 115 822 1,350
Deferred financing costs (less accumulated amortization of
L.1,325 and L.2,627 at December 31, 1996 and 1997 respectively).. 11,960 15,533 25,516
----------- ------------ -----------
TOTAL ASSETS..................................................... L. 377,783 L. 513,219 $843,065
=========== ============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)
Other liabilities................................................ L. 9,265 L. 869 $1,427
Senior discount notes............................................ 314,418 534,861 878,616
Shareholders' equity/(deficit)...................................
Ordinary shares: 70,000,000 authorized;
59,138,791 shares issued at December 31, 1996 and 1997...... 1,478 1,478 2,428
Non-voting deferred shares:
6 shares authorized and issued at December 31, 1996 and 1997 - - -
Additional paid-in-capital....................................... 134,466 134,466 220,888
Unrealized loss on securities.................................... (197) (170) (279)
Accumulated deficit.............................................. (81,647) (158,285) (260,015)
----------- ------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT)............. L. 377,783 L. 513,219 $843,065
=========== ============ ===========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-24
<PAGE> 150
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
Non-voting
Ordinary shares deferred shares Total
____________________ ___________________ Additional Unrealized Accum- Shareholders'
pound pound Paid-in- loss on ulated Equity/
Number sterling Number sterling capital securities Deficit (Deficit)
__________ ________ ________ _________ __________ ___________ ___________ _____________
(in thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1, 1995........ 31,903,232 L. 797 6 L. - L.43,505 L. - L.(18,210) L.26,092
Shares issued and
capital contributions
(net of expenses)...... 9,437,428 236 - - 26,742 - - 26,978
Bonus shares issued 2,413,515 61 - - (61) - - -
Net loss............... - - - - - - (27,937) (27,937)
---------- -------- -------- --------- ---------- ----------- ----------- -------------
BALANCE AT
DECEMBER 31, 1995...... 43,754,175 L. 1,094 6 L. - L.70,186 L. - L.(46,147) L.25,133
========== ======== ======== ========= ========== =========== =========== =============
BALANCE AT
JANUARY 1, 1996........ 43,754,175 L. 1,094 6 L. - L.70,186 L. - L.(46,147) L.25,133
Shares issued and
capital contributions
(net of expenses)...... 15,384,616 384 - - 64,280 - - 64,664
Unrealized loss on
securities............. - - - - - (197) - (197)
Net loss............... - - - - - - (35,500) (35,500)
---------- -------- -------- --------- ---------- ----------- ----------- -------------
BALANCE AT
DECEMBER 31, 1996...... 59,138,791 L.1,478 6 L. - L.134,466 L. (197) L.(81,647) L.54,100
========== ======== ======== ========= ========== =========== =========== =============
BALANCE AT
JANUARY 1, 1997........ 59,138,791 L. 1,478 6 L. - L.134,466 L. (197) L.(81,647) L.54,100
Unrealized gain on
securities............. - - - - - 27 - 27
Net loss............... - - - - - - (76,638) (76,638)
---------- -------- -------- --------- ---------- ----------- ----------- -------------
BALANCE AT
DECEMBER 31, 1997...... 59,138,791 L. 1,478 6 L. - L.134,466 L. (170) L.(158,285) L. (22,511)
========== ======== ======== ========= ========== =========== =========== =============
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-25
<PAGE> 151
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
_____________________________________________________
1995 1996 1997 1997
_____________________________________________________
(in thousands)
<S> <C> <C> <C> <C>
(note A)
Cash flows from operating activities:
Net loss.............................................. L. (27,937) L. (35,500) L. (76,638) $(125,893)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Equity accounted share of net losses of subsidiaries 16,832 25,391 87,672 144,019
Foreign exchange losses/(gains).................... (613) 820 (2,524) (4,146)
Accrued interest on advances to subsidiaries........ (318) (39,581) (53,998) (88,703)
Amortization of deferred financing costs............ 312 943 1,302 2,139
Accretion of senior note discount................... 14,335 38,157 55,038 90,411
Accretion of investment income...................... 524 - - -
Profit on disposition of investments................ (2,733) - - -
Change in operating assets and liabilities:
Change in other assets.............................. (13) (102) 18 29
Change in other liabilities......................... 1,613 8,380 (8,282) (13,605)
-------------- ----------- ----------- -----------
Net cash provided by/(used in) operating activities... 2,002 (1,492) 2,588 4,251
-------------- ----------- ----------- -----------
Cash flows from investing activities:
Cash invested in marketable securities.............. (17,445) - - -
Proceeds from disposition of investments............ 73,644 - - -
Advances to subsidiaries............................ (310,611) (45,306) (138,652) (227,763)
-------------- ----------- ----------- -----------
Net cash used in investing activities................. (254,412) (45,306) (138,652) (227,763)
-------------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds of issue of debt........................... 194,881 - 153,691 252,468
Debt financing costs................................ (7,924) (1,637) (4,989) (8,195)
Issue of shares and capital contributions
(net of expenses)................................... 26,978 64,664 - -
-------------- ----------- ----------- -----------
Net cash provided by financing activities............. 213,935 63,027 148,702 244,273
-------------- ----------- ----------- -----------
Net (decrease)/increase in cash....................... (38,475) 16,229 12,638 20,761
Cash and cash equivalents at beginning of year........ 38,475 - 16,032 26,336
Effect of exchange rate changes on cash and
cash equivalents...................................... - (197) 27 44
-------------- ----------- ----------- -----------
Cash and cash equivalents at end of year.............. L. - L. 16,032 L. 28,697 $47,141
============== =========== =========== ===========
</TABLE>
See accompanying Notes to the Condensed Financial Statements
F-26
<PAGE> 152
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 1997 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 = $1.6427, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 1997.
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.
INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES - Investments in and advances
to subsidiaries are accounted for using the equity method of accounting.
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 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 1996 and 1997 was pound sterling 39.6
million and pound sterling 54.0 million respectively.
C. COMMITMENTS AND CONTINGENCIES
LIQUIDITY - The financial statements have been prepared on a basis which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements during the
years ended December 31, 1995, 1996 and 1997 the Group incurred net losses of
pound sterling 27.6 million, pound sterling 35.8 million and pound sterling 76.6
million respectively.
F-27
<PAGE> 153
DIAMOND CABLE COMMUNICATIONS PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
C. COMMITMENTS AND CONTINGENCIES (continued)
The Group is obligated by the milestones in its telecommunications licenses
and LDLs to construct and activate a network passing an aggregate of 1,021,894
premises within prescribed time periods. The Group's continuation to build out
its network is dependent upon its ability to obtain sufficient debt and/or
equity financing in order to meet its network milestones. The inability of the
Group to secure financing in addition to that currently available, including the
proceeds of the issue of the Senior Notes, could result in a failure to comply
with the build milestones set forth in its licences to operate, and ultimately
could lead to the revocation of such licenses. Under such conditions the Group
may be unable to continue to operate. The financial statements do not include
any adjustments relating to the recoverability and classification of liabilities
that might be necessary should the Group be unable to continue to operate.
To the extent that the amount required to complete the Group's network to
meet its milestones exceeds its estimates, the annualized cash flow of certain
subsidiaries does not meet expectations, or the Group continues constructing
the network beyond its milestone obligations, the amount of additional debt or
other financing required will increase.
21 SUMMARIZED FINANCIAL INFORMATION ABOUT DIAMOND HOLDINGS PLC
The following information is provided in accordance with the Staff
Accounting Bulletin No. 53 and represents the summarized financial information
of Diamond Holdings plc.
Diamond Holdings plc ("Holdings") was incorporated under the laws of
England and Wales on December 15, 1997. Holdings is a wholly owned subsidiary
of Diamond Cable Communications Plc ("the Company") and, on January 16, 1998
became the intermediate holding company which holds all the shares of (i)
Diamond Cable Communications (UK) Limited and (ii) East Midlands Cable
Communications Limited, East Midlands Cable Group Limited and East Midlands
Cable Holdings Limited through an intermediate holding company, Jewel Holdings
Limited.
Holdings raised approximately pound sterling 195 million by the offer of
Senior Notes in February 1998. The proceeds will be used by the Group for
general corporate purposes, including to fund a portion of the costs of
constructing the network in the Group's franchise area and related working
capital. The Senior Notes are unconditionally guaranteed by the Company.
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997
______________
<S> <C>
Amounts due from group undertakings........... L.49,998
Cash at bank and in hand...................... 2
--------
Total assets.................................. L.50,000
========
Liabilities................................... L. -
Shareholders' equity
Ordinary shares: 50,000,000 authorized;
50,000 shares issued........................ 50,000
--------
Total liabilities and shareholders' equity.... L.50,000
========
</TABLE>
F-28
<PAGE> 154
===============================================================================
No person has been authorized to give any information or make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
such securities by any person in any circumstances in which such offer or
solicitation is unlawful. Neither the delivery of this Prospectus nor any offer
or sale made hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Issuer since the date
hereof or that the information herein is correct as of any time subsequent to
its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Service of Process and Enforcement
of Liabilities...........................
Prospectus Summary........................
Description of the Senior Notes...........
The Exchange Offer........................
Plan of Distribution......................
Taxation..................................
Validity of the Senior Notes..............
Experts...................................
Glossary..................................
Available Information.....................
1997 Annual Report on Form 10-K...........
Item 1. Business.........................
Item 2. Properties.......................
Item 3. Legal Proceedings................
Item 4. Submission of Matters to a Vote
of Security - Holders...........
Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters..........................
Item 6. Selected Financial Data..........
Item 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations........
Item 8. Financial Statements and
Supplementary Data...............
Item 9. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure.........
Item 10. Directors and Executive
Officers of the Registrant.......
Item 11. Executive Compensation...........
Item 12. Security Ownership of Certain
Beneficial Owners and
Management.......................
Item 13. Certain Relationships and
Related Transactions.............
Item 14. Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K.........................
Index to Consolidated.....................
Financial Statements..................... F-1
</TABLE>
===============================================================================
===============================================================================
Diamond
Holdings plc
Pounds sterling 135,000,000 10% Senior Notes
due February 1, 2008
$110,000,000 9 1/8% Senior Notes
due February 1, 2008
Guaranteed as to payment of
Principal and Interest by
Diamond Cable
Communications Plc
To be Issued in Exchange for
Diamond
Holdings plc
Pounds sterling 135,000,000 10% Senior Notes
due February 1, 2008
$110,000,000 9 1/8% Senior Notes
due February 1, 2008
Guaranteed as to payment of
Principal and Interest by
Diamond Cable
Communications Plc
===============================================================================
57
<PAGE> 155
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 165 of the Company's Articles of Association provides:
"Subject to the provisions of the Companies Act but without prejudice to
any indemnity to which a director may otherwise be entitled, every director or
other officer or auditor of the Company shall be indemnified out of the assets
of the Company against all costs, charges, losses, expenses and liabilities
incurred by him in the execution or discharge of his duties or the exercise of
his powers or otherwise in relation thereto, including (but without limitation)
any liability incurred by him in defending any proceedings, whether civil or
criminal, in which judgment is given in his favour (or the proceedings are
otherwise disposed of without any finding or admission of any material breach
of duty on his part) or in which he is acquitted or in connection with any
application in which relief is granted to him by the court from liability for
negligence, default, breach of duty or breach of trust in relation to the
affairs of the Company."
Article 34 of the Issuer's Articles of Association provides:
"Subject to the provisions of the Companies Act, but without prejudice to
any indemnity to which a director may otherwise be entitled, every director or
other officer of the Company shall be indemnified out of the assets
of the company against all costs, charges, losses, expenses and liabilities
incurred by him in the execution or discharge of his duties or the exercise of
his powers or otherwise in relation thereto, including (but without limitation)
any liability incurred by him in defending any proceedings, whether civil or
criminal, in which judgment is given in his favour (or the proceedings are
otherwise disposed of without any finding or admission of any material breach
of duty on his part) or in which he is acquitted or in connection with any
application in which relief is granted to him by the court from liability for
negligence, default, breach of duty or breach of trust in relation to the
affairs of the company."
Section 310 of the Companies Act, 1985, provides:
"(1) This section applies to any provision, whether contained in a
company's articles or in any contract with the company or otherwise, for
exempting any officer of the company or any person (whether an officer or not)
employed by the company as auditor from, or indemnifying him against, any
liability which by virtue of any rule of law would otherwise attach to him in
respect of any negligence, default, breach of duty or breach of trust of which
he may be guilty in relation to the company.
(2) Except as provided by the following subsection, any such provision is
void.
(3) This section does not prevent a company --
(a) from purchasing and maintaining for any such officer or auditor
insurance against any such liability, or
(b) from indemnifying any such officer or auditor against any
liability incurred by him --
(i) in defending any proceedings (whether civil or criminal) in
which judgment is given in his favor or he is acquitted, or
(ii) in connection with any application under Section 144(3) or
(4) (acquisition of shares by innocent nominee) or section 727
(general power to grant relief in case of honest and reasonable
conduct) in which relief is granted to him by the court."
Section 727 of the Companies Act, 1985, provides:
"(1) If in any proceedings for negligence, default, breach of duty or
breach of trust against an officer of a company or a person employed by a
company as auditor (whether he is or is not an officer of the company) it
appears to the court hearing the case that officer or person is or may be
liable in respect of the negligence, default, breach of duty or breach of
trust, but that he has acted honestly and reasonably, and that having regard to
all the circumstances of the case (including those connected with his
appointment) he ought fairly to be excused for the negligence, default, breach
of duty or breach of trust, that court may relieve him, either wholly or
partly, from his liability on such terms as it thinks fit.
(2) If any such officer or person as above-mentioned has reason to
apprehend that any claim will or might be made against him in respect of any
negligence, default, breach of duty or breach of trust, he may apply to the
court for relief; and the court on the application has the same power to
relieve him as under this section it would have
had if it had been a court before which proceedings against that person for
negligence, default, breach of duty or breach of trust had been brought.
(3) Where a case to which subsection (1) applies is being tried by a judge
with a jury, the judge, after hearing the evidence, may, if he is satisfied
that the defendant or defender ought in pursuance of that subsection to be
relieved either in whole or in part from the liability sought to be enforced
against him, withdraw the case in whole or in part from the jury and forthwith
direct judgment to be entered for the defendant or defender on such terms as to
costs or otherwise as the judge may think proper."
<PAGE> 156
To the extent permitted by English law, the Company will indemnify and
hold harmless each director and each officer or representative of the Company
who signs the Registration Statement and the Company's Authorized
Representative from and against certain civil liabilities based on information
supplied to the Company for use herein.
<PAGE> 157
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following is a list of exhibits to this Registration Statement:
*3.1 Memorandum and Articles of Association of Diamond Cable
Communications Plc.
3.2 Memorandum and Articles of Association of Diamond Holdings plc.
4.1 Indenture dated as of February 6, 1998 among Diamond Holdings
plc, Diamond Cable Communications Plc and The Bank of New York,
as Trustee.
4.2 Senior Notes Depositary Agreement, dated February 6, 1998 among
Diamond Holdings plc, the Bank of New York, as Global
Depositary, and the Owners of Book-Entry Interests.
**5.1 Opinion of Sullivan & Cromwell as to the legality of the Senior
Notes.
**5.2 Opinion of Katherine B. Wolfsohn as to due authorization and
execution of the Senior Notes
**8.1 Opinion of Sullivan & Cromwell as to certain U.S. federal
income tax matters.
8.2 Opinion of Freshfields as to certain U.K. tax matters.
*10.1 Shareholders Agreement, dated as of September 1, 1994 among ECCP,
AmSouth, as trustee for the McDonald Interests, CGT Family
Corporation, GS Capital Partners, L.P., William W. McDonald and
Diamond Cable Communications Plc.
*10.2 Management Agreement, dated July 5, 1994, between ECE Management
Company and Diamond Cable (Nottingham) Limited.
*10.3 Service Agreement, dated May 17, 1994, between Gary L. Davis and
Diamond Cable (Nottingham) Limited.
*10.4 Service Contract, dated March 1, 1994, between Duncan Craig and
Diamond Cable (Nottingham) Limited.
*10.5 Loan Facility Agreement, dated February 13, 1997, among Diamond
Cable Communications (UK) Ltd, Jewel Holdings Limited, Natwest
Markets and National Westminster Bank plc, filed as an exhibit
to the Company's 1996 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.6 Service Contract, dated as of April 1, 1996, between Diamond
Cable (Nottingham) Ltd. and Stephen Rowles, filed as an exhibit
to the Company's 1996 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.7 Service Agreement, dated July 1, 1995, between Diamond Cable
Communications Plc and Nicholas Millard, filed as an exhibit to
the Company's 1996 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.8 Senior Management Option Scheme, adopted on October 29, 1994,
filed as an exhibit to the Company's 1994 Annual Report on Form
10-K, File No. 33-83740, and incorporated by reference herein.
10.9 Service Contract, dated September 8, 1996, between Diamond Cable
(Nottingham) Ltd. and Stephen Rowles.
*10.10 Form of Subscription Agreement among Company and shareholders
relating to equity commitment (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-98374;
Exhibit No. 10.7).
*10.11 Form of Indenture, dated as of December 15, 1995, between
Diamond Cable Communications Plc and The Bank of New York, as
Trustee (incorporated by reference to the Company's registration
statement on Form S-1 (File No. 33-98374; Exhibit No. 4.1)).
*10.12 Form of Senior Notes Depositary Agreement, dated as of December
15, 1995, between Diamond Cable Communications Plc and The Bank
of New York, as Book-Entry Depositary (incorporated by reference
to the Company's registration statement on Form S-1 (File No.
33-98374; Exhibit No. 4.2)).
*10.13 Indenture, dated as of September 29, 1994 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
*10.14 Senior Notes Depositary Agreement, dated as of September 29,
1994 between Diamond Cable Communications Plc and The Bank of
New York, as Book-Entry Depositary.
<PAGE> 158
*10.15 First Supplemental Indenture, dated as of May 31, 1996
between Diamond Cable Communications Plc and the Bank of New
York, as Trustee.
*10.16 Indenture, dated as of February 27, 1997 between Diamond
Cable Communications Plc and The Bank of New York, as Trustee.
*10.17 Senior Notes Depositary Agreement, dated February 27, 1997
between Diamond Cable Communications Plc and the Bank of New
York, as Book-Entry Depositary.
12 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of Registrant (incorporated by
reference to the Company's registration statement on Form S-1
(File No. 33-98374; Exhibit No. 21.1)).
**23.1 Consent of Sullivan & Cromwell (included in Exhibits 5.1 and
8.1).
23.2 Consent of Freshfields (included in Exhibit 8.2).
23.3 Consent of KPMG.
**25 Statement of Eligibility of Trustee on Form T-1.
**99.1 Form of Letter of Transmittal
**99.2 Form of Notice of Guaranteed Delivery
**99.3 Form of Letters to DTC Participants
**99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant
(B) FINANCIAL STATEMENT SCHEDULES
__________________
*Previously filed.
**To be filed by amendment.
<PAGE> 159
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement'
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to ?Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement'
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
<PAGE> 160
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Diamond Holdings plc, certifies that it has duly caused this
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in England on March 19, 1998.
DIAMOND HOLDINGS PLC
By: /s/ Robert T. Goad
----------------------------------------
Name: Robert T. Goad
Title: Chief Executive Officer
<PAGE> 161
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert T. Goad, Nicholas Millard, Muneer Satter
and J.A. Duncan Craig (with full power to each of them to act alone), his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that
such attorney may deem necessary or advisable under the Securities Act of 1933
(the "Act"), and any rules, regulations and requirements of the Commission in
connection with the registration under the Act of the L.135,000,000 10% Senior
Notes due February 1, 2008 and the $110,000,000 9 1/8% Senior Notes due
February 1, 2008 of the Company and Guaranteed as to payment of Principal and
Interest by Diamond Cable Communications Plc, and any securities or Blue Sky
law of any of the states of the United States of America in order to effect the
registration or qualification (or exemption therefrom) of the said securities
for issue, offer, sale or trade under the Blue Sky or other securities laws of
any of such states and in connection therewith to execute, acknowledge, verify,
deliver, file and cause to be published applications, reports, consents to
service of process, appointments of attorneys to receive service of process and
other papers and instruments which may be required under such laws, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign his name in his capacity as Director, Executive Officer
or Authorized U.S. Representative of the Issuer, as the case may be, this
Registration Statement and/or such other form or forms as may be appropriate to
be filed with the Commission or under or in connection with any Blue Sky law or
other securities laws of any state of the United States of America or with such
other regulatory bodies and agencies as any of them may deem appropriate in
respect of the L.135,000,000 10% Senior Notes due February 1, 2008 and the
$110,000,000 9 1/8% Senior Notes due February 1, 2008, to any and all
amendments, including post-effective amendments, to this Registration Statement
and to any and all instruments and documents filed as part of or in connection
with this Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the date indicated above.
/s/ Robert T. Goad Director, Chief Executive Officer and
- ------------------------------
Robert T. Goad Authorized Representative in the United States
/s/ Lord Francis Pym Director and Non-Executive Chairman
- ------------------------------
Lord Francis Pym
/s/ Richard A. Friedman Director
- ------------------------------
Richard A. Friedman
/s/ Muneer A. Satter Director
- ------------------------------
Muneer A. Satter
/s/ John L. Thornton Director
- ------------ ----------------
John L. Thornton
- ------------------------------ Director
Thomas Nilsson
/s/ Nicholas Millard Chief Financial Officer
- ------------------------------
Nicholas Millard
/s/ J.A. Duncan Craig Chief Accounting Officer
- ---------------------------
J.A. Duncan Craig
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Diamond Holdings plc, certifies that it has duly caused this
Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in England on March 19, 1998.
DIAMOND HOLDINGS PLC
By: /s/ Robert T. Goad
----------------------------------------
Name: Robert T. Goad
Title: Chief Executive Officer
<PAGE> 163
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert T. Goad, Nicholas Millard, Muneer Satter
and J.A. Duncan Craig (with full power to each of them to act alone), his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to do any and all things and execute any and all instruments that
such attorney may deem necessary or advisable under the Securities Act of 1933
(the "Act"), and any rules, regulations and requirements of the Commission in
connection with the registration under the Act of the L.135,000,000 10% Senior
Notes due February 1, 2008 and the $110,000,000 9 1/8% Senior Notes due
February 1, 2008 of the Company and Guaranteed as to payment of Principal and
Interest by Diamond Cable Communications Plc, and any securities or Blue Sky
law of any of the states of the United States of America in order to effect the
registration or qualification (or exemption therefrom) of the said securities
for issue, offer, sale or trade under the Blue Sky or other securities laws of
any of such states and in connection therewith to execute, acknowledge, verify,
deliver, file and cause to be published applications, reports, consents to
service of process, appointments of attorneys to receive service of process and
other papers and instruments which may be required under such laws, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign his name in his capacity as Director, Executive Officer
or Authorized U.S. Representative of the Issuer, as the case may be, this
Registration Statement and/or such other form or forms as may be appropriate to
be filed with the Commission or under or in connection with any Blue Sky law or
other securities laws of any state of the United States of America or with such
other regulatory bodies and agencies as any of them may deem appropriate in
respect of the L.135,000,000 10% Senior Notes due February 1, 2008 and the
$110,000,000 9 1/8% Senior Notes due February 1, 2008, to any and all
amendments, including post-effective amendments, to this Registration Statement
and to any and all instruments and documents filed as part of or in connection
with this Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities and on the date indicated above.
/s/ Robert T. Goad Director, Chief Executive Officer and
- ------------------------------
Robert T. Goad Authorized Representative in the United States
/s/ Lord Francis Pym Director and Non-Executive Chairman
- ------------------------------
Lord Francis Pym
/s/ Richard A. Friedman Director
- ------------------------------
Richard A. Friedman
/s/ Muneer A. Satter Director
- ------------------------------
Muneer A. Satter
/s/ John L. Thornton Director
- ------------ ----------------
John L. Thornton
- ------------------------------ Director
Thomas Nilsson
/s/ Nicholas Millard Chief Financial Officer
- ------------------------------
Nicholas Millard
/s/ J.A. Duncan Craig Chief Accounting Officer
- -----------------------------
J.A. Duncan Craig
<PAGE> 164
EXHIBIT INDEX
Item No. Description
-------- -----------
*3.1 Memorandum and Articles of Association of Diamond Cable
Communications Plc.
3.2 Memorandum and Articles of Association of Diamond Holdings plc.
4.1 Indenture dated as of February 6, 1998 among Diamond Holdings
plc, Diamond Cable Communications Plc and The Bank of New York,
as Trustee.
4.2 Senior Notes Depositary Agreement, dated February 6, 1998 among
Diamond Holdings plc, the Bank of New York, as Global
Depositary, and the Owners of Book-Entry Interests.
**5.1 Opinion of Sullivan & Cromwell as to the legality of the Senior
Notes.
**5.2 Opinion of Katherine B. Wolfsohn as to due authorization and
execution of the Senior Notes
**8.1 Opinion of Sullivan & Cromwell as to certain U.S. federal
income tax matters.
8.2 Opinion of Freshfields as to certain U.K. tax matters.
*10.1 Shareholders Agreement, dated as of September 1, 1994 among ECCP,
AmSouth, as trustee for the McDonald Interests, CGT Family
Corporation, GS Capital Partners, L.P., William W. McDonald and
Diamond Cable Communications Plc.
*10.2 Management Agreement, dated July 5, 1994, between ECE Management
Company and Diamond Cable (Nottingham) Limited.
*10.3 Service Agreement, dated May 17, 1994, between Gary L. Davis and
Diamond Cable (Nottingham) Limited.
*10.4 Service Contract, dated March 1, 1994, between Duncan Craig and
Diamond Cable (Nottingham) Limited.
*10.5 Loan Facility Agreement, dated February 13, 1997, among Diamond
Cable Communications (UK) Ltd, Jewel Holdings Limited, Natwest
Markets and National Westminster Bank plc, filed as an exhibit
to the Company's 1996 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.6 Service Contract, dated as of April 1, 1996, between Diamond
Cable (Nottingham) Ltd. and Stephen Rowles, filed as an exhibit
to the Company's 1996 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.7 Service Agreement, dated July 1, 1995, between Diamond Cable
Communications Plc and Nicholas Millard, filed as an exhibit to
the Company's 1996 Annual Report on Form 10-K, File No.
33-83740, and incorporated by reference herein.
*10.8 Senior Management Option Scheme, adopted on October 29, 1994,
filed as an exhibit to the Company's 1994 Annual Report on Form
10-K, File No. 33-83740, and incorporated by reference herein.
10.9 Service Contract, dated September 8, 1996, between Diamond Cable
(Nottingham) Ltd. and Stephen Rowles.
*10.10 Form of Subscription Agreement among Company and shareholders
relating to equity commitment (incorporated by reference to the
Company's registration statement on Form S-1 (File No. 33-98374;
Exhibit No. 10.7).
*10.11 Form of Indenture, dated as of December 15, 1995, between
Diamond Cable Communications Plc and The Bank of New York, as
Trustee (incorporated by reference to the Company's registration
statement on Form S-1 (File No. 33-98374; Exhibit No. 4.1)).
*10.12 Form of Senior Notes Depositary Agreement, dated as of December
15, 1995, between Diamond Cable Communications Plc and The Bank
of New York, as Book-Entry Depositary (incorporated by reference
to the Company's registration statement on Form S-1 (File No.
33-98374; Exhibit No. 4.2)).
*10.13 Indenture, dated as of September 29, 1994 between Diamond Cable
Communications Plc and The Bank of New York, as Trustee.
*10.14 Senior Notes Depositary Agreement, dated as of September 29,
1994 between Diamond Cable Communications Plc and The Bank of
New York, as Book-Entry Depositary.
<PAGE> 165
*10.15 First Supplemental Indenture, dated as of May 31, 1996
between Diamond Cable Communications Plc and the Bank of New
York, as Trustee.
*10.16 Indenture, dated as of February 27, 1997 between Diamond
Cable Communications Plc and The Bank of New York, as Trustee.
*10.17 Senior Notes Depositary Agreement, dated February 27, 1997
between Diamond Cable Communications Plc and the Bank of New
York, as Book-Entry Depositary.
12 Computation of Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of Registrant (incorporated by
reference to the Company's registration statement on Form S-1
(File No. 33-98374; Exhibit No. 21.1)).
**23.1 Consent of Sullivan & Cromwell (included in Exhibits 5.1 and
8.1).
23.2 Consent of Freshfields (included in Exhibit 8.2).
23.3 Consent of KPMG.
**25 Statement of Eligibility of Trustee on Form T-1.
**99.1 Form of Letter of Transmittal
**99.2 Form of Notice of Guaranteed Delivery
**99.3 Form of Letters to DTC Participants
**99.4 Form of Letter to Clients and Form of Instruction to
Book-Entry Transfer Participant
(B) FINANCIAL STATEMENT SCHEDULES
__________________
*Previously filed.
**To be filed by amendment.
<PAGE> 1
EXHIBIT 3.2
THE COMPANIES ACT 1985 COMPANY NO.
DIAMOND HOLDINGS PLC
----------------------------
MEMORANDUM OF ASSOCIATION
----------------------------
<PAGE> 2
Company Number:
THE COMPANIES ACT 1985
-------------------------------------
PUBLIC COMPANY LIMITED BY SHARES
-------------------------------------
MEMORANDUM OF ASSOCIATION
OF
DIAMOND HOLDINGS PLC
-------------------------------------
1. The Name of the Company is DIAMOND HOLDINGS PLC.
2. The Company is to be a public company.
3. The Registered Office of the Company is to be situated in England.
4. The objects for which the Company is established are:--
(a) To carry on business as a holding and investment company and to acquire and
hold shares, stocks, debenture stocks, bonds, mortgages, obligations and
other securities of any kind issued or guaranteed by any company,
corporation, government, public body or authority or undertaking of
whatever nature and wherever constituted or carrying on business.
(b) To purchase, take on lease, exchange, or otherwise acquire, by way of
investment land, buildings, houses, easements, concessions, in any part of
the world and any estate or interest or right therein, including freehold
or leasehold ground rents, reversions, mortgages, charges and annuities; to
alter, improve, extend, add to, rebuild, replace, or repair any buildings,
structures or other property of the Company; to sell, demise, let or grant
licences in respect of the whole or any part of the property of the Company
on such terms as the Company shall determine, and to manage and maintain
land, buildings and other property whether belonging to the Company, or not
and to collect rents and income and to supply tenants, occupiers or
licensees, whether of the property of the Company, or not and others with
meals, refreshments, power, light, gas, heat, water and any other services.
<PAGE> 3
(c) To acquire and hold shares, stocks, debentures, debenture stock, scrip,
bonds, notes, securities and obligations, issued or guaranteed by any
company constituted or carrying on business in any part of the world, and
funds, loans, securities or obligations of or issued or guaranteed by any
government, state or dominion, public body or authority, supreme municipal,
local or otherwise, whether at home or abroad.
(d) To acquire any such shares, stocks, debentures, debenture stock, scrip,
bonds, notes, securities, obligations, funds or loans by original
subscription, tender, purchase, participation in syndicates, exchange or
otherwise, and whether or not fully paid up and to subscribe for the same
either conditionally or otherwise, and to guarantee the subscription
thereof, and to exercise and enforce all rights and powers conferred by or
incident to the ownership thereof, and to vary and transpose from time to
time as may be considered expedient any of the Company's investments for
the time being.
(e) To carry on any other business whatsoever which may, in the opinion of the
Directors of the Company, be capable of being conveniently or
advantageously carried on in connection with or as ancillary to any
business of the Company or calculated directly or indirectly to enhance the
value of or render profitable any of the Company's property or assets.
(f) To acquire and take over the whole or any part of the business, property
and liabilities of any company or person carrying on any business which the
Company is authorised to carry on, or possessed of any property or assets
suitable for the purposes of the Company.
(g) To purchase, take on lease or in exchange, hire or otherwise acquire
patents, licences, rights or privileges which the Company may think
necessary or convenient for the purposes of its business.
(h) To pay for any property or assets acquired by the Company either in cash or
fully or partly paid shares or by the issue of securities or obligations or
partly in one mode and partly in another and generally on such terms as may
be determined.
(i) To borrow or raise money or to secure or discharge any debt or obligation
(whether of the Company or of any other person) in such manner as the board
of directors may think fit and in particular (but without prejudice to the
generality of the foregoing) to mortgage, charge, pledge or give liens or
other security upon the whole or any part of the Company's undertaking and
all or any of the property and assets (present and future), including the
uncalled capital of the Company, or by the creation and issue on such terms
and conditions as may be thought expedient of debentures, debenture stock
or other securities of any description, and to receive money on deposit and
advance payments with or without allowance of interest thereon.
Page 2
<PAGE> 4
(j) To draw, make, accept, endorse, discount, negotiate, execute and issue, and
to buy, sell and deal in bills of exchange, bills of lading, warrants,
debentures, promissory notes and other negotiable or transferable
instruments.
(k) To advance, lend or deposit money, and to give credit or financial
accommodation to any person with or without taking any security therefor
and upon such other terms as may be thought fit by the Company; and to
enter into any guarantee, contract of indemnity or suretyship in respect of
the obligations, acts or omissions of any third party (including without
limitation any subsidiary of the Company from time to time) and in
particular (without prejudice to the generality of the foregoing) to
guarantee, support or secure, with or without consideration, whether by
personal obligation or by mortgaging or charging all or any part of the
undertaking, property and assets (present and future) and uncalled capital
of the Company or by both such methods or in any other manner, the
performance of any contracts, obligations or commitments of and the
repayment or payment of the principal amounts of and any premiums,
interest, dividends and other moneys payable on or in respect of any
securities or liabilities of any person, including (without prejudice to
the generality of the foregoing) any company which is for the time being a
subsidiary or a member of the Company or subsidiary of a member of the
Company or otherwise associated with the Company and whether or not any
consideration or advantage is received by the Company.
(l) To establish and maintain or procure the establishment and maintenance of
any contributor or non-contributory pension or superannuation funds for the
benefit of and to give or procure the giving of donations, gratuities,
pensions, allowances or emoluments to any persons who are or were at any
time in the employment or service of the Company or of any company which is
a subsidiary of the Company or is allied to or associated with the Company
or with any such subsidiary, or who are or were at any time Directors or
officers of the Company or of any such other company as aforesaid, and the
wives, widows, families and dependants of any such persons, and also to
establish and subsidise or subscribe to any institutions, associations,
clubs or funds calculated to be for the benefit of or to advance the
interests and well-being of the Company or of any such other company as
aforesaid or of any such persons as aforesaid, and to make payments for or
towards the insurance of any such persons as aforesaid, and to subscribe or
guarantee money for any charitable or benevolent objects or for any
exhibition or for any public, general or useful object, and to do any of
the matters aforesaid either alone or in conjunction with any such other
company as aforesaid.
(m) To enter into any partnership or arrangement in the nature of a
partnership, co-operation or union of interests with any person or company
engaged or interested or about to become engaged or interested in the
carrying on or conduct of any business which the Company is authorised to
carry on or conduct or from which the Company would or might derive any
benefit whether direct or indirect.
Page 3
<PAGE> 5
(n) To establish or promote, or join in the establishment or promotion of, any
other company whose objects shall include the taking over of any of the
assets and liabilities of the Company or the promotion of which shall be
calculated to advance its interests, and to acquire and hold any shares,
securities or obligations of any such company.
(o) To amalgamate with any other company.
(p) To sell or dispose of the undertaking, property and assets of the Company
or any part thereof in such manner and for such consideration as the
Company may think fit,and in particular for shares (fully or partly paid
up), debentures, debenture stock, securities or obligations of any other
company, whether promoted by the Company for the purpose or not, and to
improve, manage, develop, exchange, lease, dispose of, turn to account or
otherwise deal with all or any part of the property and assets of the
Company.
(q) Solely or jointly with others to undertake and carry on the office or
offices and duties of trustee, custodian trustee, executor, administrator,
liquidator, receiver, attorney or nominee of or for any person, company,
corporation, association, scheme, trust fund, or other body politic or
corporate and to undertake and execute any trust or discretion and for such
purposes to hold, deal with, manage, direct the management of, buy, sell,
exchange or otherwise dispose of or acquire any right or interest in or
over any real or personal property of any kind whatsoever and to undertake
and carry on any business undertaking or transaction.
(r) To pay all or any expenses incurred in connection with the promotion,
formation, and incorporation of the Company, or to contract with any
person, firm or company to pay the same, and to pay commissions to brokers
and others for underwriting, placing, selling or guaranteeing the
subscription of any shares, debentures, debenture stock or security of the
Company.
(s) To distribute any of the Company's property or assets among the members in
specie.
(t) To cause the Company to be registered or recognised in any foreign country.
(u) To do all or any of the above things in any part of the world, and either
as principal, agent, trustee, factor or otherwise, and either alone or in
conjunction with others, and by or through agents, sub-contractors,
trustees, factors or otherwise.
(v) To do all such other things as may be considered to be incidental or
conducive to the attainment of the above objects, or any of them, and the
exercise of the powers (whether express or implied) of the Company.
And it is hereby declared that the word company in this Clause, except where
used in reference to this Company, shall be deemed to include any partnership or
other body of persons, whether incorporated or not incorporated, and whether
domiciled
Page 4
<PAGE> 6
in the United Kingdom or elsewhere, and that the intention is that each of the
objects specified in each paragraph of this Clause shall, except where otherwise
expressed in such paragraph, be an independent main object and be in no way
limited or restricted by reference to or inference from the terms of any other
paragraph or the name of the Company.
4. The liability of the Members is limited.
5. The Company's share capital is L50,000,000 divided into 50,000,000 Ordinary
Shares of L1 each.
WE, the subscribers to this Memorandum of Association, wish to be formed into a
Company pursuant to this Memorandum; and we agree to take the number of shares
shown opposite our respective names.
- -------------------------------------------------------------------
NAME, ADDRESSES AND DESCRIPTIONS Number of Shares taken
OF SUBSCRIBERS by each Subscriber
- -------------------------------------------------------------------
1. Edward C. Braham
65 Fleet Street
London
EC4Y 1HS
Solicitor
/s/ Edward C. Braham One
---------------------
2. Alison Byrne
65 Fleet Street
London
EC4Y 1HS
Solicitor
/s/ Alison Byrne One
---------------------
Total number of shares taken Two
- -------------------------------------------------------------------
DATED: 15.12.97
WITNESS to the above signatures: /s/ Charlotte M. Fallon
-----------------------
Witness Name: /s/ Charlotte M. Fallon
-----------------------
Witness Address: 65, Fleet Street
London EC4Y 1HS
Page 5
<PAGE> 7
THE COMPANIES ACT 1985 COMPANY NO.
DIAMOND HOLDINGS PLC
============================
ARTICLES OF ASSOCIATION
============================
<PAGE> 8
THE COMPANIES ACT 1985 Company Number:
THE COMPANIES ACT 1985
-------------------------------------
A PUBLIC COMPANY LIMITED BY SHARES
-------------------------------------
ARTICLES OF ASSOCIATION
OF
DIAMOND HOLDINGS PLC
-------------------------------------
PRELIMINARY
1.(1) Subject as otherwise provided herein, the regulations in Table A in the
Companies (Tables A-F) Regulations 1985 as amended prior to the adoption
of the articles (Table A) shall apply to the company to the exclusion of
any other regulations which would fall to constitute the company's
articles of association pursuant to section 8(2) of the Act.
(2) The following provisions of Table A shall not apply to the company:--
(a) in regulation 1, the definitions of the articles, executed and the seal;
(b) regulation 2;
(c) in regulation 24, the words "which is not fully paid";
(d) in regulation 38, the final sentence;
(e) regulation 54;
(f) regulations 60 and 61;
(g) in regulation 62:
(i) the words "not less than 48 hours" in sub-paragraph (a);
(ii) the words "not less than 24 hours" in sub-paragraph (b);
(h) regulation 64;
<PAGE> 9
(i) in regulation 66, the last sentence;
(j) regulation 72;
(k) regulation 88;
(l) regulation 93 to 98 inclusive;
(m) regulation 112;
(n) regulation 115;
(o) regulation 118.
2.(1) In these Articles, except where the subject or context otherwise
requires:
The articles means these articles of association, incorporating Table A (as
applicable to the company), as altered from time to time by special resolution.
director means a director of the company.
The directors means the directors or any of them acting as the board of
directors of the company.
Dividend means dividend or bonus.
member means a member of the company.
Paid means paid or credited as paid.
The seal means the common seal of the company and includes any official seal
kept by the company by virtue of section 39 or 40 of the Act.
References to a document being executed include references to its being executed
under hand or under seal or by any other method.
References to writing include references to any visible substitute for writing
and to anything partly in one form and partly in another form.
Words denoting the singular number include the plural number and vice versa;
words denoting the masculine gender include the feminine gender; and words
denoting persons include corporations.
Subject to the final paragraph of regulation 1 of Table A (as applicable to the
company), references to any provision of any enactment or of any subordinate
legislation (as defined by section 21(1) of the Interpretation Act 1978) include
any modification or re-enactment of that provision for the time being in force.
Page 2
<PAGE> 10
Headings are inserted for convenience only and do not affect the
construction of the Articles.
(2) In the Articles, (a) powers of delegation shall not be restrictively
construed but the widest interpretation shall be given thereto; (b) the
word directors in the context of the exercise of any power contained in
the Articles includes any committee consisting of one or more directors,
any director holding executive office and any local or divisional board,
manager or agent of the Company to which or, as the case may, to whom the
power in question has been delegated; (c) no power of delegation shall be
limited by the existence or, except where expressly provided by the terms
of delegation, the exercise of that or any other power of delegation; and
(d) except where expressly provided by the terms of delegation, the
delegation of a power shall not exclude the concurrent exercise of that
power by any other body or person who is for the time being authorised to
exercise it under the Articles of under another delegation of the power.
SHARE CAPITAL
3. Subject to the provisions of the Companies Acts and without prejudice to
any rights attached to any existing shares or class of shares, any share
may be issued with such rights or restrictions as the Company may by
ordinary resolution determine or, subject to and in default of such
determination, as the directors shall determine.
(4)(a) Shares which are comprised in the authorised but unissued share capital
of the Company shall be under the control of the Directors who may
(subject to Sections 80 and 89 of the Act and to paragraphs (b) and (c)
below) allot, grant options over or otherwise dispose of the same, to
such persons, on such terms and in such manner as they think fit.
(b) The Directors are generally and unconditionally authorised for the
purposes of Section 80 of the Act to exercise any power of the Company to
allot and grant rights to subscribe for or convert securities into shares
of the Company up to the amount of the authorised share capital with
which the Company is incorporated at any time or times during the period
of five years from the date of incorporation and the Directors may,
after that period, allot any shares or grant any such rights under this
authority in pursuance of an offer or agreement so to do made by the
Company within that period. The authority hereby given may at any time
(subject to the said Section 80) be renewed, revoked or varied by
Ordinary Resolution of the Company in General Meeting.
(c) The Directors are empowered to allot and grant rights to subscribe for or
convert securities into shares of the Company pursuant to the
Page 3
<PAGE> 11
authority conferred under paragraph (b) above as if Section 89(1) of the
Act did not apply. This power shall enable the Directors so to allot and
grant rights to subscribe for or convert securities into shares of the
Company after its expiry in pursuance of an offer or agreement so to do
made by the Company before its expiry.
NOTICE OF GENERAL MEETING
5. At the end of regulation 38 of Table A (as applicable to the company)
there shall be added the following sentence:
"Subject to the provisions of the articles and to any restrictions
imposed on any shares, the notice shall be given to all the members and
to all persons entitled to a share in consequence of the death or
bankruptcy of a member, but need not be given to the directors in their
capacity as such".
PROCEEDINGS AT GENERAL MEETINGS
6. Where for any purpose an ordinary resolution of the company is required,
a special or extraordinary resolution shall also be effective and where
for any purpose an extraordinary resolution is required a special
resolution shall also be effective.
VOTES OF MEMBERS
7. Subject to any rights or restrictions attached to any shares, on a show
of hands every member who is present in person or by proxy shall have one
vote for every share of which he is the holder.
PROXIES AND REPRESENTATIVES OF BODIES CORPORATE
8. An instrument appointing a proxy shall be in writing under the hand of
the appointor or his attorney or, if the appointor is a corporation,
either under its common seal or the hand of a duly authorised officer,
attorney or other person authorised to sign it.
9. Instruments of proxy shall be in usual form or in any other form which
the directors may approve.
10. The instrument of proxy shall be deemed to confer authority to vote on
any amendment of a resolution put to the meeting for which it is given as
the proxy thinks fit. The instrument of proxy shall, unless the contrary
is stated therein, be valid as well for any adjournment of the meeting as
for the meeting to which it relates.
11. For so long as the company is a subsidiary, any director or secretary of
a body corporate which is a member of the company (each such person being
Page 4
<PAGE> 12
hereafter referred to as a Qualifying Representative) shall be recognised
as the proxy of that body corporate unless the body corporate has
delivered to the company in relation to the meeting a valid instrument of
proxy which has not been revoked. If more than one Qualifying
Representative of a body corporate is present at any meeting of the
company, such persons shall agree between them who shall act as proxy for
the body corporate. In default of their promptly so agreeing, the
Chairman of the meeting shall direct which person shall act as proxy of
the body corporate and his decision shall be final. All acts done by a
Qualifying Representative who acts as proxy pursuant to the provisions of
this article shall, notwithstanding that it afterwards be discovered that
there was a defect in his appointment or that he was disqualified from
holding office, or had vacated office, or that he was not authorised by
the body corporate to do the act in question, be as valid as if such
Qualifying Representative had been duly appointed and was qualified and
had continued to hold the relevant office and had been duly authorised to
do the act in question.
NUMBER OF DIRECTORS
12. The maximum number and minimum number respectively of the directors may
be determined from time to time by ordinary resolution in general meeting
of the company. Subject to and in default of any such determination there
shall be no maximum number of directors and the minimum number of
directors shall be one. Whenever the minimum number of directors is one,
a sole director shall have authority to exercise all the powers and
discretions by Table A and by these articles expressed to be vested in
the directors generally, and regulation 89 in Table A shall be modified
accordingly.
ALTERNATE DIRECTORS
13.(1) At the end of regulation 66 of Table A (as applicable to the company)
there shall be added the following sentence:
"A director or any other person approved pursuant to regulation 65 of
Table A (as applicable to the company) may act as alternate director to
represent more than one director, and an alternate director shall be
entitled at meetings of the directors or any committee of the directors
to one vote for every director whom he represents in addition to his own
vote (if any) as a director, but he shall count as only one for the
purpose of determining whether a quorum is present".
(2) At the end of regulation 67 of Table A (as applicable to the company)
there shall be added the following sentence:
Page 5
<PAGE> 13
"The appointment of an alternate director shall also determine
automatically on the happening of any event which, if he were a director,
would cause him to vacate his office as director".
(3) The words "or in any other manner approved by the directors" in
regulation 68 of the Table A (as applicable to the company) shall be
deleted and the following shall be added to that regulation:
"and shall take effect in accordance with the terms of the notice,
subject to any approval required by regulation 65 of Table A (as
applicable to the company), on receipt of such notice at the registered
office of the company".
DELEGATION OF POWERS OF THE DIRECTORS
14. The directors may delegate any of their powers to any committee
consisting of one or more directors. The directors may also delegate to
any director holding any executive office such of their powers as the
directors consider desirable to be exercised by him. Any such delegation
shall, in the absence of express provision to the contrary in the terms
of delegation, be deemed to include authority to sub-delegate to one or
more directors (whether or not acting as a committee) or to any employee
or agent of the company all or any of the powers delegated and may be
made subject to such conditions as the directors may specify, and may be
revoked or altered. Subject to any conditions imposed by the directors,
the proceedings of a committee with two or more members shall be governed
by the articles regulating the proceedings of directors so far as they
are capable of applying.
15. The board may establish local or divisional boards of agencies for
managing any of the affairs of the company, either in the United Kingdom
or elsewhere, and may appoint any persons to be members of the local or
divisional boards, or any managers or agents, and may fix their
remuneration. The board may delegate to any local or divisional board,
manager or agent any of the powers, authorities and discretions vested in
or exercisable by the board, with power to sub-delegate, and may
authorise the members of any local or divisional board, or any of them,
to fill any vacancies and to act notwithstanding vacancies. Any
appointment or delegation made pursuant to this article may be made upon
such terms and subject to such conditions as the board may decide and the
board may remove any person so appointed and may revoke or vary the
delegation but no person dealing in good faith and without notice of the
revocation or variation shall be affected by it.
16. The directors may appoint any person to any office or employment having a
designation or title including the word director or attach to any
existing office or employment with the company such a designation or
title and may terminate any such appointment or the use of any such
designation or title. The inclusion of the word director in the
designation or title of any
Page 6
<PAGE> 14
such office or employment shall not imply that the holder is a director
of the company, nor shall the holder thereby be empowered in any respect
to act as, or be deemed to be, a director of the company for any of the
purposes of the articles.
APPOINTMENT AND REMOVAL OF DIRECTORS
17.(1) While the company is a subsidiary, the immediate holding company for the
time being of the company may appoint any person to be a director or
remove any director from office. Every such appointment or removal shall
be in writing and signed by or on behalf of the said holding company and
shall take effect upon receipt at the registered office of the company or
by the secretary.
(2) While the company is a subsidiary, the directors shall have power to
appoint any person to be a director either to fill a casual vacancy or as
an addition to the existing directors, subject to any maximum for the
time being in force, and, subject to regulation 81 of Table A (as
applicable to the company), and director so appointed shall hold office
until he is removed pursuant to article 17.(1).
(3) While the company is a subsidiary, regulations 73 to 80 (inclusive) shall
not apply to the company and all references elsewhere in Table A to
retirement by rotation shall be modified accordingly.
18. At the end of regulation 81 of Table A (as applicable to the company)
there shall be added the following sub-paragraph:
"; or
(f) he is requested to resign in writing by not less than three quarters
of the other directors. In calculating the number of directors who are
required to make such a request to the director, (i) there shall be
excluded any alternate director appointed by him acting in his capacity
as such; and (ii) a director and any alternate director appointed by him
and acting in his capacity as such shall constitute a single director for
this purpose, so that the signature of either shall be sufficient".
DIRECTORS' APPOINTMENTS AND INTERESTS
19. The directors may exercise the voting power conferred by the shares in
any body corporate held or owned by the company in such manner in all
respects as they think fit (including the exercise thereof in favour of
any resolution appointing any or all of them directors of such body
corporate, or voting or providing for the payment or giving of
remuneration or other benefits to the directors of such body corporate).
Page 7
<PAGE> 15
20. At the end of regulation 86 of Table A (as applicable to the company)
there shall be added the following sub-paragraph:
"; and
(c) a director shall not in any circumstances be required to disclose
to the directors that he is a director or other officer of, or employed
by, or interested in shares or other securities of, any body corporate
which is the ultimate holding company of the company or is a subsidiary
of such ultimate holding company".
GRATUITIES, PENSIONS AND INSURANCE
21.(1) Without prejudice to the provisions of article 34, the directors shall
have the power to purchase and maintain insurance for or for the benefit
of any persons who are or were at any time directors, officers, or
employees of the company, or of any other company which is its holding
company or in which the company or such holding company has any interest
whether direct or indirect or which is in any way allied to or associated
with the company, or of any subsidiary undertaking of the company or any
such other company, or who are or were at any time trustees of any
pension fund in which employees of the company or any such other company
or subsidiary undertaking are interested including (without prejudice to
the generality of the foregoing) insurance against any liability incurred
by such persons in respect of any act or omission in the actual or
purported execution or discharge of their duties or in the exercise or
purported exercise of their powers or otherwise in relation to their
duties, powers or offices in relation to the company or any such other
company, subsidiary undertaking or pension fund.
(2) Without prejudice to the generality of regulation 85 of Table A (as
applicable to the company), no director or former director shall be
accountable to the company or the members for any benefit provided
pursuant to this article and the receipt of any such benefit shall not
disqualify any person from being or becoming a director of the company.
22. Pursuant to section 719 of the Act, the directors are hereby authorised
to make such provision as may seem appropriate for the benefit or any
persons employed or formerly employed by the company or any of its
subsidiaries in connection with the cessation or the transfer of the
whole or part of the undertaking of the company or any subsidiary. Any
such provision shall be made by a resolution of the directors in
accordance with the said section.
Page 8
<PAGE> 16
PROCEEDINGS OF DIRECTORS
23. Subject to the provisions of the articles, the directors may regulate
their proceedings as they think fit. A director may, and the secretary at
the request of a director shall, call a meeting of the directors. Notice
of a meeting of the directors shall be deemed to be properly given to a
director if it is given to him personally or by word of mouth or sent in
writing to him at his last known address or any other address given by
him to the company for this purpose. A director absent or intending to be
absent from the United Kingdom may request the directors that notices of
board meetings shall during his absence be sent in writing to him at an
address given by him to the Company for this purpose, but such notices
need not be given any earlier than notices given to directors not so
absent and, if no such request is made to the directors, it shall not be
necessary to give notice of a board meeting to any director who is for
the time being absent from the United Kingdom. No account is to be taken
of directors absent from the United Kingdom when considering the adequacy
of the period of notice of the meeting. Questions arising at a meeting
shall be decided by a majority of votes. In the case of an equality of
votes, the chairman shall have a second or casting vote. Any director may
waive notice of a meeting and any such waiver may be retrospective.
24. A resolution in writing signed by all the directors entitled to receive
notice of a meeting of the directors or of a committee of the directors
(not being less than the number of directors required to form a quorum of
the directors) shall be as valid and effectual as if it had been passed
at a meeting of the directors or (as the case may be) a committee of the
directors duly convened and held and for this purpose:
(a) a resolution may consist of several documents to the same effect each
signed by one or more directors;
(b) a resolution signed by an alternate director need not also be signed by
his appointor; and
(c) a resolution signed by a director who has appointed an alternate director
need not also be signed by the alternate director in that capacity.
25. Without prejudice to the first sentence of article 23, a meeting of the
directors or of a committee of the directors may consist of a conference
between directors who are not all in one place, but of whom each is able
(directly or by telephonic communication) to speak to each of the others,
and to be heard by each of the others simultaneously. A director taking
part in such a conference shall be deemed to be present in person at the
meeting and shall be entitled to vote or be counted in a quorum
accordingly. Such a meeting shall be deemed to take place where the
largest group of those
Page 9
<PAGE> 17
participating in the conference is assembled, or, if there is no such group,
where the chairman of the meeting then is. The word meeting in the articles
shall be construed accordingly.
26. A director may vote at any meeting of the directors or of a committee of
the directors on any resolution concerning a transaction or arrangement with the
company or in which the company is interested, or concerning any other matter in
which the company is interested, notwithstanding that he is interested in that
transaction, arrangement or matter or has in relation to it a duty which
conflicts or may conflict with the interests of the company.
SEAL
27. The company may exercise the powers conferred by section 39 of the Act
with regard to having an official seal for use abroad.
28. Where the Act so permits, any instrument signed with the authority of a
resolution of the directors or a committee of the directors by one director and
the secretary or by two directors and expressed to be executed by the company
as a deed shall have the same effect as if executed under the seal, provided
that no instrument which makes it clear on its face that it is intended by the
persons making it to have effect as a deed shall be signed without the
authority of the directors.
29. A document which is executed by the company as a deed shall not be deemed
to be delivered by the company solely as a result of its having been executed
by the company.
CERTIFICATION
30. Any director or the secretary or any person appointed by the directors for
the purpose shall have power to authenticate any documents affecting the
constitution of the company and any resolutions passed by the company or the
holders of any class of shares of the company or the directors or any committee
of the directors, and any books, records, documents and accounts relating to
the business of the company, and to certify copies thereof or extracts
therefrom as true copies or extracts. A document purporting to be a copy of a
resolution, or the minutes of or an extract from the minutes of a meeting of
the company or the holders of any class of shares of the company or of the
directors or any committee of the directors that is certified as aforesaid
shall be conclusive evidence in favour of all persons dealing with the company
upon the faith thereof that such resolution has been duly passed or, as the
case may be, that such minutes or extract is a true and accurate record of
proceedings at a duly constituted meeting.
<PAGE> 18
RECORD DATES
31. Notwithstanding any other provision of the articles, the company
or the directors may fix any date as the record date for any dividend,
distribution, allotment or issue, and such record date may be on, or at
any time before or after, any date on which the dividend, distribution,
allotment or issue is declared, paid or made.
NOTICES
32. The company may serve or deliver any notice or other document on
or to a member either personally or by sending it by post in a prepaid
envelope addressed to the member at his registered address or by
leaving it at that address. In the case of joint holders of a share,
all notices or other documents shall be served on or delivered to the
joint holder whose name stands first in the register of members in
respect of the joint holding and any notice or other document so served
or delivered shall be deemed for all purposes sufficient service on or
delivery to all the joint holders. A member whose registered address is
not within the United Kingdom and who gives to the company an address
within the United Kingdom at which notices may be given to him shall be
entitled to have notices given to him at that address, but otherwise:
(a) no such member shall be entitled to receive any notice from the
company;
(b) without prejudice to the generality of the foregoing, any notice
of a general meeting of the company which is in fact given or purports
to be given to such members shall be ignored for the purpose of
determining the validity of the proceedings at such general meeting.
33.(1) Proof that an envelope containing a notice was properly
addressed, prepaid and posted shall be conclusive evidence that the
notice was given. A notice sent by post shall be deemed given:
(a) if sent by first class post from an address in the United Kingdom
or another country to another address in the United Kingdom or, as the
case may be, that other country, on the day following that on which the
envelope containing it was posted;
(b) if sent by airmail from an address in the United Kingdom to an
address outside the United Kingdom, on the day following that on which
the envelope containing it was posted; and
(c) in any other case, on the fifth day following that on which the
envelope containing it was posted.
<PAGE> 19
(2) A notice left at the registered address of a member or sent by facsimile
transmission to a member at the last telephone number (if any) which the member
has given the company for this purpose shall be deemed given at the time the
notice is received.
INDEMNITY
34. Subject to the provisions of the Act, but without prejudice to any
indemnity to which a director may otherwise be entitled, every director or other
officer of the company shall be indemnified out of the assets of the company
against all costs, charges, losses, expenses and liabilities incurred by him in
the execution or discharge of his duties or the exercise of his powers or
otherwise in relation thereto, including (but without limitation) any liability
incurred by him in defending any proceedings, whether civil or criminal, in
which judgment is given in his favour (or the proceedings are otherwise disposed
of without any finding or admission of any material breach of duty on his part)
or in which he is acquitted or in connection with any application in which
relief is granted to him by the court from liability for negligence, default,
breach of duty or breach of trust in relation to the affairs of the company.
<PAGE> 1
EXHIBIT 4.1
================================================================================
DIAMOND HOLDINGS PLC
Company
DIAMOND CABLE COMMUNICATIONS PLC
Guarantor
TO
THE BANK OF NEW YORK
Trustee
---------
INDENTURE
Dated as of February 6, 1998
---------
Pound sterling 135,000,000 10% Senior Notes due February 1, 2008
$110,000,000 9 1/8% Senior Notes due February 1, 2008
================================================================================
<PAGE> 2
Diamond Holdings plc
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF FEBRUARY 6, 1998
<TABLE>
<CAPTION>
TRUST INDENTURE INDENTURE
ACT SECTION SECTION
- ------------------- -------------------
<S> <C>
Section 310(a)(1).............................. 609
(a)(2).............................. 609
(a)(3).............................. Not Applicable
(a)(4).............................. Not Applicable
(b)................................. 608
610
Section 311(a)................................. 613
(b)................................. 613
Section 312(a)................................. 701
702(a)
(b)................................. 702(b)
(c)................................. 702(c)
Section 313(a)................................. 703(a)
(b)................................. 703(a)
(c)................................. 703(a)
(d)................................. 703(b)
Section 314(a)................................. 704
(b)................................. Not Applicable
(c)(1).............................. 102
(c)(2).............................. 102
(c)(3).............................. Not Applicable
(d)................................. Not Applicable
(e)................................. 102
Section 315(a)................................. 601
(b)................................. 602
(c)................................. 601
(d)................................. 601
(e)................................. 514
Section 316(a)................................. 101
(a)(1)(A)........................... 502
512
(a)(1)(B)........................... 513
(a)(2).............................. Not Applicable
(b)................................. 508
Section 317(a)(1).............................. 503
(a)(2).............................. 504
(b)................................. 1003
Section 318(a)................................. 107
</TABLE>
_____________
Note: This reconciliation and tie shall not, for any purpose, be deemed
to be a part of the Indenture.
-i-
<PAGE> 3
TABLE OF CONTENTS
PAGE
----
<TABLE>
<S> <C>
PARTIES ................................................................... 1
Recitals .................................................................. 1
</TABLE>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<TABLE>
<S> <C> <C>
SECTION 101. Definitions:
Accreted Value ................................... 2
Act .............................................. 2
Additional Amounts ............................... 2
Affiliate ........................................ 2
Annualized Consolidated Debt to Cash Flow Ratio .. 2
Applicable Procedures ............................ 3
Asset Acquisition ................................ 3
Asset Disposition ................................ 3
Attributable Value ............................... 3
Authenticating Agent ............................. 3
Board of Directors ............................... 3
Board Resolution ................................. 4
Business Day ..................................... 4
Cable Acquisition ................................ 4
Cable Business ................................... 4
Capital Lease Obligation ......................... 4
Cash Equivalent .................................. 4
Change of Control ................................ 5
Commission ....................................... 5
Common Equity .................................... 5
Company .......................................... 5
Company Request; Company Order ................... 5
Consolidated Income Tax Expense .................. 5
Consolidated Interest Expense .................... 5
Consolidated Net Income .......................... 6
Consolidated Operating Cash Flow ................. 6
Consolidated Subsidiaries ........................ 6
Consolidated Tangible Assets ..................... 6
Corporate Trust Office ........................... 6
</TABLE>
_____________
Note: This table of contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Corporation ................................................................. 7
Covenant defeasance ......................................................... 7
Currency Hedging Agreements ................................................. 7
Debt ........................................................................ 7
Defaulted Interest .......................................................... 7
defeasance .................................................................. 7
Definitive Registered Security .............................................. 7
Director .................................................................... 7
Disqualified Equity ......................................................... 7
Dollar Securities ........................................................... 8
Equity Homes ................................................................ 8
Equity Securities ........................................................... 8
Event of Default ............................................................ 8
Excess Proceeds ............................................................. 8
Exchange Act ................................................................ 8
Exchange Dollar Security..................................................... 8
Exchange Offer .............................................................. 8
Exchange Security ........................................................... 8
Exchange Sterling Security................................................... 8
Expiration Date ............................................................. 8
Global Dollar Security ...................................................... 8
Global Security ............................................................. 8
Global Sterling Security .................................................... 8
guarantee ................................................................... 8
Guarantee ................................................................... 9
Guarantor ................................................................... 9
Guarantor Request; Guarantor Order .......................................... 9
Holder ...................................................................... 9
Incur ....................................................................... 9
Indenture ................................................................... 9
Initial Purchasers .......................................................... 9
Initial Regulation S Securities ............................................. 9
Insolvency Law .............................................................. 9
Interest Payment Date ....................................................... 10
Interest Rate Protection Obligation ......................................... 10
Investment .................................................................. 10
Lien ........................................................................ 10
Material License ............................................................ 10
Maturity .................................................................... 10
Net Available Proceeds ...................................................... 10
Non-Recourse Debt ........................................................... 11
Non-Restricted Subsidiary ................................................... 11
Offer ....................................................................... 11
Offer to Purchase ........................................................... 11
Officers' Certificate ....................................................... 13
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Opinion of Counsel........................................................... 13
Original Dollar Security......................................................14
Original Securities.......................................................... 14
Original Sterling Security................................................... 14
Outstanding.................................................................. 14
pari passu................................................................... 14
Paying Agent................................................................. 14
Permitted Holder............................................................. 15
Person....................................................................... 15
Predecessor Security......................................................... 15
Purchase Agreement........................................................... 15
Purchase Amount.............................................................. 15
Purchase Date................................................................ 15
Purchase Price............................................................... 15
Redemption Date.............................................................. 15
Redemption Price............................................................. 15
Registration Rights Agreement ............................................... 15
Regular Record Date.......................................................... 15
Regulation S................................................................. 15
Regulation S Certificate .................................................... 16
Regulation S Global Dollar Security ......................................... 16
Regulation S Global Security ................................................ 16
Regulation S Global Sterling Security ....................................... 16
Regulation S Legend.......................................................... 16
Regulation S Securities ..................................................... 16
Related Person............................................................... 16
Replacement Asset............................................................ 16
Resale Registration Statement ............................................... 16
Responsible Officer.......................................................... 16
Restricted Global Dollar Note ............................................... 16
Restricted Global Security .................................................. 16
Restricted Global Sterling Note ............................................. 16
Restricted Group............................................................. 16
Restricted Payments.......................................................... 17
Restricted Period............................................................ 17
Restricted Security.......................................................... 17
Restricted Securities Certificate ........................................... 17
Restricted Securities Legend ................................................ 17
Restricted Subsidiary........................................................ 17
Rule 144A.................................................................... 17
Rule 144A Securities ........................................................ 17
Sale and Leaseback Transaction .............................................. 17
SEC Registered Security ..................................................... 17
Securities................................................................... 17
Security Register; Security Registrar ....................................... 17
</TABLE>
-iv-
<PAGE> 6
<TABLE>
PAGE
----
<S> <C> <C>
Senior Bank Facility....................................... 18
Significant Subsidiary .................................... 18
Special Interest........................................... 18
Special Record Date........................................ 18
Stated Maturity............................................ 18
Step-Down Date............................................. 18
Step-Up.................................................... 18
Sterling Securities........................................ 18
Subsidiary................................................. 18
Successor Securities....................................... 18
Taxes...................................................... 18
Total Consolidated Debt ................................... 19
Trade Obligation........................................... 19
Trust Indenture Act........................................ 19
Trustee.................................................... 19
U.S. Government Obligations ............................... 19
Voting Interest............................................ 19
Weighted Average Life ..................................... 19
Wholly Owned............................................... 19
SECTION 102. Compliance Certificates and Opinions ...................... 20
SECTION 103. Form of Documents Delivered
to Trustee............................................... 20
SECTION 104. Acts of Holders; Record Date .............................. 21
SECTION 105. Notices, Etc., to Trustee, Company and Guarantor .......... 22
SECTION 106. Notice to Holders; Waiver ................................. 23
SECTION 107. Conflict with Trust Indenture Act ......................... 23
SECTION 108. Effect of Headings and Table of Contents................... 23
SECTION 109. Successors and Assigns .................................... 24
SECTION 110. Separability Clause ....................................... 24
SECTION 111. Benefits of Indenture ..................................... 24
SECTION 112. Governing Law ............................................. 24
SECTION 113. Legal Holidays ............................................ 24
SECTION 114. Agent for Service; Submission to
Jurisdiction; Waiver of Immunities ...................... 24
SECTION 115. Conversion of Currency .................................... 25
SECTION 116. Currency Equivalent ....................................... 26
</TABLE>
-v-
<PAGE> 7
ARTICLE TWO
SECURITY AND GUARANTEE FORMS
<TABLE>
<S> <C> <C>
SECTION 201. Forms Generally........................................ 26
SECTION 202. Form of Face of Global Security........................ 27
SECTION 203. Form of Face of Definitive Registered Security......... 31
SECTION 204. Form of Reverse of Security............................ 34
SECTION 205. Form of Trustee's Certificate of Authentication........ 42
SECTION 206. Form of Guarantee...................................... 42
</TABLE>
ARTICLE THREE
THE SECURITIES
<TABLE>
<S> <C> <C>
SECTION 301. Title and Terms ...................................... 45
SECTION 302. Denominations ........................................ 46
SECTION 303. Execution, Authentication, Delivery and Dating ....... 46
SECTION 304. Temporary Securities ................................. 47
SECTION 305. Transfer and Exchange ................................ 47
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities ..... 53
SECTION 307. Payment of Interest; Interest Rights Preserved ....... 54
SECTION 308. Persons Deemed Owners ................................ 55
SECTION 309. Cancellation ......................................... 55
SECTION 310. Computation of Interest .............................. 56
SECTION 311. CUSIP and/or CINS Numbers ............................ 56
</TABLE>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
<TABLE>
<S> <C> <C>
SECTION 401. Satisfaction and Discharge of Indenture ............... 56
SECTION 402. Application of Trust Money ............................ 57
</TABLE>
ARTICLE FIVE
REMEDIES
<TABLE>
<S> <C> <C>
SECTION 501. Events of Default ..................................... 58
SECTION 502. Acceleration of Maturity; Rescission and Annulment .... 60
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee ....................................... 61
</TABLE>
-vi-
<PAGE> 8
<TABLE>
<S> <C> <C>
Page
----
SECTION 504. Trustee May File Proofs of Claim ................................ 62
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities .................................................... 62
SECTION 506. Application of Money Collected .................................. 63
SECTION 507. Limitation on Suits ............................................. 63
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest ........................................... 64
SECTION 509. Restoration of Rights and Remedies .............................. 64
SECTION 510. Rights and Remedies Cumulative .................................. 64
SECTION 511. Delay or Omission Not Waiver .................................... 65
SECTION 512. Control by Holders .............................................. 65
SECTION 513. Waiver of Past Defaults ......................................... 65
SECTION 514. Undertaking for Costs ........................................... 66
SECTION 515. Waiver of Stay or Extension Laws ................................ 66
SECTION 516. No Personal Liability of Directors,
Employees and Shareholders ..................................... 66
</TABLE>
ARTICLE SIX
THE TRUSTEE
<TABLE>
<S> <C> <C>
SECTION 601. Certain Duties and Responsibilities ............................. 67
SECTION 602. Notice of Defaults .............................................. 68
SECTION 603. Certain Rights of Trustee ....................................... 68
SECTION 604. Not Responsible for Recitals or Issuance of Securities .......... 69
SECTION 605. May Hold Securities ............................................. 69
SECTION 606. Money Held in Trust ............................................. 69
SECTION 607. Compensation and Reimbursement .................................. 70
SECTION 608. Disqualification; Conflicting Interests ......................... 70
SECTION 609. Corporate Trustee Required; Eligibility ......................... 71
SECTION 610. Resignation and Removal; Appointment of Successor ............... 71
SECTION 611. Acceptance of Appointment by Successor .......................... 72
SECTION 612. Merger, Conversion, Consolidation or Succession to Business ..... 73
SECTION 613. Preferential Collection of Claims Against Company or Guarantor .. 73
SECTION 614. Appointment of Authenticating Agent ............................. 73
</TABLE>
-vii-
<PAGE> 9
ARTICLE SEVEN Page
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
<TABLE>
<S> <C> <C>
SECTION 701. Company to Furnish Trustee Names and Addresses
of Holders ............................................ 75
SECTION 702. Preservation of Information; Communications to Holders .. 76
SECTION 703. Reports by Trustee ...................................... 76
SECTION 704. Reports by Company ...................................... 76
SECTION 705. Registration Rights ..................................... 77
</TABLE>
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
<TABLE>
<S> <C> <C>
SECTION 801. Company or Guarantor May Consolidate, Etc.
Only on Certain Terms ................................. 77
SECTION 802. Successor Substituted ................................... 79
</TABLE>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
<TABLE>
<S> <C> <C>
SECTION 901. Supplemental Indentures Without Consent of Holders ...... 79
SECTION 902. Supplemental Indentures with Consent of Holders ......... 80
SECTION 903. Execution of Supplemental Indentures .................... 81
SECTION 904. Effect of Supplemental Indentures ....................... 81
SECTION 905. Conformity with Trust Indenture Act ..................... 81
SECTION 906. Reference in Securities to Supplemental Indentures ...... 82
</TABLE>
ARTICLE TEN
COVENANTS
<TABLE>
<S> <C> <C>
SECTION 1001. Payment of Principal, Premium and Interest .............. 82
SECTION 1002. Maintenance of Office or Agency ......................... 82
SECTION 1003. Money for Security Payments to be Held in Trust ......... 83
SECTION 1004. Existence ............................................... 84
SECTION 1005. Maintenance of Properties ............................... 84
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C> <C>
SECTION 1006. Payment of Taxes and Other Claims ................ 85
SECTION 1007. Maintenance of Insurance ......................... 85
SECTION 1008. Limitation on Consolidated Debt
and Disqualified Equity ........................ 85
SECTION 1009. Limitation on Restricted Payments ................ 87
SECTION 1010. Limitations Concerning Distributions by
and Transfers to Restricted Group .............. 89
SECTION 1011. Limitation on Liens .............................. 90
SECTION 1012. Limitation on Sale and Leaseback Transactions .... 91
SECTION 1013. Limitation on Transactions with
Affiliates and Related Persons ................. 92
SECTION 1014. Limitation on Certain Asset Dispositions ......... 92
SECTION 1015. Change of Control ................................ 94
SECTION 1016. Additional Amounts ............................... 96
SECTION 1017. Provision of Financial Information ............... 97
SECTION 1018. Statement by Officers as to Default; Compliance
Certificates ................................... 98
SECTION 1019. Limitation on Third-Party Ownership of the Company 98
SECTION 1020. Waiver of Certain Covenants ...................... 99
</TABLE>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
<TABLE>
<S> <C> <C>
SECTION 1101. Right of Redemption ................................ 99
SECTION 1102. Applicability of Article ........................... 99
SECTION 1103. Election to Redeem; Notice to Trustee .............. 99
SECTION 1104. Selection by Trustee of Securities to Be Redeemed .. 100
SECTION 1105. Notice of Redemption ............................... 100
SECTION 1106. Deposit of Redemption Price ........................ 101
SECTION 1107. Securities Payable on Redemption Date .............. 101
SECTION 1108. Securities Redeemed in Part ........................ 101
</TABLE>
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
<TABLE>
<S> <C> <C>
SECTION 1201. Option to Effect Defeasance or Covenant Defeasance .. 102
SECTION 1202. Defeasance and Discharge ............................ 102
SECTION 1203. Covenant Defeasance ................................. 102
SECTION 1204. Conditions to Defeasance or Covenant Defeasance ..... 103
</TABLE>
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<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 1205. Deposited Money and U.S. Government
Obligations to be Held in Trust;
Other Miscellaneous Provisions ......................... 105
SECTION 1206. Reinstatement ............................................ 106
Annex
ARTICLE THIRTEEN
SECTION 1301. Guarantee................................................. 106
SECTION 1302. Execution and Delivery of Guarantees...................... 108
SECTION 1303. Release of Guarantor...................................... 108
TESTIMONIUM ............................................................. 109
SIGNATURES .............................................................. 109
ACKNOWLEDGMENTS .........................................................
</TABLE>
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<PAGE> 12
INDENTURE, dated as of February 6, 1998 among Diamond Holdings plc, (the
"Company"), and Diamond Cable Communications Plc (the "Guarantor"), each having
its registered office at Diamond Plaza, Daleside Road, Nottingham, NG2 3GG,
England and The Bank of New York, a New York banking corporation, as Trustee
(herein called the "Trustee").
RECITALS
The Company has duly authorized the creation of an issue of each of (i)
its L.135,000,000 10% Senior Notes due February 1, 2008 (the "Sterling
Securities") and (ii) its $110,000,000 9 1/8% Senior Notes due February 1, 2008
(the "Dollar Securities" and together with the Sterling Securities, the
"Securities"), each of substantially the tenor and amount hereinafter set
forth, and to provide therefor the Company has duly authorized the execution
and delivery of this Indenture. The Sterling Securities and the Dollar
Securities are each referred to herein as a "series" of Securities. The
Securities may consist of either or both of Original Securities or Exchange
Securities, each as defined herein. The Original Securities and the Exchange
Securities shall rank pari passu.
The Guarantor has duly authorized the execution and delivery of this
Indenture to provide for the Guarantees by it with respect to the Securities as
set forth in this Indenture.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, to make the Guarantees, when executed by the
Guarantor and endorsed on the Securities, the valid obligations of the
Guarantor, and to make this Indenture a valid agreement of the Company and the
Guarantor, each in accordance with their or its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for
the equal and proportionate benefit of all Holders of the Securities, as
follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
<PAGE> 13
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with United States generally
accepted accounting principles (whether or not such is indicated herein),
and, except as otherwise herein expressly provided, the term "generally
accepted accounting principles" with respect to any computation required
or permitted hereunder shall mean such accounting principles as are
generally accepted as of the date of the Indenture;
(4) unless otherwise specifically set forth herein, all calculations
or determinations of a Person shall be performed or made on a consolidated
basis in accordance with generally accepted accounting principles but
shall not include the accounts of Non-Restricted Subsidiaries, except to
the extent of dividends and distributions actually paid by such
Non-Restricted Subsidiaries to the Company or one of the Restricted
Subsidiaries; and
(5) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Accreted Value" has the meanings given to it in the Indentures related to
the Discount Notes.
"Act", when used with respect to any Holder, has the meaning specified in
Section 104.
"Additional Amounts" has the meaning specified in Section 1016.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Annualized Consolidated Debt to Cash Flow Ratio" for any Person means for
any fiscal quarter the ratio of (i) Total Consolidated Debt of such Person as
of the end of such fiscal quarter to (ii) Consolidated Operating Cash Flow of
such Person for such fiscal quarter multiplied by four.
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<PAGE> 14
"Applicable Procedures" means, with respect to any transfer or transaction
involving a Global Security or beneficial interest therein, the rules and
procedures of any depository for such Security, Euroclear and Cedel, in each
case to the extent applicable to such transaction and as in effect from time to
time.
"Asset Acquisition" means (i) any capital contribution (including, without
limitation, by means of transfers of cash or other property to others or
payments for property or services for the account or use of others) by any
member of the Restricted Group in any other Person, or any acquisition or
purchase of equity interests in any other Person by any member of the
Restricted Group, in either case pursuant to which such Person shall become a
Restricted Subsidiary or shall be merged with or into any member of the
Restricted Group or (ii) any acquisition by any member of the Restricted Group
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business (including, for the avoidance of doubt, a
prospective licensee that subsequently acquires a license to operate a cable
television and/or telephone and/or telecommunications system).
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Company or any of its Restricted Subsidiaries (including by
way of consolidation or merger) resulting in Net Available Proceeds in excess
of L.250,000 of (i) shares or other ownership interest of a Subsidiary of the
Company, (ii) substantially all of the assets of the Company or any Subsidiary
representing a division or line of business, or (iii) other assets or rights
outside of the ordinary course of business.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable, and at any date as of which the amount thereof is
to be determined, the total net amount of rent required to be paid by such
Person under such lease during the initial term thereof as determined in
accordance with generally accepted accounting principles, discounted from the
last date of such initial term to the date of determination at a rate per annum
equal to the discount rate which would be applicable to a Capital Lease
Obligation with like term in accordance with generally accepted accounting
principles. The net amount of rent required to be paid under any such lease
for any such period shall be the aggregate amount of rent payable by the lessee
with respect to such period after excluding amounts required to be paid on
account of insurance, taxes, assessments, utility, operating and labor costs
and similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated.
"Authenticating Agent" means any Person authorized by the Trustee to act
on behalf of the Trustee to authenticate Securities.
"Board of Directors" means either the board of directors of the Company or
the Guarantor, as appropriate, or any duly authorized committee of those
boards.
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<PAGE> 15
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company or the Guarantor, as appropriate, to
have been duly adopted by the Board of Directors of the Company or the
Guarantor, as the case may be, and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The City of New York or The
City of London are authorized or obligated by law or executive order to close.
"Cable Acquisition" means an Asset Acquisition of properties or assets to
be used in a Cable Business or of equity interests in any Person that becomes a
Restricted Subsidiary or, subject to Section 1009, a Non-Restricted Subsidiary
as a result of such Asset Acquisition, provided that such Person's assets and
properties consist principally of properties or assets that will be used in a
Cable Business.
"Cable Business" means any business operating a cable television and/or
telephone and/or telecommunications system or any business reasonably related
thereto, including, without limitation, the production or provision of
programming as well as any business conducted by the Guarantor's Subsidiaries,
the Company or any member of the Restricted Group on the date on which the
Securities are first issued.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property which is required to be classified
and accounted for as a capital lease or a liability on the face of a balance
sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the
last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Cash Equivalent" means, at any time, (i) any evidence of Debt issued or
directly and fully guaranteed or insured by the government of an Approved
Jurisdiction or any agency or instrumentality thereof (provided that the full
faith and credit of the relevant Approved Jurisdiction is pledged in support
thereof); (ii) certificates of deposit or acceptances of any financial
institution that has combined capital and surplus and undivided profits of not
less than $50,000,000 (or the equivalent thereof in another currency) and has a
long term debt rating of at least "AA" by Standard & Poor's Corporation or at
least "Aa3" by Moody's Investor Service, Inc. or if not rated by either of
those rating agencies the equivalent rating from another Approved Rating
Agency; (iii) commercial paper issued by a corporation organized under the laws
of any Approved Jurisdiction and rated at least A-1 by Standard & Poor's
Corporation or at least P-1 by Moody's Investor Service, Inc. or if not rated
by either of those rating agencies the equivalent rating from another Approved
Rating Agency; (iv) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the government of an Approved Jurisdiction; and (v) any other investment,
instrument or cash balance, provided, that in each of clauses (i) through (v)
above such instrument shall be considered a Cash Equivalent within the meaning
of this definition only to the extent that such instrument would have been
classified as a "cash equivalent" in
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<PAGE> 16
accordance with the accounting principles applied to the Company's audited
consolidated balance sheet as of December 31, 1996. "Approved Jurisdiction"
means the United States of America, Canada, the United Kingdom and any other
member nation of the Organization for Economic Cooperation and Development.
"Approved Rating Agency" means Standard & Poor's Corporation, Moody's Investor
Service, Inc. and any other recognized rating agency that provides or assigns
credit rating for debt securities similar to the Securities and that shall have
been approved by the Trustee upon the written request of the Company or the
Guarantor from time to time.
"Change of Control" has the meaning specified in Section 1015.
"Commission" means the United States Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then
the body performing such duties at such time.
"Common Equity" of any Person means the class of Equity Securities of such
Person that does not rank prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Equity Securities of any
other class of such Person.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chief Executive Officer or a Director,
and by its Chief Financial Officer, its Chief Accounting Officer, its Company
Secretary or an Assistant Company Secretary, and delivered to the Trustee.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person, as charged in arriving
at Consolidated Net Income for such period.
"Consolidated Interest Expense" of any Person means for any period the
interest expense (without deduction of interest income) of such Person for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles, including without limitation or duplication (or, to the
extent not so included, with the addition of), (i) the amortization of Debt
discounts; (ii) any payments or fees with respect to letters of credit, bankers
acceptances or similar facilities; (iii) fees with respect to interest rate
swap or similar agreements or foreign currency hedge, exchange or similar
agreements; (iv) preferred stock dividends (other than in respect of preferred
stock held by such Person or a Wholly Owned subsidiary of such Person) declared
and payable in such period in cash; and (v) the portion of any rental
obligation allocable to interest expense under generally accepted accounting
principles.
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<PAGE> 17
"Consolidated Net Income" of any Person means for any period the net
income (or loss) of such Person for such period determined on a consolidated
basis in accordance with generally accepted accounting principles; provided
that there shall be excluded therefrom (a) the net income (or loss) of any
Person acquired by such Person or a Subsidiary of such Person in a transaction
accounted for under the pooling-of-interests method for any period prior to the
date of such transaction, (b) the net income (but not net loss) of any
Restricted Subsidiary of such Person which is subject to restrictions which
prevent the payment of dividends or the making of distributions (by loans,
advances, intercompany transfers or otherwise) to such Person to the extent of
such restrictions, (c) the net income (or loss) of any Person that is not a
Consolidated Subsidiary of such Person except to the extent of the amount of
dividends or other distributions actually paid to a member of the Restricted
Group by such other Person during such period, (d) gains or losses on Asset
Dispositions and (e) all extraordinary gains and extraordinary losses.
"Consolidated Operating Cash Flow" of any Person means for any period (a)
the sum of (i) Consolidated Net Income for such period; (ii) Consolidated
Interest Expense for such period; (iii) Consolidated Income Tax Expense for
such period; (iv) the depreciation and amortization expense included in the
consolidated income statement of such Person for such period; and (v) other
non-cash charges (other than trading and operating items in the ordinary course
of business) deducted from consolidated revenues in determining Consolidated
Net Income for such period (including any foreign currency translation losses),
minus (b) non-cash items (other than trading and operating items in the
ordinary course of business), increasing consolidated revenues in determining
Consolidated Net Income for such period (including any foreign currency
translation gains).
"Consolidated Subsidiaries" of any Person means all subsidiaries and other
equity investees of such Person that would be accounted for on a consolidated
basis in such Person's financial statements in accordance with generally
accepted accounting principles.
"Consolidated Tangible Assets" of any Person, means the total assets of
such Person and its Restricted Subsidiaries consolidated, as determined in
accordance with generally accepted accounting principles, less (i) the net book
value of all its licenses, patents, patent applications, copyrights,
trademarks, trade names, goodwill, non-compete agreements or organizational
expenses and other like intangibles, (ii) unamortized Debt discount and
expense, (iii) all reserves for depreciation, obsolescence, depletion and
amortization of its properties and (iv) all other proper reserves which in
accordance with generally accepted accounting principles should be provided in
connection with the business conducted by such Person; provided that with
respect to the Company and its Consolidated Subsidiaries, adjustments following
the date of the Indenture to the accounting books and records of the Company
and its Consolidated Subsidiaries in accordance with Accounting Principles
Board Opinions Nos. 16 and 17 (or successor opinions thereto), or otherwise
resulting from the acquisition of control of the Company by another Person
shall not be given effect to.
"Corporate Trust Office" means the principal office of the Trustee in the
Borough of Manhattan, The City of New York, New York, at which at any
particular time its corporate trust business shall be principally administered.
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<PAGE> 18
"Corporation" means a corporation, association, company, joint-stock
company, partnership or business trust.
"Covenant defeasance" has the meaning specified in Section 1203.
"Currency Hedging Agreements" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect the Company or any of its Restricted Subsidiaries against fluctuations
in currency values to the extent relating to (i) Debt and/or (ii) obligations
to purchase assets, properties or services incurred in the ordinary course of
business and not for speculative purposes; provided that such Currency Hedging
Agreements do not increase the Debt or other obligations of the Company and its
subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations Incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every Capital Lease Obligation of such Person, (vi) every net
obligation under interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements of such Person at the time of
determination, and (vii) every obligation of the type referred to in Clauses
(i) through (vi) of another Person and all dividends of another Person the
payment of which, in either case, such Person has guaranteed or is responsible
or liable for, directly or indirectly, as obligor, guarantor or otherwise;
provided that Trade Obligations shall be excluded from the definition of Debt.
"Defaulted Interest" has the meaning specified in Section 307.
"defeasance" has the meaning specified in Section 1202.
"Definitive Registered Security" means any Security substantially in the
form set forth in Sections 203 and 204 hereof issued in accordance with Section
305.
"Director", when used with respect to the Company or the Guarantor, means
any executive officer who is a director, whether or not designated by a number
or a word or words added before or after the title "director".
"Disqualified Equity" of any Person means any Equity Security of such
Person which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder thereof,
in whole or in part, on or prior to the final Stated Maturity of the
Securities.
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<PAGE> 19
"Dollar Securities" has the meaning set forth in the first paragraph of
the RECITALS.
"Equity Homes" means the product of (i) the number of homes in a franchise
area as set forth in the cable television or telecommunications licenses
relating to such franchise area, and (ii) the percentage of the entity holding
such licenses which is owned directly or indirectly by the Company or the
Guarantor, as the case may be.
"Equity Securities" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity or capital interests of such Person, including, without
limitation, partnership interests.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" has the meaning specified in Section 1014.
"Exchange Act" refers to the United States Securities Exchange Act of 1934
as it may be amended and any successor act thereto.
"Exchange Dollar Security" means an Exchange Security that is a Dollar
Security.
"Exchange Offer" has the meaning specified in the form of the face of
either the Global Security set forth in Section 202 or the Definitive
Registered Security set forth in Section 203.
"Exchange Security" means any security issued by the Company (i) pursuant
to the Exchange Offer, (ii) upon the registration of transfer of a Security
registered for resale on a Resale Registration Statement or (iii) upon the
transfer of, or in exchange for, Securities which are Exchange Securities.
"Exchange Sterling Security" means an Exchange Security that is a Sterling
Security.
"Expiration Date" has the meaning specified in the definition of Offer to
Purchase.
"Global Dollar Security" means the Security evidencing all or a part of
all the Dollar Securities substantially in the form set forth in Sections 202
and 204 hereof.
"Global Security" means a Security of either series evidencing all or a
part of all the securities of such series substantially in the form set forth
in Sections 202 and 204 hereof.
"Global Sterling Security" means the Security evidencing all or a part of
all the Sterling Securities substantially in the form set forth in Sections 202
and 204 hereof.
"guarantee" by any Person means any obligation, contingent or otherwise,
of such Person guaranteeing any Debt of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, and including, without
limitation, any obligation of such Person, (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or to purchase (or to
advance or supply funds for the purchase of) any security for the payment of
such Debt, (ii) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment
-8-
<PAGE> 20
of such Debt, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "guaranteed", "guaranteeing"
and "guarantor" shall have meanings correlative to the foregoing); provided,
however, that the guarantee by any Person shall not include endorsements by
such Person for collection or deposit, in either case, in the ordinary course
of business, and shall not include guarantees in the nature of, or in respect
of, Trade Obligations.
"Guarantee" means any guarantee of the Guarantor endorsed on Securities
authenticated and delivered pursuant to this Indenture and shall include the
form of Guarantee set forth in Section 206.
"Guarantor" means the Person named as the "Guarantor" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Guarantor" shall mean such successor Person.
"Guarantor Request" or "Guarantor Order" means a written request or order
signed in the name of the Guarantor by its Chief Executive Officer or a
Director, and by its Chief Financial Officer, its Chief Accounting Officer, its
Company Secretary or an Assistant Company Secretary, and delivered to the
Trustee.
"Holder" means (a) in the case of any Definitive Registered Security, the
Person in whose name such Definitive Registered Security is registered in the
Security Register and (b) in the case of any Global Security, the bearer
thereof.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other
obligation (and "Incurrence", "Incurred", "Incurrable" and "Incurring" shall
have meanings correlative to the foregoing); provided, however, that a change
in generally accepted accounting principles that results in an obligation of
such Person that exists at such time becoming Debt shall not be deemed an
Incurrence of such Debt.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Initial Purchasers" means Goldman, Sachs & Co. and Goldman Sachs
International.
"Initial Regulation S Securities" means the Securities sold by the Initial
Purchasers in the initial offering contemplated by the Purchase Agreement in
reliance on Regulation S.
"Insolvency Law" means any United Kingdom, United States (Federal or
State), or other applicable bankruptcy, insolvency, reorganization or similar
law in any applicable jurisdiction.
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<PAGE> 21
"Interest Payment Date" means the Stated Maturity of an instalment of
interest on the Securities.
"Interest Rate Protection Obligation" of any Person means any interest
rate swap agreement or other similar financial agreement or arrangement
designed to protect such Person against fluctuations in interest rates and
pursuant to which such Person is obligated or may become obligated to make
payments; provided that where such agreement or arrangement hedges Debt, it is
with respect to a notional principal amount that does not exceed the principal
amount of the Debt to which such Increase Rate Protection Obligation relates.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution to any other Person (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Equity Securities, bonds, notes, debentures or other securities
or evidence of Debt issued by any other Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Material License" means a direct or indirect ownership interest in a
license to operate a cable television or a cable telephone system held by the
Company or any of its Restricted Subsidiaries or the Guarantor or any of its
Restricted Subsidiaries, as the case may be, which license at the time of
determination covers a number of Equity Homes which equals or exceeds 10% of
the aggregate number of Equity Homes covered by all of the licenses to operate
cable television or cable telephone systems in which the Company or its
Restricted Subsidiaries or the Guarantor or any of its Restricted Subsidiaries,
as the case may be, hold a direct or indirect ownership interest at such time.
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or readily marketable cash equivalents received (including by way of sale
or discounting of a note, instalment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiree of Debt or other obligations relating to such properties or assets or
received in any other noncash form) therefrom by such Person, net of (i) all
legal, title and recording tax expenses, commissions and other fees and
expenses incurred and all federal, state, provincial, foreign and local taxes
required to be accrued as a liability as a consequence of such Asset
Disposition, (ii) all payments made by such Person or its Subsidiaries on any
Debt which is secured by a Lien on such assets or on Common Equity of the
Person owning
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<PAGE> 22
such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Debt or Lien or in order to
obtain a necessary consent to such Asset Disposition or by applicable law be
repaid out of the proceeds from such Asset Disposition, and (iii) all
distributions and other payments made to minority interest holders in
Subsidiaries of such Person or joint ventures as a result of such Asset
Disposition; provided that minority holders receive distributions and payments
that are in the Company's good faith judgment comparable in kind to those
received by the Company or a Restricted Subsidiary.
"Non-Recourse Debt" means Debt or that portion of Debt (i) as to which
none of the Company, nor any of its Restricted Subsidiaries (a) provides credit
support (including any undertaking, agreement or instrument which would
constitute Debt); (b) is directly or indirectly liable; or (c) constitutes the
lender; and (ii) no default with respect to which (including any rights which
the holders thereof may have to take enforcement action against a
Non-Restricted Subsidiary) would permit (upon notice, lapse of time or both)
any holders of any other Debt of the Company or any of its Restricted
Subsidiaries to declare a default on such other Debt or cause the payment
thereof to be accelerated or payable prior to its stated maturity.
"Non-Restricted Subsidiary" of a Person means a Subsidiary of a Person
that (i) at the time of its designation as a Non-Restricted Subsidiary has not
acquired any assets (unless the acquisition of such assets constitutes a
Restricted Payment permitted by Section 1009), at any previous time, directly
or indirectly from such Person or any of its Subsidiaries and (ii) has no Debt
other than Debt that is, with respect to such Person, Non-Recourse Debt;
(unless the extent to which such Person is the lender for, or is responsible
for such Debt, constitutes a Restricted Payment permitted by Section 1009)
provided, however, that at the time of such designation, after giving pro forma
effect to such designation, the Annualized Consolidated Debt to Cash Flow Ratio
of such Person is equal to or less than the Annualized Consolidated Debt to
Cash Flow Ratio of such Person immediately preceding such designation;
provided, further, that if the Annualized Consolidated Debt to Cash Flow Ratio
of the Company immediately preceding such designation is 7.0 or less, then the
Annualized Consolidated Debt to Cash Flow Ratio of the Company after giving pro
forma effect to such designation may be up to 0.5 greater than such ratio
immediately preceding such designation. No Restricted Subsidiary may be
redesignated as a Non-Restricted Subsidiary unless at the time of such
redesignation the provisions in clauses (i) and (ii) in this definition are
currently met and the Trustee has received a copy of a Board Resolution to such
effect.
"Offer" has the meaning specified in the definition of Offer to Purchase.
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each Holder at his address
provided to the Trustee by such Holder or appearing in the Security Register on
the date of the Offer offering to purchase up to the principal amount of
Securities specified in such Offer at the purchase price specified in such
Offer (as determined pursuant to this Indenture). Unless otherwise required by
applicable law, the Offer shall specify an expiration date (the "Expiration
Date") of the Offer to Purchase which shall be, subject to any contrary
requirements of applicable law, not less than 30 days or more than 60 days
after the date of such Offer and a settlement date (the "Purchase Date") for
purchase of Securities within five Business Days after the Expiration Date.
The Company shall
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<PAGE> 23
notify the Trustee in writing at least 15 Business Days (or such shorter period
as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be
mailed by the Company or, at the Company's request, by the Trustee in the name
and at the expense of the Company. The Offer shall contain information
concerning the business of the Company and the Guarantor and their Subsidiaries
which the Company in good faith believes will enable such Holders to make an
informed decision with respect to the Offer to Purchase (which at a minimum
will include (i) the most recent annual and quarterly financial statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the documents required to be filed with the Trustee
pursuant to Section 1017 (which requirements may be satisfied by delivery of
such documents together with the Offer), (ii) a description of material
developments in the Company's and the Guarantor's business subsequent to the
date of the latest of such financial statements referred to in Clause (i)
(including a description of the events requiring the Company to make the Offer
to Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable law
to be included therein. The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Securities pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of this Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Securities
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than all Outstanding Securities, the manner by which
such has been determined pursuant to the Section hereof requiring the
Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each L.1,000
aggregate principal amount (in the case of the Sterling Securities) and
$1,000 aggregate principal amount (in the case of the Dollar Securities)
of Securities accepted for payment (as specified pursuant to this
Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the Securities
registered in the name of such Holder and that any portion of a Security
tendered must be tendered in an integral multiple of L.1,000 aggregate
principal amount (in the case of the Sterling Securities) and $1,000
aggregate principal amount (in the case of the Dollar Securities);
(6) the place or places where Securities are to be surrendered for
tender pursuant to the Offer to Purchase;
(7) that interest on any Security not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue
to accrue;
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<PAGE> 24
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each Security being accepted for payment pursuant to the
Offer to Purchase and that interest thereon shall cease to accrue on and
after the Purchase Date;
(9) that each Holder electing to tender a Security pursuant to the
Offer to Purchase will be required to surrender such Security at the place
or places specified in the Offer prior to the close of business on the
Expiration Date (such Security being, if the Company or the Trustee so
requires, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
Securities tendered if the Company (or its Paying Agent) receives, not
later than the close of business on the Expiration Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Security the Holder tendered, the
certificate number of the Security the Holder tendered and a statement
that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Securities in an aggregate principal amount less
than or equal to the Purchase Amount are duly tendered and not withdrawn
pursuant to the Offer to Purchase, the Company shall purchase all such
Securities and (b) if Securities in an aggregate principal amount in
excess of the Purchase Amount are tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase Securities having an
aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only
Securities in denominations of L.1,000 or $1,000 (as the case may be) or
integral multiples thereof shall be purchased); and
(12) that in case of any Holder whose Security is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new
Security or Securities of the same type, of any authorized denomination as
requested by such Holder, in an aggregate principal amount equal to and in
exchange for the unpurchased portion of the Security so tendered.
Any Offer to Purchase shall be governed by and effected in accordance with the
Offer for such Offer to Purchase.
"Officers' Certificate" means a certificate signed by the Chief Executive
Officer or a Director, and by the Chief Financial Officer, Chief Accounting
Officer, the Secretary or an Assistant Secretary, of the Company or the
Guarantor, as appropriate, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, and who shall be reasonably acceptable to the Trustee.
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<PAGE> 25
"Original Dollar Security" means a Dollar Security that is not an Exchange
Security.
"Original Securities" means Securities of either series that are not
Exchange Securities.
"Original Sterling Security" means a Sterling Security that is not an
Exchange Security.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated
in trust by the Company (if the Company shall act as its own Paying Agent)
for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has been
made; and
(iii) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities
in respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands such Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of a series of Outstanding Securities have given any request,
demand, authorization, direction, notice, consent or waiver hereunder,
Securities of the same series owned by the Company or the Guarantor or any
other obligor upon the Securities or any Affiliate of the Company or the
Guarantor or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction
of the Trustee the pledgee's right so to act with respect to such Securities
and that the pledgee is not the Company or the Guarantor or any other obligor
upon the Securities or any Affiliate of the Company or the Guarantor or of such
other obligor.
"pari passu", when used with respect to the ranking of any Debt of any
Person in relation to other Debt of such Person, means that each such Debt (a)
either (i) is not subordinated in right of payment to any other Debt of such
Person or (ii) is subordinate in right
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<PAGE> 26
of payment to the same Debt of such Person as is the other and is so subordinate
to the same extent and (b) is not subordinate in right of payment to the other
or to any Debt of such Person as to which the other is not so subordinate.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company.
"Permitted Holder" means the Guarantor, any of its Wholly Owned
Subsidiaries or European Cable Capital Partners L.P., a limited partnership
organized under the laws of Delaware, and any of its partners existing on the
date of the Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Purchase Agreement" means the Purchase Agreement, dated as of January 30,
1998, among the Company, the Guarantor and the Initial Purchasers, as such
agreement may be amended from time to time.
"Purchase Amount" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Date" has the meaning specified in the definition of Offer to
Purchase.
"Purchase Price" has the meaning specified in the definition of Offer to
Purchase.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Exchange and Registration Rights
Agreement of even date herewith among the Company, the Guarantor and the
Purchasers, as defined therein.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the January 15 or July 15 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act (or any
successor provision), as it may be amended from time to time.
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<PAGE> 27
"Regulation S Certificate" means a certificate substantially in the form
set forth in Annex A.
"Regulation S Global Dollar Security" means a Regulation S Global Security
that is a Dollar Security.
"Regulation S Global Security" has the meaning specified in Section 201.
"Regulation S Global Sterling Security" means a Regulation S Global
Security that is a Sterling Security.
"Regulation S Legend" means a legend substantially in the form of the
legend required in the forms of face of Security set forth in Section 202 and
Section 203 to be placed upon a Regulation S Global Security.
"Regulation S Securities" means all Securities required pursuant to
Section 305(c) to bear a Regulation S Legend. Such term includes a Regulation
S Global Security.
"Related Person" of any Person means, without limitation, any other Person
owning (a) 5% or more of the outstanding Common Equity of such Person or (b) 5%
or more of the Voting Interest of such Person.
"Replacement Asset" has the meaning specified in Section 1014.
"Resale Registration Statement" shall mean a registration statement under
the Securities Act registering the Securities for resale pursuant to the terms
of the Registration Rights Agreement.
"Responsible Officer" means, with respect to the Trustee, any vice
president, any assistant vice president, the secretary, any assistant
secretary, any assistant treasurer, any trust officer or assistant trust
officer, employed by the Trustee's corporate trust department or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above-designated officers and also means, with respect
to a particular corporate trust or agency matter, any other officer to whom
such matter is referred because of his or her knowledge and familiarity with
the particular subject.
"Restricted Global Dollar Security" means a Restricted Security that is a
Dollar Security.
"Restricted Global Security" means any Global Security required pursuant
to Section 305(c) to bear a Restricted Securities Legend.
"Restricted Global Sterling Security" means a Restricted Security that is
a Sterling Security.
"Restricted Group" means the Company and its Restricted Subsidiaries.
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<PAGE> 28
"Restricted Payments" has the meaning specified in Section 1009.
"Restricted Period" means the period of 41 consecutive days beginning on
and including the later of (i) the day on which Securities are first offered to
persons other than distributors (as defined in Regulation S) in reliance on
Regulation S and (ii) the day on which the closing of the offering of
Securities pursuant to the Purchase Agreement occurs.
"Restricted Security" means all Securities required pursuant to Section
305(c) to bear a Restricted Securities Legend. Such term includes a Restricted
Global Security.
"Restricted Securities Certificate" means a certificate substantially in
the form set forth in Annex B.
"Restricted Securities Legend" means a legend substantially in the form of
the legend required in the forms of face of Securities set forth in Section 202
and Section 203 to be placed upon a Restricted Security.
"Restricted Subsidiary" of any person means any Subsidiary of such Person
other than a Non-Restricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act (or any successor
provision), as it may be amended from time to time.
"Rule 144A Securities" means all Securities initially distributed in
connection with the offering of the Securities by the Initial Purchasers in
reliance upon Rule 144A.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which
has been or is being sold or transferred by such Person more than 365 days
after the acquisition thereof or the completion of construction or commencement
of operation thereof to such lender or investor or to any Person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset. The stated maturity of such arrangement shall be the
date of the last payment of rent or any other amount due under such arrangement
prior to the first date on which such arrangement may be terminated by the
lessee without payment of a penalty.
"SEC Registered Securities" means the Exchange Securities and all other
Securities sold or otherwise disposed of pursuant to an effective registration
statement under the Securities Act, together with their respective Successor
Securities.
"Securities" means securities designated in the first paragraph of the
RECITALS.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
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<PAGE> 29
"Senior Bank Facility" means the senior bank loan and guarantee facility,
dated August 5, 1996, between Jewel Holdings Limited, NatWest Capital Markets
and the other parties thereto, as such facility has been or may be amended,
modified, supplemented, replaced, renewed, extended or restated from time to
time (including, for the avoidance of doubt, through the supplemental agreement
dated February 13, 1997 and the amended Senior Bank Lending Facility dated
April 4, 1997).
"Significant Subsidiary" means a Subsidiary that qualifies as a
"significant subsidiary" under Rule 1-01 of the Commission's Regulation S-X.
"Special Interest" has the meaning set forth in the form of face of the
Global Security contained in Section 202 or the Definitive Registered Security
in Section 203. Unless the context otherwise requires, references herein to
"interest" on the Securities shall include Special Interest.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Step-Down Date" has the meaning set forth in the form of face of the
Global Security contained in Section 202 or the Definitive Registered Security
in Section 203.
"Step-Up" has the meaning set forth in the form of face of the Global
Security contained in Section 202 or the Definitive Registered Security in
Section 203.
"Sterling Securities" has the meaning set forth in the first paragraph of
the RECITALS.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Interest of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof.
"Successor Security" of any particular Security means every Security
issued after, and evidencing all or a portion of the same debt as that
evidenced by, such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Taxes" has the meaning specified in Section 1016.
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<PAGE> 30
"Total Consolidated Debt" means, at any date of determination, an amount
equal to the aggregate amount of all Debt of the Company and its Restricted
Subsidiaries outstanding as of the date of determination, determined on a
consolidated basis.
"Trade Obligation" of a Person means:
(i) obligations of such Person to pay the purchase price of assets or
services purchased in the ordinary course of business including, without
limitation, obligations incurred in respect of any documentary letter of
credit or bill of exchange issued in respect of any such purchase;
(ii) obligations of such Person in respect of any bill of exchange or
promissory note drawn, or accepted, issued or endorsed in the ordinary
course of business, including, without limitation, indebtedness in respect
of any monies raised by way of sale, discounting or otherwise in respect
of any such bill or note; and
(iii) obligations of such Person in respect of any guarantee of any
obligation of the type specified in paragraph (i) or (ii) above, except to
the extent that such obligation is treated as indebtedness under generally
accepted accounting principles.
"Trust Indenture Act" means the United States Trust Indenture Act of 1939
as in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall
mean such successor Trustee.
"U.S. Government Obligations" has the meaning specified in Section 1204.
"Voting Interest" of any Person means Equity Securities of such Person
which ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Weighted Average Life" means, as of the date of determination, with
respect to any Debt or Disqualified Equity, the quotient obtained by dividing
(i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payments of
such Debt or redemption or repurchase payments on such Disqualified Equity and
the amount of such principal payments or redemption or repurchase payments, by
(ii) the sum of all such principal value or redemption or repurchase payments.
"Wholly Owned" means with respect to any Subsidiary or Restricted
Subsidiary of any Person means a Subsidiary (or a Restricted Subsidiary) of
such Person all of the outstanding Equity Securities or other ownership
interests of which (other than directors' qualifying shares)
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<PAGE> 31
shall at the time be owned by such Person or by one or more Wholly Owned
Subsidiary (or Restricted Subsidiaries) of such Person or by such Person and
one or more Wholly Owned Subsidiary (or Restricted Subsidiaries) of such
Person.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company or the Guarantor to the
Trustee to take any action under any provision of this Indenture, the Company
or the Guarantor, as appropriate, shall furnish to the Trustee an Officer's
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such Counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishings of such
documents is specifically required by any provision of this Indenture relating
to such particular application or request, no additional certificate or opinion
need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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Any certificate or opinion of an officer of the Company or the Guarantor
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in
the exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such certificate or opinion of counsel may
be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Company or the
Guarantor stating that the information with respect to such factual matters is
in the possession of the Company or the Guarantor, respectively, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders; Record Date.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by agent duly appointed in
writing; and, except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee and, where it is hereby expressly required, to the Company and the
Guarantor. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Section 601) conclusive in favor
of the Trustee and the Company and the Guarantor, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust Indenture
Act, fix any day as the record date for the purpose of determining the Holders
of Definitive Registered Securities of either series entitled to give or take
any request, demand, authorization, direction, notice, consent, waiver or other
action, or to vote on any action, authorized or permitted to be given or taken
by such Holders. If not set by the Company prior to the first solicitation of
a
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Holder made by any Person in respect of any such action, or, in the case of any
such vote, prior to such vote, the record date for any such action or vote
shall be the 30th day (or, if later, the date of the most recent list of
Holders required to be provided pursuant to Section 701) prior to such first
solicitation or vote, as the case may be. With regard to any record date, only
the Holders of Definitive Registered Securities of the relevant series on such
date (or their duly designated proxies) shall be entitled to give or take, or
vote on, the relevant action.
(d) The ownership of Definitive Registered Securities shall be proved by
the Security Register.
(e) In the case of a Global Security, its Holder shall be entitled to give
or take, or vote on, any relevant action with respect to all or only a portion
of the principal amount represented by such Global Security as of the record
date fixed for Definitive Registered Securities, as indicated by Schedule A to
such Global Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to give or
take any action hereunder with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any different part of such principal amount.
(g) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of
the same Security and the Holder of every Security issued upon the registration
of transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee, the Company or
the Guarantor in reliance thereon, whether or not notation of such action is
made upon such Security.
SECTION 105. Notices, Etc., to Trustee, Company and Guarantor.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company or the Guarantor
shall be sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporation Trust Trustee Administration, or
(2) the Company or the Guarantor by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid,
to the Company or the Guarantor addressed to it at the address of its
registered office specified in the first paragraph of
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<PAGE> 34
this instrument or at any other address previously furnished in writing to
the Trustee by the Company or the Guarantor.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at his address as it appears in the Security Register, or in the
case of any Global Security, at the address provided to the Trustee by the
Holder thereof, not later than the latest date (if any), and not earlier than
the earliest date (if any), prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Where
this Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Any request, demand, authorization, directive, notice, consent or waiver
required or permitted under this Indenture shall be in the English language.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of
the Trust Indenture Act that is required under such Act to be part of and
govern this Indenture, the latter provision shall control. If any provision of
this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
Until such time as this Indenture shall be qualified under the Trust Indenture
Act, this Indenture, the Company, the Guarantor and the Trustee shall as a
matter of contract be deemed for all purposes hereof to be subject to and
governed by the Trust Indenture Act to the same extent as would be the case if
this Indenture were so qualified on the date hereof.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
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<PAGE> 35
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company or the
Guarantor shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities or the
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities or the Guarantees, express
or implied, shall give to any Person, other than the parties hereto and their
successors hereunder and the Holders of Securities, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture, the Securities and the Guarantees shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, Purchase
Date or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal (and premium, if any) need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date or Purchase
Date, or at the Stated Maturity, provided that no additional interest shall
accrue for the period from and after such Interest Payment Date, Redemption
Date or Purchase Date or Stated Maturity, as the case may be, on account of
such delay.
SECTION 114. Agent for Service; Submission to Jurisdiction; Waiver of
Immunities.
By the execution and delivery of this Indenture, the Company and the
Guarantor each (i) acknowledges that it has, by separate written instrument,
irrevocably designated and appointed CT Corporation System as its authorized
agent upon which process may be serviced in any suit or proceeding arising out
of or relating to the Securities, the Guarantees or this Indenture that may be
instituted in any Federal or State court in the Borough of Manhattan, The City
of New York or brought under Federal or State securities laws or brought by the
Trustee
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<PAGE> 36
in its capacity as a trustee hereunder, and acknowledges that CT Corporation
System has accepted such designation, (ii) submits to the jurisdiction of any
such court in any such suit or proceeding and waives any objection which it may
now or hereafter have to the laying of venue of any such proceeding or any
claim of inconvenient forum, and (iii) agrees that service of process upon CT
Corporation System and written notice of said service to it (mailed or
delivered to its Secretary at its registered office at the address specified in
the first paragraph of this instrument or at any other address previously
furnished in writing to the Trustee) shall be deemed in every respect effective
service of process upon it in any such suit or proceeding. The Company and
Guarantor further agree to take any and all action, including the execution and
filing of any and all such documents and instruments, as may be necessary to
continue such designation and appointment of CT Corporation System in full
force and effect so long as this Indenture and the Guarantees shall be in full
force and effect and so long as any of the Securities shall be outstanding.
To the extent that either the Company or the Guarantor has or hereafter
may acquire any immunity from jurisdiction of any court or from any legal
process (whether through service of notice, attachment prior to judgment,
attachment in aid of execution or otherwise) with respect to itself or its
property, it hereby irrevocably waives such immunity in respect of its
respective obligations under this Indenture and the Securities and the
Guarantees to the fullest extent permitted by law.
SECTION 115. Conversion of Currency.
The Company covenants and agrees that the following provisions shall apply
to conversion of currency in the case of the Securities, the Guarantees and
this Indenture:
(a) (i) If for the purpose of obtaining judgment in, or enforcing the
judgment of, any court in any country, it becomes necessary to convert
into any other currency (the "judgment currency") an amount due in such
coin or currency of the United States of America as at the time of payment
is legal tender for payment of public of public and private debts ("U.S.
Dollars"), then the conversion shall be made at the rate of exchange
prevailing on the Business Day before the day on which the judgment is
given or the order of enforcement is made, as the case may be (unless a
court shall otherwise determine).
(ii) If there is a change in the rate of exchange prevailing between
the Business Day before the day on which the judgment is given or an order
of enforcement is made, as the case may be (or such other date as a court
shall determine), and the date of receipt of the amount due, the Company
will pay such additional (or, as the case may be, such lesser) amount, if
any, as may be necessary so that the amount paid in the judgment currency
when converted at the rate of exchange prevailing on the date of receipt
will produce the amount in U.S. Dollars originally due.
(b) In the event of the winding-up of the Company at any time while
any amount or damages owing under the Securities, the Guarantees and this
Indenture, or
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<PAGE> 37
any judgment or order rendered in respect thereof, shall remain
outstanding, the Company shall indemnify and hold the Holders and the
Trustees harmless against any deficiency arising or resulting from any
variation in rates of exchange between (1) the date as of which the
equivalent of the amount in U.S. Dollars due or contingently due under the
Securities, the Guarantees and this Indenture (other than under this
Subsection (b)) is calculated for the purposes of such winding-up and (2)
the final date for the filing of proofs of claim in such winding-up. For
the purpose of this Subsection (b), the final date for the filing of proofs
of claim in the winding-up of the Company, shall be the date fixed by the
liquidator or otherwise in accordance with the relevant provisions of
applicable law as being the latest practicable date as at which liabilities
of the Company or the Guarantor may be ascertained for such winding-up
prior to payment by the liquidator or otherwise in respect thereto.
(c) The term "rate(s) of exchange" shall mean the rate of exchange
quoted by The Bank of New York at its central foreign exchange desk in its
head office in New York, New York at 12:00 noon (New York City time) for
purchases of U.S. Dollars with the judgment currency other than U.S.
Dollars referred to in Subsections (a) and (b) above and includes any
premiums and costs of exchange payable.
SECTION 116. Currency Equivalent.
Except as provided in Section 115, for purposes of the construction of the
terms of this Indenture or of the Securities or the Guarantees, in the event
that any amount is stated herein in the currency of one nation (the "First
Currency"), as of any date such amount shall also be deemed to represent the
amount in the currency of any other relevant nation (the "Other Currency")
which is required to purchase such amount in the First Currency at the rate of
exchange quoted by The Bank of New York at its central foreign exchange desk in
its head office in New York, New York at 12:00 noon (New York City time) on the
date of determination.
ARTICLE TWO
SECURITY AND GUARANTEE FORMS
SECTION 201. Forms Generally.
The Securities, the Guarantees and the Trustee's certificates of
authentication shall be in substantially the forms set forth in this Article,
with such appropriate legends, insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Securities or Guarantees, as the case may be, as
evidenced by their execution of the Securities or Guarantees, as the case may
be.
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<PAGE> 38
Each Security shall have a Guarantee endorsed thereon. The definitive
Securities, and Guarantees to be endorsed thereon, shall be printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
Securities of each series will be initially issued as one or more Global
Securities. Each Global Security authenticated under this Indenture shall be
in global bearer form, and each such Global Security shall constitute a single
Security for all purposes of this Indenture.
Upon their original issuance, Rule 144A Securities and Initial Regulation
S Securities of each series shall be issued in the form of separate Global
Securities. The Global Securities representing Rule 144A Securities, together
with their Successor Securities which are Global Securities other than
Regulation S Global Securities, are collectively herein called the "Restricted
Global Securities". The Global Securities representing Initial Regulation S
Securities, together with their Successor Securities which are Global
Securities other than Restricted Global Securities, are collectively herein
called the "Regulation S Global Securities".
SECTION 202. Form of Face of Global Security.
DIAMOND HOLDINGS PLC
[If Sterling Security, then insert: 10%][If Dollar Security, then insert: 91/8%]
SENIOR NOTES DUE FEBRUARY 1, 2008
Guaranteed as to Payment of Principal, Interest and any other amounts due by
DIAMOND CABLE COMMUNICATIONS PLC
No. ___________________
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1267(a) OF THE UNITED STATES INTERNAL REVENUE
CODE.
[Legend if Security is a Restricted Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE TRANSFEROR REASONABLY
BELIEVES IS A QUALIFIED
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<PAGE> 39
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS.
THIS SECURITY AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER
TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE LAW OR
REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE
RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS
SECURITY SHALL BE DEEMED, BY THE ACCEPTANCE HEREOF, TO HAVE AGREED TO ANY SUCH
AMENDMENT OR SUPPLEMENT. EACH PURCHASER OF THIS SECURITY OR ANY INTEREST
HEREIN IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER.]
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<PAGE> 40
[Legend if the Security is a Regulation S Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS
THIS SECURITY IS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.]
[Legend if Security is not an Exchange Security:
THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS
OF, THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, DATED FEBRUARY 6, 1998,
AMONG THE COMPANY, THE GUARANTOR AND THE PARTIES REFERRED TO THEREIN.]
Diamond Holdings plc, a public limited company duly incorporated under the
laws of England and Wales with registered number 3483724 (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to bearer
upon presentation and surrender the principal sum indicated on Schedule A
hereof on February 1, 2008 and to pay interest thereon from February 6, 1998 or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, semi-annually on August 1 and February 1 in each year,
commencing August 1, 1998, at the rate of [if Sterling Security, then insert:
10%] [if Dollar Security, then insert: 9 1/8%] per annum, until the principal
hereof is paid or made available for payment, and (to the extent that the
payment of such interest shall be legally enforceable) at the rate of [if
Sterling Security, then insert: 10%] [if Dollar Security, then insert: 9
1/8%] per annum on any overdue principal and premium and on any overdue
installment of interest until paid as specified on the reverse hereof.
[If Original Security, then insert: provided, however, that if (i) the
Company has not filed a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), registering a security substantially
identical to this Security (except that such Security will not contain terms
with respect to the Special Interest payments described below or legends
reflecting transfer restrictions) pursuant to an exchange offer (the "Exchange
Offer") (the "Exchange Registration Statement") (or, if applicable, a
registration statement registering this Security for resale (a "Resale
Registration Statement")) by May 7, 1998, or (ii) the Exchange Registration
Statement relating to the Exchange Offer (or, if applicable, a Resale
Registration Statement) has not become or been declared effective by August 5,
1998, or (iii) either the Exchange Registration Statement or, if applicable,
the Resale Registration Statement is filed and declared effective but shall
thereafter cease to be effective (except as specifically permitted pursuant to
the agreement referred to below) without being succeeded promptly by an
additional registration statement filed and declared effective, in each case
(i) through (iii) upon the terms and conditions set forth in the Exchange and
Registration Rights Agreement (the "Exchange and Registration Rights
Agreement"), dated as of February 6, 1998, among the Company, the Guarantor and
the other parties referred to therein (each such event referred to
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<PAGE> 41
in clauses (i) through (iii), a "Registration Default"), then interest will
accrue (in addition to any stated interest on the Securities) (the "Step-Up")
at a rate of 0.5% per annum, determined daily, on the principal amount of the
Securities, for the period from the occurrence of the Registration Default
until such time (the "Step-Down Date") as no Registration Default is in effect.
Interest accruing as a result of the Step-Up is referred to herein as "Special
Interest." Accrued Special Interest, if any, shall be paid semi-annually on
August 1 and February 1 in each year; and the amount of accrued Special
Interest shall be determined on the basis of the number of days during which
such Registration Default is in effect. The Company shall provide the Trustee
with written notice of the date of any Registration Default and the Step-Down
Date. Any accrued and unpaid interest (including Special Interest) on this
Security upon the issuance of an Exchange Security (as defined in the
Indenture) in exchange for this Security shall cease to be payable to the
Holder hereof but such accrued and unpaid interest (including Special Interest)
shall be payable on the next Interest Payment Date for such Exchange Security
to the Holder thereof on the related Regular Record Date.]
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
This Security is transferable by delivery.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
DIAMOND HOLDINGS PLC
By ________________________________
Title:
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<PAGE> 42
SECTION 203. Form of Face of Definitive Registered Security.
DIAMOND HOLDINGS PLC
[If Sterling Security, then insert: 10%][If Dollar Security, then insert:
9 1/8%] SENIOR NOTES DUE FEBRUARY 1, 1998
Guaranteed as to Payment of Principal and Interest by
DIAMOND CABLE COMMUNICATIONS PLC
No. __________ [If Sterling Security, then insert: L. ]
[If Dollar Security, then insert: $ ]
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1267(a) OF THE UNITED STATES INTERNAL REVENUE
CODE.
[Legend if Security is a Restricted Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON THAT THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (2) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF
AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS.
THIS SECURITY AND ANY RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER
TRANSFERS OF THIS SECURITY TO REFLECT ANY CHANGE IN APPLICABLE LAW OR
REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE
RESALE OR TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE HOLDER OF THIS
SECURITY SHALL BE DEEMED, BY THE ACCEPTANCE HEREOF, TO HAVE AGREED TO ANY SUCH
AMENDMENT OR SUPPLEMENT. EACH PURCHASER OF THIS SECURITY OR ANY INTEREST
HEREIN IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER.]
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<PAGE> 43
[Legend if the Security is a Regulation S Security:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS
THIS SECURITY IS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.]
[Legend if Security is not an Exchange Security:
THE HOLDER OF THIS SECURITY IS SUBJECT TO, AND ENTITLED TO THE BENEFITS OF
THE EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, DATED FEBRUARY 6, 1998, AMONG
THE COMPANY, THE GUARANTOR AND THE PARTIES REFERRED TO THEREIN.]
Diamond Holdings plc, a public limited company duly incorporated under
the laws of England with registered number 3483724 (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
__________________, or registered assigns, the principal sum of
_____________________ [if Sterling Security, then insert: British Pounds
Sterling] [if Dollar Security, then insert: United States Dollars] on February
1, 2008 and to pay interest thereon from February 6, 1998 or from the most
recent Interest Payment Date to which interest has been paid or duly provided
for, semi-annually on August 1 and February 1 each year, commencing August 1,
1998, at the rate of [if Sterling Security, then insert: 10%] [if Dollar
Security, then insert: 9 1/8%] per annum, until the principal hereof is paid
or made available for payment, and (to the extent that the payment of such
interest shall be legally enforceable) at the rate of [if Sterling Security,
then insert: 10%] [if Dollar Security, then insert: 9 1/8%] per annum on any
overdue principal and premium and on any overdue installment of interest until
paid as specified on the reverse hereof.
[If Original Security, then insert: provided, however, that if (i) the
Company has not filed a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), registering a security substantially
identical to this Security (except that such Security will not contain terms
with respect to the Special Interest payments described below or legends
reflecting transfer restrictions) pursuant to an exchange offer (the "Exchange
Offer") (the "Exchange Registration Statement") (or, if applicable, a
registration statement registering this Security for resale (a "Resale
Registration Statement")) by May 7, 1998, or (ii) the Exchange Registration
Statement relating to the Exchange Offer (or, if applicable, a Resale
Registration Statement) has not become or been declared effective by August 5,
1998, or (iii) either the Exchange Registration Statement or, if applicable,
the Resale Registration Statement is filed and declared effective but shall
thereafter cease to be effective (except as specifically permitted pursuant to
the agreement referred to below) without being succeeded promptly by an
additional registration statement filed and declared effective, in each case
(i) through (iii) upon the terms and conditions set forth in the Exchange and
Registration Rights Agreement (the "Exchange and Registration Rights
Agreement"), dated as of February 6, 1998, among the
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<PAGE> 44
Company, the Guarantor and the other parties referred to therein (each such
event referred to in clauses (i) through (iii), a "Registration Default"), then
interest will accrue (in addition to any stated interest on the Securities)
(the "Step-Up") at a rate of 0.5% per annum, determined daily, on the principal
amount of the Securities, for the period from the occurrence of the
Registration Default until such time (the "Step-Down Date") as no Registration
Default is in effect. Interest accruing as a result of the Step-Up is referred
to herein as "Special Interest." Accrued Special Interest, if any, shall be
paid semi-annually on August 1 and February 1 in each year; and the amount of
accrued Special Interest shall be determined on the basis of the number of days
during which such Registration Default is in effect. The Company shall provide
the Trustee with written notice of the date of any Registration Default and the
Step-Down Date. Any accrued and unpaid interest (including Special Interest)
on this Security upon the issuance of an Exchange Security (as defined in the
Indenture) in exchange for this Security shall cease to be payable to the
Holder hereof but such accrued and unpaid interest (including Special Interest)
shall be payable on the next Interest Payment Date for such Exchange Security
to the Holder thereof on the related Regular Record Date.]
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the July 15 or January 15 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
Payment of the principal of (and premium, if any) and any such interest on
this Security will be made at the office or agency of the Company maintained
for that purpose in the Borough of Manhattan, The City of New York, in such
coin or currency of the [if Sterling Security, then insert: United Kingdom]
[if Dollar Security, then insert: United States of America] as at the time of
payment is legal tender for payment of public and private debts; provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register.
[If Sterling Security, then insert: In the event that a single European
currency is adopted in substitution for the national currency of the United
Kingdom, the regulations of the European Commission relating to such currency
shall apply to this Security. The circumstances and consequences described in
this paragraph entitle neither the Company nor the Holder hereof to early
redemption, rescission, notice or repudiation of the terms and conditions of
this Security or the Indenture or to raise other defenses or to request any
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<PAGE> 45
compensation claim, nor will they affect any of the other obligations of the
Company or the Guarantor under this Security and the Indenture.]
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
DIAMOND HOLDINGS PLC
By: _________________________________
Title:
SECTION 204. Form of Reverse of Security.
This Security is one of a duly authorized issue of Securities of the
Company designated as its [if Sterling Security, then insert: 10%][If Dollar
Security, then insert: 9 1/8%] Senior Notes due February 1, 2008 (herein called
the "Securities"), limited in aggregate principal amount to [if Sterling
Security, then insert: L135,000,000][If Dollar Security, then insert:
U.S.$110,000,000], issued and to be issued under an Indenture, dated as of
February 6, 1998 (herein called the "Indenture"), among the Company, the
Guarantor and The Bank of New York, as Trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for
a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Guarantor, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
All payments made by the Company or the Guarantor under or with respect to
this Security or the Guarantee will be made free and clear of and without
withholding or deduction for or on account of any present or future taxes,
duties, assessments or other governmental charges of whatever nature unless the
withholding or deduction is then required by law. If any withholding or
deduction for or on account of any present or future taxes, assessments or
other governmental charges of the United Kingdom or any political subdivision
or taxing authority thereof or therein ("Taxes") shall at any time be required
in respect of any amounts to be paid
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<PAGE> 46
by the Company or the Guarantor under this Security, the Company or the
Guarantor, as the case may be, will pay such additional amounts ("Additional
Amounts") as may be necessary so that the net amount (including Additional
Amounts) received by the Holder of this Security after such withholding or
deduction will not be less than the amount the Holder would have received if
such Taxes had not been required to be withheld or deducted; provided that the
foregoing obligation to pay Additional Amounts shall not apply to (a) any Taxes
that would not have been so imposed but for the existence of any present or
former connection between such Holder and the United Kingdom (other than the
mere receipt of such payment or the ownership or holding outside of the United
Kingdom of this Security); (b) any estate, inheritance, gift, sales, excise,
transfer, personal property tax or similar tax, assessment or governmental
charge; or (c) any Taxes payable otherwise than by deduction or withholding
from payments of principal of (or premium, if any, on) or interest (including
Special Interest, if any) on this Security; nor will Additional Amounts be paid
(i) if the payment could have been made by or through another paying agent
without such deduction or withholding, (ii) if the payment could have been made
without such deduction or withholding had the Holder of this Security or, if
different, the beneficiary of the payment complied with a request of the
Company or the Guarantor made upon reasonable notice prior to such payment, or
any other Person through whom payment may be made, addressed or otherwise
provided to such Holder or beneficiary to provide information, documents or
other evidence concerning the nationality, residence, identity or connection
with the taxing jurisdiction of such Holder or beneficiary which is required or
imposed by a statute, treaty, regulation or administrative practice of the
taxing jurisdiction as a precondition to exemption from all or part of such
tax, (iii) with respect to any payment of principal of (or premium, if any, on)
or interest (including Special Interest, if any) on this Security to any Holder
that is a fiduciary or partnership or Person other than the sole beneficial
owner of such payment, to the extent that such payment would be required by the
laws of the U.K. (or any political subdivision or taxing authority thereof or
therein) to be included in the income for tax purposes of a beneficiary or
settlor with respect to such fiduciary or a member of such a partnership or a
beneficial owner who would not have been entitled to the Additional Amounts had
such beneficiary, settlor, member or beneficial owner been the actual Holder of
this Security or (iv) if the payment is in respect of a Definitive Registered
Security issued (or whose Predecessor Security was issued) at the request of a
Holder (including following an Event of Default) and at the time the payment is
made Definitive Registered Securities have not been issued for the entire
principal amount of the Securities. The foregoing provisions shall survive
any termination or discharge of the Indenture and shall apply mutatis mutandis
to withholding or deduction for or on account of any present or future taxes,
assessments or other governmental charges of any jurisdiction in which any
successor Person to the Company or the Guarantor, as the case may be, is
organized, or any political subdivision or taxing authority or agency thereof
or therein. The Company will use commercially reasonable efforts to facilitate
administrative actions necessary to assist Holders to obtain any refund of or
credit against withholding taxes for which Additional Amounts are not paid as a
result of the proviso in the second preceding sentence. Except as otherwise
stated, all references in this Security to principal or interest (including
Special Interest, if any) on this Security or to any amounts payable under the
Guarantee shall include any Additional Amounts payable by the Company or the
Guarantor, as the case may be, pursuant to this paragraph.
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<PAGE> 47
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, at any time on or after February 1, 2003, as a
whole or in part, at the option of the Company; provided that the Company may
not give a notice of redemption (i) more than four times in any year or (ii) in
respect of the redemption of less than [If Sterling Security, then insert:
L.5][If Dollar Security, then insert: $5] million in principal amount of the
Securities. Such redemption will be at the following Redemption Prices
(expressed as percentages of the principal amount): If redeemed during the
12-month period beginning February 1 of the years indicated,
[If Sterling Security, then insert:
<TABLE>
<CAPTION>
Year Redemption Price
- --------- ----------------
<S> <C>
2003.................... 105%
2004.................... 103.333%
2005.................... 101.667%
2006 and thereafter..... 100%]
</TABLE>
[If Dollar Security, then insert:
<TABLE>
<CAPTION>
Year Redemption Price
- -------- ----------------
<S> <C>
2003.................... 104.562%
2004.................... 103.042%
2005.................... 101.521%
2006 and thereafter..... 100%]
</TABLE>
together in the case of any such redemption with accrued and unpaid interest,
including Special Interest, if any, to the Redemption Date, and any Additional
Amounts due, [insert in the case of a Definitive Registered Security "but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the
Indenture"].
The Securities do not have the benefit of any sinking fund obligations.
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Security in part only, a new Security or Securities for the unredeemed or
unpurchased portion hereof will be issued [insert "to the bearer hereof" in the
case of a Global Security, otherwise insert "in the name of the Holder hereof"]
upon the cancellation hereof.
If an Event of Default shall occur and be continuing, there may be
declared due and payable the principal amount of the Securities, in the manner
and with the effect provided in the Indenture. Such principal amount shall
bear interest at the rate of [if Sterling Security, then insert: 10%][if
Dollar Security, then insert: 9 1/8%] per annum from the most recent Interest
Payment Date to which interest has been paid or duly provided for. Upon
payment of (i) the
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<PAGE> 48
principal amount so declared due and payable and any overdue installment of
interest, (ii) interest on the principal amount and (iii) as provided on the
face hereof, interest on any overdue installment of interest (in each case to
the extent that the payment of such interest shall be legally enforceable), all
of the Company's and the Guarantor's obligations in respect of the payment of
the principal of and interest on the Securities shall terminate.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail, as a whole, but not in part, at the election of
the Company at any time at a Redemption Price equal to 100% of the principal
amount, together in the case of any such redemption with accrued and unpaid
interest, including Special Interest, if any, and any Additional Amounts due,
to the Redemption Date [insert in the case of the Definitive Registered
Security: but interest installments whose Stated Maturity is on or prior to
such Redemption Date will be payable to the Holders of such Securities, or one
or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture], if (a) the Company is required to issue Definitive Registered
Securities after using all reasonable efforts to avoid having to issue such
Definitive Registered Securities and the Company is or would be so required in
the absence of any applicable tax treaty on the next succeeding Interest
Payment Date to pay Additional Amounts with respect to the Securities or (b)
the Company has become or would become obligated in the absence of any
applicable tax treaty to pay, on the next date on which any amount would be
payable with respect to the Securities, any Additional Amounts as a result of
any amendment to, or change in, the laws (or any rules or regulations
thereunder) of the United Kingdom or any political subdivision or taxing
authority thereof or therein (or, in the case of Additional Amounts payable by
a successor Person to the Company or the Guarantor, as the case may be, of the
jurisdiction in which such successor Person is organized or any political
subdivision or taxing authority thereof or therein), or any amendment to, or
change in any official interpretation or application of such laws or rules or
regulations or any execution of or amendment to any treaty affecting taxation
to which the United Kingdom or such political subdivision or taxing authority
(or such other jurisdiction or political subdivision or taxing authority) is a
party, which amendment or change or execution becomes effective on or after the
date of the Indenture (or, in the case of Additional Amounts payable by a
successor Person to the Company or the Guarantor, as the case may be, the date
on which such successor Person became such pursuant to the applicable
provisions of the Indenture unless as of such date the relevant tax authority
had publicly announced that such amendment or change or execution was to occur
after such date) and such obligation cannot be avoided by the use of all
commercially reasonable measures available to the Company or the Guarantor;
provided, however, that (1) no such notice of redemption may be given earlier
than 90 days prior to the earliest date on which the Company or the Guarantor
would be obligated to pay such Additional Amounts were a payment in respect of
the Securities then due, and (2) at the time such notice of redemption is
given, such obligation to pay such Additional Amounts remains in effect.
The Indenture provides that, subject to certain conditions, if (i) certain
Excess Proceeds are available to the Company as a result of Asset Dispositions
or (ii) a Change of Control occurs, the Company shall be required to make an
Offer to Purchase for all or a specified portion of the Securities.
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<PAGE> 49
In the event of redemption (or purchase pursuant to an Offer to Purchase)
of this Security in part only, a new Security or Securities for the unredeemed
(or unpurchased) portion hereof will be issued in the name of the Holder hereof
upon cancellation hereof.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Security or (ii) certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth therein.
Unless the context otherwise requires, the Original [if Sterling Security,
then insert: Sterling] [if Dollar Security, then insert: Dollar] Securities (as
defined in the Indenture) and the Exchange [if Sterling Security, then insert:
Sterling] [if Dollar Security, then insert: Dollar] Securities (as defined in
the Indenture) shall constitute one series for all purposes under the
Indenture, including without limitation, amendments, waivers, redemptions and
Offers to Purchase.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the [if Sterling Security, then
insert: Sterling] [if Dollar Security, then insert: Dollar] Securities at the
time Outstanding. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the [if
Sterling Security, then insert: Sterling] [if Dollar Security, then insert:
Dollar] Securities at the time Outstanding, on behalf of the Holders of all the
[if Sterling Security, then insert: Sterling] [if Dollar Security, then insert:
Dollar] Securities, to waive compliance by the Company with certain provisions
of the Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange hereof or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
[In the case of a Definitive Registered Security, insert the following
paragraph: As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.]
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<PAGE> 50
[In the case of a Definitive Registered Security, insert the following
paragraph: In the event of redemption (or purchase pursuant to an Offer to
Purchase) of this Security in part only, a new Security or Securities for the
unredeemed (or unpurchased) portion hereof will be issued in the name of the
Holder hereof upon cancellation hereof.]
The Securities are issuable only without coupons in denominations of [if
Sterling Security, then insert: L.1,000] [if Dollar Security, then insert:
$1,000] and any integral multiple thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities are exchangeable
for a like aggregate principal amount of Securities of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
[In the case of Definitive Registered Security, insert the following
paragraph: Prior to due presentment of this Security for registration of
transfer, the Company, the Guarantor, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security is registered
as the owner hereof for all purposes, whether or not this Security be overdue,
and neither the Company, the Guarantor, the Trustee nor any such agent shall be
affected by notice to the contrary.]
[If a Global Security, then insert: The bearer of this Security may be
treated as the owner of it for all purposes.]
Interest on this Security shall be computed on the basis of a 360-day year
of twelve 30-day months.
No director, officer, employee, incorporator or shareholder of the Company
or the Guarantor shall have any liability as such for any obligations of the
Company or the Guarantor under the Securities or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of the Securities by accepting a Security waives and releases all
such liability; provided that such waiver will not release any person from
liability for fraud or criminal acts. The waiver and release are part of the
consideration for issuance of the Securities.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE> 51
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased in its entirety by
the Company pursuant to Section 1014 or 1015 of the Indenture, check the box:
If you want to elect to have only a part of this Security purchased by the
Company pursuant to Section 1014 or 1015 of the Indenture, state the amount:
[if Sterling Security, then insert: L._______] [if Dollar Security, then insert
U.S.$________].
Dated: [Your Signature: ________________________________
(Sign exactly as name appears
on the other side of this Security)]
[Attach the following Schedule A in the case of a Global Security:]
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<PAGE> 52
SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount of this Security shall be [if Sterling
Security, then insert: L.-] [if Dollar Security, then insert: $-.] The
following decreases/increases in the principal amount of this Security have
been made:
<TABLE>
<CAPTION>
Total Principal
Date of Amount Following Notation Made by or
Decrease/ Decrease in Increase in such on Behalf of
Increase Principal Amount Principal Amount Decrease/Increase Trustee
- --------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
- ---------- ---------- ---------- ---------------- ----------
</TABLE>
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<PAGE> 53
SECTION 205. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:
The Bank of New York,
as Trustee
By ____________________
Authorized Signatory
SECTION 206. Form of Guarantee.
GUARANTEE
For value received, the Guarantor (hereinafter referred to as the
"Guarantor", which term includes any successor or additional Guarantor under
the Indenture referred to in the Security upon which this Guarantee is
endorsed), hereby unconditionally guarantees to the Holder of the Security upon
which this Guarantee is endorsed, and to the Trustee on behalf of each such
Holder, (a) the due and punctual payment of the principal of (and premium, if
any) and interest and any other amounts due on such Security when and as the
same shall become due and payable, whether at the Stated Maturity or interest
payment date, by acceleration, call for redemption, purchase or otherwise, (b)
the due and punctual payment of interest on the overdue principal of (and
premium, if any) and (if lawful) interest and any other amounts due on the
Securities, (c) the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee, all in accordance with the terms set
forth in the Security upon which this Guarantee is endorsed and in the
Indenture, and (d) in case of any extension of time of payment or renewal of
any Securities or any of such other obligations, the same will be promptly paid
in full when due or performed in accordance with the terms of the extension or
renewal, whether at the Stated Maturity or interest payment date, by
acceleration, call for redemption, purchase or otherwise. In case of the
failure of the Company punctually to make any such payment, the Guarantor
hereby agrees to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or interest
payment date, by acceleration, call for redemption, purchase or otherwise, and
as if such payment were made by the Company.
The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional, irrespective of the validity, regularity or
enforceability of such Security or the Indenture or the obligations evidenced
thereby, the absence of any action to enforce the same, any waiver or consent
by the Holder of such Security or by the Trustee or either of them with respect
to any provisions thereof or of the Indenture, the obtaining of any judgment
against the Company or any action to enforce the same, any claim, set-off or
other rights the Guarantor may have at any time against the Company, the
Trustee or any holder of any Security or any
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<PAGE> 54
other circumstances which might otherwise constitute a legal or equitable
discharge or defense of a guarantor, provided, however, that, notwithstanding
the foregoing, no such waiver, modification or indulgence shall, without the
consent of the Guarantor, increase the principal amount of such Security, or
increase any interest rate thereon, or increase any premium payable upon
redemption thereof. The Guarantor hereby waives to the fullest extent
permitted by law the benefits of diligence, presentment, demand of payment, any
requirement that the Trustee or any of the Holders protect, secure, perfect or
insure any security interest in or other Lien on any property subject thereto
or exhaust any right or take any action against the Company or any other
Person, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest or notice with respect to such Security or the Indebtedness evidenced
thereby and all demands whatsoever, and covenants that this Guarantee will not
be discharged except by complete performance of the obligations contained in
such Security and in this Guarantee. The Guarantor hereby agrees that, in the
event of a default in payment of principal (or premium, if any) or interest or
any other amounts due on such Security, whether at its Stated Maturity, by
acceleration, call for redemption, purchase or otherwise, legal proceedings may
be instituted by the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture, directly
against the Guarantor to enforce this Guarantee without first proceeding
against the Company. The Guarantor agrees that if, after the occurrence and
during the continuance of an Event of Default, the Trustee or any of the
Holders are prevented by applicable law from exercising their respective rights
to accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with respect to
the Securities, the Guarantor agrees to pay to the Trustee for the account of
the Holders, upon demand therefor, the amount that would otherwise have been
due and payable had such rights and remedies been permitted to be exercised by
the Trustee or any of the Holders.
No reference herein to the Indenture and no provision of this Guarantee or
of the Indenture shall alter or impair the guarantee of the Guarantor, which is
absolute and unconditional, of the due and punctual payment of the principal
(and premium, if any) and interest and any other amounts due on the Security
upon which this Guarantee is endorsed.
The Guarantor shall be subrogated to all rights of the Holder of this
Security against the Company in respect of any amounts paid by the Guarantor on
account of this Security pursuant to the provisions of its Guarantee or the
Indenture; provided, however, that the Guarantor shall not be entitled to
enforce or receive any payments arising out of, or based upon, such right of
subrogation until the principal (and premium, if any) and interest and any
other amounts due on this Security and all other Securities issued under the
Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect and continue to be
effective should any petition be filed by or against the Company for
liquidation or reorganization, should the Company become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall,
to the fullest extent permitted by law, continue to be effective or be
reinstated, as the case may be, if at any time payment and performance of the
Securities is, pursuant to applicable law, rescinded or reduced in amount, or
must otherwise be restored or returned by any obligee
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<PAGE> 55
on the Securities, whether as a "voidable preference," "fraudulent transfer,"
or otherwise, all as though such payment or performance had not been made. In
the event that any payment, or any part thereof, is rescinded, reduced,
restored or returned, the Securities shall, to the fullest extent permitted by
law, be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.
The Guarantor shall be released from this Guarantee upon the terms and
subject to certain conditions provided in the Indenture.
All terms used in this Guarantee which are defined in the Indenture
referred to in the Security upon which this Guarantee is endorsed shall have
the meanings assigned to them in such Indenture.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Security upon which this Guarantee is
endorsed shall have been executed by the Trustee under the Indenture by manual
signature.
Reference is made to Article Thirteen of the Indenture for further
provisions with respect to this Guarantee.
THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly
executed.
Dated:
DIAMOND CABLE
COMMUNICATIONS PLC
As Guarantor
By_______________________
Title:
Attest:
_________________________
[Title]
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<PAGE> 56
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is limited to pound sterling 135,000,000
aggregate principal amount of Sterling Securities and $110,000,000 aggregate
principal amount of Dollar Securities, except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 304, 305, 306, 906 or 1108 or in connection
with an Offer to Purchase pursuant to Section 1014 or 1015.
The Company may issue Exchange Securities of each series from time to time
pursuant to an Exchange Offer or otherwise in authorized denominations in
exchange for a like principal amount of Original Securities of the same series.
Upon any such exchange the Original Securities shall be cancelled in accordance
with Section 309 and shall no longer be deemed Outstanding for any purpose. In
no event shall the aggregate principal amount of Original Securities and
Exchange Securities Outstanding exceed pound sterling 135,000,000 aggregate
principal amount of Sterling Securities and $110,000,000 aggregate principal
amount of Dollar Securities.
The Sterling Securities shall be known and designated as the "pound
sterling 135,000,000 10% Senior Notes due February 1, 2008" of the Company, and
the Dollar Securities shall be known and designated as the "$110,000,000 9 1/8%
Senior Notes due February 1, 2008" of the Company. The Stated Maturity of each
shall be February 1, 2008. The Sterling Securities shall bear interest at the
rate of 10% per annum, and the Dollar Securities shall bear interest at the rate
of 9 1/8% per annum, each from February 6, 1998 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, as the case
may be, payable semi-annually on February 1 and August 1, commencing August 1,
1998 until the principal thereof is paid or made available for payment;
provided, however, with respect to Original Securities, if there has been a
Registration Default, a Step-Up will occur and the Original Securities will from
then bear Special Interest until the Step-Down Date. Accrued Special Interest,
if any, shall be paid in cash in arrears semi-annually on February 1 and August
1 in each year, and the amount of accrued Special Interest shall be determined
on the basis of the number of days actually elapsed and computed as provided in
Section 310.
The principal of and interest on, and all amounts payable under, the
Securities shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, and in London, England, maintained
for such purpose and at any other office or agency maintained by the Company
for such purpose; provided, however, that at the option of the Company payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
The Securities shall be subject to repurchase by the Company pursuant to
an Offer to Purchase as provided in Sections 1014 and 1015.
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<PAGE> 57
The Securities shall be redeemable as provided in Article Eleven.
The Securities shall be subject to defeasance at the option of the Company
as provided in Article Twelve.
The Securities shall be Guaranteed by the Guarantor as provided in Article
Thirteen.
Unless the context otherwise requires, the Original Sterling Securities
and the Exchange Sterling Securities shall constitute one series, and the
Original Dollar Securities and the Exchange Dollar Securities shall constitute
one series, for all purposes under the Indenture, including without limitation,
amendments, waivers, redemptions, Acts of Holders and Offers to Purchase.
SECTION 302. Denominations.
The Securities shall be issuable only in global bearer or in definitive
registered form without coupons and in denominations of L.1,000, in the case of
the Sterling Securities and, $1,000, in the case of the Dollar Securities,
principal amount and in each case, any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chief
Executive Officer, its Chief Financial Officer or one of its Directors. The
signature of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the Company and
having endorsed thereon the Guarantees executed by the Guarantor to the Trustee
for authentication, together with a Company Order for the authentication and
delivery of such Securities with the Guarantees endorsed thereon; and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Securities with the Guarantees endorsed thereon as in this Indenture
provided and not otherwise.
Each Security shall be dated the date of its authentication.
No Security or Guarantee endorsed thereon shall be entitled to any benefit
under this Indenture or be valid or obligatory for any purpose unless there
appears on such Security a certificate of authentication substantially in the
form provided for herein executed by the
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<PAGE> 58
Trustee by manual signature, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Securities with the Guarantee, executed by the Guarantor, endorsed thereon
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Securities may determine, as evidenced by their
execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities with the Guarantee, executed by the Guarantor, endorsed thereon to
be prepared without unreasonable delay. After the preparation of definitive
Securities, the temporary Securities shall be exchangeable for definitive
Securities upon surrender of the temporary Securities at any office or agency
of the Company designated pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary
Securities the Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Securities
of the same series with the Guarantee, executed by the Guarantor, endorsed
thereon of authorized denominations. Until so exchanged the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
SECTION 305. Transfer and Exchange.
(a) Registration, Registration of Transfer and Exchange Generally.
Transfer of a Global Security shall be by delivery.
A Global Security of either series shall be exchanged by the Company (with
authentication by the Trustee) for one or more Definitive Registered Securities
of the same series, if the Holder so requests, provided, that such Definitive
Registered Securities and such Global Security after such exchange shall be in
authorized denominations. In addition, if at any time the Company in its sole
discretion determines, any Global Security shall be exchanged (in whole but not
in part) for one or more Definitive Registered Securities of the same series.
Whenever all of a Global Security is exchanged for one or more Definitive
Registered Securities it shall be surrendered by the Holder thereof to the
Trustee for cancellation. Whenever a part of a Global Security is exchanged
for one or more Definitive Registered Securities, such Global Security shall be
surrendered by the Holder thereof to the Trustee who shall cause an adjustment
to be made to Schedule A of such Global Security such that the principal amount
of such Global Security will be reduced by the portion of such Global
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Security so exchanged for Definitive Registered Securities. All Definitive
Registered Securities issued in exchange for a Global Security or any portion
thereof shall be registered in such names as the Holder of the Global Security
shall instruct the Trustee. Every Security authenticated and delivered in
exchange for or in lieu of, a Global Security or any portion thereof, pursuant
to Section 304, 306, 906 or 1108 or in accordance with any Offer to Purchase
pursuant to Section 1014 or 1015 hereof or otherwise, shall be authenticated
and delivered in the form of, and shall be, a Global Security. A Global
Security may not be exchanged for another Security other than as provided in
this paragraph.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Definitive Registered Securities of each series and of
transfers of Definitive Registered Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Definitive Registered
Securities and transfers of Definitive Registered Securities as herein
provided. Such Security Register of Definitive Registered Securities shall
distinguish between Sterling Securities and Dollar Securities and between
Original Securities and Exchange Securities.
Upon surrender for registration of transfer of any Definitive Registered
Security of either series at an office or agency of the Company designated
pursuant to Section 1002 for such purpose, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Definitive Registered Securities of
the same series, of any authorized denominations and of a like aggregate
principal amount and tenor, each such Security having endorsed thereon the
Guarantee executed by the Guarantor and bearing such legends reflecting
restrictions as may be required by this Indenture.
Subject to Section 305(b), at the option of the Holder, Definitive
Registered Securities of one series may be exchanged for other Definitive
Registered Securities of the same series of any authorized denominations and of
a like aggregate principal amount, and having the Guarantees endorsed thereon
executed by the Guarantor, upon surrender of the Definitive Registered
Securities to be exchanged at such office or agency. Whenever any Definitive
Registered Securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Definitive
Registered Securities which the Holder making the exchange is entitled to
receive and the Guarantor shall execute the Guarantees endorsed thereon.
All Definitive Registered Securities issued upon any registration of
transfer or exchange of Definitive Registered Securities and the Guarantees
endorsed thereon shall be the valid obligations of the Company and the
Guarantor, evidencing the same debt and Guarantees, and (subject to the
provisions in the Original Securities regarding the payment of Special
Interest) entitled to the same benefits under this Indenture, as the Definitive
Registered Securities and the Guarantees endorsed thereon surrendered upon such
registration of transfer or exchange.
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Every Definitive Registered Security presented or surrendered for
registration of transfer or for exchange shall (if so required by the Company
or the Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed, by the Holder thereof or his attorney duly authorized in writing.
The Trustee shall have no obligation or duty to monitor, determine or
inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Security other than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do so if and
when expressly required by the terms of, this Indenture, and to examine the
same to determine substantial compliance as to form with the express
requirements hereof.
In the event that the Company delivers to the Trustee a copy of an
Officers' Certificate certifying that a registration statement under the
Securities Act with respect to the Exchange Offer has been declared effective
by the Commission and that the Company has offered Exchange Securities to the
Holders in accordance with the Exchange Offer, the Trustee shall exchange, upon
request of any Holder, such Holder's Securities for Exchange Securities upon
the terms set forth in the Exchange Offer.
Subject to Section 305(b), the Holder of a Global Security of either
series may increase the principal amount of the Global Security held by it by
surrendering any Definitive Registered Security of the same series registered
in its name to the Registrar for cancellation. Upon surrender of such
Definitive Registered Security, the Registrar shall forward such Definitive
Registered Security to the Trustee for cancellation and the Trustee shall make
a notation on Schedule A of the Global Security held by such Holder to increase
the principal amount of such Global Security by an amount equal to the
principal amount of the Definitive Registered Security surrendered for
cancellation.
No service charge shall be made for any registration of transfer or
exchange of Definitive Registered Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Definitive Registered Securities, other than exchanges pursuant to Section 304,
306, 906 or 1108 or in accordance with any Offer to Purchase pursuant to
Section 1014 or 1015 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of
or exchange any Definitive Registered Security during a period beginning at the
opening of business 15 days before the day of the mailing of a notice of
redemption of Securities selected for redemption under Section 1104 and ending
at the close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any Definitive Registered Security so selected for
redemption in whole or in part, except the unredeemed portion of any Definitive
Registered Security being redeemed in part.
(b) Certain Transfers and Exchanges. Notwithstanding any other provision
of this Indenture or the Securities, transfers and exchanges of Securities and
beneficial interests in a
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Global Security of the kinds specified in this Section 305(b) shall be made
only in accordance with this Section 305(b).
(i) Restricted Global Security to Regulation S Global Security. If
the Holder of the Restricted Global Security of either series wishes at
any time to transfer such Security in whole or in part to the Holder of
the Regulation S Global Security of the same series, such transfer may be
effected only in accordance with the provisions of this Clause (b)(i) and
Clause (b)(vii) below and subject to the Applicable Procedures. Upon
receipt by the Trustee, as Security Registrar, of (A) an order given by
the Holders of the Regulation S Global Security of either series and the
Restricted Global Security of the same series directing that the principal
amount represented by such Regulation S Global Security be increased by a
specified amount and that the principal amount represented by such
Restricted Global Security be reduced by an equal amount and (B) a
Regulation S Certificate, satisfactory to the Trustee and duly executed by
the Holder of such Restricted Global Security or his attorney in fact duly
authorized in writing, then the Trustee, as Security Registrar but subject
to Clause (b)(vii) below, shall reduce the principal amount of such
Restricted Global Security and increase the principal amount of such
Regulation S Global Security by such specified principal amount as
provided in Section 305(c).
(ii) Regulation S Global Security to Restricted Global Security. If
the Holder of the Regulation S Global Security of either series wishes at
any time to transfer such Security in whole or in part to the Holder of
the Restricted Global Security of the same series, such transfer may be
effected only in accordance with this Clause (b)(ii) and subject to the
Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) an order given by the Holders of the Regulation S Global
Security of either series and the Restricted Global Security of the same
series directing that the principal amount represented by such Regulation
S Global Security be reduced by a specified amount and that the principal
amount represented by such Restricted Global Security be increased by an
equal amount and (B) if such transfer is to occur during the Restricted
Period, a Restricted Securities Certificate, satisfactory to the Trustee
and duly executed by the Holder of such Regulation S Global Security or
his attorney in fact duly authorized in writing, then the Trustee, as
Security Registrar, shall reduce the principal amount of such Regulation S
Global Security and increase the principal amount of such Restricted
Global Security by such specified principal amount as provided in Section
305(c). If transfers under this Section 305(b)(ii) occur after the
Restricted Period, no Restricted Securities Certificates will be required.
(iii) Restricted Non-Global Security to Restricted Global Security or
Regulation S Global Security. If the Holder of a Definitive Registered
Security, of either series, that is a Restricted Security wishes at any
time to transfer all or any portion of such Security to the Holder of the
Restricted Global Security of the same series or the Regulation S Global
Security of the same series, such transfer may be effected only in
accordance with the provisions of this Clause (b)(iii) and Clause (b)(vii)
below and subject to the Applicable Procedures. Upon receipt by the
Trustee, as Security Registrar, of (A) such Definitive Registered Security
as provided in
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Section 305(a) and instructions satisfactory to the Trustee directing that
the principal amount of the Restricted Global Security or Regulation S
Global Security be increased by a specified principal amount not greater
than the principal amount of such Definitive Registered Security and (B) a
Restricted Securities Certificate, if the principal amount of the
Restricted Global Security is to be increased, or a Regulation S
Certificate, if the principal amount of the Regulation S Global Security
is to be increased, in either case satisfactory to the Trustee and duly
executed by such Holder or his attorney duly authorized in writing, then
the Trustee, as Security Registrar but subject to Clause (b)(vii) below,
shall cancel such Definitive Registered Security (and issue a new
Definitive Registered Security in respect of any untransferred portion
thereof) as provided in Section 305(a) and increase the principal amount
of the Restricted Global Security or the Regulation S Global Security, as
the case may be, by the specified principal amount as provided in Section
305(c).
(iv) Regulation S Non-Global Security to Restricted Global Security
or Regulation S Global Security. If the Holder of a Definitive Registered
Security, of either series, that is a Regulation S Security wishes at any
time to transfer all or any portion of such Security to the Holder of the
Restricted Global Security of the same series or the Regulation S Global
Security of the same series, such transfer may be effected only in
accordance with this Clause (b)(iv) and Clause (b)(vii) below and subject
to the Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (A) such Definitive Registered Security as provided in
Section 305(a) and instructions satisfactory to the Trustee directing that
the principal amount of the Restricted Global Security or Regulation S
Global Security be increased by a specified principal amount not greater
than the principal amount of such Definitive Registered Security and (B)
if the transfer is to occur during the Restricted Period and the principal
amount of the Restricted Global Security is to be increased, a Restricted
Securities Certificate satisfactory to the Trustee and duly executed by
such Holder or his attorney duly authorized in writing, then the Trustee,
as Security Registrar but subject to Clause (b)(vii) below, shall cancel
such Security (and issue a new Definitive Registered Security in respect
of any untransferred portion thereof) as provided in Section 305(a) and
increase the principal amount of the Restricted Global Security or the
Regulation S Global Security, as the case may be, by the specified
principal amount as provided in Section 305(c).
(v) Definitive Registered Security to Definitive Registered Security.
A Definitive Registered Security of either series may be transferred, in
whole or in part, to a Person who takes delivery in the form of another
Definitive Registered Security of the same series as provided in Section
305(a), provided that, if the Security to be transferred in whole or in
part is a Restricted Security, or is a Regulation S Security and the
transfer is to occur during the Restricted Period, then the Trustee shall
have received (A) a Restricted Securities Certificate, satisfactory to the
Trustee and duly executed by the transferor Holder or his attorney duly
authorized in writing, in which case the transferee Holder shall take
delivery in the form of a Restricted Security, or (B) a Regulation S
Certificate, satisfactory to the Trustee and duly executed by the
transferor Holder or his attorney duly authorized in writing, in which case
the
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transferee Holder shall take delivery in the form of a Regulation S
Security (subject in each case to Section 305(c)).
(vi) Exchanges between Global Security and Definitive Registered
Security. A Global Security (in whole or part) may be exchanged for one
or more Definitive Registered Securities as provided in Section 305,
provided that, if such Global Security is a Restricted Global Security, or
if such Global Security is a Regulation S Global Security and such
exchange is to occur during the Restricted Period, then such Global
Security shall be exchanged for one or more Restricted Securities (subject
in each case to Section 305(c)). A Definitive Registered Security may be
transferred to the Holder of a Global Security only if (A) such transfer
is effected in accordance with Clause (b)(iii) or (iv) above or (B) such
Security is a Regulation S Security and such transfer occurs after the
Restricted Period.
The Company shall notify the Trustee promptly of the expiration of the
Restricted Period. Such notification shall be in the form of Annex D hereto.
(c) Securities Act Legends. Rule 144A Securities and their Successor
Securities shall bear a Restricted Securities Legend, and Initial Regulation S
Securities and their Successor Securities shall bear a Regulation S Legend,
subject to the following:
(i) subject to the following Clauses of this Section 305(c), a
Security or any portion thereof which is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear the
Securities Act Legend borne by such Global Security while represented
thereby;
(ii) subject to the following Clauses of this Section 305(c), a new
Definitive Registered Security which is issued in exchange for another
Security (including a Global Security) or any portion thereof, upon
transfer or otherwise, shall bear the Securities Act Legend borne by such
other Security, provided that, if such new Definitive Registered Security
is required pursuant to Section 305(b)(v) or (vi) to be issued in the form
of a Restricted Security, it shall bear a Restricted Securities Legend
and, if such new Definitive Registered Security is so required to be
issued in the form of a Regulation S Security, it shall bear a Regulation
S Legend;
(iii) SEC Registered Securities shall not bear a Securities Act
Legend,
(iv) after the applicable Rule 144(k) restricted period, a new
Definitive Registered Security which does not bear a Securities Act Legend
may be issued in exchange for or in lieu of a Definitive Registered
Security or any portion thereof which bears such a legend if the Trustee
has received an Unrestricted Securities Certificate, satisfactory to the
Trustee and duly executed by the Holder of such legended Security or his
attorney duly authorized in writing, and after such date and receipt of
such certificate, the Trustee shall authenticate and deliver such a new
Definitive Registered Security in exchange for or in lieu of such other
Definitive Registered Security as provided in this Article Three,
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(v) a new Definitive Registered Security which does not bear a
Securities Act Legend may be issued in exchange for or in lieu of a
Definitive Registered Security or any portion thereof which bears such a
legend if, in the Company's judgment, placing such a legend upon such new
Security is not necessary to ensure compliance with the registration
requirements of the Securities Act, and the Trustee, at the direction of
the Company, shall authenticate and deliver such a new Security as
provided in this Article Three, and
(vi) notwithstanding the foregoing provisions of this Section 305(c),
a Successor Security of a Security that does not bear a particular form of
Securities Act Legend shall not bear such form of legend unless the
Company has reasonable cause to believe that such Successor Security is a
"restricted security" within the meaning of Rule 144, in which case the
Trustee, at the direction of the Company, shall authenticate and deliver a
new Security bearing a Restricted Securities Legend in exchange for such
Successor Security as provided in this Article Three.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of like tenor and principal amount and bearing a number not
contemporaneously outstanding and the Guarantor shall execute its Guarantee
endorsed thereon.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
the Guarantor and any agent of either of them harmless, then, in the absence of
notice to the Company or the Trustee that such Security has been acquired by a
bona fide purchaser, the Company shall execute and upon its request the Trustee
shall authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount, having endorsed
thereon the Guarantee executed by the Guarantor and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Security and the Guarantee endorsed thereon issued pursuant to
this Section in lieu of any destroyed, lost or stolen Security shall constitute
an original additional contractual obligation of the Company and the Guarantor,
whether or not the destroyed, lost or stolen Security and the Guarantee
endorsed thereon shall be at any time enforceable by anyone, and
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shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid (a) in the case of a
Global Security to its Holder and (b) in the case of a Definitive Registered
Security to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Any interest (including Special Interest) on any Security which is
payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") shall forthwith cease to be
payable to the Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the proposed payment, and at the same
time the Company shall deposit with the Trustee an amount of money equal
to the aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The Trustee
shall promptly notify the Company of such Special Record Date and, in the
name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to
be mailed, first-class postage prepaid, to each Holder at his address as
it appears in the Security Register, not less than 10 days prior to such
Special Record Date. Notice of the proposed
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payment of such Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special Record
Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
In the case of a Definitive Registered Security, prior to due presentment
of such Definitive Registered Security for registration of transfer, the
Company, the Guarantor, the Trustee and any agent of the Company or the Trustee
may treat, to the extent permitted by applicable law, the Person in whose name
such Security is registered as the owner of such Definitive Registered Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Guarantor, the Trustee nor any agent of the Company, the Guarantor or the
Trustee shall be affected by notice to the contrary. In the case of a Global
Security, the Company, the Guarantor, the Trustee and any agent of the Company
or the Trustee may treat its bearer as the owner for all such purposes.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any Offer to Purchase pursuant to
Section 1014 and 1015 shall, if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly cancelled by it.
The Company may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever, and all Securities so delivered
shall be promptly cancelled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities
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cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Securities held by the Trustee shall be returned to
the Company.
SECTION 310. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 311. CUSIP and/or CINS Numbers
The Company in issuing the Securities may use "CUSIP" numbers (if then
generally in use) and, if so, the Trustee shall use "CUSIP" and/or "CINS"
numbers in notices of redemption as a convenience to Holders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Securities or as contained in any notice
of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such redemption shall
not be affected by any defect in or omission of such numbers. The Company will
promptly notify the Trustee of any change in the "CUSIP" and/or "CINS" numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, on demand of and at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 306 and
(ii) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the Trustee
for cancellation
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(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company or the Guarantor, in the case of (i), (ii) or (iii)
above, has deposited or caused to be deposited with the Trustee as
trust funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and
premium, if any) and interest to the date of such deposit (in the
case of Securities which have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be;
(2) the Company or the Guarantor has paid or caused to be paid all
other sums payable hereunder by the Company and the Guarantor; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture pursuant to
this Article Four, the obligations of the Company to the Trustee under Section
607, the obligations of the Trustee to any Authenticating Agent under Section
614 and, if money shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee.
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ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of the principal of (or
premium, if any, on) any Security at its Maturity; or
(2) default in the payment of any interest, including
Special Interest, if any, or Additional Amounts upon any
Security when due and payable, and continuance of such default
for a period of 30 days; or
(3) default, on the applicable Purchase Date, in the
purchase of Securities (including payment of accreted and
unpaid interest and any other amounts payable thereunder)
required to be purchased (or paid) by the Company pursuant to
an Offer to Purchase as to which an Offer has been mailed to
Holders; or
(4) default in the performance, or breach, of Section 801;
or
(5) default in the performance, or breach, of any covenant
or warranty of the Company or the Guarantor in this Indenture
(other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or
breach for a period of 30 days after there has been given, by
registered or certified mail, to the Company or the Guarantor
as the case may be by the Trustee or to the Company or the
Guarantor as the case may be and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Sterling
Securities or Outstanding Dollar Securities a written notice
specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(6) a default or defaults under any bond(s), debenture(s), note(s) or
other evidence(s) of Debt by the Guarantor, the Company or any Significant
Restricted Subsidiary of either or under any mortgage(s), indenture(s) or
instrument(s) under which there may be issued or by which there may be
secured or evidenced any Debt of such type by the Guarantor, the Company
or any Significant Restricted
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Subsidiary of either with a principal amount then outstanding, individually
or in the aggregate, in excess of Pounds Sterling 5 million, whether such
Debt now exists or shall hereafter be created, which default or defaults
shall constitute a failure to pay in excess of Pounds Sterling 5 million of
the principal of such Debt when due and payable after the expiration of any
applicable grace period with respect thereto or shall have resulted in an
aggregate of in excess of Pounds Sterling 5 million in principal amount of
such Debt becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable; or
(7) a final judgment or final judgments for the payment of money are
entered against the Guarantor, the Company or any Significant Restricted
Subsidiary of either in an aggregate amount in excess of Pounds Sterling 5
million by a court or courts of competent jurisdiction, which judgments
remain undischarged or unbonded for a period (during which execution shall
not be effectively stayed) of 60 days after the right to appeal all such
judgments has expired; or
(8) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Guarantor, the Company or any
Significant Restricted Subsidiary of either in an involuntary case or
proceeding under any applicable Insolvency Law or (B) a decree or order
adjudging the Guarantor, the Company or any such Significant Restricted
Subsidiary bankrupt or insolvent under any applicable Insolvency Law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Guarantor, the Company or
any such Significant Restricted Subsidiary or of any substantial part of
the property of the Guarantor, the Company or any such Significant
Restricted Subsidiary, or ordering the winding up or liquidation of the
affairs of the Guarantor, the Company or any such Significant Restricted
Subsidiary, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(9) the commencement by the Guarantor, the Company or any Significant
Restricted Subsidiary of either of a voluntary case or proceeding under
any applicable Insolvency Law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by the Guarantor, the
Company or any such Significant Restricted Subsidiary to the entry of a
decree or order for relief in respect of the Guarantor, the Company or any
Significant Restricted Subsidiary of either in an involuntary case or
proceeding under any applicable Insolvency Law or to the commencement of
any bankruptcy or insolvency case or proceeding against the Guarantor, the
Company or any such Significant Restricted Subsidiary, or the filing by
the Guarantor, the Company or any such Restricted Subsidiary of a petition
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or answer or consent seeking reorganization or relief under any applicable
Insolvency Law, or the consent by the Guarantor, the Company or any such
Significant Restricted Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Guarantor, the
Company or any such Significant Restricted Subsidiary or of any
substantial part of the property of the Guarantor, the Company or any such
Significant Restricted Subsidiary, or the making by the Guarantor, the
Company or any such Significant Restricted Subsidiary of an assignment for
the benefit of creditors, or the admission by the Guarantor, the Company
or any such Significant Restricted Subsidiary in writing of its inability
to pay its debts generally as they become due, or the taking of corporate
action (which shall involve the passing of one or more resolutions of the
Board of Directors or a committee thereof) by the Guarantor, the Company
or any such Significant Restricted Subsidiary in furtherance of any such
action.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Section 501(8) or (9)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in aggregate principal amount
of the Outstanding Sterling Securities or Outstanding Dollar Securities may
declare the principal amount of all such series of Securities to be due and
payable immediately, by a notice in writing to the Company (and to the Trustee
if given by Holders of such series), and upon any such declaration such
principal amount and any accrued interest and any other amounts due thereon
shall become immediately due and payable. If an Event of Default specified in
Section 501(8) or (9) occurs, the principal amount of and any accrued interest
and any other amounts due on the Securities then Outstanding shall ipso facto
become immediately due and payable without any declaration or other Act on the
part of the Trustee or any Holder.
At any time after such a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of such Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company or the Guarantor has paid or deposited with the
Trustee a sum sufficient to pay
(A) all overdue interest on all such Securities,
(B) the principal of (and premium, if any, on) any such
Securities which have become due otherwise than by such
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declaration of acceleration (including any such Securities required
to have been purchased on the Purchase Date pursuant to an Offer to
Purchase made by the Company) and, to the extent that payment of such
interest is lawful, interest thereon at the rate provided by such
Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate provided by such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration
of acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for
a period of 30 days, or
(2) default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof or, with respect to any
Security required to have been purchased pursuant to an Offer to Purchase
made by the Company, at the Purchase Date thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest and any other
amounts due thereon, and, to the extent that payment of such interest shall be
legally enforceable, interest on any overdue principal (and premium, if any)
and on any overdue interest, at the rate provided by such Securities, and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
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If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any judicial proceeding relative to the
Company, the Guarantor (or any other obligor upon the Securities), or the
property of the Company, the Guarantor (or such other obligor) or their
respective creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the Trustee
shall be authorized to collect and receive any moneys or other property payable
or deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
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SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee
under Section 607;
SECOND: To the payment of the amounts then due and unpaid
for principal of (and premium, if any) and interest and any
other amounts due on the Securities in respect of which or for
the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and
premium, if any) and interest and any other amounts due,
respectively; and
THIRD: If applicable, to the Company or the Guarantor as
the case may be.
SECTION 507. Limitation on Suits.
No Holder of any Security of either series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture
or the Guarantees, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount
of the Outstanding Securities of such series shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute
any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
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majority in principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and
Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on, or any other amounts payable under, such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date or, in the case of an Offer to Purchase made
by the Company and required to be accepted as to such Security, on the Purchase
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Guarantor, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
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SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by
law to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
Subject to Section 603(c), the Holders of a majority in principal amount
of the Outstanding Sterling Securities or the Outstanding Dollar Securities
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee affecting such Holders, provided that
(1) such direction shall not be in conflict with any rule
of law or with this Indenture, and
(2) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Sterling Securities or the Outstanding Dollar Securities may on
behalf of the Holders of all Sterling Securities or Dollar Securities,
respectively, waive any past default hereunder and its consequences, except a
default
(1) in the payment of the principal of (or premium, if
any) or interest or any other amount due on any such Security
(including any Security which is required to have been
purchased pursuant to an Offer to Purchase which has been made
by the Company), or
(2) in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the
consent of the Holder of each such Outstanding Security
affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
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SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, a court may require any party litigant in such suit
to file an undertaking to pay the costs of such suit, and may assess costs
against any such party litigant, in the manner and to the extent provided in
the Trust Indenture Act; provided, that neither this Section nor the Trust
Indenture Act shall be deemed to authorize any court to require such an
undertaking or to make such an assessment in any suit instituted by the
Company, the Guarantor, the Trustee, any Holder or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or any Holder for the enforcement of the payment of the principal of (or
premium, if any) or interest or any other amount due on any Security on or
after the respective Stated Maturities expressed in such Security (or in the
case of redemption, on or after the Redemption, on or after the Redemption Date
or in the case of an Offer to Purchase made by the Company and required to be
accepted as to such Security, on the Purchase Date).
SECTION 515. Waiver of Stay or Extension Laws.
The Company and the Guarantor each covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and the Company
and the Guarantor each (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 516. No Personal Liability of Directors, Employees and Shareholders.
No director, officer, employee, incorporator or shareholder of the Company
or the Guarantor shall have any liability as such for any obligations of the
Company under the Securities, the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder
of the Securities by accepting a Security waives and releases all such
liability; provided that such waiver will not release any person from liability
for fraud or criminal acts. The waiver and release are part of the
consideration for issuance of the Securities.
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ARTICLE SIX
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities.
(a) The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the foregoing, no
provision of this Indenture shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate security or indemnity against
such risk or liability is not reasonably assured to it. Whether or not
therein expressly so provided, every provision of this Indenture relating
to the conduct or affecting the liability of or affording protection to
the Trustee shall be subject to the provisions of this Section.
(b) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no
implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such
certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts.
(d) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the
direction of the Holders of a majority in principal amount of the
Outstanding Sterling Securities or Outstanding Dollar Securities
determined as provided in Sections 101, 104 and 512, relating to the time,
method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Securities of such series.
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SECTION 602. Notice of Defaults.
Within 45 days after a Responsible Officer in the Corporate Trust office
of the Trustee has been notified of the occurrence of any default hereunder,
the Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Security Register, and to the Holder of any Global Security
notice of such default hereunder unless such default shall have been cured or
waived; provided, however, that in the case of any default of the character
specified in Section 501(5), no such notice to Holders shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section,
the term "default" means any event which is, or after notice or lapse of time
or both would become, an Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or
other paper or document (whether in its original or facsimile form)
believed by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) any request or direction of the Company or the Guarantor
mentioned herein shall be sufficiently evidenced by a Company
Request or Guarantor Request or Company Order or Guarantor Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
(d) the Trustee may consult with counsel of its selection and
the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and
in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or
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indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney;
and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company
or the Guarantor, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company or the Guarantor, in its individual
or any other capacity, may become the owner or pledgee of Securities and,
subject to Sections 608 and 613, may otherwise deal with the Company or the
Guarantor with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
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SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation as shall have been agreed upon in writing for all
services rendered by it hereunder (which compensation shall not
be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except
any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate
and indemnify the Trustee and any predecessor Trustee and to pay or
reimburse the Trustee and any predecessor Trustee for expenses,
disbursements and advances shall survive the payment of the
Securities, resignation or removal of the Trustee and satisfaction,
discharge or other termination of this Indenture.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(8) or
Section 501(9), the expenses (including the reasonable charges and
expenses of its counsel) and the compensation for the services are
intended to constitute expenses of administration under any
applicable Federal or state bankruptcy, insolvency or other similar
law.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and this Indenture.
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SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person
that is eligible pursuant to the Trust Indenture Act to act as such and has a
combined capital and surplus of at least $50,000,000 and its Corporate Trust
Office in the Borough of Manhattan, The City of New York. If such Person
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Person shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. If at any time the Trustee shall cease to be
eligible in accordance with the provisions of this Section, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof to
the Company and the Guarantor. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Sterling Securities or
Outstanding Dollar Securities, delivered to the Trustee and to the Company and
the Guarantor. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the removed Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608
after written request therefor by the Company, the Guarantor or
by any Holder who has been a bona fide Holder of a Security for
at least six months, or
(2) the Trustee shall cease to be eligible under Section
609 and shall fail to resign after written request therefor by
the Company, the Guarantor or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or
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control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee.
If, within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to all Holders in the
manner provided in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Company, the Guarantor and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company, the Guarantor or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such retiring Trustee hereunder. Upon request
of any such successor Trustee, the Company and the Guarantor shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company or Guarantor.
If and when the Trustee shall be or become a creditor of the Company or
the Guarantor (or any other obligor upon the Securities), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection
of claims against the Company or the Guarantor (or any such other obligor).
SECTION 614. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents which shall be
authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer or partial
redemption or pursuant to Section 306, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory
for all purposes as if authenticated by the Trustee hereunder. Wherever
reference is made in this Indenture to the authentication and delivery of
Securities by the Trustee or the Trustee's certificate of authentication, such
reference shall be deemed to include authentication and delivery on behalf of
the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and the Guarantor and
shall at all times be a corporation organized and doing business under the laws
of the United States of America, any State thereof or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating
Agent shall cease to be eligible in accordance with the provisions of this
Section, such Authenticating Agent shall resign immediately in the manner and
with the effect specified in this Section.
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Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company and the Guarantor. The Trustee may
at any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Company and the
Guarantor. Upon receiving such a notice of resignation or upon such a
termination, or in case at any time such Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, the Trustee may
appoint a successor Authenticating Agent which shall be acceptable to the
Company and the Guarantor and shall mail written notice of such appointment by
first-class mail, postage prepaid, to all Holders as their names and addresses
appear in the Security Register. Any successor Authenticating Agent upon
acceptance of its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with like effect as if
originally named as an Authenticating Agent. No successor Authenticating Agent
shall be appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 607.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in the following
form:
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This is one of the Securities described in the within-mentioned Indenture.
Dated:
The Bank of New York,
---------------------
As Trustee
By_________________________,
As Authenticating Agent
By___________________________
Authorized Signatory
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after each
January 15, and July 15, commencing July 15, 1998, a list, in
such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such date, and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any
such request, a list of similar form and content as of a date
not more than 15 days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
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SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities or the Guarantees
and the corresponding rights and duties of the Trustee, shall be as provided by
the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company, the Guarantor and the Trustee that none of the Company, the
Guarantor nor the Trustee nor any agent of either of them shall be held
accountable by reason of any disclosure of information as to the names and
addresses of Holders made pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to the
Trust Indenture Act at the times and in the manner provided pursuant thereto
which report shall be as of May 1 and be provided on or before July 1 of each
year.
(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed, with the Commission and with the Company and the
Guarantor. The Company will notify the Trustee when the Securities are listed
on any stock exchange.
SECTION 704. Reports by Company.
The Company shall deliver to the Trustee and file with the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at
the times and in the manner provided pursuant to such Act; provided that any
such information, documents or reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act shall be delivered to the
Trustee within 15 days after the same is so required to be filed with the
Commission. Delivery of such reports, information and documents to the Trustee
is for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
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SECTION 705. Registration Rights.
The Trustee shall maintain copies of the Registration Rights Agreement
available for inspection by Holders of Securities during normal business hours
at its Corporate Trust Office and for as long as there are Registrable
Securities (as defined in the Registration Rights Agreement) outstanding.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company and Guarantor May Consolidate, Etc. Only on Certain Terms.
Neither the Company nor the Guarantor shall, in a single transaction or
through a series of related transactions (a) consolidate with or merge into any
other Person; (b) permit any other Person to consolidate with or merge into the
Company or the Guarantor, as the case may be; (c) directly or indirectly,
transfer, assign, convey, sell, lease or otherwise dispose of all or
substantially all of its properties and assets as an entirety; or (d) permit
any Subsidiary of the Company or the Guarantor, as the case may be, to enter
into any such transaction or transactions if such transaction or transactions,
in the aggregate, would result in a sale, assignment, transfer, lease or
disposal of all or substantially all of the properties and assets of the
Guarantor and its Subsidiaries or the Company and its Subsidiaries, as the case
may be, on a consolidated basis to any other Person or group of affiliated
Persons, unless, in any such transaction:
(1) immediately before and after giving effect to such
transaction and treating any Debt Incurred by and Disqualified
Equity which becomes an obligation of the Guarantor or the
Company or a Subsidiary of either as a result of such
transaction as having been Incurred or issued as applicable by
the Guarantor or the Company or such Subsidiary at the time of
such transaction, no Event of Default, and no event that, after
notice or lapse of time, or both, would become an Event of
Default, shall have occurred and be continuing;
(2) in the event the Company or the Guarantor shall consolidate with
or merge into another Person or shall directly or indirectly transfer,
assign, convey, sell, lease or otherwise dispose of all or substantially
all of its properties and assets as an entirety, the Person formed by such
consolidation or into which the Company or the Guarantor is merged or the
Person which acquires by transfer, assignment, conveyance, sale, lease or
other disposition all or substantially all of the properties and assets of
the Company or the Guarantor as an entirety (for purposes of this Article
Eight, a "Successor Person") shall be a corporation, partnership or trust,
shall
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be organized and validly existing under the laws of England and Wales
or of the United States of America, any State thereof or the District of
Columbia and shall expressly assume by an indenture supplemental hereto
executed and delivered to the Trustee, in form satisfactory to the
Trustee, in the case of the Company, the due and punctual payment of the
principal of (and premium, if any) and interest (including Special
Interest, if any) and Additional Amounts, if any, on all the Securities
and in the case of the Guarantor all of its obligations under the
Guarantees and in each case the performance of every covenant of this
Indenture on the part of the Company or the Guarantor, as the case may be,
to be performed or observed;
(3) the Company or the Successor Company will have an Annualized
Consolidated Debt to Cash Flow Ratio for the quarter next preceding such
transaction for which quarterly financial statements are available
(determined on a pro forma basis as if such transaction had taken place at
the beginning of such quarter) equal to or less than the Annualized
Consolidated Debt to Cash Flow Ratio of the Company without giving effect
to the proposed transaction; provided further, that if the Annualized
Consolidated Debt to Cash Flow Ratio of the Company immediately preceding
such transaction is 7.0:1 or less, then the Annualized Consolidated Debt
to Cash Flow Ratio of the Company or the Successor Company after giving
pro forma effect to such transaction may be up to 0.5:1 greater than such
ratio immediately preceding such transaction;
(4) if, as a result of any such transaction, property and assets of
the Company or any Subsidiary of the Company would become subject to a
Lien which would not be permitted by Section 1011, the Company or, if
applicable, the Successor Company, as the case may be, shall take such
steps as shall be necessary effectively to secure the Securities equally
and ratably with (or prior to) Debt secured by such Lien;
(5) such transaction would not result in the loss of a Material
License determined on a pro forma basis after giving effect to such
transaction; and
(6) the Company or the Guarantor, as the case may, be has delivered
to the Trustee an Officer's Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, transfer, lease or
acquisition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture, complies with this
Article and that all conditions precedent herein provided for relating to
such transaction have been complied with, and, with respect to such
Officer's Certificate, and to the extent
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relevant setting forth the manner of determination of the ability to
Incur Debt or issue Disqualified Equity in accordance with Clause (3) of
this Section (including the calculation of the Annualized Consolidated
Debt to Cash Flow Ratio) of the Company or, if applicable, of the
Successor Company as required pursuant to the foregoing.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company or the Guarantor with, or merger of
the Company or the Guarantor into, any other Person or any transfer,
conveyance, sale, lease or other disposition of all or substantially all of the
properties and assets of the Company or the Guarantor as an entirety in
accordance with Section 801, the Successor Person shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or the
Guarantor, as the case may be, under this Indenture with the same effect as if
such Successor Person had been named as the Company or the Guarantor, as the
case may be, herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under
this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company or the Guarantor, in
either case when authorized by a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
herein and in the Securities or to evidence the succession of another
Person to the Guarantor and the assumption by such successor of the
obligations of the Guarantor under the Guarantees and of the covenants of
the Guarantor hereunder; or
(2) to add to the covenants of the Company or the Guarantor for the
benefit of the Holders, or to surrender any right or power herein
conferred upon the Company or the Guarantor; or
(3) to secure the Securities pursuant to the requirements of Section
1011 or otherwise; or
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(4) to comply with any requirements of the Commission in order to
effect and maintain the qualification of this Indenture under the Trust
Indenture Act; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions
of this Indenture, provided such action pursuant to this Clause (5) shall
not adversely affect the interests of the Holders in any material respect;
or
(6) to modify the restrictions on and procedures for resales and
other transfers of this Security to reflect any change in applicable law
or regulation (or the interpretation thereof) or in practices relating to
the resale or transfer of restricted securities generally.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Sterling Securities and Outstanding Dollar Securities
affected by such supplemental indenture, by Act of said Holders delivered to
the Company, the Guarantor and the Trustee, the Company or the Guarantor, in
each case when authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of such
series under this Indenture; provided, however, that no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(1) change the Stated Maturity of the principal of, or any
installment of interest (including Special Interest) or Additional Amounts
on, any Security, or reduce the principal amount thereof or the rate of
interest (including Special Interest) thereon or Additional Amounts or any
premium payable thereon, or change the place of payment where, or the coin
or currency in which, any Security or any premium or the interest
(including Special Interest, if any) thereon or Additional Amounts is
payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date or, in the case of an Offer to
Purchase which has been made, on or after the applicable Purchase Date),
or
(2) modify the Guarantor's guarantee of the payment of principal of
(and premium, if any) and interest and any other amounts
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due on the Securities (except as contemplated by Section 802 and
permitted by Section 901(1), or
(3) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(4) modify any of the provisions of this Section, Section 513 or
Section 1020, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby, or
(5) following the mailing of an Offer with respect to an Offer to
Purchase pursuant to Section 1014 or 1015, modify the provisions of this
Indenture with respect to such Offer to Purchase in a manner adverse to
such Holder.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 601) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental indenture
is authorized or permitted by this Indenture. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
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Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company and the Guarantor
shall so determine, new Securities so modified as to conform, in the opinion of
the Trustee and the Company and the Guarantor, to any such supplemental
indenture may be prepared and executed by the Company and the Guarantor and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium and Interest.
The Company will duly and punctually pay the principal of (and premium, if
any) and interest and any other amounts due on the Securities in accordance
with the terms of the Securities and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The City of New
York, in London, England, and in Luxembourg an office or agency where
Securities may be presented or surrendered for payment, where Securities may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company or the Guarantor in respect of the Securities,
the Guarantees and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and demands may be
made or served at the Corporate Trust Office of the Trustee, and the Company
and the Guarantor each hereby appoint the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies (in or outside the Borough of Manhattan, The City of New York,
London, England and in Luxembourg) where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain
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an office or agency in the Borough of Manhattan, The City of New York, London,
England and in Luxembourg for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby appoints the Trustee as Paying Agent under this
Indenture, and the Trustee hereby accepts this appointment.
SECTION 1003. Money for Security Payments to be Held in Trust.
If the Company or the Guarantor shall at any time act as its own Paying
Agent, it will, on or before each due date of the principal of (and premium, if
any) or interest or any other amounts due on any of the Securities, segregate
and hold in trust for the benefit of the Persons entitled thereto a sum
sufficient to pay the principal (and premium, if any) or interest or any other
amounts due so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to each due date of the principal of (and premium, if any) or interest or any
other amounts due on any Securities, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest or any other
amounts due so becoming due, such sum to be held in trust for the benefit of
the Persons entitled to such principal, premium or interest or any other
amounts due, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section, that such Paying
Agent will (1) comply with the provisions of the Trust Indenture Act applicable
to it as a Paying Agent and (2) during the continuance of any default by the
Company or the Guarantor (or any other obligor upon the Securities) in the
making of any payment in respect of the Securities, upon the written request of
the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying
Agent for payment in respect of the Securities.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company or the Guarantor, in trust for the payment of the principal of (and
premium, if any) or interest or any other amounts due on any Security and
remaining unclaimed for two years
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after such principal (and premium, if any) or interest or any other
amounts due has become due and payable shall be paid to the Company on Company
Request, or (if then held by the Company or the Guarantor) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company or the Guarantor for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in The City of New York, notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such publication, any unclaimed balance of such money then
remaining will be repaid to the Company.
SECTION 1004. Existence.
Subject to Article Eight and Section 1015, each of the Company and the
Guarantor will use all reasonable best efforts to do or cause to be done all
things necessary to preserve and keep in full force and effect its existence,
rights (charter and statutory); provided, however, that each of the Company and
the Guarantor shall not be required to preserve any such right if its
respective Board of Directors in good faith shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company or the Guarantor and that the loss thereof is not disadvantageous
in any material respect to the Holders.
SECTION 1005. Maintenance of Properties.
The Company will use all reasonable best efforts to cause all properties
used or useful in the conduct of its business or the business of any Subsidiary
of the Company to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company or the Guarantor from discontinuing the operation or
maintenance of any of such properties if such discontinuance is, as determined
by the Board of Directors in good faith, desirable in the conduct of its
business or the business of any Subsidiary and not materially disadvantageous
to the Holders.
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SECTION 1006. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (1) all taxes, assessments and
governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (2) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien upon the property of the Company
or any of its Subsidiaries; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1007. Maintenance of Insurance.
The Company shall, and shall cause its Subsidiaries to, keep insurance
with insurers believed by the Company to be responsible of such type and in
such amounts as the Company reasonably believes are customary in the United
Kingdom for similar companies; provided, however, that the Company shall be
under no obligation to insure the underground portion of its cable network.
SECTION 1008. Limitation on Consolidated Debt and Disqualified Equity.
The Company shall not, and shall not permit any Restricted Subsidiary to,
Incur any Debt or issue any Disqualified Equity unless, immediately after
giving effect to the Incurrence of such Debt or the issuance of such
Disqualified Equity and the receipt and application of the proceeds thereof,
the Annualized Consolidated Debt to Cash Flow Ratio of the Restricted Group for
the quarter next preceding the Incurrence of such Debt or the issuance of such
Disqualified Equity, as the case may be, for which quarterly financial
statements are available, calculated on a pro forma basis (as if such Debt had
been Incurred or such Disqualified Equity had been issued at the beginning of
such quarter) would be less than 7.0 to 1.
Notwithstanding the foregoing paragraph, the Company may, and may permit
any Restricted Subsidiary to, Incur the following Debt or issue the following
Disqualified Equity:
(i) Debt of the Company and/or any Restricted Subsidiary
outstanding on the date of the Indenture;
(ii) Debt or Disqualified Equity to the extent that the
proceeds are used to finance working capital, or the construction
of, or the acquisition of, property or assets in each case to be
used in a Cable Business;
(iii) Debt Incurred or Disqualified Equity issued to finance a
Cable Acquisition or to provide working capital for or financing for
the construction of property or assets to be used in the business so
acquired;
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(iv) Debt consisting of Interest Rate Protection Obligations or
Currency Hedging Agreements;
(v) performance bonds or surety bonds or similar instruments
provided in the ordinary course of business;
(vi) Debt owed by the Company to any Wholly Owned Restricted
Subsidiary (so long as such Debt is held by a Wholly Owned
Restricted Subsidiary) or Debt owed by or Disqualified Equity issued
by a Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary of the Company (provided that such Debt or
Disqualified Equity is at all times held by the Company or a Wholly
Owned Restricted Subsidiary); provided, however, that upon either
(a) the transfer or other disposition by such Wholly Owned
Restricted Subsidiary or the Company of any such Debt or
Disqualified Equity to a Person other than the Company or
another Wholly Owned Restricted Subsidiary, or
(b) the issuance, sale, lease, transfer or other disposition
of Equity Securities (including by consolidation or merger) of
such Wholly Owned Restricted Subsidiary to a Person other than
the Company or another such Wholly Owned Restricted
Subsidiary, such Debt shall be deemed to have been incurred or
such Disqualified Equity shall be deemed to have been issued at
the time of such transfer or other disposition;
(vii) Debt incurred or Disqualified Equity issued to renew,
extend, refinance or refund any Debt or Disqualified Equity
permitted in Clauses (i) through (iii) above, or the Securities (in
the event that the Securities are redeemed in part), in an amount
not to exceed the outstanding principal amount (or, if less,
Accreted Value) of the Debt or the aggregate liquidation preference
of the Disqualified Equity so refinanced plus the amount of any
premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt or Disqualified Equity refinanced
or the amount of any premium reasonably determined by the Company to
be necessary to accomplish such refinancing by means of a tender
offer or privately negotiated repurchase plus the expenses of the
Company Incurred in connection with such refinancing; provided that
(a) in the case of any refinancing or refunding of Debt which is
pari passu to the Securities, the refinancing or refunding Debt is
made pari passu to the Securities or subordinated to the Securities,
and, in the case of any refinancing or refunding of Debt which is
subordinated to the Securities or of Disqualified Equity, the
refinancing or refunding Debt is subordinated to the Securities to
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the same extent as the Debt being refinanced or refunded or is
Disqualified Equity; and
(b) in either case, the refinancing or refunding Debt or
Disqualified Equity by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt or
Disqualified Equity is Incurred or issued, as the case may be,
does not have a Weighted Average Life that is lower than that
of the Debt or Disqualified Equity being refinanced or
refunded; and
(viii) Debt or Disqualified Equity not otherwise permitted to
be Incurred or issued under Clauses (i) through (vii) above, which,
together with any other outstanding Debt Incurred or Disqualified
Equity issued pursuant to this Clause (viii), has an aggregate
principal amount (or liquidation preference) not in excess of L.20
million at any time outstanding.
SECTION 1009. Limitation on Restricted Payments.
The Company (i) shall not, directly or indirectly, declare or pay any
dividend, or make any distribution, of any kind or character (whether in cash,
property or securities or otherwise) in respect of any class of its Equity
Securities or to the holders of any class of its Equity Securities (including
pursuant to a merger or consolidation of the Company, but excluding any
dividends or distributions payable solely in its Equity Securities (other than
Disqualified Equity) or in options, warrants or other rights to acquire its
Equity Securities (other than Disqualified Equity), (ii) shall not, and shall
not permit any Restricted Subsidiary of the Company, directly or indirectly, to
purchase, redeem or otherwise acquire or retire for value (a) any Equity
Securities of the Company or any Related Person of the Company or (b) any
options, warrants or rights to purchase or acquire shares of Equity Securities
of the Company or any Related Person of the Company (except options, warrants
or rights to purchase or acquire such Equity Securities held by any officer or
director or former officer or director of the Company or ECE Management
International (or any of its predecessors) in an aggregate amount not exceeding
L.5 million), (iii) shall not make, or permit any Restricted Subsidiary of the
Company to make any Investment in, or Incur an obligation to guarantee any
obligation of, any Affiliate or Related Person of the Company, other than the
Company or a Restricted Subsidiary that is a Wholly Owned Subsidiary of the
Company which is a Wholly Owned Subsidiary prior to such investment and (iv)
shall not, and shall not permit any Restricted Subsidiary of the Company to,
redeem, defease (including, but not limited to, legal or covenant defeasance),
repurchase or otherwise retire or acquire for value prior to any scheduled
maturity, repayment or sinking fund payment, Debt of the Company which
explicitly by its terms is subordinate in right of payment to the Securities
(the transactions described in Clauses (i) through (iv) being referred to
herein as "Restricted Payments"), if:
(1) at the time thereof and after giving effect thereto an Event of
Default, or an event that with notice or lapse of time, or both, would
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constitute an Event of Default, shall have occurred and be
continuing, or
(2) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments from the date of the Indenture exceeds the sum of
(a) the difference between (x) the cumulative Consolidated
Operating Cash Flow of the Company from the first day of the fiscal
quarter in which the issue date of the Securities falls through the
last day of the last full fiscal quarter immediately preceding such
Restricted Payment for which quarterly financial statements are
available, and (y) 150% of cumulative Consolidated Interest Expense
of the Company from the first day of the fiscal quarter in which the
issue date of the Securities falls through the last day of the last
full fiscal quarter immediately preceding such Restricted Payment for
which quarterly or annual financial statements of the Company are
available; and
(b) 100% of the aggregate net cash proceeds after the issue date of
the Securities, from the issuance of Equity Securities (other than
Disqualified Equity) of the Company and options, warrants or other
rights on Equity Securities (other than Disqualified Equity) of the
Company (other than to a Restricted Subsidiary) after the issue date
of the Securities. The foregoing provision shall not be violated by
reason of
(i) the payment by the Company of any cash dividends in
any year in amounts up to the sum of (1) the cash interest
payable by the Guarantor on the Outstanding Discount Notes and
(2) L.5 million;
(ii) the payment of any dividend within 60 days after
declaration thereof if at the declaration date such payment
would have complied with the foregoing provision;
(iii) any refinancing or refunding of any Debt otherwise
permitted under clause (vii) of Section 1008;
(iv) investments by the Guarantor or any Restricted
Subsidiary in an amount not to exceed in the aggregate L.10
million in a Person which is engaged in a Cable Business or a
business incidental thereto; and
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(v) investments in Non-Restricted Subsidiaries made with
the proceeds of a substantially concurrent (1) capital
contribution to the Guarantor or (2) issue or sale of Equity
Securities (other than Disqualified Equity) of the Guarantor.
SECTION 1010. Limitations Concerning Distributions by and Transfers to
Restricted Group.
The Company shall not, and shall not permit any Restricted Subsidiary to,
suffer to exist any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary (i) to pay, directly or indirectly, dividends or make any
other distributions in respect of its Equity Securities or pay any Debt or
other obligation owed to any member of the Restricted Group; (ii) to make loans
or advances to any member of the Restricted Group; or (iii) to transfer any of
its property or assets to any member of the Restricted Group.
Notwithstanding the foregoing, the Company may, and may permit any
Subsidiary to, suffer to exist any such encumbrance or restriction on the
ability of any Subsidiary of the Company if and to the extent such encumbrance
or restriction exists on the date of the Indenture or:
(a) existed prior to the time any Person became a Subsidiary of
the Company and such restriction or encumbrance was not incurred in
anticipation of such Person becoming a Subsidiary of the Company;
(b) exists by reason of a customary merger or acquisition
agreement for the purchase or acquisition of the stock or assets of
the Company or any of its Restricted Subsidiaries by another Person;
(c) is contained in an operating lease for real property and is
effective only upon the occurrence and during the continuance of a
default in the payment of rent;
(d) is the result of applicable corporate law or regulation
relating to the payment of dividends or distributions;
(e) is pursuant to an agreement pursuant to which Debt meeting
the requirements of clauses (ii), (iii), (iv) or (vii) of the
second paragraph of Section 1008 is Incurred provided, however, that
the provisions contained in such agreement relating to such
encumbrance or restriction are no more restrictive than those
contained in the terms of the Senior Bank Facility as in effect
immediately prior to Time of Delivery, as
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that Term is defined in the Purchase Agreement (it being
understood that such restrictions may apply to Restricted
Subsidiaries other than those provided in the Senior Bank Facility
as in effect immediately prior to Time of Delivery, as that Term is
defined in the Purchase Agreement); or
(f) is pursuant to an agreement effecting a renewal, extension,
refinancing or refunding of Debt Incurred pursuant to an agreement
referred to in clause (a) or (e) above; provided, however, that the
provisions contained in such agreement relating to such encumbrance
or restriction are no more restrictive than the provisions contained
in the agreement the subject thereof, as determined in good faith by
the Board of Directors and evidenced by a Board Resolution.
SECTION 1011. Limitation on Liens.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, Incur or suffer to exist any Lien upon any of its property
or assets, now owned or hereinafter acquired, to secure any Debt without
making, or causing such Subsidiary to make, effective provision for securing
the Securities (and, if the Company shall so determine, any other Debt of the
Company which is not subordinate to the Securities) (x) equally and ratably
with such Debt as to such property and assets for so long as such Debt shall be
so secured or (y) in the event such Debt is subordinate in right of payment to
the Securities, prior to such Debt as to such property and assets for so long
as such Debt shall be so secured.
The foregoing restrictions will not apply to Liens in respect of Debt
existing at the date of this Indenture or to:
(i) Liens securing only the Securities;
(ii) Liens in favor of the Company or any Wholly Owned Restricted
Subsidiary;
(iii) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company (and not incurred in anticipation of such merger
or consolidation) which Liens shall not extend to any other property of
the Company or any Restricted Subsidiary;
(iv) Liens on property existing immediately prior to the time of
acquisition thereof (and not in anticipation of the financing of such
acquisition);
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(v) Liens to secure Debt Incurred under the provisions described in
clauses (ii), (iii), (iv) or (vii) of the second paragraph of Section
1008;
(vi) Liens for taxes or assessments or other governmental charges or
levies which are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and for which a reserve or
other appropriate provision, if any, as shall be required in accordance
with generally accepted accounting principles shall have been made;
(vii) Liens to secure obligations under workmen's compensation laws
or similar legislation, including Liens with respect to judgments which
are not currently dischargeable; and
(viii) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or refundings),
in whole or in part, Debt secured by any Lien referred to in the foregoing
Clauses (i) to (vii) so long as such Lien does not extend to any other
property.
(b) In addition to the foregoing, the Company and its Restricted
Subsidiaries may incur and suffer to exist a Lien to secure any Debt or enter
into a Sale and Leaseback Transaction, without equally and ratably securing the
Securities, if the sum of (i) the amount of Debt secured by a Lien entered into
after the date of the Indenture and otherwise prohibited by the Indenture and
(ii) the Attributable Value of all Sale and Leaseback Transactions entered into
after the date of the Indenture and otherwise prohibited by the Indenture does
not exceed 5% of the Company's Consolidated Tangible Assets.
SECTION 1012. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any Restricted Subsidiary of
the Company to, enter into any Sale and Leaseback Transaction unless:
(i) the Company or such Restricted Subsidiary would be entitled to
incur a Lien to secure Debt in an amount at least equal to the
Attributable Value of such Sale and Leaseback Transaction pursuant to the
provisions of Section 1011(b) and the terms of such transaction have been
approved by the Board of Directors as evidenced by a Board Resolution; or
(ii) all of the conditions set forth in Section 1014 of this
Indenture (including the provisions concerning the application of Net
Available Proceeds) would be satisfied with respect to such Sale and
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Leaseback Transaction if all of the consideration received in such
Sale and Leaseback Transaction were treated as Net Available Proceeds.
SECTION 1013. Limitation on Transactions with Affiliates and Related Persons.
(a) Except as permitted by the following paragraph, the Company shall not,
and shall not permit any Restricted Subsidiary of the Company to, enter into
any transaction (including, without limitation, the purchase, sale, lease or
exchange of property, the rendering of any service or the making of any
Investment) or conduct any business, with any Affiliate or Related Person of
the Company, unless such transaction is effected or such business is conducted
on terms that, in the Company's good faith judgment, are at least as favorable
to the Company or such Subsidiary as those that could be obtained in a
comparable arm's length transaction with a Person that is not such an Affiliate
or a Related Person. Any such transaction (or series of related transactions)
in which such Affiliate or Related Person receives in excess of L.1.0 million
in any twelve-month period shall be approved as being in the Company's best
interest by a majority of the disinterested directors of the Board of Directors
as evidenced by a Board Resolution. Any such transaction involving in excess
of L.5.0 million (or series of related transactions involving in excess of
L.5.0 million), or as to which there are no disinterested directors, is subject
to the further requirement that the Company shall obtain an opinion of an
internationally recognized expert with experience in appraising the terms and
conditions of the relevant type of transaction (or series of related
transactions) stating that the transaction or series of related transactions is
fair (from a financial point of view) to the Company or such Restricted
Subsidiary, as the case may be.
(b) The requirements of the preceding paragraph shall not be applicable to
(i) any transaction among the Company and any of its Wholly Owned Subsidiaries;
(ii) any existing management agreement with ECE Management International, LLC,
a limited liability company organized under the laws of the State of Indiana,
or any successor or assign, or any other management agreement which has
substantially similar terms; or (iii) any transaction in which investment
banking or other financial advisory services are provided to the Company or any
Subsidiary by Goldman, Sachs & Co. or any of its Affiliates that is, in the
Company's good faith judgment, on arm's length terms.
SECTION 1014. Limitation on Certain Asset Dispositions.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Disposition in one or more related transactions unless
(i) the Company (or such Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Disposition at least
equal to the fair market value of the shares or assets sold or otherwise
disposed of, and
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(ii) at least 90% of the consideration for such disposition consists of
cash or Cash Equivalents.
To the extent the Net Available Proceeds of any Asset Disposition are not
required to be applied to repay amounts outstanding under any Debt of a
Restricted Subsidiary, or are not so applied, the Company or such Restricted
Subsidiary, as the case may be, may apply such Net Available Proceeds within
365 days of the receipt thereof, to an investment in properties and assets that
will be used in a Cable Business (or in Equity Securities of any such Person
that will become a Restricted Subsidiary as a result of such investment to the
extent that such Person owns properties and assets that will be used in a Cable
Business) of the Company or any Restricted Subsidiary ("Replacement Assets").
Notwithstanding the foregoing, the Company may retain the Net Available
Proceeds from any Asset Disposition the Net Available Proceeds of which do not
exceed L.1.0 million for any purpose. Any Net Available Proceeds from any Asset
Disposition that are neither used to repay amounts outstanding under any Debt
of a Restricted Subsidiary nor invested in Replacement Assets within such
365-day period (exclusive of the up to L.1.0 million referred to in the
preceding sentence) shall constitute "Excess Proceeds" subject to the
provisions described in the following paragraph.
(b) When the aggregate amount of Excess Proceeds equals or exceeds L.10.0
million, the Company shall make within 30 days of the determination thereof an
Offer to Purchase to all Holders of the Securities with Purchase Amounts equal
to such Excess Proceeds at a Purchase Price in cash equal to 100% of the
outstanding principal amount thereof plus accrued and unpaid interest, if any,
and any other amounts payable thereon, to the Purchase Date. To the extent that
the amounts payable in respect of Securities tendered pursuant to such Offer to
Purchase are less than the Excess Proceeds, the Company may use such deficiency
for any purpose. If the aggregate principal amount of Securities validly
tendered and not withdrawn by holders thereof exceeds the amount of Securities
which can be purchased with the Excess Proceeds, Securities to be purchased
will be selected on a pro rata basis, and Sterling Senior Notes on the one hand
and Dollar Senior Notes on the other hand will be prorated on the basis of an
exchange rate prevailing at the commencement of the Offer to Purchase as
determined by the Trustee.
The Company shall not be entitled to any credit against its obligations
under this Section 1014 for the principal amount of any Securities acquired by
the Company otherwise than pursuant to the Offer to Purchase pursuant to this
Section 1014.
(c) Not later than the date of the Offer with respect to an Offer to
Purchase pursuant to this Section 1014, the Company shall deliver to the
Trustee an Officers' Certificate as to (i) the Purchase Amount, (ii) the
allocation of the Net Available Proceeds from the Asset Disposition pursuant to
which such Offer is being made, including, if amounts are invested in property
or assets related to a Cable Business, the actual assets acquired and a
statement as to the necessity of such assets for the maintenance of such
business and (iii) the compliance of such allocation with the provisions of
paragraph (a).
The Company and the Trustee shall perform their respective obligations
specified in the Offer for the Offer to Purchase. On or prior to the Purchase
Date, the Company shall
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(i) accept for payment (on a pro rata basis, if necessary) Securities or
portions thereof tendered pursuant to the Offer, (ii) deposit with the paying
agent (or, if the Company is acting as its own paying agent, segregate and hold
in trust as provided in Section 1003) money sufficient to pay the purchase
price of all Securities or portions thereof so accepted and (iii) deliver or
cause to be delivered to the Trustee all Securities so accepted together with
an Officers' Certificate stating the Securities or portions thereof accepted
for payment by the Company. The paying agent (or the Company, if so acting)
shall promptly mail or deliver to Holders of Securities so accepted payment in
an amount equal to the purchase price, and the Trustee shall (x) in the case of
Definitive Registered Securities, promptly authenticate and mail or deliver to
Holders of such Definitive Registered Securities a new Definitive Registered
Security equal in principal amount to any unpurchased portion of the Security
surrendered and (y) in the case of a Global Security, return the Global
Security indicating in Schedule A thereof the reduction in principal amount.
Any Security not accepted for payment shall be promptly mailed or delivered by
the Company to the Holder thereof. The Company shall publicly announce the
results of the Offer on or as soon as practicable after the Purchase Date.
(d) Notwithstanding the foregoing, the Company and the Restricted
Subsidiaries will be permitted to consummate an Asset Disposition without
complying with the foregoing provisions of this Section 1014 to the extent (i)
at least 90% of the consideration for such Asset Disposition constitutes
Replacement Assets (or Equity Securities of any such Person that will become a
Restricted Subsidiary as a result of such transaction to the extent that such
Person owns properties and assets that will be used in a Cable Business) and
(ii) such Asset Disposition is for fair market value; provided that any
consideration not constituting Replacement Assets or Equity Securities as
described in Clause (i) received by the Company or any Restricted Subsidiaries
in connection with any Asset Disposition permitted to be consummated under this
paragraph shall constitute Net Available Proceeds subject to the foregoing
provisions of this Section 1014.
(e) For purposes of this Section 1014, the fair market value of shares or
assets disposed of in an Asset Disposition shall be as determined in good faith
by (x) a designated officer of the Company and evidenced by an Officer's
Certificate if such consideration is less than L.10 million and (y) the Board
of Directors and evidenced by a Board Resolution if such consideration is
greater than or equal to L.10 million.
(f) Notwithstanding the foregoing, this Section 1014 shall not apply to
any Asset Disposition which constitutes a transfer, conveyance, sale, lease or
other disposition of all or substantially all of the Company's properties or
assets within the meaning of Section 801 hereof.
SECTION 1015. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder of a Security
shall have the right to have such Security repurchased by the Company on the
terms and conditions precedent set forth in this Section 1015 and this
Indenture. The Company shall, within 60 days following the date of the
consummation of a transaction resulting in a Change of Control,
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commence an Offer with respect to an Offer to Purchase all Outstanding
Securities at a Purchase Price equal to 101% of their principal amount plus
accrued and unpaid interest, if any, and any other amounts payable thereon, to
the Purchase Date (provided, however, that in the case of Definitive Registered
Securities installments of interest whose Stated Maturity is on or prior to the
Purchase Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307). Each Holder shall be entitled to tender all or any portion of the
Securities owned by such Holder pursuant to the Offer to Purchase, subject to
the requirement that any portion of a Security tendered must be tendered in an
integral multiple of L.1,000 principal amount, in the case of a Sterling
Security, or $1,000 principal amount, in the case of a Dollar Security.
(b) The Company and the Trustee shall perform their respective obligations
specified in the Offer for the Offer to Purchase. Prior to the Purchase Date,
the Company shall (i) accept for payment Securities or portions thereof
tendered pursuant to the Offer, (ii) deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) money sufficient to pay the purchase price of all
Securities or portions thereof so accepted and (iii) deliver or cause to be
delivered to the Trustee all Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the purchase price, and
the Trustee shall (x) in the case of Definitive Registered Securities, promptly
authenticate and mail or deliver to Holders a new Definitive Registered
Security or Securities equal in principal amount to any unpurchased portion of
the Security surrendered as requested by the Holder and (y) in the case of a
Global Security, return the Global Security indicating in Schedule A thereof
the unpurchased portion of the Security surrendered. Any Security not accepted
for payment shall be promptly mailed or delivered by the Company to the Holder
thereof. The Company shall publicly announce the results of the Offer on or as
soon as practicable after the Purchase Date.
(c) A "Change of Control" shall be deemed to have occurred in the event
that, after the date of this Indenture, either (A) any Person or any Persons
(other than a Permitted Holder) acting together which would constitute a
"group" (a "Group") for purposes of Section 13(d) of the Exchange Act, or any
successor provision thereto), together with any Affiliates or Related Persons
thereof, shall beneficially own (as defined in Rule 13d-3 of the Exchange Act
or any successor provision thereto) at least 45% of the aggregate voting power
of all classes of Equity Securities of the Company entitled to vote generally
in the election of directors of the Company; or (B) any Person or Group (other
than a Permitted Holder), together with any Affiliates or Related Persons
thereof, shall succeed in having a sufficient number of its or their nominees
elected to the Board of Directors of the Company such that such nominees, when
added to any existing director remaining on the Board of Directors of the
Company after such election who is an Affiliate or Related Person of such
Group, shall constitute a majority of the Board of Directors of the Company or
(C) any event affecting the Company described in Section 501(8) or (9) occurs.
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(d) The Company will, not less than 10 days after the date on which the
Company first becomes aware of the consummation of a transaction resulting in a
Change of Control, cause notice of such Change of Control to be mailed to
holders of the Securities.
SECTION 1016. Additional Amounts.
All payments made by the Company or the Guarantor with respect to the
Securities or the Guarantees shall be made free and clear of and without
withholding or deduction for or on account of any present or future tax, duty,
assessment or other governmental charge of whatever nature unless the
withholding or deduction is then required by law. If any withholding or
deduction for or on account of any present or future taxes, assessments or
other governmental charges of the United Kingdom or any political subdivision
or taxing authority thereof or therein ("Taxes") shall at any time be required
in respect of any amounts to be paid by the Company or the Guarantor in respect
of the Securities or the Guarantees, the Company or the Guarantor, as the case
may be, will pay such additional amounts ("Additional Amounts") as may be
necessary so that the net amount received by each Holder (including Additional
Amounts) after such withholding or deduction will not be less than the amount
the Holder would have received if such Taxes had not been required to be
withheld or deducted; provided that the foregoing obligation to pay Additional
Amounts shall not apply to (a) any Taxes that would not have been so imposed
but for the existence of any present or former connection between such Holder
and the United Kingdom (other than the mere receipt of such payment or the
ownership or holding outside of the United Kingdom of such Security); (b) any
estate, inheritance, gift, sales, excise, transfer, personal property tax or
similar tax, assessment or governmental charge; or (c) any Taxes payable
otherwise than by deduction or withholding from payments of principal of (or
premium, if any, on) or interest, including Special Interest, if any, on such
Security; nor will Additional Amounts be paid (i) if the payment could have
been made by or through another paying agent without such deduction or
withholding, (ii) if the payment could have been made without such deduction or
withholding had the holder of the Security (whether in global bearer or
definitive registered form) or, if different, the beneficiary of the payment
complied with a request of the Company or the Guarantor made upon reasonable
notice prior to such payment, or any other Person through whom payment may be
made, addressed or otherwise provided to such Holder or beneficiary to provide
information, documents or other evidence concerning the nationality, residence,
identity or connection with the taxing jurisdiction of such holder or
beneficiary which is required or imposed by a statute, treaty, regulation or
administrative practice of the taxing jurisdiction as a precondition to
exemption from all or part of such tax, (iii) with respect to any payment of
principal of (or premium if any, on) or interest, including Special Interest,
if any, on such Security to any holder who is a fiduciary or partnership or
Person other than the sole beneficial owner of such payment, to the extent such
payment would be required by the laws of the U.K. (or any political subdivision
or taxing authority thereof or therein) to be included in the income for tax
purposes of a beneficiary or settlor with respect to such fiduciary or a member
of such partnership or a beneficial owner who would not have been entitled to
the Additional Amounts had it been the holder of such a Security, or (iv) if
the payment is in respect of a Definitive Registered Security issued (or whose
Predecessor Security was issued) at the request of a Holder (including
following an Event of Default) and at the time the payment is made
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Registered Securities have not been issued in exchange for the entire
principal amount of the Securities. The foregoing provisions shall survive any
termination or discharge of this Indenture. The provisions of this Section
1016 shall apply mutatis mutandis to any withholding or deduction for or on
account of any present or future taxes, assessments or other governmental
charges of whatever nature of any jurisdiction in which any successor Person to
the Company or the Guarantor, as the case may be, is organized, or any
political subdivision or taxing authority or agency thereof or therein. The
Company will use commercially reasonable efforts to facilitate administrative
actions necessary to assist Holders to obtain any refund of or credit against
withholding taxes for which Additional Amounts are not paid as a result of the
proviso in the second preceding sentence. Except as otherwise stated, all
references in this Indenture (other than in Article Twelve) to principal or
interest on the Securities shall include any Additional Amounts payable by the
Company pursuant to this Section 1016.
If the Company or the Guarantor is, in respect of any payments, compelled
to withhold or deduct any amount for or on account of Taxes, the Company or the
Guarantor shall give notice thereof to each of the Trustee and the Paying
Agents. The Company or the Guarantor shall, prior to the due date for the
payment thereof, pay any such Taxes, together with any penalties or interest
applicable thereto, and within 15 days after such payment shall deliver to the
Trustee and each of the Paying Agents evidence of such payment and of the
remittance thereof to the relevant taxing or other authority. The Company or
the Guarantor shall indemnify the Trustee and each of the Paying Agents for any
loss, liability or expense incurred without gross negligence, bad faith or
willful misconduct on such person's part, arising out of or in connection with
actions taken or omitted by any of them in reliance on this paragraph or
information provided by the Company or the Guarantor pursuant to this paragraph
or the failure of the Trustee or any Paying Agent for any reason (other than
its own gross negligence or willful misconduct) to receive on a timely basis
the above-described notice or any information or documentation requested by it
or otherwise required by applicable law or regulations to be obtained,
furnished or filed with it in respect of the Taxes.
SECTION 1017. Provision of Financial Information.
In addition to and without limitation on the Company's obligations
pursuant to Section 704, whether or not the Company is required to be subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the Commission and provide to the Trustee
the Company's (or if no such separate document exists, the Guarantor's) annual
reports, quarterly reports and other documents which the Company (or the
Guarantor) would have been required to file with the Commission pursuant to
such Section 13(a) or 15(d) or any successor provision thereto if the Company
(or the Guarantor) were so required, such documents to be filed with the
Commission on or prior to the respective dates (the "Required Filing Dates") by
which the Company (or the Guarantor) would have been required so to file such
documents if the Company were so required. The Company shall also in any event
(a) within 15 days of each Required Filing Date (i) transmit by mail to all
Holders, as their names and addresses have been provided to the Trustee or
appear in the Security Register and, (ii) file with the Trustee copies of the
Company's (or, if no such separate document exists, the Guarantor's) annual
reports, quarterly reports and other documents which
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the Company would have been required to file with the Commission pursuant
to Section 13(a) or 15(d) of the Exchange Act or any successor provisions
thereto if the Company (or the Guarantor) were required to be subject to such
Sections and (b) if filing such documents by the Company (or the Guarantor)
with the Commission is not permitted under the Exchange Act, promptly upon
written request supply copies of such documents to any Holder. Delivery of
such reports, information and documents to the Trustee is for informational
purposes only and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely
exclusively on Officers' Certificates).
SECTION 1018. Statement by Officers as to Default; Compliance Certificates.
(a) Each of the Company and the Guarantor will deliver to the Trustee,
within 120 days after the end of each fiscal year of the Company ending after
the date hereof an Officers' Certificate, stating whether or not to the best
knowledge of the signers thereof the Company or the Guarantor, as the case may
be, is in default in the performance and observance of any of the terms,
provisions and conditions of Section 801 or Sections 1004 to 1017, inclusive,
and if the Company or the Guarantor, as the case may be, shall be in default,
specifying all such defaults and the nature and status thereof of which they
may have knowledge.
(b) The Company or the Guarantor, as the case may be, shall deliver to the
Trustee, as soon as possible and in any event within 10 days after the Company
or the Guarantor, as the case may be, becomes aware of the occurrence of an
Event of Default or an event which, with notice or the lapse of time or both,
would constitute an Event of Default, an Officers' Certificate setting forth
the details of such Event of Default or default, and the action which the
Company or the Guarantor, as the case may be, proposes to take with respect
thereto.
(c) Each of the Company and the Guarantor shall deliver to the Trustee
within 120 days after the end of each fiscal year a written statement by the
Company's or the Guarantor's, as the case may be, independent public
accountants stating (A) that their audit examination has included a review of
the terms of this Indenture and the Securities or the Guarantees, as the case
may be, as they relate to accounting matters, and (B) whether, in connection
with their audit examination, any event which, with notice or the lapse of time
or both, would constitute an Event of Default has come to their attention and,
if such a default has come to their attention, specifying the nature and period
of the existence thereof.
SECTION 1019. Limitation on Third-Party Ownership of the Company.
The Guarantor shall maintain the Company as a wholly-owned, direct
Subsidiary of the Guarantor.
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SECTION 1020. Waiver of Certain Covenants.
The Company and the Guarantor may omit in any particular instance to
comply with any covenant or condition set forth in Section 801, Sections 1004
to 1017 and Section 1019, if before the time for such compliance the Holders of
at least a majority in principal amount of the Outstanding Sterling Securities
and the Outstanding Dollar Securities shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
covenant or condition with respect to the Sterling Securities and the Dollar
Securities, respectively, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the Guarantor
and the duties of the Trustee in respect of any such covenant or condition
shall remain in full force and effect; provided, however, with respect to an
Offer to Purchase as to which an Offer has been mailed, no such waiver may be
made or shall be effective against any Holder tendering Securities pursuant to
such Offer, and the Company and the Guarantor may not omit to comply with the
terms of such Offer as to such Holder.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
The Securities may be redeemed at the election of the Company, in
accordance with the provisions appearing in the form of Security hereinbefore
set forth, at the Redemption Prices specified in such form of Security together
with accrued interest to the Redemption Date.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company, as permitted by
any provision of this Indenture, shall be made in accordance with such
provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at
the election of the Company of less than all the Securities, the Company shall,
at least 60 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of
such Redemption Date and of the principal amount of each series of Securities
to be redeemed.
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SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all of either series of Securities are to be redeemed, the
particular Securities of each series to be redeemed shall be selected not more
than 60 days prior to the Redemption Date by the Trustee, from the Outstanding
Securities of such series not previously called for redemption, pro rata;
provided that Sterling Senior Notes on the one hand, and Dollar Senior Notes on
the other hand are prorated on the basis of an exchange rate prevailing at the
time such Securities are selected for redemption as determined by the Trustee,
and that redemption of portions of the principal amount of Securities are made
in denominations in integral multiples of L.1,000 (in the case of Sterling
Securities) and $1,000 (in the case of Dollar Securities).
The Trustee shall promptly notify the Company and each Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at his address appearing in the
Security Register or provided to the Trustee by such Holder.
All notices of redemption shall include the applicable CUSIP and/or CINS
numbers and shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities are to be
redeemed, the identification (and, in the case of partial
redemption, the principal amounts) of the particular Securities
to be redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed
and that, unless the Company defaults in making such payment on
the Redemption Date, interest thereon will cease to accrue on
and after said date, and
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(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1003) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) any applicable accrued interest on, all the
Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and any applicable
accrued interest) such Securities shall not bear interest. Upon surrender of
any such Security for redemption in accordance with said notice, such Security
shall be paid by the Company at the Redemption Price, together with any
applicable accrued interest to the Redemption Date; provided, however, that
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one or more
Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate provided by the Security.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities of the same series, of any authorized denomination
as requested by such Holder, in aggregate principal amount equal to and in
exchange for the unredeemed portion of the principal of the Security so
surrendered. Upon surrender of a Global Security if redeemed in
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part, the Paying Agent shall forward the Global Security to the Trustee
who shall make a notation on Schedule A thereof to reduce the principal amount
of the Global Security by an amount equal to the redeemed portion of the Global
Security, provided that the Global Security shall be in an authorized
denomination.
ARTICLE TWELVE
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Option to Effect Defeasance or Covenant Defeasance.
The Company may at its option by Board Resolution, at any time, elect to
have either Section 1202 or Section 1203 applied to the Outstanding Securities
upon compliance with the conditions set forth below in this Article Twelve.
SECTION 1202. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section, the Company shall be deemed to have been
discharged from its obligations with respect to the Outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that (i) the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the Outstanding Securities and to have satisfied all its other obligations
under such Securities and this Indenture insofar as such Securities are
concerned (and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same) and (ii) the Guarantor shall be released
from the Guarantees, except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
such Securities to receive, solely from the trust fund described in Section
1204 and as more fully set forth in such Section, payments in respect of the
principal of (and premium, if any) and interest (including Special Interest, if
any) on such Securities when such payments are due, (B) the Company's
obligations with respect to such Securities under Sections 304, 305, 306, 1002
and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee
hereunder and (D) this Article Twelve. Subject to compliance with this Article
Twelve, the Company may exercise its option under this Section 1202
notwithstanding the prior exercise of its option under Section 1203.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section 1201
applicable to this Section, (i) the Company and the Guarantor shall each be
released from its obligations under Sections 1005 through 1017, inclusive, and
Clauses (3) and (4) of Section 801, (ii) the occurrence of an event specified
in Sections 501(3), 501(4) (with respect to Clauses (1), (3) or (4) of Section
801), 501(5) (with respect to any of Sections 1005 through 1017, inclusive),
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501(6) and 501(7) shall not be deemed to be an Event of Default on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"). For this purpose, such covenant defeasance means that
the Company and the Guarantor may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section or Clause, whether directly or indirectly by reason of any reference
elsewhere herein to any such Section or Clause or by reason of any reference in
any such Section or Clause to any other provision herein or in any other
document, but the remainder of this Indenture and such Securities shall be
unaffected thereby.
SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1202 or Section 1203 to the then Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 609 who shall agree to comply with the provisions
of this Article Twelve applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefit of the Holders of such
Securities, (A) money in an amount, or (B) U.S. Government Obligations
which through the scheduled payment of principal and interest in respect
thereof in accordance with their terms will provide, not later than one
day before the due date of any payment, money in an amount, or (C) a
combination thereof, sufficient, in the opinion of an internationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee (or other qualifying trustee) to pay
and discharge, the principal of (premium, if any) and each instalment of
interest, including Special Interest, if any, on the Securities on the
Stated Maturity of such principal or instalment of interest in accordance
with the terms of this Indenture and of such Securities. For this
purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the payment of
which its full faith and credit is pledged or (y) obligations of a Person
controlled or supervised by and acting as an agency or instrumentality of
the United States of America the payment of which is unconditionally
guaranteed as a full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the United States
Securities Act of 1933, as amended) as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for
the account of the
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holder of such depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or
the specific payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1202, the Company or the
Guarantor shall have delivered to the Trustee (i) an Opinion of Counsel
stating that (x) the Company or the Guarantor has received from, or there
has been published by, the United States Internal Revenue Service a ruling,
or (y) since the date of this Indenture there has been a change in the
applicable United States Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Securities will not recognize gain or loss for United
States Federal income tax purposes as a result of such deposit, defeasance
and discharge and will be subject to United States Federal income tax on
the same amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not occurred
and (ii) an Opinion of Counsel to the effect that, under the law in effect
at the time of such deposit, payments made from the defeasance trust would
not require the payment of Additional Amounts if the provisions of Section
1016 above were applicable to such payments.
(3) In the case of an election under Section 1203, the Company or the
Guarantor shall have delivered to the Trustee (i) an Opinion of Counsel
(which may be based upon a United States Internal Revenue Service ruling)
to the effect that the Holders of the Outstanding Securities will not
recognize gain or loss for United States Federal income tax purposes as a
result of such deposit and covenant defeasance and will be subject to
United States Federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and
covenant defeasance had not occurred and (ii) an Opinion of Counsel to the
effect that, under the law in effect at the time of such deposit, payments
made from the defeasance trust would not require the payment of Additional
Amounts if the provisions of Section 1016 above were applicable to such
payments.
(4) Such defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest for purposes of the Trust Indenture
Act with respect to any securities of the Company.
(5) No Event of Default or event which with notice or lapse of time
or both would become an Event of Default shall have occurred
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and be continuing on the date of such deposit or, insofar as
subsections 501(8) and (9) are concerned, at any time during the period
ending on the 121st day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period).
(6) Such defeasance or covenant defeasance shall not result in a
material breach of, or constitute a material default under, any other
agreement or instrument evidencing Debt Incurred by the Company or a
Restricted Subsidiary to which the Company is a party or by which it is
bound.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the defeasance under Section
1202 or the covenant defeasance under Section 1203 (as the case may be)
have been complied with.
(8) The Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that such defeasance or covenant defeasance shall
not result in the trust arising from such deposit to be subject to
regulation as an investment company under the United States Investment
Company Act of 1940, as amended, or such trust shall be qualified under
such act.
SECTION 1205. Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all money
and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee--collectively, for purposes of
this Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Securities shall be held in trust and applied by the Trustee, in accordance
with the provisions of such Securities and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting
as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities, of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, including Special Interest,
if any, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
for the account of the Holders of the Outstanding Securities.
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Anything in this Article Twelve to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.
SECTION 1206. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money in
accordance with Section 1202 or 1203 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities and the Guarantor's obligations under this Indenture and the
Guarantees shall be revived and reinstated as though no deposit had occurred
pursuant to this Article Twelve until such time as the Trustee or Paying Agent
is permitted to apply all such money in accordance with Section 1202 or 1203;
provided, however, that if the Company makes any payment of principal of (and
premium, if any) or interest on any Security following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money held by the Trustee or
the Paying Agent.
ARTICLE THIRTEEN
Guarantee
SECTION 1301. Guarantee.
The Guarantor hereby unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee, and to the Trustee on
behalf of such Holder, (a) the due and punctual payment of the principal of (and
premium, if any) and interest and any other amounts due on the Securities,
whether at maturity or interest payment date, by acceleration, call for
redemption or otherwise, (b) the due and punctual payment of interest on the
overdue principal of (and premium, if any) and (if lawful) interest and any
other amounts due on the Securities, (c) the due and punctual performance of all
other obligations of the Company to the Holders or the Trustee, all in
accordance with the terms set forth in the Securities upon which the Guarantees
are endorsed and in this Indenture, and (d) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at stated maturity, by acceleration or
otherwise. In case of the failure of the Company punctually to make any such
payment, the Guarantor hereby agrees to cause such payment to be made punctually
when and as the same shall become due and payable, whether at the Stated
Maturity or interest payment date, by acceleration, call for redemption,
purchase or otherwise, and as if such payment were made by the Company.
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The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional, irrespective of the validity, regularity or
enforceability of such Security or the Indenture or the obligations evidenced
thereby, the absence of any action to enforce the same, any waiver or consent
by the Holder of such Security or by the Trustee or either of them with respect
to any provisions thereof or of this Indenture, the obtaining of any judgment
against the Company or any action to enforce the same, any claim, set-off or
other rights the Guarantor may have at any time against the Company, the
Trustee or any holder of any Security or any other circumstances which might
otherwise constitute a legal or equitable discharge or defense of a guarantor,
provided, however, that, notwithstanding the foregoing, no such waiver,
modification or indulgence shall, without the consent of the Guarantor,
increase the principal amount of such Security, or increase any interest rate
thereon, or increase any premium payable upon redemption thereof. The
Guarantor hereby waives the benefits of diligence, presentment, demand of
payment, any requirement that the Trustee or any of the Holders protect,
secure, perfect or insure any security interest in or other Lien on any
property subject thereto or exhaust any right or take any action against the
Company or any other Person, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest or notice with respect to such Security or
the Indebtedness evidenced thereby and all demands whatsoever, and covenants
that this Guarantee will not be discharged in respect of such Security except
by complete performance of the obligations contained in such Security and in
this Guarantee. The Guarantor hereby agrees that, in the event of a default in
payment of principal (or premium, if any) or interest or any other amounts due
on such Security, whether at their Stated Maturity, by acceleration, call for
redemption, purchase or otherwise, legal proceedings may be instituted by the
Trustee on behalf of, or by, the Holder of such Security, subject to the terms
and conditions set forth in this Indenture, directly against the Guarantor to
enforce this Guarantee without first proceeding against the Company. The
Guarantor agrees that if, after the occurrence and during the continuance of an
Event of Default, the Trustee or any of the Holders are prevented by applicable
law from exercising their respective rights to accelerate the maturity of the
Securities, to collect interest on the Securities, or to enforce or exercise
any other right or remedy with respect to the Securities, the Guarantor agrees
to pay to the Trustee for the account of the Holders, upon demand therefor, the
amount that would otherwise have been due and payable had such rights and
remedies been permitted to be exercised by the Trustee or any of the Holders.
The Guarantor shall be subrogated to all rights of the Holders of the
Securities upon which the Guarantees are endorsed against the Company in
respect of any amounts paid by the Guarantor on account of such Security
pursuant to the provisions of the Guarantees or this Indenture; provided,
however, that the Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation until the
principal of (and premium, if any) and interest and any other amounts due on
all Securities issued hereunder shall have been paid in full.
This Guarantee shall remain in full force and effect and continue to be
effective should any petition be filed by or against the Company for
liquidation or reorganization, should the Company become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and
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shall, to the fullest extent permitted by law, continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of
the Securities is, pursuant to applicable law, rescinded or reduced in amount,
or must otherwise be restored or returned by any obligee on the Securities,
whether as a "voidable preference," "fraudulent transfer," or otherwise, all as
though such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored or returned,
the Securities shall, to the fullest extent permitted by law, be reinstated and
deemed reduced only by such amount paid and not so rescinded, reduced, restored
or returned.
SECTION 1302. Execution and Delivery of Guarantees.
The Guarantees to be endorsed on the Securities shall include the terms of
the Guarantee set forth in Section 1301 and any other terms that may be set
forth in the form established pursuant to Section 206. The Guarantor hereby
agrees to execute the Guarantee, in the form established pursuant to Section
206, to be endorsed on each Security to be authenticated and delivered by the
Trustee.
The Guarantees shall be executed on behalf of the Guarantor by any one of
such Guarantor's Chief Executive Officer, Chief Financial Officer, Company
Secretary or any Director. The signature of any of these persons on the
Guarantee may be manual or facsimile.
A Guarantee bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Guarantor shall bind the Guarantor,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of the Security on which such
Guarantee is endorsed or did not hold such offices at the date of such
Guarantee.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee endorsed
thereon on behalf of the Guarantor. The Guarantor hereby agrees that the
Guarantee set forth in Section 1301 shall remain in full force and effect
notwithstanding any failure to endorse a Guarantee on any Security.
SECTION 1303. Release of Guarantor .
Concurrently with the defeasance of the Securities under Section 1202
hereof, the Guarantor shall be released from all of their obligations under
this Guarantee endorsed on the Securities and under this Article Thirteen,
subject to the reinstatement of such obligations under Section 1206 hereof.
____________________
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<PAGE> 120
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, as of the day and year first above written.
DIAMOND HOLDINGS PLC
/s/ Robert T. Goad
--------------------
Name: Robert T. Goad
Title: Director
/s/ Kate Wolfsohn
--------------------
Name: Kate Wolfsohn
Title: Secretary
DIAMOND CABLE COMMUNICATIONS PLC,
As Guarantor
/s/ Robert T. Goad
--------------------
Name: Robert T. Goad
Title: Director
/s/ Kate Wolfsohn
--------------------
Name: Kate Wolfsohn
Title: Secretary
THE BANK OF NEW YORK,
As Trustee
/s/ Mike Hellmuth
--------------------
Name: Mike Hellmuth
Title: Assistant Vice President
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<PAGE> 121
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
(For transfers pursuant to Section 305(b)(i) and (iii)
of the Indenture)
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Re: [o%] Senior Notes due January o, 2008 of Diamond Holdings plc
(the "Securities")
Reference is made to the Indenture, dated as of January o, 1998 (the
"Indenture"), among Diamond Holdings plc (the "Company"), Diamond Cable
Communications Plc (the "Guarantor") and The Bank of New York, as Trustee.
Terms used herein and defined in the Indenture or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to [L._______ ] [$____________ ] principal amount
of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities, (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so or (iii) it
is the Holder of a Global Security and has received a certification to the
effect set forth below. Such beneficial owner or owners are referred to herein
collectively as the "Owner". If the Specified Securities are not represented
by a Global Security, they are registered in the name of the Undersigned, as or
on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Regulation S
Security. In connection with such transfer, the Owner hereby certifies or has
certified that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 904 or Rule 144 under the Securities Act and with all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies or has
certified as follows:
(1) Rule 904 Transfers. If the transfer is being effected in accordance
with Rule 904:
A-1
<PAGE> 122
(A) the Owner is not a distributor of the Securities, an affiliate of
the Company or any such distributor or a person acting on behalf of any of
the foregoing;
(B) the offer of the Specified Securities was not made to a person in
the United States or for the account or benefit of a U.S. Person;
(C) either:
(i) at the time the buy order was originated, the Transferee was
outside the United States or the Owner and any person acting on its
behalf reasonably believed that the Transferee was outside the United
States, or
(ii) the transaction is being executed in, on or through the
facilities of the Eurobond market, as regulated by the Association of
International Bond Dealers, or another designated offshore securities
market and neither the Owner nor any person acting on its behalf
knows that the transaction has been prearranged with a buyer in the
United States;
(D) no directed selling efforts have been made in the United States
by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a selling
concession, fee or other renumeration in respect of the Specified
Securities, and the transfer is to occur during the Restricted Period,
then the requirements of Rule 904(c)(1) have been satisfied; and
(F) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after January o, 1999 and is being
effected in accordance with the applicable amount, manner of sale and
notice requirements of Rule 144; or
(B) the transfer is occurring after January o, 2000 and the Owner is
not, and during the preceding three months has not been, an affiliate of
the Company.
A-2
<PAGE> 123
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Guarantor and the Initial
Purchasers.
Dated: ------------------------------
(Print the name of the Undersigned, as such term is
defined in the second paragraph of this certificate.)
By:_________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
A-3
<PAGE> 124
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
(For transfers pursuant to Section 305(b)(ii),
(iii), (iv) and (v) of the Indenture)
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Re: [o%] Senior Notes due January o, 2008 of Diamond Holdings plc
(the "Securities")
Reference is made to the Indenture, dated as of January o, 1998 (the
"Indenture"), among Diamond Holdings plc (the "Company"), Diamond Cable
Communications, Plc (the "Guarantor") and The Bank of New York, as Trustee.
Terms used herein and defined in the Indenture or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to [L.________ ] [$_____________ ] principal
amount of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities, (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so or (iii) it
is the Holder of a Global Security and has received a certification to the
effect set forth below. Such beneficial owner or owners are referred to herein
collectively as the "Owner". If the Specified Securities are not represented
by a Global Security, they are registered in the name of the Undersigned, as or
on behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Security. In connection with such transfer, the Owner hereby certifies or has
certified that, unless such transfer is being effected pursuant to an effective
registration statement under the Securities Act, it is being effected in
accordance with Rule 144A or Rule 144 under the Securities Act and all
applicable securities laws of the states of the United States and other
jurisdictions. Accordingly, the Owner hereby further certifies or has
certified that:
B-1
<PAGE> 125
(1) Rule 144A Transfers. If the transfer is being effected in accordance
with Rule 144A:
(A) the Specified Securities are being transferred to a person that
the Owner and any person acting on its behalf reasonably believe is a
"qualified institutional buyer" within the meaning of Rule 144A, acquiring
for its own account or for the account of a qualified institutional buyer;
and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner may
be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after January o, 1999 and is being
effected in accordance with the applicable amount, manner of sale and
notice requirements of Rule 144; or
(B) the transfer is occurring after January o, 2000 and the Owner is
not, and during the preceding three months has not been, an affiliate of
the Company.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Guarantor and the Initial
Purchasers.
Dated: ___________________________
(Print the name of the Undersigned, as such term is defined
in the second paragraph of this certificate.)
By:______________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of the
Undersigned must be stated.)
B-2
<PAGE> 126
ANNEX C -- Form of Unrestricted
Securities Certificate
UNRESTRICTED SECURITIES CERTIFICATE
(For removal of Securities Act Legends pursuant to Section 305(c))
The Bank of New York
101 Barclay Street, 21st Floor
New York, New York 10286
Re: [o%] Senior Notes due January o, 2008 of Diamond Holdings plc
(the "Securities")
Reference is made to the Indenture, dated as of January o, 1998 (the
"Indenture"), among Diamond Holdings plc (the "Company"), Diamond Cable
Communications Plc (the "Guarantor") and The Bank of New York, as Trustee.
Terms used herein and defined in the Indenture or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to [L._________ ] [$_____________ ] principal
amount of Securities, which are evidenced by the following certificate(s) (the
"Specified Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities, (ii) it is acting on behalf of all the beneficial owners
of the Specified Securities and is duly authorized by them to do so or (iii) it
is the Holder of a Global Security and has received a certification to the
effect set forth below. Such beneficial owner or owners are referred to herein
collectively as the "Owner". If the Specified Securities are not represented
by a Global Security, they are registered in the name of the Undersigned, as or
on behalf of the Owner.
The Owner has requested that the Specified Securities be exchanged for
Securities bearing no Securities Act Legend pursuant to Section 305(c) of the
Indenture. In connection with such exchange, the Owner hereby certifies or has
certified that the exchange is occurring after January o, 2000 and the Owner is
not, and during the preceding three months has not been, an affiliate of the
Company. The Owner also acknowledges or has acknowledged that any future
transfers of the Specified Securities must comply with all applicable
securities laws of the states of the United States and other jurisdictions.
C-1
<PAGE> 127
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Guarantor and the Initial
Purchasers.
Dated: ______________________________
(Print the name of the Undersigned, as such term is defined
in the second paragraph of this certificate.)
By:________________________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership or
fiduciary, the title of the person signing on behalf of the
Undersigned must be stated.)
C-2
<PAGE> 128
ANNEX D
DIAMOND HOLDINGS PLC
_______, ____
The Depository Trust Company
55 Water Street, 49th Floor
New York, New York 10041
The Bank of New York,
As Trustee
101 Barclay Street
New York, New York 10286
Re: o% Senior Notes due January o, 2008
o% Senior Notes due January o, 2008
Ladies and Gentlemen:
Reference is hereby made to the Indenture dated as of January o, 1998 (the
"Indenture") among Diamond Holdings plc (the "Company"), Diamond Cable
Communications Plc (the "Guarantor") and The Bank of New York, as Trustee.
Capitalized terms used and not defined herein shall have the meanings given
them in the Indenture.
This letter relates to L. ________ and $________ principal amount of
Securities represented by the Regulation S Global Sterling Security and
Regulation S Global Dollar Security, respectively, held by the Trustee pursuant
to Section 201 of the Indenture. We hereby certify that the offering of the
Securities closed on January o, 1998 and therefore, the restricted period (as
defined in Regulation S) with respect to the offer and sale of the Securities
will terminate on __________, 1998.
DIAMOND HOLDINGS PLC
By:___________________________
Name:
Title:
cc: Euroclear
Cedel
<PAGE> 1
EXHIBIT 4.2
DIAMOND HOLDINGS PLC
and
THE BANK OF NEW YORK
As Global Depositary
and
THE OWNERS OF BOOK-ENTRY INTERESTS
in
Pound Sterling 135,000,000 10% Senior Notes due February 1, 2008
and
$110,000,000 9 1/8% Senior Notes due February 1, 2008
__________________
SENIOR NOTES DEPOSITARY AGREEMENT
Dated as of February 6, 1998
__________________
<PAGE> 2
SENIOR NOTES DEPOSITARY AGREEMENT
THIS AGREEMENT is made as of this 6th day of February, 1998 by and between
Diamond Holdings plc, a public limited company organized and existing under the
laws of England (the "Company"), which is a party for the limited purposes
referred to herein, The Bank of New York, as Global Depositary (the "Global
Depositary") and owners from time to time of Book-Entry Interests.
ARTICLE ONE
DEFINITIONS AND OTHER GENERAL PROVISIONS
SECTION 1.01 Definitions.
The following terms, as used herein, have the following meanings:
"Additional Amounts" shall have the meaning ascribed to it in Section 2.15
hereof.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control", when used with
respect to any specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Board Resolution" shall have the meaning ascribed to it in the Indenture.
"Book-Entry Interests" means interests in any Depositary Interest issued
pursuant to this Agreement, which are eligible for trading through the
book-entry system of DTC, Euroclear or Cedel. References to Book-Entry
Interests in a Global Security should be understood to mean Book-Entry
Interests in the Depositary Interest issued with respect to such Global
Security.
"Business Day" shall have the meaning ascribed to it in the Indenture.
"Cedel" means Cedel Bank, societe anonyme.
"Certificateless Depositary Interest" means an interest in a Global Dollar
Security held by the Global Depositary that (i) shall, at all times, represent
the right to receive 100% of the principal and premium (if any) of and interest
on such Global Security and the right to require the Global Depositary to
procure the issue of one or more Definitive Registered Securities representing
up to 100% of the principal amount represented by such Global Security and (ii)
is issued by the Global Depositary to DTC or its nominee.
-1-
<PAGE> 3
"Certificated Depositary Interest" means a certificate (in substantially
the form set forth in Annex C hereto) representing an interest in a Global
Sterling Security held by the Global Depositary that (i) shall, at all times,
represent the right to receive 100% of the principal and premium (if any) of
and interest on such Global Security and the right to require the Global
Depositary to procure the issue of one or more Definitive Registered Securities
representing up to 100% of the principal amount represented by such Global
Security and (ii) is issued by the Global Depositary to a Depositary or its
nominee.
"Common Depositary" means The Bank of New York (nominees) Limited, as
common depositary for Euroclear and Cedel, its successor or nominee.
"Company" means the party named as such in this Agreement until a
successor replaces it pursuant to the applicable provisions of the Indenture
and, thereafter, means the successor.
"Company Order" and "Company Request" shall have the meaning ascribed to
them in the Indenture.
"Corporate Trust Office" means the office of the Global Depositary in the
City of New York, at which any particular time its corporate trust business
shall be principally administered, which at the date hereof is located at 101
Barclay Street, Floor 21W, New York, New York, 10286.
"Definitive Registered Securities" means the Securities , with the
Guarantees endorsed thereon, issued pursuant to the Indenture in substantially
the form set forth in Article Two thereto.
"Depositary" means, in the case of the Dollar Securities, DTC, or any
successor, and in the case of the Sterling Securities, Euroclear and Cedel or,
as appropriate, the Common Depositary for Euroclear and Cedel, or any
successor, in each case as the owner of a Depositary Interest and indicated as
such in the records of the Global Depositary.
"Depositary Interest" means the Certificateless Depositary Interest and/or
the Certificated Depositary Interest, as appropriate.
"Dollar Security" shall have the meaning ascribed to it in the Indenture.
"DTC" means The Depository Trust Company or its nominee.
"Event of Default" shall have the meaning ascribed to it in the Indenture.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended.
"Exchange Offer" shall have the meaning ascribed to it in the Indenture.
"Euroclear" means Morgan Guaranty Trust Company of New York, as operator
of the Euroclear System.
"Global Depositary" means the party named as such in this Agreement or its
nominee or the custodian of either until a successor shall have become such
pursuant to Section 3.08 hereof, and thereafter "Global Depositary" shall mean
such successor or its nominee or the custodian of either.
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<PAGE> 4
"Global Dollar Security" shall have the meaning ascribed to it in the
Indenture.
"Global Security" shall have the meaning ascribed to it in the Indenture.
References to the "Global Securities" shall mean each of the Regulation S
Global Security, the Restricted Global Security and the Unrestricted Global
Security (in each case, with the Guarantees endorsed thereon) of each series,
as applicable.
"Global Sterling Security" shall have the meaning ascribed to it in the
Indenture.
"Guarantees" means any guarantees of the Guarantor endorsed on Securities
authenticated and delivered pursuant to the Indenture and shall include the
form of Guarantee set forth in Section 206 of the Indenture.
"Guarantor" means Diamond Cable Communications Plc, in its capacity as
Guarantor under the Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of the Indenture, and thereafter
"Guarantor" shall mean such successor Person.
"Indenture" means the indenture of even date herewith between the
Guarantor, the Company and The Bank of New York, as Trustee relating to the
Pound Sterling 135,000,000 10% Senior Notes due February 1, 2008 (the "Sterling
Securities") and the $110,000,000 9 1/8% Senior Notes due February 1, 2008 (the
"Dollar Securities" and together with the Sterling Securities, the "Securities")
of the Company as originally executed or as it may from time to time be
supplemented or amended by one or more indentures supplemental thereto entered
into pursuant to the applicable provisions thereof, including for all purposes
the provisions of the TIA that are deemed to be a part of and govern such
instrument.
"Letter of Representations" means the Letter of Representations to DTC of
even date herewith from the Global Depositary.
"Officers' Certificate" shall have the meaning ascribed to it in the
Indenture.
"Opinion of Counsel" means a written opinion from legal counsel, who may
be counsel to the Company and who shall otherwise be reasonably satisfactory to
the Global Depositary.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Regulation S Certificate" means the certificate, the form of which is set
forth in Annex A hereto.
"Regulation S Global Security" shall have the meaning ascribed to it in
the Indenture.
"Responsible Officer" means, with respect to the Global Depositary, any
vice president, any assistant vice president, the secretary, any assistant
secretary, any assistant treasurer, any trust officer or assistant trust
officer, employed by the Global Depositary's corporate trust department or any
other
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<PAGE> 5
officer of the Global Depositary customarily performing functions similar to
those performed by any of the above-designated officers and also means, with
respect to a particular corporate trust or agency matter, any other officer to
whom such matter is referred because of his or her knowledge and familiarity
with the particular subject.
"Restricted Global Security" shall have the meaning ascribed to it in the
Indenture.
"Restricted Period" shall have the meaning ascribed to it in the
Indenture.
"Restricted Security" shall have the meaning ascribed to it in the
Indenture.
"Restricted Securities Certificate" means the certificate, the form of
which is set forth in Annex B hereto.
"Security" means any Sterling Security or Dollar Security issued under the
Indenture, including the Guarantees endorsed thereon.
"Securities Act" means the United States Securities Act of 1933, as
amended.
"series" means the Sterling Securities or the Dollar Securities, as the
case may be.
"Sterling Security" shall have the meaning ascribed to it in the
Indenture.
"TIA" means the United States Trust Indenture Act of 1939 (15 U.S.C.
Section Section 77aaa-77bbbb) as in effect on the date of this Indenture;
provided, however, that in the event the Trust Indenture Act of 1939 is amended
after such date, "TIA" means, to the extent required by such amendment, the
Trust Indenture Act of 1939, as so amended.
"Trustee" means the Person acting as Trustee under the Indenture until a
successor Trustee shall have become such pursuant to the applicable provisions
of the Indenture, and thereafter "Trustee" shall mean such successor Trustee.
"Unrestricted Global Security" means a Global Security other than a
Restricted Global Security (but which may be a Regulation S Global Security),
with respect to which Book-Entry Interests therein may be transferable without
material restriction under the Securities Act.
SECTION 1.02 Rules of Construction.
Unless the context otherwise requires: (1) a term has the meaning
assigned to it; (2) any capitalized term not otherwise defined herein shall
have the meaning ascribed to it in the Indenture; (3) "or" is not exclusive;
(4) "including" means including without limitation; (5) words in the singular
include the plural and words in the plural include the singular; and (6) the
words "herein", "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section
or other subdivision.
-4-
<PAGE> 6
ARTICLE TWO
BOOK-ENTRY INTERESTS
SECTION 2.01 Deposit of the Global Securities.
The Global Depositary hereby accepts custody of the Global Securities and
shall act as Global Depositary in accordance with the terms of this Agreement.
The Global Depositary shall hold such Global Securities at its Corporate Trust
Office in The Borough of Manhattan, The City of New York or at such place or
places as it shall determine with the consent of the Company for the purposes
of Section 2.03 below and shall issue a Certificateless Depositary Interest
with respect to each Global Dollar Security in accordance with the Letter of
Representations and a Certificated Depositary Interest with respect to each
Global Sterling Security in accordance with the rules and procedures of
Euroclear and Cedel.
SECTION 2.02 Book-Entry System.
(a) Upon acceptance by DTC, in the case of the Dollar Securities, and
Euroclear and Cedel, in the case of the Sterling Securities, of Depositary
Interests in each of the Global Securities for entry into its book-entry
settlement system in accordance with the terms of the Letter of Representations
or the rules and procedures of Euroclear and Cedel, as the case may be,
Book-Entry Interests will be traded through the book-entry system of DTC,
Euroclear or Cedel, as the case may be, and ownership of such Book-Entry
Interests shall be shown in, and the transfer of such ownership shall be
effected only through, records maintained by (i) DTC, Euroclear or Cedel, as
the case may be, or their respective successors or (ii) institutions that have
accounts with DTC, Euroclear or Cedel, as the case may be, or their respective
successors ("Participants"). Book-Entry Interests shall be transferable only
as units in the same authorized denominations as the Securities.
(b) The Certificateless Depositary Interests shall be issuable only to
DTC, its successors or nominees. The Certificated Depositary Interest shall be
issuable only to Euroclear or Cedel or their successors or nominees. Except as
provided in Section 2.05 or Section 2.10, no owner of Book-Entry Interests
shall be entitled to receive a Definitive Registered Security on account of
such ownership, and such owner's interest therein shall be shown only in
accordance with the procedures of DTC as set forth in the Letter of
Representations or the rules and procedures of Euroclear and Cedel, as the case
may be.
SECTION 2.03 Procedures in the Event of an Exchange Offer.
Upon receipt by the Global Depositary as Holder of a Global Security of
notice of either the commencement of an Exchange Offer or the implementation of
arrangements permitting the resale by holders of Securities of either series
pursuant to the registration provisions of the Securities Act, the Global
Depositary will forward to each Depositary materials relating to such Exchange
Offer or other arrangements with any additional instructions applicable to
owners of Book-Entry Interests. In the case of an Exchange Offer, upon notice
by each Depositary of the principal amount of Book-Entry Interests in the
Regulation S Global Security or the Restricted Global Security of either series
(as applicable) tendered in response to the Exchange Offer, the Global
Depositary shall (i) in accordance with Section
-5-
<PAGE> 7
305 of the Indenture, deliver to the Trustee that portion of the Global
Security of such series (as applicable) with respect to which Book-Entry
Interests have been tendered and receive in exchange therefor (to the extent
such portions of the Global Security are accepted pursuant to the Exchange
Offer) a new Unrestricted Global Security (or an increase in an existing
Unrestricted Global Security) of the applicable series and in like principal
amount as the Book-Entry Interests tendered, (ii) to the extent the
Unrestricted Global Security is new, issue to the applicable Depositary or its
nominee a new Depositary Interest in the new Unrestricted Global Security,
(iii) record any changes in the principal amount of the Depositary Interests in
each of the Regulation S Global Security, the Restricted Global Security and
the Unrestricted Global Security of such series, and (iv) notify the applicable
Depositary of any such changes. Book-Entry Interests in each Unrestricted
Global Security shall be assigned a CUSIP number different from those assigned
to Book-Entry Interests in the Restricted Global Securities or the Regulation S
Global Securities (if such Unrestricted Global Security is not a Regulation S
Global Security).
SECTION 2.04 Record of Transfer of the Certificateless Depositary Interests.
The Company appoints the Global Depositary as its agent for the sole
purpose of maintaining at the Global Depositary's Corporate Trust Office
records in which the Global Depositary shall (i) record DTC as the initial
owner of each Certificateless Depositary Interest and the Common Depositary as
the initial owner of each Certificated Depositary Interest, (ii) record the
transfer of any Depositary Interest, and (iii) record the increases and
decreases in the principal amount represented by each Depositary Interest. The
Depositary Interests cannot be transferred unless such transfer is noted in the
records of the Global Depositary. The Global Depositary shall treat the Person
in whose name the Depositary Interests are recorded in the records of the
Global Depositary as the owner thereof for all purposes whatsoever and shall
not be bound or affected by any notice to the contrary, other than an order of
a court having jurisdiction over the Global Depositary.
The foregoing paragraph shall not (i) impose an obligation on the Global
Depositary to record the interests in or transfers of Book-Entry Interests held
by Participants or Persons that may hold Book-Entry Interests through
Participants or (ii) restrict transfers of such Book-Entry Interests held by
Participants or such Persons.
In connection with the Global Depositary's appointment as the Company's
agent under this Section 2.04, the Company shall have such rights and
obligations as regards removal of the Global Depositary and appointment of a
successor as are specified in Section 3.08 hereof.
SECTION 2.05 Transfer of the Global Securities.
The Global Depositary shall hold each Global Security in custody for the
benefit of the Depositary. The Global Depositary shall not transfer or lend
any Global Security or any interest therein except that the Global Depositary
may transfer the Global Securities to a successor Global Depositary in
accordance with Section 3.08 or deliver any Global Securities to any Trustee
pursuant to the Exchange Offer in accordance with Section 2.03.
Notwithstanding the foregoing, the Global Depositary shall not under any
circumstances surrender or deliver any Global Securities to any Depositary. If
(i) the Global Depositary notifies the Company and the Trustee under Section
3.08 hereof that it is unwilling or unable
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to continue as Global Depositary and no successor Global Depositary has been
appointed by the Company within 120 days of such notification, (ii) DTC
notifies the Global Depositary that it is unwilling or unable to continue as
Depositary with respect to the Certificateless Depositary Interests or if at
any time it is unable to or ceases to be a clearing agency registered under the
Exchange Act and a successor Depositary registered as a clearing agency under
the Exchange Act is not appointed within 120 days by the Global Depositary at
the written request of the Company, (iii) Euroclear and Cedel notify the Global
Depositary that they are both unwilling or unable to continue as Depositary
with respect to the Certificated Depositary Interests and a successor is not
appointed by the Global Depositary at the written request of the Company, or
(iv) the Company determines pursuant to Section 305 of the Indenture that the
Global Securities of either series should be exchanged (in whole but not in
part) for Definitive Registered Securities of such series, then the Global
Depositary shall promptly notify the applicable Depositary that the Global
Securities of such series will be exchanged in whole for Definitive Registered
Securities of such series pursuant to Section 305 of the Indenture and, at the
option of such Depositary, either (1) one or more Definitive Registered
Securities of such series shall be issued pursuant to the Indenture and
deposited with the applicable Depositary in exchange for the Depositary
Interest relating to each such Global Security held by such Depositary,
whereupon all outstanding Book-Entry Interests will represent interests in such
Definitive Registered Securities, or (2) Definitive Registered Securities of
such series shall be issued in such names and denominations as such Depositary
shall specify upon cancellation of the Depositary Interests of such series and
all Book-Entry Interests of such series. The Global Depositary agrees that in
either such event it will promptly surrender each Global Security of such
series held by it to the Trustee in connection with such exchange for
cancellation pursuant to Section 305 of the Indenture.
SECTION 2.06 Cancellation.
If any Global Security is surrendered for payment, or for redemption or
purchase in full of all the Securities evidenced thereby or for exchange for
Definitive Registered Securities to any Person other than the Trustee then such
Global Security shall, subject to Sections 2.08, 2.09 and 2.10, become void and
be delivered to the Trustee for cancellation.
SECTION 2.07 Payments in Respect of the Certificateless Depositary Interests
and Global Securities.
(a) Whenever the Global Depositary shall receive from the Paying Agent
appointed under the Indenture any payment on any Global Security, the amount so
received shall be distributed promptly to the Depositary entitled thereto, on
the corresponding payment date for such Global Security. So long as DTC, in
the case of the Dollar Securities, is the Depositary, such payments shall be
made in accordance with the Letter of Representations. So long as Euroclear
and Cedel, in the case of the Sterling Securities, are Depositaries, such
payments shall be made in accordance with the respective procedures of
Euroclear and Cedel as applicable.
(b) The Global Depositary shall forward to the Guarantor, or its agents,
or the Company, or its agents, such information from its records as the
Guarantor or the Company may reasonably request to enable the Guarantor, the
Company or their agents to file necessary reports with governmental agencies,
and the Global Depositary, the Guarantor, the Company or their agents may (but
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shall not be required to) file any such reports necessary to obtain benefits
under any applicable tax treaties for each Depositary or beneficial owners of
Book-Entry Interests.
(c) None of the Company, the Trustee, the Global Depositary or any agent
of the Company or the Trustee or the Global Depositary will have any
responsibility or liability for any aspect of the records relating to payments
made by the Depositary (or its direct or indirect participants) on account of
Book-Entry Interests or for maintaining, supervising or reviewing any records
relating to such Book-Entry Interests.
(d) Notwithstanding any other provision of this Agreement, the Global
Depositary shall be required to pay to any Depositary only amounts (including
Additional Amounts) received by the Global Depositary under a Global Security
in which such Depositary holds an interest.
SECTION 2.08 Redemption of Securities and Book-Entry Interests.
In the event that the Company exercises any right of redemption under the
Indenture and terms of the Securities of either series in respect of all or any
part of any Global Security of such series, the Global Depositary shall
promptly deliver such Global Security to the Trustee and request the Trustee to
endorse Schedule A to such Global Security to reflect the reduction in the
principal amount of such Global Security as a result of such redemption. In
addition, the Global Depositary shall notify the applicable Depositary of the
principal amount redeemed and of a corresponding reduction of the same
principal amount of the applicable Depositary Interest. The Global Depositary
shall pay all such amounts received by it in connection with such redemption to
such Depositary.
SECTION 2.09 Offer to Purchase Securities and Book-Entry Interests.
Upon receipt by the Global Depositary as holder of a Global Security of an
Offer to Purchase Securities pursuant to the Indenture, the Global Depositary
will forward the Offer to Purchase to the applicable Depositary with any
additional instructions applicable to owners of Book-Entry Interests. Upon
notice by the Depositary of the principal amount of Book-Entry Interests
tendered for purchase in response to such Offer to Purchase, the Global
Depositary will surrender the applicable Global Security in accordance with the
instructions set forth in the Offer to Purchase, indicating the portion of the
principal amount of such Global Security that is being tendered for purchase
pursuant to the Offer to Purchase. Upon receipt of any payment resulting from
the Offer to Purchase, the Global Depositary shall pay any amounts received to
the applicable Depositary, indicate the principal amount of such Global
Security reduced by the Trustee in connection with the Offer to Purchase, and
notify such Depositary of a corresponding reduction in the principal amount of
the applicable Depositary Interest.
SECTION 2.10 Exchange for Definitive Registered Securities; Transfers and
Transfer Restrictions.
If, upon an Event of Default or at any other time, the owner of a
Book-Entry Interest of either series shall so request (such request of the
owner to be given in writing only through a Depositary), upon transfer or
surrender of such owner's Book-Entry Interest to the account of the Global
Depositary maintained with a Depositary, the Global Depositary shall (i)
promptly deliver the applicable Global
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Security of such series to the Trustee and request that the Trustee exchange
any part of such Global Security for one or more Definitive Registered
Securities of the same type and series registered in the names specified by the
Depositary and endorse Schedule A to such Global Security to reflect the
reduction in principal amount of such Global Security resulting from such
exchange, provided that the principal amount of such Definitive Registered
Securities and of such Global Security after such exchange shall be in
authorized denominations and (ii) instruct the applicable Depositary to cancel
the Book-Entry Interest surrendered or transferred to the account of the Global
Depositary maintained with such Depositary and (a) in the case of the Dollar
Securities, notify such Depositary of a reduction in the principal amount of
the applicable Certificateless Depositary Interests, and (b) in the case of the
Sterling Securities, instruct the Common Depositary to deliver the applicable
Certificated Depositary Interest to the Global Depositary and, upon receipt
thereof, endorse Schedule A to such Certificated Depositary Interest to reflect
the reduction in principal amount of such Certificated Depositary Interest in
accordance with procedures established between the Common Depositary and the
Global Depositary.
Thereafter, if any Global Security of a series is still outstanding, then
at the request of any holder of a Definitive Registered Security of the same
type and series and upon surrender by such holder of such Definitive Registered
Security to the Registrar for registration of transfer of such Definitive
Registered Security to the Global Depositary, the Global Depositary shall
promptly (i) surrender such Definitive Registered Security to the Registrar for
cancellation, deliver the applicable Global Security of such series held by the
Global Depositary to the Trustee and request that the Trustee endorse Schedule
A thereof to increase the principal amount of such Global Security by an amount
equal to the principal amount of the Definitive Registered Security delivered
to the Registrar for cancellation and (ii) (a) notify the applicable Depositary
of an increase in the applicable Certificateless Depositary Interest of such
series or (b) endorse Schedule A of the applicable Certificated Depositary
Interest in accordance with procedures established between the Common
Depositary and the Global Depositary, in each case, for the account of such
holder equal in principal amount to the principal amount of such Definitive
Registered Security.
If the owner of a Book-Entry Interest in one Global Security of either
series wishes at any time to transfer such interest to a Person who wishes to
take delivery thereof in the form of a Book-Entry Interest in a second Global
Security of such series, then upon receipt by the Global Depositary of (A) an
order given by the applicable Depositary or its authorized representative
directing that a Book-Entry Interest in the second Global Security of such
series in a specified principal amount be credited to a specified Agent
Member's account and that a Book-Entry Interest in the first Global Security in
an equal principal amount be debited from another specified Agent Member's
account and (B) if applicable (see below), a Restricted Securities Certificate
or a Regulation S Certificate satisfactory to the Global Depositary and duly
executed by the owner of such Book-Entry Interest or his attorney in fact duly
authorized in writing, then the Global Depositary shall (i) promptly deliver
the applicable Global Securities to the Trustee and request that the Trustee
endorse Schedule A to such Global Securities to reflect the reduction in
principal amount of the first Global Security and the corresponding increase in
the second Global Security resulting from such transfer and (ii) (a) notify the
applicable Depositary of the corresponding adjustments in the principal amount
of the Certificateless Depositary Interests of such series or (b) endorse
Schedule A of the applicable Certificated Depositary Interest to reflect such
adjustments in accordance with procedures established between the Global
Depositary and Common Depositary.
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Reference is made to Section 305(b) of the Indenture which sets forth
certain transfer restrictions and certification requirements relating to
exchanges or transfers between Holders of the Global Securities and/or
Definitive Registered Securities. Owners of Book-Entry Interests acknowledge
that analogous transfer restrictions and certification shall apply to transfers
and exchanges described in this Section 2.10. Accordingly, in the
circumstances where a Restricted Securities Certificate (as defined in the
Indenture) or a Regulation S Certificate (as defined in the Indenture) is
required under Section 305(b) of the Indenture to be delivered to the Trustee
in connection with any transfer or exchange involving a Global Security, a
Restricted Securities Certificate (as defined herein) or a Regulation S
Certificate (as defined herein) as applicable shall be delivered to the Global
Depositary in connection with any analogous transfer or exchange involving a
Book-Entry Interest in such Global Security.
The parties hereto acknowledge that pursuant to arrangements with the
Depositary, during the Restricted Period, any trades in Book-Entry Interests in
a Regulation S Global Security will only occur in or through accounts
maintained at DTC by Euroclear and Cedel, in the case of the Dollar Securities,
and accounts maintained at Euroclear and Cedel, in the case of the Sterling
Securities.
Each owner of Book-Entry Interests in the Restricted Global Security
understands that such Book-Entry Interests have not been registered under the
Securities Act and may not be offered, resold, pledged or otherwise transferred
by such owner except (a)(i) to a person who such owner reasonably believes is a
qualified institutional buyer acquiring for its own account or the account of a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A, (ii) in an offshore transaction meeting the requirements of Rule 903 or
Rule 904 of Regulation S, (iii) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 thereunder (if available) or (iv)
pursuant to an effective registration statement under the Securities Act and
(b) in accordance with all applicable securities laws of the states of the
United States and other jurisdictions.
SECTION 2.11 Record Date.
Whenever (i) the Global Depositary shall receive notice of any action to
be taken by the holder of a Global Security of either series, or (ii) the
Global Depositary otherwise deems it appropriate in respect of any other
matter, the Global Depositary shall fix a record date for the determination of
the principal amount represented by each Depositary Interest of such series at
such record date, with respect to which the Depositary shall be entitled to
take any such action or to act in respect of any such matter, which record date
shall be the same date as that fixed with respect to the holder of a Global
Security of such series or holders of Definitive Registered Securities of such
series under the Indenture. Subject to the provisions of this Agreement, only
the Depositary in whose name the Depositary Interest is recorded in the records
of the Global Depositary at the close of business on such record date shall be
entitled to receive any such payment, to give instructions as to such action or
to act in respect of any such matter.
SECTION 2.12 Action in Respect of the Depositary Interests.
As soon as practicable after receipt by the Global Depositary of notice of
any solicitation of consents or request for a waiver or other action by the
holder of a Global Security of either series under the Indenture or by the
Global Depositary under this Agreement, the Global Depositary shall mail to
each applicable Depositary a notice containing (a) such information as is
contained in the notice
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received, (b) a statement that such Depositary at the close of business on a
specified record date (established in accordance with Section 2.11 hereof) will
be entitled, subject to the provisions of or governing the Depositary Interest
of such series or Global Securities of such series, to instruct the Global
Depositary as to the consent, waiver or other action, if any, pertaining to
this Agreement or the Indenture and (c) a statement as to the manner in which
such instructions may be given. In addition, the Global Depositary will
forward to each applicable Depositary or, based upon instructions received from
the Depositary, to owners of Book-Entry Interests, all materials pertaining to
any such solicitation, request, offer or other action. Upon the written
request of such Depositary received on or before the date established by the
Global Depositary for such purpose, the Global Depositary shall endeavor
insofar as practicable and permitted under the provisions of this Agreement or
the Indenture, as the case may be, to take such action regarding the requested
consent, waiver or other action in respect of all or only a portion of the
principal amount of each Depositary Interest of such series or applicable
Global Security of such series, as the case may be, with respect to which
instructions in accordance with any instructions set forth in such request have
been received. Each Depositary may grant proxies or otherwise authorize
Participants (or persons owning Book-Entry Interests through such Participants)
to provide such instructions to the Global Depositary so that it may exercise
any rights of a holder or take any other actions which a holder is entitled to
take under the Indenture. The Global Depositary shall not itself exercise any
discretion in the granting of consents or waivers or the taking of any other
action in respect of a Global Security. Without prejudice to Section 2.07(c),
the records of the relevant Depositary shall, absent manifest error, be
conclusive evidence of the owners of Book-Entry Interests of each series and
the principal amount represented by such Book-Entry Interests.
SECTION 2.13 Changes Affecting the Global Securities.
Upon any reclassification of the Global Securities, or upon any
recapitalization, reorganization, merger or consolidation or sale of assets
affecting the Company or the Guarantor or to which the Company or the Guarantor
is a party, any securities that shall be received by the Global Depositary in
exchange for or in respect of a Global Security shall be treated as a new
Global Security or as part of the Global Security under this Agreement and any
corresponding Depositary Interest shall thenceforth represent such Global
Security, including such new securities so received.
SECTION 2.14 Reports.
The Global Depositary shall immediately send to each Depositary any
notices, reports and other communications received from the Company or the
Guarantor that are received by the Global Depositary as holder of the Global
Securities.
SECTION 2.15 Additional Amounts.
All payments made on Book-Entry Interests will be made free and clear of
and without deduction or withholding for or on account of any present or future
taxes, duties, assessments or governmental charges of whatever nature unless
the withholding or deduction is then required by law. If any such deduction or
withholding is required by the United Kingdom or any political subdivision or
taxing authority thereof or therein ("Taxes"), each owner of Book-Entry
Interests of either series shall be entitled to receive from the Global
Depositary additional amounts ("Additional Amounts") with respect
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to any such payment, but subject to the limitations contained in the Indenture,
such Additional Amounts and limitations to be applied for these purposes by
treating the owner of any Book-Entry Interests as a Holder or beneficiary of
such payments (referred to in Section 1016 - Additional Amounts in the
Indenture). At least 10 days prior to the first date on which withholding on
account of Taxes would be required under applicable law or payment of
Additional Amounts would be required pursuant to this Section 2.15 to be made,
and at least 10 days prior to any subsequent such date if there has been any
change with respect to such matters, the Company will furnish the Global
Depositary with an Officers' Certificate that shall specify by country the
amount, if any, required to be withheld on such payments to the Depositary and
the amount of Additional Amounts payable to the Depositary, net of amounts to
which the Depositary or any owner of a Book-Entry Interest of such series is
not entitled. The Global Depositary shall have no responsibility for
determining whether a Depositary or any owner of a Book-Entry Interest is
entitled to the payment of Additional Amounts, but shall be entitled to rely
conclusively for this purpose on the Officers' Certificate or on certifications
from the Depositary. The Company shall indemnify the Global Depositary for,
and hold it harmless against, any loss, liability or expense reasonably
incurred without negligence or bad faith on its part arising out of or in
connection with actions taken or omitted by it in reliance on any Officers'
Certificate furnished to it pursuant to this Section 2.15 or failure to furnish
any such Officers' Certificate. Notwithstanding anything to the contrary
provided above, the Global Depositary shall pay or cause to be paid Additional
Amounts only out of funds that shall be received by it from the Company or the
Guarantor for that purpose.
ARTICLE THREE
THE GLOBAL DEPOSITARY
SECTION 3.01 Certain Duties and Responsibilities.
(a) The Global Depositary undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement.
(b) No provision of this Agreement shall be construed to relieve the
Global Depositary from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that
(1) the duties and obligations of the Global Depositary with respect
to the Depositary Interests and the Global Securities shall be determined
solely by the express provisions of this Agreement and the Global
Depositary shall not be liable except for the performance of such duties
and obligations as are specifically set forth in this Agreement, and no
implied covenants or obligations shall be read into this Agreement
against the Global Depositary; and
(2) in the absence of bad faith on its part, the Global Depositary
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any statements,
certificates or opinions furnished to the Global Depositary and
conforming to the requirements of this Agreement, but in the case of any
such statements, certificates or opinions that by any provision hereof
are specifically required to be furnished to the Global Depositary,
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the Global Depositary shall be under a duty to examine the same to
determine whether or not they conform to the requirements of this
Agreement.
(c) The Global Depositary shall not be liable for any error of judgment
made in good faith by a Responsible Officer of the Global Depositary, unless it
shall be proved that the Global Depositary was negligent in ascertaining the
pertinent facts.
(d) The Global Depositary shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the Depositary relating to the time, method and place of
conducting any proceeding for any remedy available to the Global Depositary, or
exercising any power conferred upon the Global Depositary, under this
Agreement.
(e) No provision of this Agreement shall require the Global Depositary to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(f) Whether or not therein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Global Depositary shall be subject to the provisions of this
Section.
SECTION 3.02 Notice of Default.
Within 90 days after the occurrence of any Event of Default under the
Indenture of which a Responsible Officer of the Global Depositary assigned to
its Corporate Trustee Administration Department has actual knowledge, the
Global Depositary shall transmit by mail to the Depositary in the manner
provided in Section 4.02, notice of such Event of Default, provided that such
Event of Default shall be continuing.
SECTION 3.03 Certain Rights of Global Depositary.
Subject to the provisions of Section 3.01 hereof:
(a) the Global Depositary may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon, security, or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) any request or direction of the Company or the Guarantor
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate, a Company Order or Company Request or a Guarantor Order or
Guarantor Request, as the case may be, and any resolution of the Board of
Directors of the Company or the Guarantor may be sufficiently evidenced
by a Board Resolution;
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(c) the Global Depositary may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection with respect to any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon
in accordance with such advice or Opinion of Counsel;
(d) the Global Depositary shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document, but the Global Depositary, in its discretion,
may make reasonable further inquiry or investigation into such facts or
matters related to the issuance of any Global Securities and if the
Global Depositary shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books, records and
premises of the Company, at reasonable times during normal business
hours, personally or by agent or attorney;
(e) the Global Depositary may execute any of the powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Global Depositary shall not be responsible for any
misconduct or negligence on the part of any such agent or attorney
appointed with due care by it hereunder;
(f) the Global Depositary shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement at the
request, order or direction of the Depositary pursuant to this Agreement,
unless the Depositary shall have offered to the Global Depositary
reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request,
order or direction, provided that such request, order or direction shall
not expose the Global Depositary to personal liability;
(g) the Global Depositary shall not be liable for any action taken
or omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion, rights or powers conferred upon it
by this Agreement; and
(h) whenever in the administration of its duties under this
Agreement the Global Depositary shall deem it necessary or desirable that
a matter be proved or established prior to taking or suffering or
omitting any action hereunder, such matter (unless other evidence in
respect thereof be herein specifically prescribed) may, in the absence of
negligence or bad faith on the part of the Global Depositary, be deemed
to be conclusively proved and established by an Officers' Certificate
delivered to the Global Depositary.
SECTION 3.04 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in the Indenture and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company or the Guarantor, as the case may be, and the Global Depositary
assumes no responsibility for their correctness. The Global Depositary makes
no representations as to the validity or sufficiency of this Agreement or of
the Securities or of any offering materials. The Global Depositary shall not
be accountable for the use or application by the Company of the proceeds with
respect to the Securities.
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SECTION 3.05 Money Held in Trust.
Money held by the Global Depositary in trust hereunder need not be
segregated from other funds held by the Global Depositary, except to the extent
required by law. The Global Depositary shall be under no obligation to invest
or pay interest on any money received by it hereunder, except as otherwise
agreed with the Depositary (or in the absence of such an agreement, with the
Company).
SECTION 3.06 Compensation and Reimbursement.
The Company agrees:
(a) to pay to the Global Depositary from time to time such
compensation as agreed between them in writing for all services rendered
by it hereunder (which compensation shall not be limited by any provision
of law with regard to the compensation of a trustee of an express trust);
(b) to reimburse the Global Depositary and any predecessor Global
Depositary upon its request for all reasonable expenses, disbursements
and advances incurred or made by the Global Depositary in accordance with
any provision of this Agreement (including the reasonable compensation
and the expenses and disbursements of its agents and counsel), except any
such expense, disbursement or advance as may be attributable to its
negligence or bad faith; and
(c) to indemnify the Global Depositary and any predecessor Global
Depositary for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of this
Agreement and its duties hereunder, including the costs and expenses of
defending itself against or investigating any claim of liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
The obligations of the Company under this Section to compensate and
indemnify the Global Depositary and any predecessor Global Depositary and to
pay or reimburse the Global Depositary and any predecessor Global Depositary
for expenses, disbursements and advances shall survive the payment of the
Global Securities, resignation or removal of the Global Depositary and
satisfaction, discharge or other termination of this Agreement.
SECTION 3.07 Global Depositary Required; Eligibility.
At all times when there is a Global Depositary hereunder, such Global
Depositary shall be a corporation organized and doing business under the laws
of the United States of America, any State thereof or the District of Columbia,
having, together with its parent, a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by Federal, State or
District of Columbia authority, willing to act on reasonable terms. Such
corporation shall have its principal place of business in the Borough of
Manhattan, the City of New York, if there be such a corporation in such
location willing to act upon reasonable and customary terms and conditions. If
such corporation, or its parent, publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
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supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. The Global Depositary hereunder shall at all times be
the Trustee under the Indenture, subject to receipt of an Opinion of Counsel
that the same Person is precluded by law from acting in such capacities. If at
any time the Global Depositary shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
SECTION 3.08 Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Global Depositary and no appointment
of a successor Global Depositary pursuant to this Article shall become
effective until (i) the acceptance of appointment by the successor Global
Depositary in accordance with the applicable requirements of Section 3.09
hereof or (ii) the issuance of Definitive Registered Securities in accordance
with Section 2.05 hereof.
(b) The Global Depositary may resign by giving written notice thereof to
the Company and the Depositary, in accordance with Section 4.01 and Section
4.02, 60 days prior to the effective date of such resignation. The Global
Depositary may be removed at any time upon 90 days' notice by the filing with
it of an instrument in writing signed on behalf of the Company and specifying
such removal and the date when it is intended to become effective.
(c) If at any time
(1) the Global Depositary shall cease to be eligible under Section
3.07 hereof and shall fail to resign after written request therefor by
the Company or by the Depositary, or
(2) the Global Depositary shall become incapable of acting with
respect to the Depositary Interests or shall be adjudged a bankrupt or
insolvent, or a receiver or liquidator of the Global Depositary or of its
property shall be appointed or any public officer shall take charge or
control of the Global Depositary or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by Board Resolution, may immediately
remove the Global Depositary and appoint a successor Global Depositary or (ii)
the Depositary or Global Depositary may, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the
removal of the Global Depositary and the appointment of a successor Global
Depositary or Global Depositaries unless the Global Securities have been
completely replaced by Definitive Registered Securities which have been issued
in accordance with the Indenture. Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, remove the Global Depositary and
appoint a successor Global Depositary.
(d) If the Global Depositary shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Global Depositary for
any cause, the Company, by Board Resolution, shall promptly appoint a successor
Global Depositary (other than the Company) and shall comply with the applicable
requirements of Section 3.09 hereof. If no successor Global Depositary with
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<PAGE> 18
respect to the Global Securities shall have been so appointed by the Company
and accepted appointment in the manner required by Section 3.09, the Depositary
or Global Depositary may, on behalf of itself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Global Depositary unless the Global Securities have been completely
replaced by Definitive Registered Securities which have been issued in
accordance with the Indenture.
(e) The Company shall give, or shall cause such successor Global
Depositary to give, notice of each resignation and each removal of a Global
Depositary and each appointment of a successor Global Depositary to the
Depositary in accordance with Section 4.02 hereof. Each notice shall include
the name of the successor Global Depositary and the address of its Corporate
Trust Office. If the Company fails to give notice within ten days after
acceptance of appointment by the successor Global Depositary, the successor
Global Depositary shall cause such notice to be given at the expense of the
Company.
SECTION 3.09 Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Global Depositary,
every such successor Global Depositary so appointed shall execute, acknowledge
and deliver to the Company and to the retiring Global Depositary an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Global Depositary shall become effective and such successor Global
Depositary, without any further act, deed or conveyance, shall become vested
with all the rights, powers, agencies and duties of the retiring Global
Depositary, with like effect as if originally named as Global Depositary
hereunder; but, on the request of the Company or the successor Global
Depositary, such retiring Global Depositary shall, upon payment of all amounts
due and payable to it pursuant to Section 3.06 hereof, execute and deliver an
instrument transferring to such successor Global Depositary all the rights and
powers of the retiring Global Depositary and shall duly assign, transfer and
deliver to such successor Global Depositary all property and money held by such
retiring Global Depositary hereunder and shall deliver the Global Securities to
the successor.
(b) Upon request of any such successor Global Depositary, the Company
shall execute any and all instruments for more fully and certainly vesting in
and confirming to such successor Global Depositary all such rights, powers and
agencies referred to in paragraph (a) of this Section.
(c) No successor Global Depositary shall accept its appointment unless at
the time of such acceptance such successor Global Depositary shall be eligible
under this Article.
(d) Upon acceptance of appointment by any successor Global Depositary as
provided in this Section, the Company shall give notice thereof to the
Depositary in accordance with Section 4.02 hereof. If the acceptance of
appointment is substantially contemporaneous with the resignation of the Global
Depositary, then the notice called for by the preceding sentence may be
combined with the notice called for by Section 3.08 hereof. If the Company
fails to give such notice within 15 days after acceptance of appointment by the
successor Global Depositary, the successor Global Depositary shall promptly
cause such notice to be given at the expense of the Company.
-17-
<PAGE> 19
SECTION 3.10 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Global Depositary may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Global Depositary
shall be a party, or any corporation succeeding to all or substantially all the
agency business of the Global Depositary, shall be the successor of the Global
Depositary hereunder, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation shall be otherwise eligible under this Article.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
SECTION 4.01 Notices to Global Depositary or Company.
Any request, demand, authorization, direction, notice, consent, or waiver
or other document provided or permitted by this Agreement to be made upon,
given or furnished to, or filed with,
(a) the Global Depositary by the Depositary, the Trustee or the Company
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and delivered
or mailed and received, first-class postage prepaid, to the Global Depositary
at its Corporate Trust Office, Attention: Corporate Trust Trustee
Administration Department, or at any other address previously furnished in
writing by the Global Depositary to the Depositary, the Trustee and the
Company, or
(b) the Company, by the Global Depositary shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided) if made, given,
furnished or filed in writing and delivered or mailed and received, first-class
postage prepaid to Diamond Holdings plc, Attention: Chief Financial Officer,
Diamond Cable Communications Plc, Diamond Plaza, Daleside Road, Nottingham, NG2
3GG, England, or at any other address previously furnished in writing to the
Global Depositary by the Company.
SECTION 4.02 Notice to Depositary and Owners; Waiver.
Where this Agreement provides for notice to the Depositary or owners of
Book-Entry Interests of any event, such notice shall be sufficiently given
(unless otherwise herein expressly provided or as provided in the Letter of
Representations) if in writing and mailed, first-class postage prepaid, to the
Depositary at the address notified to the Global Depositary, in each case not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. Where this Agreement provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by the Depositary shall be filed
with the Global Depositary, but such filing shall not be a condition precedent
to the validity of any such action taken in reliance upon such waiver.
-18-
<PAGE> 20
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Global Depositary
shall constitute a sufficient notification for every purpose hereunder.
SECTION 4.03 Effect of Headings.
The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.
SECTION 4.04 Successors and Assigns.
All covenants and agreements of the Company in this Agreement and the
Securities shall bind the Company's successors and assigns, whether so
expressed or not.
SECTION 4.05 Separability Clause.
In case any provision in this Agreement or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof and thereof shall not in any way be affected or
impaired thereby.
SECTION 4.06 Benefits of Agreement.
Nothing in this Agreement, the Securities or the Indenture, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any benefits or any legal or equitable right, remedy or
claim under this Agreement. The owners from time to time of the Book-Entry
Interests shall be parties to this Agreement and, by their acceptance of
delivery of the Book-Entry Interests, shall be deemed to be bound by all of the
terms and conditions hereof and of the Indenture and the Securities.
SECTION 4.07 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW THEREOF.
SECTION 4.08 Jurisdiction.
By the execution and delivery of this Agreement, the Company (i)
acknowledges that it has, by separate written instrument, irrevocably
designated and appointed CT Corporation System as its authorized agent upon
which process may be serviced in any suit or proceeding by the Global
Depositary arising out of this Agreement that may be instituted in any Federal
or State court in the Borough of
-19-
<PAGE> 21
Manhattan, The City of New York, and acknowledges that CT Corporation System
has accepted such designation, (ii) submits to the jurisdiction of any such
court in any such suit or proceeding, and waives any objection which it may now
or hereafter have to the laying of venue of any such proceeding or any claim of
inconvenient forum and (iii) agrees that service of process upon CT Corporation
System and written notice of said service to it (mailed or delivered to its
Secretary at its principal office) shall be deemed in every respect effective
service of process upon it in any such suit or proceeding. The Company further
agrees to take any and all action, including the execution and filing of any
and all such documents and instruments, as may be necessary to continue such
designation and appointment of CT Corporation System in full force and effect
so long as this Agreement shall be in full force and effect and so long as any
Global Security shall be outstanding.
To the extent that the Company has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution
or otherwise) with respect to itself or its property, hereby irrevocably waives
such immunity in respect of its respective obligations under this Agreement to
the fullest extent permitted by law.
SECTION 4.09 Counterparts.
This Agreement may be executed in any number of counterparts by the
parties hereto on separate counterparts, each of which, when so executed and
delivered, shall be deemed an original, but all such counterparts shall
together constitute one and the same instrument.
SECTION 4.10 Inspection of Agreement.
A copy of this Agreement shall be available at all reasonable times during
normal business hours at the Corporate Trust Office of the Global Depositary
for inspection by any owner of Book-Entry Interests.
SECTION 4.11 Satisfaction and Discharge.
This Agreement upon a Company Request shall cease to be of further effect,
and the Global Depositary, at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Agreement, when
(i) the Indenture has been satisfied and discharged pursuant to the provisions
thereof or Definitive Registered Securities have been issued and the Global
Securities have been cancelled in accordance with the provisions of Section
2.05 or 2.06 hereof, (ii) the Company has paid or caused to be paid all sums
payable hereunder by the Company and (iii) the Company has delivered to the
Global Depositary an Officers' Certificate and an Opinion of Counsel, stating
that all conditions precedent herein provided relating to the satisfaction and
discharge of this Agreement have been complied with.
-20-
<PAGE> 22
SECTION 4.12 Amendments.
The Company and the Global Depositary may amend this Agreement without the
consent of the Depositary or the owners of Book-Entry Interests:
(a) to cure any ambiguity, omissions, defect or inconsistency;
(b) to add to the covenants and agreements of the Global Depositary or the
Company;
(c) to evidence or effectuate the assignment of the Global Depositary's
rights and duties to a qualified successor, as provided herein;
(d) to evidence the succession of another person to the Company (when a
similar amendment with respect to the Indenture is being executed) and the
assumption by any such successor of the covenants of the Company therein;
(e) to comply with any requirements of the Securities and Exchange
Commission and the TIA; or
(f) to modify, alter, amend or supplement this Agreement in any other
manner that is not adverse to the Depositary or the owners of Book-Entry
Interests.
No amendment that adversely affects the Depositary may be made to this
Agreement or the Book-Entry Interests without the consent of the Depositary.
SECTION 4.13 Global Depositary To Sign Amendments.
The Global Depositary shall sign any amendment authorized pursuant to
Section 4.12 if the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Global Depositary. If it does, the Global
Depositary may, but need not, sign it. In signing such amendment, the Global
Depositary shall be entitled to receive indemnity reasonably satisfactory to it
and to receive, and shall be fully protected in reasonably relying upon, an
Officers' Certificate (which need only cover the matters set forth in clause
(a) below) and an Opinion of Counsel stating that:
(a) such amendment is authorized or permitted by this Agreement;
(b) the Company has all necessary corporate power and authority to execute
and deliver the amendment and that the execution, delivery and performance of
such amendment has been duly authorized by all necessary corporate action;
(c) the execution, delivery and performance of the amendment do not
conflict with, or result in the breach of or constitute a default under any of
the terms, conditions or provisions of (i) this Agreement, (ii) the Memorandum
of Association and Articles of Association of the Company or (iii) any law or
regulation applicable to the Company; and
-21-
<PAGE> 23
(d) such amendment has been duly and validly executed and delivered by the
Company, and this Agreement together with such amendment constitutes a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and general equitable principles.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first written above.
DIAMOND HOLDINGS PLC
/s/ Robert T. Goad
______________________________________
Name: Robert T. Goad
Title: Director
THE BANK OF NEW YORK
as Global Depositary
/s/ Mike Hellmuth
______________________________________
Name: Mike Hellmuth
Title: Vice President
-22-
<PAGE> 24
ANNEX A -- Form of
Regulation S Certificate
REGULATION S CERTIFICATE
The Bank of New York, as Global Depositary
101 Barclay Street, 21st Floor
New York, New York 10286
Re: [10%] [9 1/8%] Senior Notes due February 1, 2008
of Diamond Holdings plc, Guaranteed as to Payment of Principal
and Interest by Diamond Cable Communications Plc (the
"[Sterling] [Dollar] Securities")
Reference is made to the Senior Notes Depositary Agreement, dated as of
February 6, 1998 (the "Deposit Agreement"), among inter alia The Bank of New
York, as Global Depositary, and the owners of Book-Entry Interests. Terms used
herein and defined in the Deposit Agreement or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to [Pound Sterling ___________] [U.S. $__________]
principal amount of Securities, or Book-Entry Interests therein (the "Specified
Securities"):
CUSIP No(s). ___________________________
CERTIFICATE No(s). _____________________
AGENT MEMBER'S
ACCOUNT No(s). _________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security,
Book-Entry Interests therein are held through [The Depository Trust Company, in
the case of the Dollar Securities, and Euroclear and Cedel, in the case of the
Sterling Securities] or an agent member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Regulation S
Security. In connection with such transfer, the Owner hereby certifies that,
unless such transfer is being effected pursuant to an effective registration
statement under the Securities Act, it is being effected in accordance with
Rule 904 or Rule 144 under the Securities Act and with all applicable securities
laws of the states of the United States and other jurisdictions. Accordingly,
the Owner hereby further certifies as follows:
A-1
<PAGE> 25
(1) Rule 904 Transfers. If the transfer is being effected in accordance
with Rule 904:
(A) the Owner is not a distributor of the Securities, an
affiliate of Diamond Holdings plc (the "Company") or any such
distributor or a person acting on behalf of any of the foregoing;
(B) the offer of the Specified Securities was not made to a
person in the United States or for the account or benefit of a U.S.
Person;
(C) either:
(i) at the time the buy order was originated, the
Transferee was outside the United States or the Owner and any
person acting on its behalf reasonably believed that the
Transferee was outside the United States, or
(ii) the transaction is being executed in, on or
through the facilities of the Eurobond market, as regulated
by the Association of International Bond Dealers, or another
designated offshore securities market and neither the Owner
nor any person acting on its behalf knows that the
transaction has been prearranged with a buyer in the United
States;
(D) no directed selling efforts have been made in the United
States by or on behalf of the Owner or any affiliate thereof;
(E) if the Owner is a dealer in securities or has received a
selling concession, fee or other renumeration in respect of the
Specified Securities, and the transfer is to occur during the
Restricted Period, then the requirements of Rule 904(c)(1) have
been satisfied; and
(F) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act.
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after February 6, 1999 and is
being effected in accordance with the applicable amount, manner of
sale and notice requirements of Rule 144; or
(B) the transfer is occurring after February 6, 2000 and the
Owner is not, and during the preceding three months has not been,
an affiliate of the Company.
A-2
<PAGE> 26
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Purchasers.
Dated: ________________________________________________
(Print the name of the Undersigned, as such term
is defined in the second paragraph of this
certificate.)
By:______________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
A-3
<PAGE> 27
ANNEX B -- Form of Restricted
Securities Certificate
RESTRICTED SECURITIES CERTIFICATE
The Bank of New York, as Global Depositary
101 Barclay Street, 21st Floor
New York, New York 10286
Re: [10%] [9 1/8%] Senior Notes due February 1, 2008
of Diamond Holdings plc, Guaranteed as to Payment of Principal
and Interest by Diamond Cable Communications Plc (the
"[Sterling] [Dollar] Securities")
Reference is made to the Senior Notes Depositary Agreement, dated as of
February 6, 1998 (the "Deposit Agreement"), among inter alia The Bank of New
York, as Global Depositary, and the owners of Book-Entry Interests. Terms used
herein and defined in the Deposit Agreement or in Regulation S or Rule 144
under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as
so defined.
This certificate relates to [Pound Sterling ____________] [U.S. $_________]
principal amount of Securities, or Book-Entry Interests therein (the "Specified
Securities"):
CUSIP No(s). __________________________________
CERTIFICATE No(s). ____________________________
AGENT MEMBER'S
ACCOUNT No(s). ________________________________
The person in whose name this certificate is executed below (the "Undersigned")
hereby certifies that either (i) it is the sole beneficial owner of the
Specified Securities or (ii) it is acting on behalf of all the beneficial
owners of the Specified Securities and is duly authorized by them to do so.
Such beneficial owner or owners are referred to herein collectively as the
"Owner". If the Specified Securities are represented by a Global Security,
Book-Entry Interests therein are held through [The Depository Trust Company]
[Euroclear and Cedel] or an agent member in the name of the Undersigned, as or
on behalf of the Owner. If the Specified Securities are not represented by a
Global Security, they are registered in the name of the Undersigned, as or on
behalf of the Owner.
The Owner has requested that the Specified Securities be transferred to a
person (the "Transferee") who will take delivery in the form of a Restricted
Security. In connection with such
B-1
<PAGE> 28
transfer, the Owner hereby certifies that, unless such transfer is being
effected pursuant to an effective registration statement under the Securities
Act, it is being effected in accordance with Rule 144A or Rule 144 under the
Securities Act and all applicable securities laws of the states of the United
States and other jurisdictions. Accordingly, the Owner hereby further
certifies as:
(1) Rule 144A Transfers. If the transfer is being effected in
accordance with Rule 144A:
(A) the Specified Securities are being transferred to a person
that the Owner and any person acting on its behalf reasonably believe
is a "qualified institutional buyer" within the meaning of Rule 144A,
acquiring for its own account or for the account of a qualified
institutional buyer; and
(B) the Owner and any person acting on its behalf have taken
reasonable steps to ensure that the Transferee is aware that the Owner
may be relying on Rule 144A in connection with the transfer; and
(2) Rule 144 Transfers. If the transfer is being effected pursuant to
Rule 144:
(A) the transfer is occurring after February 6, 1999 and is being
effected in accordance with the applicable amount, manner of sale and
notice requirements of Rule 144; or
(B) the transfer is occurring after February 6, 2000 and the
Owner is not, and during the preceding three months has not been, an
affiliate of the Diamond Holdings plc (the "Company").
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company and the Purchasers.
Dated: ________________________________________________
(Print the name of the Undersigned, as such term
is defined in the second paragraph of this
certificate.)
By: _____________________________________________
Name:
Title:
(If the Undersigned is a corporation, partnership
or fiduciary, the title of the person signing on
behalf of the Undersigned must be stated.)
B-2
<PAGE> 1
EXHIBIT 8.2
[FRESHFIELDS LETTERHEAD]
The Directors DIRECT DIAL
Diamond Holdings plc OUR REFERENCE SMP/CAM
Diamond Plaza YOUR REFERENCE 0171 8327145
Daleside Road DOC ID LV080760.827/3
Nottingham NG2 36C
17 March 1998
Dear Sirs
DIAMOND HOLDINGS PLC (THE COMPANY)
POUND STERLING 135,000,000 10% SENIOR NOTES DUE FEBRUARY 1, 2008 AND
$110,000,000 9 1/8 SENIOR NOTES DUE FEBRUARY 1, 2008 (THE
SECURITIES)
INTRODUCTION
1. We have acted as English legal advisers to the Company in relation to the
issue (the ISSUE) by the Company of the Securities for the limited purpose
referred to in this opinion. We understand that the Securities are to be listed
on the Luxembourg Stock Exchange and registered under the United States
Securities Act of 1933, as amended, (the SECURITIES ACT) pursuant to a
registration statement on Form S-4 (the REGISTRATION STATEMENT) filed under the
Securities Act with the Securities and Exchange Commission. We have been asked
by the Company to deliver our opinion in respect of the section under the
headings SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES and TAXATION --
UNITED KINGDOM in the Registration Statement.
2. For the purposes of this opinion we have examined the documents listed in
the Schedule to this opinion. Terms defined in the Schedule have the same
meaning where used in this opinion. In this opinion the definitive Securities,
the Global Security, the Depositary Agreement and the Indenture are together
referred to as the ISSUE DOCUMENTS.
3. This opinion is confined to matters of English law as applied by the
English courts and is given on the basis that it will be governed by and
construed in accordance with English law at the date of this opinion.
Accordingly, we express no opinion herein with regard to any system of law
other than the laws of England as currently applied by the English courts. In
particular, we express no opinion on
<PAGE> 2
[FRESHFIELDS LETTERHEAD]
European Community law as it affects any jurisdiction other than England. This
opinion is based on the laws of England as currently applied by the English
courts and on generally published practice of the Inland Revenue and H.M.
Customs and Excise applying as at the date of this opinion. This opinion is to
be governed by and construed in accordance with English law as at the date of
this opinion and is subject to changes to laws and practices and any relevant
judicial decisions, subsequent to the date of this opinion. This opinion does
not take account of any changes in United Kingdom law or practice announced in
or which may occur pursuant to the Budget statement made by the United Kingdom
Chancellor of the Exchequer on 17 March 1998. To the extent that the laws of the
United States of America or any State thereof may be relevant, we have made no
investigation thereof.
ASSUMPTIONS
4. In considering the documents referred to above and in rendering this
opinion we have with your consent and without any further enquiry assumed:
(a) the genuineness of all signatures on, and the authenticity and completeness
of, all documents submitted to us whether as originals or copies;
(b) the conformity to originals of all documents supplied to us as photocopies
or facsimile copies;
(c) that the Issue Documents will be executed in the form of the drafts
examined by us;
(d) that the Issue Documents will be executed by duly authorised directors of
the Company;
(e) that the Issue Documents will be duly authorised, executed and delivered by
each of the parties thereto in accordance with all applicable laws;
(f) that the Issue Documents constitute legal, valid and binding obligations of
each of the parties thereto enforceable in accordance with their terms
under all applicable laws (including the laws of the State of New York by
which the Issue Documents are expressed to be governed and including, in
the case of the Company, the laws of England); and
(g) that in any proceedings before the English courts with respect to the Issue
Documents satisfactory evidence of the laws of the State of New York (by
which the Issue Documents are expressed to be governed) which is required
to be pleaded and proved as a fact in such proceedings, could and would be
so pleaded and proved.
<PAGE> 3
[FRESHFIELDS LETTERHEAD]
OPINION
5. On the basis of, and subject to, the foregoing and the matters set out in
paragraph 6 below and subject to any matters not disclosed to us, and having
regard to such considerations of English law in force, and generally published
practice of the Inland Revenue and H.M. Customs and Excise applying, as at the
date of this opinion as we consider relevant, we are of the opinion that the
statements in the prospectus forming part of the Registration Statement under
the heading TAXATION-UNITED KINGDOM, insofar as such statements relate to United
Kingdom tax matters under English law and practice in relation to prospectuses,
fairly summarises the potential United Kingdom tax consequences to a U.S. Holder
as therein defined.
CONSENTS
6. We hereby consent to the references to our name under the caption SERVICE
OF PROCESS AND ENFORCEMENT OF LIABILITIES and to our name and opinion under the
caption TAXATION and to the opinion being filed as an exhibit to the
Registration Statement. In giving this consent, we do not hereby admit that we
are within the category of persons whose consent is required within Section 7 of
the United States Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Yours faithfully
/s/ Freshfields
Freshfields
<PAGE> 4
[FRESHFIELDS LETTERHEAD]
THE SCHEDULE
(a) a copy of an Indenture relating to the Securities (the INDENTURE) between
the Company and The Bank of New York;
(b) a copy of a Senior Notes Depositary Agreement relating to the Securities
(the DEPOSITARY AGREEMENT) between the Company and The Bank of New York;
and
(c) the draft forms of the definitive Securities and Global Security (the
GLOBAL SECURITY) set out in the Indenture.
<PAGE> 1
Exhibit 10.9
SERVICE CONTRACT
1. INTRODUCTION
This Contract 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 pound sterling 75,000 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 pound sterling 100,000 per annum with a maximum
earnings of pound sterling 125,000 per annum.
Continued...
Diamond Cable Communications is the business name of
Diamond Cable (Nottingham) Limited, a member of the Diamond Cable Communications
Group of companies
Diamond Plaza Daleside Road Nottingham NG2 3GG Telephone: (0115) 952 2222
Facsimile: (0115) 912 2211
LOGO
<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 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
- Page Three -
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 Contract.
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 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
UNAUDITED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
US GAAP
Earnings:
Profit and loss before taxes....................... L.(27,607) L.(35,830) L.(76,604)
FIXED CHARGES:
Interest element of capital lease charges.......... 515 853 535
Rental expense deemed to be representative of
interest factor(1)................................. 244 386 415
Other interest expense............................. 1,956 381 1,493
Amortisation of debt discount and expense.......... 14,647 39,100 64,339
------- -------- ---------
17,362 40,720 67,782
------- -------- ---------
(Loss)/profit before income taxes and fixed charges (10,245) 4,890 (9,822)
Fixed charges...................................... (17,362) (40,720) (66,782)
Deficiency of earnings to fixed charges............ (27,607) (35,830) (76,604)
Ratio of earnings to fixed charges(2).............. N/A N/A N/A
</TABLE>
(1) For the purposes of the calculation of the deficiency/ratio of earnings
to fixed charges the portion of rental expenses deemed to be
representative of the interest factor is 1/3 of the rental expense.
(2) The ratio of earnings to fixed charges is computed by aggregating:
(a) income from continuing operations before taxes on income;
(b) fixed charges.
and dividing the total by fixed charges.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
To the shareholders
Diamond Cable Communications Plc:
We consent to the use of our reports with respect to Diamond Cable
Communications Plc included herein and to the references to our firm under the
headings "Experts" and "Selected Financial Data" in the Prospectus.
KPMG
Nottingham, England
March 20, 1998
