-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AJ8y7UWCIEmWXtboDT43WD3O7THoSxqVFPesMxlyQ6oH2i56AhpVbFO5koLqPeiJ hwdj1QS+el/k95QE1UFbCw== 0001021408-97-000086.txt : 19970329 0001021408-97-000086.hdr.sgml : 19970329 ACCESSION NUMBER: 0001021408-97-000086 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NTL INC /DE/ CENTRAL INDEX KEY: 0000906347 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 521822078 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22616 FILM NUMBER: 97567230 BUSINESS ADDRESS: STREET 1: 110 E 59TH ST STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129048440 MAIL ADDRESS: STREET 1: 110 EAST 59TH STREET STREET 2: 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL CABLETEL INC DATE OF NAME CHANGE: 19930601 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________ F O R M 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the Transition Period From __________ to _________ Commission File No. 0-22616 NTL INCORPORATED ------------------------------------------------------------ (Exact name of registrant as specified in its charter) (ON MARCH 26, 1997, THE NAME OF THE REGISTRANT WAS CHANGED FROM INTERNATIONAL CABLETEL INCORPORATED TO NTL INCORPORATED) Delaware 52-1822078 - ----------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 110 East 59th Street, New York, New York 10022 - ---------------------------------------------------- ----------- (Address of principal executive offices) (Zip Code) (212) 906-8440 ----------------------------------- (Registrant's telephone number, including area code) _________ Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share -------------------------------------- (Title of Classes) 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 whether disclosure by delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[_] The aggregate market value of the registrant's voting stock held by non- affiliates at March 24 , 1997, valued in all cases in accordance with the NASDAQ/NMS closing sale price for the registrant's Common Stock was approximately $616,818,000. Number of shares of Common Stock outstanding as at March 24, 1997: 32,095,167. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Document Part of 10-K in which -------- --------------------- Incorporated ------------ Definitive proxy statement for the 1997 Annual Meeting of the Stockholders of NTL Incorporated: Part III * * * * * * "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: EXCEPT FOR THE HISTORICAL INFORMATION PRESENTED, THE MATTERS DISCUSSED IN THIS REPORT MAY INCLUDE FORWARD-LOOKING STATEMENTS. THEY REPRESENT THE COMPANY'S REASONABLE JUDGMENT ON THE FUTURE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. SUCH FACTORS INCLUDE: A CHANGE IN ECONOMIC CONDITIONS IN THE VARIOUS GEOGRAPHIC AREAS SERVED BY THE COMPANY'S OPERATIONS WHICH WOULD ADVERSELY AFFECT THE LEVEL OF DEMAND FOR ITS PRODUCT; GREATER-THAN-ANTICIPATED COMPETITIVE ACTIVITY; AND THE IMPACT OF NEW BUSINESS OPPORTUNITIES. THESE AND OTHER FACTORS RELATED TO THE BUSINESS ARE DESCRIBED HEREIN. TABLE OF CONTENTS
Page ---- PART I - ------ Item 1 Business........................................ 3 Item 2 Properties...................................... 54 Item 3 Legal Proceedings............................... 55 Item 4 Submission of Matters to a Vote of Stockholders.................................... 56 PART II - ------- Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters........... 57 Item 6 Selected Financial Data......................... 58 Item 7 Management's Discussion and Analysis of Results of Operation and Financial Condition....................................... 60 Item 8 Financial Statements and Supplementary Data............................................ 72 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................................... 73 PART III - -------- Items 10, 11, 12, and 13................................... 73 PART IV - ------- Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 74 Exhibit Index............................................. 75 Signatures................................................ 85 Index to Financial Statements............................. F-1
PART I ------ ITEM 1. BUSINESS. - ------------------ INTRODUCTION NTL Incorporated, formerly International CableTel Incorporated (the "Company"), was incorporated in April 1993 under the laws of the State of Delaware. The Company entered the telephony/cable television and telecommunications market in the United Kingdom in 1993 and is now the third largest operator of telephony/cable television systems in the United Kingdom in terms of the number of homes in the franchise areas operated by the Company. In the past twelve months, the Company has expanded its local telecoms and television services business to include a national telecoms network, national television and radio broadcast transmission services and Internet service provision as well as other related communications businesses. In its franchise areas, the Company is constructing an integrated, high capacity, high speed, full-service network which allows the Company to offer customers residential telephone, cable television ("CATV") and business telecommunications services. The Company's local networks provide a two-way communications pathway which is also capable of delivering new services which may emerge from the convergence of telecommunications, information services and entertainment. In May 1996, the Company purchased NTL Group Limited which provides broadcast and broadband transmission and communications services on a nationwide basis in the United Kingdom. NTL Group Limited's core business has been the transmission of television programming for the Independent Television ("ITV") (Channel 3) companies and Channel 4 and the Welsh Fourth Channel ("S4C"). NTL Group Limited has also been awarded the contract for the transmission of the Channel 5 signal for Channel 5 Broadcasting Limited. Under contracts with those companies, NTL Group Limited is responsible for operating, monitoring and maintaining a broadcast transmission service. NTL Group Limited has enhanced its national infrastructure of over 1,200 owned and shared transmission sites throughout the United Kingdom to diversify beyond its core business and has expanded its national network to enter into the telecommunications and radio sectors. The Company, through NTL Group Limited, now operates a national broadband microwave communications network which it uses to provide carrier and trunk services to telecommunications companies, provides independent radio signal transmission, leases and manages cell sites for wireless telephony operators, commissions and maintains emergency service radio systems, operates satellite earth stations that uplink video signals to satellites and designs and builds studio and broadcast facilities. Management believes that the combination of the Company's local high capacity full-service networks and NTL Group Limited national diversified network creates a variety of strategic benefits for the Company. In August 1996 the Company entered into a share exchange agreement with Booth American Company, a Michigan corporation, Columbia Management, Inc., an Indiana corporation and Robert T. Goad, an Indiana resident (collectively, the "ECE Selling Stockholders") and B/G Co., an Indiana partnership. The agreement provides for, among other 1 things, the purchase by the Company of the 30% minority interest in English Cable Enterprises, Inc., a Delaware corporation ("ECE"), held by B/G Co. Pursuant to the agreement, the Company issued 1,415,000 shares of Company Common Stock to the ECE Selling Stockholders in exchange for such interest in ECE. ECE owns and operates, through subsidiaries, four telecommunications and CATV franchises to the north of London (Central and East Hertfordshire and South and North Bedfordshire) which comprise approximately 348,600 homes. In October 1996, the Company entered into an agreement with South Wales Electricity plc, a public limited company registered in England and Wales ("SWALEC"), and Swalec Telco Investments Limited, a private limited liability company registered in England and Wales which is a wholly-owned subsidiary of SWALEC ("Telco"). Pursuant to the agreement the Company purchased from Telco the 40% minority interest (comprising shares and loan notes) in CableTel Newport that the Company did not already own in exchange for 780 shares of the Company's Series A Preferred Stock. The Series A Preferred Stock has an aggregate Stated Value of $100,000 per share and is convertible into and redeemable for shares of Company Common Stock pursuant to the terms of the Certificate of Designation dated October 7, 1996. CableTel Newport owns and operates, through subsidiaries, telecommunications and CATV franchises in South Wales which together comprise 540,000 homes. In October 1996, the Company announced a new organizational structure integrating its local telephone, cable television and Internet businesses, with NTL Group Limited's national telecommunications and television transmission businesses. Five business divisions were created: Local Telecoms and Television Services, National Telecoms Services, Broadcast Services, Internet and Information Services and National Media Services. In March 1997, the Company changed its name to NTL Incorporated to reflect the integration of the services provided by the Company and NTL Group Limited to create a national telecommunications company in the United Kingdom and to capitalize on NTL Group Limited's legacy in the United Kingdom as a provider of reliable communications services in a variety of disciplines. Prior to October 1993, the Company was a wholly-owned subsidiary of OCOM Corporation ("OCOM"). On October 4, 1993, the stockholders of OCOM approved and adopted the Amended and Restated Agreement of Reorganization and Plan of Merger, dated as of May 28, 1993, as amended, among OCOM, the Company and CableTel Merger, Inc. (a wholly-owned subsidiary of the Company), pursuant to which on October 13, 1993, CableTel Merger, Inc. was merged with and into OCOM (the "Merger"). In the Merger, each outstanding share of common stock of OCOM was converted into one share of common stock of the Company. As a result of the Merger, OCOM became a wholly-owned subsidiary of the Company, which succeeded to the long distance telephone and microwave transmission business of OCOM. OCOM continues to provide long distance telephone and microwave transmission services primarily in Ohio. The Company's principal executive offices are located at 110 East 59th Street, New York, New York 10022, and its telephone number is (212) 906-8440. 2 BUSINESS DIVISIONS Local Telecoms and Television Services The Local Telecoms and Television Services division consists of the Company's core business of offering residential telephony, residential CATV and business telephony services in the Company's franchise areas in the United Kingdom. The Company has 16 separate franchises clustered into five Regional Areas. The Regional Areas span a wide geography across the United Kingdom and give the Company an operating presence not only in England, but in Scotland, Wales and Northern Ireland. In 1996, the Company acquired the remaining minority interests in its Suburban London and South Wales Regional Areas and now has 100% ownership interests in the licenses in all of its franchise areas. 3 Summary information for the franchises in each of the Regional Areas at December 31, 1996 is set forth below:
Total Ownership Homes in Regional Area Franchises Percentage Franchise(1) - ------------- ---------- ---------- ------------ Central Scotland.............. N.W. Glasgow/Clydebank 100.0% 128,000 Greater Glasgow 100.0 254,000 Bearsden/Milngavie 100.0 14,000 Paisley/Renfrew 100.0 73,000 Inverclyde/Eastwood 100.0 30,000 ------------ 499,000 ------------ South Wales................... Cardiff/Penarth 100.0% 103,000 Newport 100.0 85,000 Swansea/Neath 100.0 122,000 Glamorgan/Gwent(2) 100.0 230,000 ------------ 540,000 ------------ Suburban London................ Surrey/Hampshire 100.0% 136,000 Central Hertfordshire 100.0 102,000 East Hertfordshire 100.0 56,600 North Bedfordshire 100.0 95,000 South Bedfordshire 100.0 95,000 ------------ 484,600 ------------ West Yorkshire................ Huddersfield/Dewsbury 100.0% 138,400 ---------------------- ------------ Northern Ireland(3)........... 100.0% 428,000 ----------- Total all Franchises.......... 2,090,000 ============
___________________ (1) Total Homes in Franchise represents the Company's regulatory milestones which were derived from the 1981 census (being the census statistics at the date each license was granted). (2) The final regulatory milestone for the Gwent and Glamorgan local delivery operator license ("LDL") is 230,000 homes of the total of 330,000 homes in the LDL. (3) The final regulatory milestone for the Northern Ireland LDL is 428,000 homes of the total of 530,000 homes in the LDL. Operating Results Based on operating results and experience gained by management in the United States telecommunications market, the Company has developed marketing strategies that it believes will maximize customer subscription rates, customer retention and operating profitability. The Company continues to outperform the cable industry's overall customer penetration averages for the U.K. telephony and CATV business. As of December 31, 1996, the Company's integrated 4 full-service network had been constructed past 779,100 homes and had approximately 302,000 revenue generating units ("RGUs"). (An RGU is a telephone account or a CATV account (a dual customer generates two RGUs) and RGU penetration is the number of RGUs per 100 homes marketed.) This resulted in 64.6% RGU penetration, 32.0% telephone penetration and 32.6% cable television penetration of homes marketed. By comparison, based on the latest available published statistics of the Independent Television Commission ("ITC") dated January 1, 1997, U.K. cable customer penetration averaged approximately 25.77% for telephone and approximately 22.4% for cable television. In the fourth quarter of 1996, the Company added over 60,000 RGUs and increased the overall RGU penetration of homes marketed by more than 3% from 61.5% to 64.6%. In 1996, the number of the Company's total new dual network customers and RGUs both increased nearly 200% to 168,200 and 302,000, respectively. During this period, the Company believes it has also maintained high levels of customer satisfaction as indicated by the Company's low rate of churn (subscriber termination). During the fourth quarter of 1996, the Company's annualized churn rate on its new dual network was approximately 10.0%, a rate which is significantly lower than the published churn rates of other UK operators. The Company's churn rates may, however, increase in the future. During 1996, the Company also increased the number of homes to which it marketed its services. At the end of 1995, the Company had marketed to 176,200, or approximately 38%, of the homes passed by its dual service network. At the end of 1996, the Company had marketed to 467,300, or approximately 60%, of the homes passed by its dual service network. 5 The following table illustrates the number of homes passed, the number of homes marketed and the total number of customers and RGUs for the Company's newly constructed dual network: Newly Constructed Dual Network
December 31, ------------ December 31, September 30, June 30, March 31, 1996 1996 1996 1996 1995 1994 ------- ------- ------ ------ ------- -------- Homes Passed(1)........ 779,100 694,400 611,300 516,000 463,000 144,000 Homes Marketed......... 467,300 390,800 311,500 249,500 176,200 7,200 Total Customers........ 168,200 135,300 107,100 81,860 57,700 2,280 Dual................... 133,800 105,155 80,100 62,440 44,630 1,680 CATV-Only.............. 18,450 15,600 13,700 9,750 6,620 370 Telephone-Only......... 15,950 14,545 13,300 9,670 6,450 230 Total RGUs(2).......... 302,000 240,455 187,200 144,300 102,330 3,960 RGU Penetration(3)..... 64.6% 61.5% 60.1% 57.8% 58.1% 55.0% CATV Penetration....... 32.6% 30.9% 30.1% 28.9% 29.1% 28.5% Telephone Penetration.. 32.0% 30.6% 30.0% 28.9% 29.0% 26.5%
________________ (1) "Homes passed" is the expression in common usage in the cable industry as the measurement of the size of a cabled area, meaning the total number of residential premises which have the potential to be connected to the Company's network. This number does not include CATV-only homes which are only included in the Company's homes passed for the purposes of its regulatory milestones. (2) An RGU (revenue generating unit) is one telephone account or one CATV account; a dual customer generates two RGUs. (3) RGU Penetration is the number of RGUs per 100 homes marketed. Network Construction As of December 31, 1996, the Company had constructed its dual network past approximately 779,100 homes and had invested approximately $1.35 billion in the construction of the network and associated property, plant and equipment. The Company's licenses require it to roll out its network past a specified number of premises (or homes) each year. The total requirement for all the Company's licenses is to pass a minimum of 2,090,000 homes, which is less than the actual total of homes available to the Company should it wish to construct its network past them. Under the terms of its current licenses, from September 30, 1996 until the end of 2003, the Company is required to construct cable television systems passing an aggregate of approximately 1,296,000 additional premises (residential and business). As of December 31, 1996, the Company had a total of approximately 898,400 homes passed (or 43% of its total franchise homes) for the purposes of its regulatory milestones. The Company's regulatory milestone for 1996 was approximately 779,500 homes. The number of homes passed which count towards the Company's milestone requirements exceed the homes passed by the Company's full-service dual network stated above because, among other things, the licenses permit CATV-only homes inherited by the Company through prior acquisitions, which are not considered by the Company to be full-service network passings, to be included in the calculation of "homes passed". 6 The Company believes it will be able to satisfy its milestones in the future, but there can be no assurance that such milestones will be met or that any application to modify those milestones would be accepted. If the Company is unable to meet the construction milestones required by any of its licenses and is unable to obtain modifications to the milestones, the relevant license or licenses could be revoked, which would have a material adverse effect on the Company. National Telecoms Services The National Telecoms Services segment includes the Company's national telecoms, radio communications and satellite services business units. This division builds and operates digital networks for customers, typically covering capacities of 2 Mbit/sec. to 155 Mbit/sec., and provides managed bandwidth for video, audio, voice and data signals to various regions of the United Kingdom. Access to a national telecoms network represents one of the primary potential strategic benefits of the NTL Group Limited acquisition for the Company. The Company intends to connect its local broadband networks in its five Regional Areas to the national telecoms network in order to become a fully integrated national telecoms provider. The Company believes that it can maximize its return on its investment in its integrated full-service network by successfully combining its strategies for developing, operating and marketing "last mile" telephony/cable systems with its national transmission network to provide high-quality voice, data and communications services throughout the United Kingdom. The Company expects all seven of its local switches to be connected to the national telecoms network during 1997 and early 1998. The Company will begin carrying a portion of its own long distance traffic and will begin offering switched telecommunications services to other carriers in 1997. The Company has also implemented a microwave-to-fiber network enhancement program as a result of increased customer demand. Management believes that the integration of its local networks with the national telecoms network creates strategic advantages for the Company's telephony business. The telecoms network will allow the Company to carry telecommunications traffic between each of its Regional Areas and throughout the United Kingdom and, therefore, achieve significant savings on the interconnection fees it is currently paying other carriers. In addition, using the national telecoms network gives the Company greater pricing flexibility and, therefore, will enable the Company to design and offer new telephony service packages to its customers, which management believes should have a positive effect on the Company's penetration rates. The network infrastructures are separate from those of British Telecommunications plc ("BT") and Mercury (a subsidiary of Cable & Wireless plc), the largest national provider of telecommunications services in the United Kingdom, and a national public and telephone operator, respectively. The Company's network will be capable of delivering national long distance services in the United Kingdom in competition with BT and Mercury. 7 NTL Group Limited first entered the trunk communications business in 1993 by building digital networks for Westcountry TV, Yorkshire Tyne Tees Television, Anglia Television and S4C to link their independent studio facilities with NTL Group Limited's transmission facilities. In 1994, NTL Group Limited broadened the scope of this business by expanding into competitive trunk communications when it commissioned a network to link Vodafone's main cellular telephone exchanges. This network employed Synchronous Digital Hierarchy ("SDH") technology and was the first of its kind in the United Kingdom. NTL Group Limited has since expanded its network's geographic scope and capacity, increased its share of Vodafone's traffic and added a number of new customers including Orange, Plc. ("Orange"), the Civil Aviation Authority and Birmingham Cable. The Company also offers a range of satellite uplinking services including uplinks for a variety of entertainment channels to a number of satellites including ASTRA 1C, Intelsat, Eutelsat and Orion, and an international gateway service, which is capable of providing long distance and corporate communications. The Company provides connections to a number of satellites for clients requiring video, digital audio and data services. Customers include CBS, United Artists, Turner Broadcasting Systems and Virgin. This division operates three teleports, in Winchester, Croydon and central London, providing uplink services to a number of United Kingdom cable television programming suppliers. In addition, under the terms of its contract with Channel 5 Broadcasting, this division expects to distribute the Channel 5 program signal to the terrestrial transmission network via satellite links. This service is traditionally provided via terrestrial links secured from NTL, BT or another telecommunications services provider. The National Telecoms Services division also includes the Company's Radio Communications group ("RadioComms") which offers the provision of infrastructure and support services to customers with "mission critical" communication needs. RadioComms is involved in two main activities - mobile communications maintenance support and facilities leasing. RadioComms includes the business operations of DTELS, the emergency services communications business that NTL Group Limited acquired from the Home Office of the United Kingdom Government in 1994. In addition to network maintenance, the Company provides a range of installation and commissioning services for new network design and build projects. The Company has been engaged by Ericsson Telecommunications Ltd. to assist in the design, planning and procuring of radio sites for the Mercury One-2-One mobile telephone network in the United Kingdom. Broadcast Services The Company's Broadcast Services division includes the original core transmission services of NTL Group Limited providing television and radio broadcasters with broadcast services. This division designs, installs, operates and maintains new transmitter networks and has a spectrum planning service to plan the coverage of television and radio networks. It operates a national infrastructure in the United Kingdom of over 1,200 owned and shared transmission sites which deliver broadcast signals for ITV, Channel 4, S4C, Teletext and many of the United Kingdom's independent local and national radio broadcasters. In addition, in 1996 NTL Group 8 Limited entered into a ten-year contract to build the transmission system and broadcast the signal for Channel 5, the United Kingdom's fifth terrestrial channel. In addition to transmission services, the Broadcast Services division markets value added services to its existing television customers including additional monitoring services, reserve system services and contribution/ distribution services. Currently, four channels are transmitted to United Kingdom homes via terrestrial transmission: BBC 1, BBC 2, Channel 3 and Channel 4/S4C. Channel 5 is expected to be launched as the United Kingdom's fifth terrestrial television channel in March 1997. The Company has contracted to transmit a reliable, high quality signal to homes throughout the United Kingdom for the ITV (Channel 3) companies, Channel 4/S4C and, when launched, Channel 5. OFTEL regulates the price which the Company can charge for transmission of ITV and Channel 4/S4C. Channel 5 is not currently subject to this regulation. On December 24, 1996 the Director General of OFTEL issued the formal modification to NTL Group Limited's Telecommunications Act License to deal with the new price control for the television transmission services provided by the Broadcast Services Division to the ITV companies, Channel 4 and S4C. Under the new arrangements, the total revenues receivable by the Company for such services (excluding certain insignificant items) may not exceed (Pounds) 53.15 million in 1997 and, thereafter through 2002, will be reduced annually by the Retail Prices Index (RPI) minus 4. There is no assurance that these price controls will not be reviewed again by OFTEL prior to 2002 or that price controls for the years following December 31, 2002 will not have a material adverse effect on the revenues receivable from the ITV Companies, and Channel 4/S4C. See "REGULATION-Broadcast and National Telecoms Services-Price Cap Review." The projected total value of the Company's currently contracted revenues for national telecoms and broadcast services from January 1, 1997 through December 31, 2002, based on 1997 prices is approximately (Pounds) 608 million. In some cases, the actual revenues may increase or decrease in line with changes in the RPI. The foregoing projection of the expected approximate revenues receivable pursuant to existing contracts, which includes Channel 3, Channel 4 and S4C transmission contracts, is based on various factors and was derived utilizing several assumptions. Important assumptions and other important factors that could cause actual revenues to differ include, among other things, general economic conditions, the regulatory regime prevailing from time to time, adherence to the construction, service and other obligations of such contracts, absence of labor or weather difficulties, absence of defaults, particularly payment defaults, by the counter-parties to such contracts or the termination or non-renewal of such contracts. The Company assumes no obligation to update this projection to reflect actual revenues received by the Company, changes in assumptions or changes in other factors affecting the information presented. The contracts with the ITV and companies Channel 4/S4C terminate on December 31, 2002. Although historically the ITV companies and Channel 4/S4C have renewed their contracts there can be no assurance that they will do so upon expiration of the current contracts, that they will not seek to 9 obtain more favorable terms and or that they would not seek to obtain from third parties all or a portion of the transmission services currently provided by the Company. See "COMPETITON -Broadcast Services-Television Transmission" and "EMERGING NATIONAL OPPORTUNITES- Broadcast Services". The loss of any one of these contracts could have a material adverse effect on the business of the Company. The Broadcast Services division also offers a range of services to local and national radio broadcasting licensees in the United Kingdom including: target service area planning; site location, installation and construction; and equipment selection, procurement, operation, monitoring and maintenance. This division offers total broadcast contract services ("TBCs"), where it designs, builds, owns and maintains the operator's transmission facilities, and facility management contract services ("FMCs"), where it maintains customer-owned equipment and administers the operation of the transmission service. It maintains over 50 TBCs and 40 FMCs. Classic FM is one of two national independent radio networks served by the Company. In 1994, NTL Group Limited was successful in winning eight-year transmission contracts with all of the five new independent regional radio licensees that commenced service in 1994. NTL Group Limited also renewed, for periods of up to ten years, all but one of the 24 expiring contracts of its existing customers. The Company also provides services associated with the design and construction of radio and television studio centers and technical facilities. These services include installation, commissioning, equipment procurement, training and consultancy for projects ranging from production and post production studio facilities to full turnkey systems involving transmitter network planning and installation. NTL International (formerly, Nexus) was responsible for designing and constructing the international broadcast facility for NBC at the Barcelona Olympic Games. NTL International also designed and built a 60 channel digital audio play-out center for Music-Choice-Europe, a digital music supplier which is uplinked by the National Telecoms division and distributed throughout Europe by satellite. Internet and Information Services In 1995, the Company launched its Internet access service, Cable Online, as a national service throughout the United Kingdom. This service provides access to the World Wide Web, via the Company's telephone switches, to customers in and outside its Regional Areas. Cable Online provides Internet service on a wholesale basis to other Internet service providers as well as on a retail basis. In 1996, the Company established the Virgin Net joint venture with Virgin Communications Limited ("Virgin"), which began offering service in November 1996 under the name Virgin.net. The joint venture is owned 49% by a subsidiary of the Company and 51% by Virgin and is intended to offer Internet access and interactive services to United Kingdom consumers and small office/home users. In addition, Virgin Net has contracted Cable Online to provide the dial-up national network and back office structure necessary for access to Virgin Net and the Internet. 10 During the third quarter and early fourth quarter of 1996, Cable Online launched residential Internet access service under the Cable Online brand name in all of its local franchises and launched business Internet access service nationally under the Enablis brand name. Cable Online has signed agreements to provide wholesale Internet network services to Virgin, Diamond Cable and Telecential. Internet network services cover a range of services which allow the customer to act as an Internet service provider. As with the Company's telephony business, access to the national telecoms network is expected to have strategic benefits for Cable Online and the Company's Internet services businesses. Utilizing the Company's national telecoms network is expected to reduce the operating costs, increase flexibility and national reach and improve the overall marketing and product opportunities of Cable Online. National Media Services The most developmental of the Company's new divisions, National Media Services, combines Company-wide efforts in programming, content, digital technology and interactive services. For example, this division oversees the weekly television listing guides inserted in local newspapers in the Company's franchise areas. This division also coordinates the Company's efforts in the areas of digital terrestrial television, local cable channels, digital cable and alternative interactive service opportunities for the United Kingdom. MARKETING STRATEGIES The Company increases its customer base and improves market penetration for its services by implementing separate marketing strategies tailored to its residential and business customers. The Company believes that separately marketing to residential and business customers based on the specific benefits they receive from the Company's services is the most effective means of maximizing the Company's customer base. Residential Marketing The Company markets its local telecoms and television service under the brand name CableTel and promotes its brand image as an integral part of the emerging information super-highway. The Company is constructing its integrated full-service fiber optic networks in order to bring a wide variety of services to the consumer. This branding strategy includes the following concepts in the Company's advertising, literature and other materials: ~ introducing alternative telephone service, multichannel television and, recently, Internet access as the first of an expanding array of services which will be carried on the network in the future; ~ emphasizing that the Company is bringing "more choice" in television viewing, "better value" in telephone service and "state of the art" communications technology in providing 11 access to the Internet; and ~ demonstrating the Company's commitment to quality, value and service in its offerings as evidenced by its Code of Practice approved by OFTEL. ~ stressing the benefits of its networks and associated services to consumers in each particular Regional Area; ~ building interest, awareness, and credibility for the Company's services; In addition to its branding strategy, the Company employs an extensive direct marketing and selling approach to gain customers. The Company begins to build a relationship with customers before construction commences in a given area by closely coordinating its upcoming activities with local government authorities and community groups and eliciting feedback on ways to minimize disruptions and inconvenience. Information packages and construction notices are delivered to each household prior to construction. The Company's consumer affairs advisors personally visit affected neighborhoods and households in order to meet the special needs of the residents. All written and telephonic inquiries from residents are input by name into a lead-tracking database, so that when areas are released to marketing, the Company's sales personnel have complete customer profiles of the residents in their selling area. The sales release process is preceded by the hand delivery of a videotape to every household describing the Company and its services and is followed by a personal appointment with a Company sales advisor. All information regarding both current and future sales opportunities is input into the data base, with current sales information updating the Company's provisioning, billing and subscriber management system. Unsold household data is maintained for future telemarketing, direct mail, and remarketing by the salesforce. Bundled Product Offerings The Company's product and pricing strategies emphasize choice, value, and quality and are designed to encourage subscription to multiple services and maximize long-term customer retention. With its integrated dual service network, the Company has the opportunity to offer bundled telephony and CATV services. Following the success of a trial in certain of the Company's franchises, in November 1996, for example, the Company announced the introduction of a new promotional pricing and packaging structure called "First Choice" for its telephony and CATV service. In this new structure, the Company is offering a First Choice package which includes residential telephone service, all the terrestrial channels and three popular CATV channels for a monthly access charge of approximately (Pounds) 8, which is less than the price of monthly telephone line rental from BT and is the same as the Company's charge for telephone line rental alone. In addition to First Choice, the customer is encouraged to choose from several genre-based tiers of mini packages called Choice Collections which each include a number of additional cable channels. The customer can also select from several premium channels, 12 each of which can be purchased for an additional charge. The Company believes that this type of bundled and flexible service package is responsive to the desires and tastes of its customers. Management believes that the bundling and tiering of its services should increase penetration in its franchises and decrease customer churn. One supplier of cable programming has commenced a proceeding against the Company as a result of the Company's new First Choice package that is described in "Item 3 - Legal Proceedings." In addition, the Company encourages subscription to multiple services by offering a "two for one" discount on installation charges. The Company also emphasizes the "value" of its residential telephone service in three ways. First, the Company's line rental charges are, at present, less than BT's, so the customer saves money immediately. Second, the Company's usage pricing is designed to provide a savings versus BT's calling rates. Third, at night and on weekends, the Company's customers can call each other in the same local area for a low flat rate per call. In addition to these savings incentives, using the national telecoms network should give the Company greater pricing flexibility and therefore would enable the Company to design and offer new telephony service packages to its customers. The Company believes that its existing telecoms network can be expanded in the United Kingdom at a relatively low unit cost to provide the Company with substantial savings on its customers' long distance telephone interconnect costs. By integrating its national telecoms network with its local networks, the Company will be able to bypass the wholesale long distance fees charged by BT and other carriers for carrying calls to and from the Company's local telephone networks. This increased flexibility may lead to the introduction of more volume-oriented and/or geographically based calling plans designed to give the customer even greater choice and value. Management believes that increased ability to design attractive marketing plans and to better package services versus its competitors should have a positive effect on the Company's penetration rates. Customer Retention. The Company employs a variety of strategies to maximize customer retention. First, the Company demonstrates its commitment to quality through extensive and stringent customer service and support. In addition, the Company usually charges an installation fee, adopts a one-year service agreement and encourages direct debit payment as the "standard." The installation fee and one-year contract provide qualifying mechanisms to insure that the customer understands and recognizes the value of the services, while the encouragement of direct debit payment may avoid non-payment cancellation. Internet Access and Other Interactive Services. As part of the Company's multiple services product strategy, Cable Online offers Internet access at speeds of up to 28.8 Kbits/sec. Particular emphasis is being placed on jargon- free customer service and support. The Cable Online service is currently being offered for an initial fee of (pounds) 20.00 and a monthly charge of (pounds) 9.95. Cable Online is testing the provision of Internet access at substantially higher speed 13 through either ethernet access (10 Mbits/sec.), cable modems (4 Mbits/sec.) or ISDN access (128 Kbits/sec.). Ethernet access and cable modems for networks like the Company's are still in the early stages of testing, and there is no assurance that they will be commercially practicable. Business Marketing The Company is extending the CableTel brand image it is developing for the residential marketplace into the business community. The emphasis is on CableTel as a new provider of state-of-the-art communications services, with broadband capabilities that enable new potential applications for businesses, institutions and government. The Company researched the business telecommunications market within its franchises and adopted a segmentation strategy which targets specific and appropriate resources on small, medium, large, and major customers. Emphasis is placed on businesses, institutions and organizations that share natural geographic boundaries with the Company's operations. The Company believes that the success of this segmentation strategy has already been demonstrated by, among other things, securing business with local authorities in the Regional Areas, such as the five-year contract that CableTel South Wales Limited (a Company subsidiary) signed in July 1995 with a consortium of seven higher education establishments in South Wales. The communications network that has been installed by CableTel South Wales Limited is believed to be among the first in the United Kingdom to use high speed fiber optic technology to link colleges over a wide geographical area-two of the colleges being more than 50 miles apart. Other examples of target organizations include professionals, financial institutions, local government, schools, hospitals, universities, emergency services and community organizations. The Company's sales strategy for the business market will employ a consultative direct marketing and sales technique. It begins with detailed market surveys designed to quantify the current and future needs of each business in the franchise by name. The Company's sales advisors call on potential customers armed with pertinent information regarding the customer and with all products in the Company's portfolio at their disposal. Regional customer service centers have been set up to ensure that the needs of business customers post-sale can be met effectively. Service quality is demonstrated by the Company's commitment to service guarantees and standards which meet or exceed the best competitive practices, and is ensured through the reliability of the Company's new, state-of-the-art network. The Company based its initial entry into the market on its core business telephony products. It has since introduced the first managed data service, FibreLink2, Central Exchange ("CENTREX") services and its ISDN Basic Rate Access ("BRA") service. The Company's short-term focus is to broaden its portfolio of products by developing services with high customer demand which will improve overall returns to the business. In conjunction with this activity, the Company is developing customized products for large customers which the Company believes may lead to further product developments in the future. 14 The Company is also the pursuing market opportunities for Closed Circuit Television/Surveillance Systems ("CCTV"). This is currently a growth area in the United Kingdom for local and public authorities, private developments and multi- occupancy situations. Business Telephony Services. The Company offers a choice of telephony services to its business customers: Business Exchange Lines ("BELs"), typically single or multiple lines delivered via twisted copper pair, or Enhanced Telephony Services. The latter is delivered via a high quality digital connection to a customer's PBX based on a minimum connection of 15 lines. Enhanced features and facilities such as Caller Line Identification, are available on both services. Additional features, such as Direct Dialing Inward ("DDI"), are available only on the Enhanced Telephony Service. Two usage rates are currently available, offering customers a choice based on their calling patterns. Both usage and rental charges are competitively priced, and automatic volume discounts give further savings to customers. Future developments may include the implementation of services such as Caller Return, which are intended to address specific needs of identified customer groupings and stimulate additional call revenues. Additionally, the Company intends to offer number portability, which is expected to aid the acquisition of business customers. CENTREX services give customers the equivalent of their own telephone system (PBX or key system) without the expense of having to purchase, operate and maintain one. The Company believes that the CENTREX market in the United Kingdom is currently underserved, especially among small and medium businesses, where the concept is new to most customers. The pricing of CENTREX services is based on value provided to the customer rather than pricing lower than competitors. The Company has implemented its CENTREX Service in all of its Regional Areas. The services include CENTREX Select, a single site service, and CENTREX Network, a multi-site service giving transparency of voice communications between multiple locations. Managed Data Services. Pricing for narrowband and broadband private line services is higher in the United Kingdom than in the United States. High bandwidth (broadband) services, although available, can be subject to long lead times for installation in many areas of the United Kingdom, are expensive and are subject to variances in service quality. The Company's offerings in this area emphasize the immediate availability of large, flexible bandwidth circuits to meet the growing needs of the market, while meeting the demands of existing and emerging standards. The Company's first managed data service, FibreLink2, was introduced in January 1996. This service is aimed at large businesses which need data or voice communications between different locations and provides a bandwidth of 2 Mbits/sec. Higher bandwidth services (34-155 Mbits/sec.) are available on request, as are lower bandwidth (64 Kbits/sec.) services. Broadband services will be offered to address emerging multi-media and data-intensive applications, with rates designed to reflect the value provided to the customer. Other Data Services. The market for ISDN BRA services has not developed in the United Kingdom as fast as in other European Union member states, primarily because of prohibitive 15 pricing policies employed by the major telephone companies to protect private line revenues. The Company recognizes the importance of this potentially high- growth market, both within its own franchise areas and the synergies presented with NTL Group Limited and Cable Online. The Company has introduced its ISDN BRA services to small and medium-sized businesses, the growing work-from-home market and larger businesses. The service enables, among other things, effective Local Area Network ("LAN") to LAN connections, fast data transfer to fixed or multiple locations, higher speed Internet access, and videoconferencing. EMERGING NATIONAL OPPORTUNITIES The Company believes that it is well placed to take advantage of emerging opportunities in communications throughout the United Kingdom. National Telecom Services The planned expansion of the Company's national digital network should allow the Company to offer state-of-the-art network alternatives for large carriers of data, including cable/telephony companies, as well as managed network facilities ensuring high levels of availability and service. To date, the Company has established contractual arrangements with Vodafone and Orange by extending its network and expanding capacity with the installation of fiber. The Company anticipates that it will be well-positioned to participate in the competition for the provision of bandwidth as United Kingdom telecommunications usage continues to expand as carriers take advantage of new voice and data opportunities. The Company plans to integrate its national telecoms network with its local networks by expanding its telecoms network to Scotland, Northern Ireland and Wales. This will serve both the anticipated needs of its existing customer base as well as its desire to enter a third phase of operation, as a nation-wide wholesale telecommunications carrier. The Company believes the integrated network will offer other potential customers a viable alternative to BT, Mercury and Energis Communications Limited ("Energis") (a subsidiary of the National Grid Company plc) in the provision of long distance services throughout the United Kingdom. In addition, the Company has been awarded a license to operate radio fixed access services at 10 GHz. Under the proposed terms of its 10 GHz license, the Company would be required to provide service coverage to 68% of the population of the United Kingdom by 2003. The Company believes that, if developed, this type of service would facilitate the development of its local access strategy for its transmission business. The Company also currently plans to continue to expand its presence in the market for satellite services, and to use its international facilities licenses, which will give it the ability to carry international voice and data using its existing teleports. See "REGULATION-International Facilities License." 16 The major growth in the radio communications market over the next five years is expected to arise from the outsourcing of maintenance services by public and private network operators. The Company intends to obtain maintenance service customers by targeting those with a national or wide area infrastructure. The facilities leasing market is expected to continue to grow with the expanding market for the provision of mobile and fixed wireless telephony services. The Company currently intends to continue to maximize the use of NTL Group Limited's sites through effective marketing, provision of end-to-end services and its continued responsiveness to customer needs. The Company also plans to participate in the competitive tender for the provision of the new Public Safety Radio Communications Project ("PSRCP") which plans to provide a new state of the art network for essential services through the United Kingdom. It is likely that PSRCP will be financed under the United Kingdom Government Private Finance Initiative. Broadcast Services NTL Group Limited has been involved in broadcast television since the 1950's when it designed and built the television transmission system for the United Kingdom's first independent commercial television network. Since its beginnings, NTL Group Limited has stayed at the forefront of technology. Its record of innovations include: ~ pioneering UHF color television transmission in 1969; ~ Europe's first mobile satellite uplink in 1978; ~ transmission of the United Kingdom's second national independent television signal, Channel 4, in 1982; and ~ direct broadcasting via satellite in 1990. In addition, in 1996, NTL Group Limited was awarded contracts by Channel 5 Broadcasting to provide transmission and satellite distribution services. Broadcast services for Channel 5 are expected to be launched on March 30, 1997. In accordance with the transmission contract for Channel 5, the Broadcast Services division constructed 33 transmission sites in 1996 and a further nine will be constructed in 1997. NTL Group Limited has also agreed to distribute Channel 5's programming signal from Channel 5's London television studio to the various transmitters. This is intended to be facilitated through a satellite distribution network, uplinked from one of the Company's earth stations. The Company believes that it has positioned itself to be one of the leading suppliers of Digital Audio Broadcasting ("DAB") services. In November 1995, NTL demonstrated the United Kingdom's first commercial radio DAB multiplex. Currently, the Company is engaged in an extended DAB marketing trial in London with the support of key radio customers. The 17 Broadcasting Act 1996 created a licensing regime for digital terrestrial sound broadcasting and raises the prospect of full-time commercial DAB service, which will offer CD-quality radio for the first time. Two developments are likely to alter the structure and scope of the United Kingdom's terrestrial transmission market during the next few years: the introduction of Digital Terrestrial Television ("DTT") broadcasting and the privatization of the British Broadcasting Corporations's (the "BBC") transmission business. The Company believes that, as it is currently the only provider of terrestrial broadcast television services to the ITV companies, it is likely to be well placed to take advantage of DTT. Although the development and implementation of DTT is subject to significant uncertainties, the Company anticipates that DTT will be a major over-the-air broadcast service. The Company's tower facilities, national maintenance force and management team favorably position it as a provider of DTT broadcast services. In addition, NTL Group Limited has an agreement with DigiMedia Vision Limited, a subsidiary of News International, to develop the new digital decoder which would be required if NTL Group Limited commenced DTT transmission. Furthermore, expected synergy with NTL Group Limited's analog transmission business also makes the Company a likely low cost provider of DTT transmission services. In February 1997, the United Kingdom Government sold the BBC's transmission business to a consortium led by Castle Tower Corporation called Castle Tower Transmission ("Castle Tower"). The Company may face significant competition from Castle Tower for future transmission business. BUSINESS STRATEGIES The Company's overall goal is to maximize operating profits by increasing service offerings and by seeking opportunities to grow its customer base throughout its Regional Areas and the United Kingdom as a whole. The Company through its Local Telecom and Television Services division is currently employing several strategies to achieve this: Installing Flexible Integrated Full-service Networks. This strategy allows the Company to pursue four revenue streams-residential cable television, residential telephony, business telecommunications services and Internet access services-without significant incremental cost in fixed investment. The integrated full-service networks provide a high speed, high-capacity, two-way communications pathway to the consumer that, potentially, is capable of delivering new services which may emerge from the convergence of telecommunications, information and entertainment. One such service is Cable Online which was launched in November 1995. Focusing on Distinct Geographic Regional Areas. This strategy allows the Company to offer services which appeal to natural geographic, political, and social factors in each Regional Area. The Company believes that tailoring its services to the Regional Areas will increase the penetration of those services. Examples of tailored services include the development of local 18 television programming and advertising, the development of regional telephone calling plans, and the construction of private telecommunications networks specifically tailored to "captive" local organizations such as governmental and educational institutions. Maximizing Revenue Contribution on a Total Franchise Basis. The Company gains significant operating and financial leverage from incremental revenue contribution since much of the Company's network investment and general expenses are fixed. The Company's strategy is to maximize total franchise revenue contribution rather than revenue contribution derived from each customer. Examples of this strategy are the development of multiple television pricing plans that appeal to differing and distinct market segments and price points, bundled product offerings that encourage subscriptions to multiple services and more "a la carte" and transaction-oriented services which increase network utilization. Gaining Cost Efficiencies. The Company gains cost efficiencies by centralizing certain services provided to the Regional Areas in the Company's head office in Farnborough. Examples include network planning, marketing, information systems, legal affairs and overnight network monitoring and customer service. Alternatively, those cost centers which are critical to penetration, customer service, and retention are located as close to the customer as possible. Examples include construction management, sales, customer service, and network maintenance, which are all located in each of the Regional Areas. Participating in Strategic Alliances. The Company has existing strategic alliances and expects to develop new alliances to further the attainment of its goals. An example is the Virgin Net joint venture. The Company wholesales its Cable Online Internet access services to other cable operators such as Diamond Cable, Telecental and other organizations. These cable operators will house Internet "Points of Presence" in their own franchise areas and market, sell and bill their own customers within their franchise areas. Cable Online is currently negotiating further ventures with a number of cable operators and other organizations. The Company also expects to enter into interconnection alliances with telephony/cable operators in contiguous franchise areas. Interconnection alliances are expected effectively to extend the benefits the Company achieves through its regional strategy by providing: (i) cost savings for telephone calls that can be routed between interconnect partners instead of through BT; (ii) additional revenues from telephone calls and private circuits terminating on the Company's networks and originating in the interconnect partners' networks; (iii) increasing advertising sales reach; and (iv) potential cost sharing in any joint development of regional programming. The Regional Areas The Company, through and its Local Telecoms and Television Services division , operates 16 separate franchises as five Regional Areas. Each Regional Area is managed and operated by a local management team led by a local managing director. The headends, telephone switches and technical and customer services facilities in the Regional Areas are connected by a wide-area fiber optic network to the Company's Network Operations national Network Management Center. 19 Central Scotland. The Central Scotland Regional Area covers nearly 500,000 homes and includes Glasgow, the fourth largest metropolitan area in the United Kingdom and the largest City in Scotland. It is generally considered the commercial and industrial center of Scotland and has a higher density of households per kilometer of cable communications network than the United Kingdom as a whole. The Company offers locally orientated and originated programming and advertising. South Wales. South Wales is the commercial and industrial center of Wales and one of the United Kingdom's major contiguous urban areas. Cardiff, the capital of Wales, Swansea (in West Glamorgan) and Newport (in Gwent) are the region's major cities. The Company's licenses in South Wales cover approximately 540,000 homes and a substantial portion of the Welsh business community. Between 1980 and 1990, employment in the Welsh information technology and electronics industries grew substantially compared to the rest of the United Kingdom, as there has been a concerted effort to attract high technology and service oriented businesses to replace heavy industries such as steel, mining and shipping which were, historically, the mainstay of South Wales' economy. Suburban London. The Suburban London Regional Area comprises the Surrey and East Hampshire license area to the southwest of London and the Central and East Hertfordshire and North and South Bedfordshire license areas to the north of London totalling approximately 485,000 homes. The Company believes that the licenses in these commuting residential communities offer an attractive blend of household density and demographic characteristics and above average levels of disposable income. Located between Heathrow and Gatwick international airports, the borough of Guildford and surroundings in Surrey have become the headquarters for many multinational high technology companies (including the cable/telephone operators TeleWest and Comcast, as well as British Airways, General Motors and the General Electric Company). To the north of London, Luton is a commercial and industrial center hosting such manufacturers as British Aerospace and Vauxhall (General Motor's United Kingdom division) and is the home of the fourth largest international airport in the South of England. West Yorkshire. Covering over 138,000 homes, Kirklees is one of the five districts that constitute the West Yorkshire region in north central England and is comprised of the towns of Huddersfield, Batley, Clackheaton and Dewsbury. A manufacturing area known for textiles and engineering products, Kirklees has recently begun to develop an active service sector which has helped to create a stronger economy. Kirklees is geographically located between three major cities in the United Kingdom, Leeds, Sheffield and Manchester. Each of these cities already has an established cable network. Northern Ireland. The Northern Ireland franchise, covering approximately 530,000 homes, was the largest remaining cable television, telephone and telecommunications franchise to be awarded by the ITC. The franchise covers the entire socio-economic area of Northern Ireland, with approximately 40% of the population located in the Greater Belfast area in the east and another major population area centered on Londonderry in the west. Although the economy 20 of Northern Ireland has traditionally been oriented more towards primary industries such as agriculture, forestry and fishing than the United Kingdom as a whole, service industries now employ over 70% of the population. The Company believes that the overall economic growth profile of the region is strong and that the prospect of inward investment will lead to a more dynamic business sector and, therefore, increased demand for telecommunications services in the future. The Company believes that because the birth rate in the area is higher than the United Kingdom as a whole, the population is younger and household sizes are larger than the United Kingdom average. The Company's experience and market research has shown that the presence of children in a household significantly increases the propensity to subscribe to CATV. The Local Networks The Company believes that its advanced network design is sufficiently flexible to permit it to deliver a wide variety of existing entertainment, telecommunications and information services and will enable it to offer anticipated new services in the future without incurring significant additional construction costs to adapt its existing underground network. However, the cost of implementation of emerging and future technologies could be significant and the Company's ability to fund such implementation will depend on its ability to obtain additional financing. See "Management's Discussion and Analysis of Results of Operations and Financial Condition." Network Design and Functionality The Company is installing its cable/telephone and telecommunications network using established state-of-the-art technology, deploying fiber optics directly to business concentrations and residential nodes averaging 600 telephone lines or 500 homes respectively, and employing spare duct and transmission capacity in excess of anticipated needs. In this manner, the Company achieves the cost efficiencies and rapid deployment that using standardized equipment entails, while retaining the flexibility to expand and adapt its network over time with little or no additional underground or construction investment. The design and construction of a new network varies depending upon factors including the number of route miles to be installed, density of homes and businesses, type of surface, and the architecture of the network backbone. Each system has been designed with at least one headend and at least one telephone switching office. Each system's headend and telephone switching office is directly connected to each node by fiber optic cable. Each node is then connected to a subscriber's premises. Construction of each system has been planned on a neighborhood by neighborhood basis to allow revenue generating operations to commence in a neighborhood as construction of the portion of the system serving such neighborhood is completed. 21 Fiber Optics The evolution of fiber optic technology over the past decade, including increases in the capacity of laser transmitters and decreases in the price of optical receivers, has enabled the economic deployment of fiber optic cable much closer to the customer than in traditional coaxial cable CATV and twisted copper pair telephone networks, thereby improving the quality and capacity of the CATV and telephone service. The main advantages of deploying fiber in place of both coaxial cable or copper wire are its smaller size, greater capacity, freedom from electrical interference, and significant reduction of the requirement for periodic maintenance. The Company is deploying fiber to nodes serving 500 homes which are no more than several hundred meters from the furthest home. Network Architecture The Company's cable network is being built with an initial capacity of 750 MHz, which is sufficient to carry over 60 analog channels of television. With digital compression of the television signal, many more channels can be transmitted. The system is upgradeable to 1 GHz. Generally, a maximum of one amplifier is required between the headend optical receivers and a home. Traditional cable systems often employ "cascades" of more than 5 amplifiers which degrade signal quality and increase the chances of system failure. The telecommunications network uses a SDH redundant-ring based architecture, which improves the Company's ability to flexibly deploy capacity and further enhances system resilience. Telephone signals are carried from the node to the home over traditional copper pair, albeit over a shorter distance than in traditional telephone networks, improving signal quality and allowing higher bandwidth services such as ISDN to be more easily deployed. To connect its residential customers, the Company uses a "dual drop" consisting of coaxial cable capable of transmitting 1 GHz of bandwidth and two copper twisted pairs capable of providing two telephone connections. Large business customers are expected to be connected to the telephone network directly through fiber optic cable. Switches and Headends The Company's GPT System X telephone switches are centrally located in each of its systems and are currently interconnected with BT and Mercury and, in the near future, are intended to be connected with other PTOs public telephone operators ("PTOs") and/or other cable/telephone operators in order to complete telephone calls placed to subscribers of competing or distant networks and to receive such calls. The Company expects all seven of its local switches to be connected to the national telecoms network during 1997 and early 1998. The Company will begin carrying a portion of its own traffic and offering switched telecommunications services to other carriers in 1997. Under their respective licenses, BT, Mercury and all other PTOs are required to enter into interconnection agreements with cable/telephony system operators. See "REGULATION." The Company currently routes calls made by or to its customers through its interconnections with BT and Mercury. The Company pays an 22 interconnection fee to complete such calls and collects a similar fee for receiving such calls. Network Construction Costs In building its local telecoms and television network, the Company is generally required by its licenses to use underground construction, which is more expensive and time consuming than aerial construction. Mechanized construction methods often cannot be used to install network infrastructure in the Company's franchise areas due to existing underground utility infrastructure. In addition, the Company is responsible for restoring the surface area after its underground construction is completed. Although the Company has recently been able to negotiate construction contracts at rates which it believes are competitive relative to the cable industry as a whole, construction costs could increase significantly over the next few years as existing contracts expire. The Company is considering how it may reduce the costs of underground construction by utilizing the microwave radio links installed between its mast sites and supplementing those links with fiber-optic cable particularly in Regional Areas, such as South Wales and West Yorkshire, where hill and valley topography involves significant underground construction costs. The Company estimates that the capital required to build the local networks and connect residential and business subscribers will be approximately (Pounds) 640 to (Pounds) 670 per home in its franchise areas. Certain locations may require more or less capital depending upon household density, business density, and penetration rates. In addition, certain costs such as the establishment of telephone switches, cable headends, and facilities are incurred during the initial phases of network construction, leading to average capital expenditures per home which are higher in the initial years. The construction and development of the systems will depend on, among other things, the Company's ability to design network routes, install facilities, obtain and maintain any required Governmental licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions. The exact amounts and timing of all of these expenditures are subject to a variety of factors which may vary greatly by market and be beyond the control of the Company. Accordingly, there can be no assurance that the actual costs of network construction will not exceed the cost of network construction estimated above. Capital expenditures related to the installation of new residential telephone and cable subscribers range from (Pounds) 115 to (Pounds) 175 of capital expenditure per subscriber or line, though actual costs vary from this range based on the specific type of circuit installed, the location of the customer and whether or not the customer subscribes for multiple services. The potential number of subscribers or lines will exceed the number of homes passed because the homes and businesses passed have the potential for multiple cable subscribers or telephone lines. Capital expenditures associated with passing other businesses and connecting business telephone subscribers vary significantly depending on the type and size of business and the amount of capacity required and other factors which vary greatly by market and are beyond the control of the Company. The Company has passed, and expects to continue to pass, a significant number of small businesses in the course of its residential build. 23 The Company also incurs capital expenditures for the establishment of its business facilities and fixtures, office and computer equipment, its billing and subscriber management systems, and vehicles. These costs also vary by location and size of franchise, but are substantially less than the capital costs of the network itself. National Telecoms Services The Company's national telecoms network was designed specifically for the high-volume telecommunications market in the United Kingdom and, as such, it incorporates many customer sites directly onto its main network. Expertise in designing and installing this network was gained through nearly 40 years of managing the division's television transmission network. The network is an SDH digital microwave network controlled from a national network control center. The network is configured in fault tolerant rings which allow one segment to fail and still keep the network in service. The Company uses Nera SDH Radio Link Digital Microwave radio systems on the network. Nera radios are installed on a combination of existing structures and customer sites. The Company believes that its extensive experience in frequency planning and coordination ensures that all systems placed into service will be of the highest reliability. Broadcast Services The television transmission network consists of over 600 transmission sites, with towers ranging from fifteen feet to nearly twelve hundred feet . The division's transmission tower at Emley Moor in Yorkshire is the United Kingdom's tallest free-standing structure at over 1,000 feet. These towers are complemented by other transmission sites and relay stations situated throughout the United Kingdom. In addition to the transmission sites owned by this division, this division also shares sites formerly held by the BBC (now held by Castle Tower), allowing it to complete its nation-wide coverage. In all, the Company maintains over 2,000 transmitters, currently monitored from four regional centers and maintained by 22 strategically positioned service centers. The transmitters of the Broadcast Services division range in size from a 2 watt repeater which serves a small village to 500 kilowatt main stations that cover large metropolitan areas. All of the transmitters are analog and can be divided into two categories, solid state circuitry and klystron tube. The klystron tube transmitters have been manufactured by Pye and Marconi, while the solid state units were manufactured by Harris, all reputable manufacturers of transmission equipment. Klystron tube-type television transmitters have a useful life of 20 to 25 years, while the solid state transmitters can last well beyond this time frame. Solid state transmitters require less maintenance than klystron transmitters but are not available in the high power capacity that is needed to cover the major metropolitan areas. The ITV UHF transmitters were first brought on line in 1969 as the earlier VHF transmitter system was being phased out. Nearly all of these transmitters have been subsequently 24 replaced with newer models. The Company is completing the final stage of modernization of the ITV network and upgrading certain of the Channel 4 transmitters which are approaching 20 years in service. Historically, NTL Group Limited 's capital expenditures have been dominated by the replacement of aging transmitters, bringing new low power solid state re- transmission stations on line, and general maintenance activities. Some additional capital has been expended on upgrading systems to stereo sound, modernizing security with video cameras and installing new remote monitoring equipment which allows the Company to monitor the principal transmitters from one control center. In addition, this division has built and currently operates and maintains radio transmission facilities for a number of independent local radio operators. These facilities share components of the Company's national television network infrastructure. COMPETITION Local Telecoms and Television Services Historical Overview Historically, the use of telephony or cable networks to provide a full range of telecommunications services was restricted by the telecommunications policy of the United Kingdom Government. From 1912 through the early 1980's, the United Kingdom General Post Office ("GPO") was the monopoly supplier of telephone services throughout the United Kingdom, with the exception of a few municipalities. In 1981, BT assumed the responsibilities of monopoly telephone supplier from the GPO. The process of privatizing BT commenced in 1984 and was completed in July 1993. In 1984, Mercury was granted a license to compete with BT. At that time, the United Kingdom Government established a policy (the "Duopoly Policy") that it would not license operators other than BT and Mercury to provide fixed-link national and international public telecommunications services before November 1990, when it would commence a review of the Duopoly Policy (the "Duopoly Review") and competition in the United Kingdom telecommunications market generally. The Duopoly Review was completed in 1991, and, with its enabling regulations, represented a fundamental turning point in the telecommunications industry in the United Kingdom. In effect, cable licensees and others were granted the authority to provide all forms of wired telecommunications services other than international telephony. Since the Duopoly Review, the terms on which cable operators may require BT, Mercury or other PTOs to interconnect with them have been significantly improved. Since the Duopoly Review, BT has remained the dominant provider of fixed link 25 telephony services for businesses and residences in the United Kingdom, and Mercury has continued to offer long distance and international services and has attempted to gain market share in the business telecommunications market. During this period, cable/telephony services providers found increasing levels of subscriber interest in their telephone services. Historically, regulation had been an impediment to the development of cable television in the United Kingdom. Importantly, non-European Union ("EU") entities were reluctant to invest in cable operations in the United Kingdom since they were barred by regulation from acquiring majority interests in CATV licenses. Regulations also gave longer licenses to cable operations choosing a "switched star" architecture (primarily utilized in the United Kingdom) over the more traditional "tree and bush" architecture utilized in other markets. In addition, the United Kingdom investment community was reluctant to invest in CATV operations as a result of the high capital expenditure required to fund the early stages of cable system construction combined with a high corporation tax rate and the abolition in 1986 of a tax credit for certain capital investments. The broadband cable television industry began in the United Kingdom in 1983 when the government began awarding pilot cable television licenses. However, industry expectations that an adequate supply of programming would become available to cable operators in the mid-1980's were overly optimistic. In addition, many of the pilot systems were built with unproven technology and had serious difficulties in providing high quality and reliable signals. The management of these early systems had little cable experience and had minimal resources to tap. The result was a very poor experience by the British investment community. Non-British investors have taken the lead in developing the cable/telephony industry in the United Kingdom over the past five years. These investors had significant experience in developing, constructing and operating cable television, telephone and telecommunications systems. Cable Television Services In each cable license area within the United Kingdom, it is currently the ITC's policy that only one license to provide cable television services be granted. The Company's television systems currently compete with the four United Kingdom terrestrial channels, being BBC 1, BBC 2, Channel 3 and Channel 4/S4C. BBC 1 and BBC 2 are "public" channels regulated by government charter, are funded by a license fee levied on all United Kingdom homes with a television and receiver and do not sell advertising. The commercial television services of Channel 3 and Channel 4/S4C operate under licenses granted in accordance with the Broadcasting Act 1990. Except in the case of Channel 4/S4C which is provided by a statutory corporation, the Channel 3 licenses are awarded by the ITC by competitive tender. Channel 3 and Channel 4/S4C are regulated by the ITC. Channel 4 and the breakfast time service on Channel 3 is provided on a national basis. Otherwise, Channel 3 licensees are appointed specifically to serve regions, namely the 15 licensees which provide services to 14 regions in the United Kingdom, the Isle of Man and the Channel Islands, with two of these licensees serving London for different periods of the week. Both Channel 3 and Channel 26 4/S4C derive their revenues principally from advertising sales and the sale of programming to other broadcasters. In addition to these four existing terrestrial channels, in October 1995 the ITC announced the award to Channel 5 Broadcasting Limited of the only national Channel 5 license under the Broadcasting Act 1990, which will open the way for a fifth television channel broadcasting in the UHF band and serving approximately 75% of United Kingdom households. The Channel 5 licensee will be permitted to choose whether to make the service available using cable and satellite distribution. Although the current terrestrial channels are perceived by the public as providing high quality programming, due to the limited amount of air time available to them and the commitment required from them to provide a wide diversity of programs, they are unable to dedicate a significant amount of air time to films, sports or other thematic programming. As of January 1996, approximately one-third of all viewing in homes with cable television or satellite services was of cable or satellite channels which the Company believes shows a willingness of many consumers in the United Kingdom to pay for such additional programming. The Broadcasting Act 1996 established the structures for the provision of DTT broadcasting which is expected to provide an additional 18 or more new terrestrial channels serving between 60% to 90% of the United Kingdom's population. There will initially be six frequencies (or multiplexes) available for DTT multiplex services. Use of each of these multiplexes (with the exception of the first multiplex which has been allocated by the Government to the BBC) will require a license from the ITC. One of the other multiplexes has been reserved for Channel 3/Channel 4 and an invitation to apply for this license was issued on November 15, 1996. Only an entity controlled by the Channel 3 companies (all holders of national or regional Channel 3 licenses) and Channel 4 taken together were permitted to apply for this license. The ITC issued an invitation to apply (the "Invitation") for the remaining four multiplex licenses (capacity on one of which is reserved for Channel 4/S4C) on October 31, 1996. The deadline for submission of applications in response to the Invitation was January 31, 1997. The Company, through a subsidiary, responded to the Invitation. The only other applicant was a consortium known as British Digital Broadcasting, which is comprised of British Sky Broadcasting Limited ("BSKyB") the largest provider of multichannel programming in the United Kingdom, Carlton Communications and Granada Group. Licensees of these multiplexes will be required to commence providing service by the later of July 1, 1998 or the first anniversary of the grant of the license. The Company expects that a decision will be announced sometime in May 1997. The Company's cable television systems also compete with other methods of delivering television signals to the home for a fee, such as direct to home ("DTH") satellite or satellite master antenna systems ("SMATV"), which is generally limited to 1,000 homes served by a single headend on a single (or two adjoining) building(s). The extent of such competition depends upon the number and quality of the signals available by direct antenna reception as compared to the number and quality of signals distributed by the cable television system. Pay- 27 television and pay-per-view ("PPV") services will compete to varying degrees with other communications and entertainment media, including DTH services, home video, movies and live theater. In particular, the availability of recently released theatrical movies on videocassettes may affect the degree to which the Company is able to sell pay television and PPV services to subscribers. As an alternative to CATV, DTH satellite receivers, together with appropriate descrambling equipment, are used by individuals and commercial establishments to receive various programming services from DTH systems. There are an aggregate of approximately 3.8 million DTH subscribers compared to approximately 1.9 million broadband cable subscribers throughout the United Kingdom. BSkyB offers DTH television to its subscribers who must purchase or rent a satellite receiver and satellite dish. The dishes receive signals from the SES-Astra satellites, which carry the BSkyB channels and other popular programming services. BSkyB is proposing to launch a digital satellite service in 1997 either by itself or in conjunction with partners. In order to receive digital satellite services customers will be required to purchase a digital "set-top" converter to receive the signals. Customers of cable operators will be able to receive digital satellite programming from their cable operator using their existing equipment (subject to capacity restrictions). The Company's ability to make a competitive offering of cable television services is dependent on the Company's ability to contract for and obtain access to programming at a reasonable cost. While various sources of programming are available to cable system operators in the United Kingdom, BSkyB is currently the most important supplier of cable programming and the exclusive supplier of certain programming. BSkyB also competes with the Company by operating a DTH satellite service that provides programming, including programming that is also offered by the Company, to approximately 3.5 million subscribers in the United Kingdom. BSkyB's programming is important in attracting and retaining CATV 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 or regulatory intervention. In February 1997, BSkyB brought a new ratecard into effect. The Company estimates that, since the introduction of the revised ratecard in March 1995 through February 16, 1997, the overall aggregate increase in BSkyB's wholesale prices will have been between approximately 23% and 26% (although BSkyB has provided additional basic and bonus premium channels during this period). The Office of Fair Trading ("OFT") reviewed and approved the structure of the ratecard and made only minor amendments in response to the submission made by the Cable Communications Association on behalf of the Cable Industry. See "REGULATION-Others Regulatory Issues". However, notwithstanding the OFT's approval of the ratecard structure, changes to the ratecard may occur as a result of commercial negotiations between BSkyB and the cable operators regarding the pricing levels within the ratecard structure or following further regulatory developments. In addition, the OFT found in its review that there was no evidence that the linkage between the DTH retail price and its wholesale price charged to cable operators was anti- 28 competitive and that no action was required on this issue. Additionally, the OFT said that it had reviewed BSkyB's accounts and will continue to do so every six months, to ensure that BSkyB is not cross-subsidizing its retail DTH business from revenues of its wholesale cable supply business to the detriment of competition. The OFT also found that BSkyB's requirement that cable operators carry its basic channels to 100% of their subscribers inhibited cable operators in their ability to offer tailored packages and inhibited the growth of the cable industry. BSkyB has accepted an undertaking not to require carriage in excess of 80% in the future, although BSkyB will be permitted to increase the prices of its basic channels by 1.25% for each percentage point by which carriage of the channels falls short of 100%. BSkyB also accepted an undertaking not to bundle bonus programs (such as occurred in respect of the Disney Channel) with premium channels in the future (the ITC is currently investigating a complaint concerning the terms of supply of the Disney Channel). No assurance can be given, therefore, that, notwithstanding BSkyB's undertakings to the OFT and the OFT's regulatory role, BSkyB will not exploit its dominant market position in a manner which may have a material adverse affect on the Company's operating results. In addition, BSkyB announced in 1995 programming supply agreements with the two largest cable operators in the United Kingdom. Under these agreements, these two cable operators accepted significantly restrictive provisions in return for more favorable rates than those contained in the new BSkyB ratecard. BSkyB has, however, undertaken to suspend operation of certain anti-competitive restrictions contained in these agreements, while the DGFT considers further whether the agreements warrant investigation by the Restrictive Practices Court. The Company anticipates that, as these two cable operators together control approximately 40% of homes under franchise in the United Kingdom, the consequences of these agreements will make substantially less viable the development of new sources of programming through cooperative ventures among cable operators, such as PPV services, sports or movie channels and cable- exclusive programming. The Company, like many other cable operators, obtains most of its programming through arrangements with BSkyB and other programming suppliers which are not reflected in signed written agreements. To date, the Company has not had a formal contract with BSkyB, although it has been in discussions with BSkyB for some time. There can be no assurance that the Company will be able to enter into a definitive agreement with BSkyB, that the terms of such definitive agreement will not be less favorable to the Company than the current arrangement, or that BSkyB will continue to supply programming to the Company on reasonable commercial terms or at all. Moreover, the Company has not, to date, entered into written contracts with many of its other program suppliers. The loss of BSkyB or other programming, a deterioration in the perceived quality of BSkyB or other programming, or a material increase in the price that the Company is required to pay for BSkyB or other programming could have a material adverse effect on the Company. 29 PTOs may apply in a public competitive bid process for cable licenses in respect of areas of the United Kingdom that have not already been licensed by the ITC. Certain companies associated with BT and Mercury hold licenses to provide telephony/cable television service, which, under current ITC policy, are not in any of the Company's franchises. This position may be changed by further regulations according to changes in policy of relevant United Kingdom Government authorities. Any change in policy could have a material adverse effect on the Company. Following the Duopoly Review, the United Kingdom Government stated that its policy was not to allow national PTOs to convey national broadcast entertainment services over existing telephone until March 2001 for delivery to residential subscribers. However, the Government indicated that this restriction may be reviewed by the Director General of Telecommunications with a view to lifting this restriction as early as March 1998. In February 1994, in a letter to the Cable Communications Association, and again in a Command Paper issued in November 1994, the Government reaffirmed its policy on this matter. The United Kingdom Government opposition party, the Labour Party, however, has stated its intention to review these restrictions if it is elected to Government at the next general election (which is to be held in May 1997) by permitting a gradual program of entry of national PTOs into cable franchise areas from 1998 with full and open competition in all franchise areas in 2002. This would effectively give all cable operators at least six years to complete the construction of their networks and coincides with the United Kingdom Parliamentary Select Committee's recommendations. On September 29, 1993, the ITC issued a statement pursuant to which it (supported by OFTEL and the Department of Trade and Industry ("DTI" ) took the position that BT and other national PTOs were not prevented from providing video on demand services to residential customers under their existing telecommunications licenses. While BT and other PTOs are prohibited from providing residential CATV service, they are not precluded from providing such services to businesses and educational institutions. Video on demand services involve the transmission of an individual entertainment program to a single household in response to such a request. BT has tested a pilot video on demand service-BT Interactive TV-that offers movies, TV, music, education and home shopping and banking to 2,500 residents in Colchester. BT is also testing video on demand on a smaller scale in its Westminster franchise. The Company believes that in order for BT to offer video on demand services on a national or large regional basis, BT may be required to make substantial investment to upgrade its existing telecommunications switches and to install video distribution facilities and subscriber decoder boxes and that it is unlikely that BT will offer video-on-demand on a national basis for the next several years. In addition, BT still has to establish what services it will offer commercially and the prices for the services. However, since the Company cannot assess the commercial feasibility of BT offering video on demand services, no assurance can be given that video on demand will not provide substantial competition to the Company within its markets in the United Kingdom in the future. 30 The full extent to which other developing media will compete with CATV systems may not be known for several years. There can be no assurance, however, that existing, proposed or as yet undeveloped technologies will not become dominant in the future and render CATV systems less profitable or even obsolete. The Company endeavors, however, to monitor closely all relevant technological developments and to position itself to remain competitive. Residential Telephone Services BT is the Company's principal competitor in providing local residential telephone service. Since it is the only end-to-end provider of telecommunications service in the United Kingdom, BT is a formidable competitor to the Company in providing both business and residential telephone service. According to OFTEL, at February 1997, nearly 92% of all United Kingdom residential telephone exchange line customers were customers of BT. The Company's growth in telecommunications services depends, therefore, upon its ability to convince BT's customers to switch to the Company's telecommunications services. The Company believes that price is an important factor influencing the decision of United Kingdom customers to switch to a cable telecommunications service. BT has introduced price reductions in certain categories of calls and due to regulatory price controls BT is expected to make further reductions in its telecommunications prices. Accordingly, although the Company intends to remain competitive, in the future it may be unable to offer residential telecommunications services at rates lower than those offered by BT. In such case, the Company may experience a decline in its average per line residential telecommunications revenues and may not achieve desired penetration rates. There can be no assurance that any such decline in revenues or penetration rates will not adversely affect the financial condition and results of operations of the Company. In addition to BT, other telecommunications competitors which may have substantially greater resources than those of the Company could prevent the Company from increasing its share of the residential telecommunications market. AT&T Communications ((U.K.) Ltd. ("AT&T U.K.") was awarded a national PTO license in December 1994 and has announced an intention to enter both the business and residential markets. Cable & Wireless Communications (a consortium comprised of Mercury, Nynex, Videotron and Bell Cable Media) ("C&WC"), could also offer its services in both such markets. In addition, IONICA L3 Limited ("IONICA") began to offer telecommunications services via a fixed radio network in 1996. IONICA announced in November 1995 an arrangement with Scottish Power Telecommunications Limited ("Scottish Telecom"), a subsidiary of Scottish Power PLC, whereby Scottish Telecom will provide IONICA's service in Scotland. Liberty Communications Limited, the United Kingdom's other licensed wireless local loop operator, is expected to launch its residential telephone service during 1997. In addition, on February 8, 1996, the DTI announced the award of two licenses to operate radio fixed access services in the 2 GHz band. These new licenses enable the two licensees BT and RadioTEL Systems, to provide telecommunications services to customers living in defined remote rural areas mainly in Scotland, Wales and Northern Ireland and create potential additional competition for the Company's residential telephony services in certain remote rural areas of the Company's Northern Ireland franchise. The Company also competes with mobile networks such as those provided by Telecom Securicor Cellular Radio Limited 31 (marketed under the name "Cellnet") (in which BT has a 60% interest) and Vodafone Group Plc, and with personal communications networks such as those provided by a joint venture between Cable & Wireless PLC and US WEST, Inc. (marketed under the name "Mercury One-2-One") and Orange. Mobile technology could grow to become a competitive threat to the Company's networks, particularly if call charges are reduced further on the mobile networks. OFTEL has proposed new rules for BT's network services which would give BT increased freedom to reduce prices for resellers as well as value-added service providers. This could encourage the provision of simple resale services in competition with the Company. There can be no assurance that the Company will be able to compete successfully with BT or such other telecommunications operators. The Company believes that it has a competitive advantage in the residential market because of its ability to offer integrated cable telephone, television and telecommunications services and dual product packages designed to encourage customers to subscribe to both services. Giving low income households the ability to better manage their telephony expenditure has given such customers the confidence to use a telephony service. The Company achieves this by offering value added services such as call barring to international services, premium rate or national calls, itemized billing, a low monthly rental and significantly cheaper average calls. The Company's research indicates that the ability to manage telephony expenditure more effectively, combined with low call charges, will also increase confidence among those who already use a telephone, and will encourage them to make more and better use of the Company's telephone services. However, there can be no assurance that this competitive advantage will continue. Indeed, BT, Mercury and other national PTOs will be entitled to convey CATV services from 2001 and, subject to a view by the Director General, possibly from as early as 1998. Moreover, C&WC proposes to offer integrated telephone, CATV, telecommunications and multimedia services. It is reported from time to time that BT and BSkyB are discussing the formation of cooperative arrangements. For example, press reports have indicated that the two companies are in advanced discussions regarding the formation of a joint venture to promote digital satellite television and interactive services in the United Kingdom. Given the respective market positions of BT and BSkyB, the Company believes that, if the two companies successfully combine their respective marketing strengths, the resulting combination may provide significant competition to cable operators including the Company. At present, however, it remains to be seen whether cooperative arrangements, such as the proposed joint venture, can be resolved between the parties. The Company cannot currently predict the effect that competition from joint BT/BSkyB ventures would have on its business until further details are available as to how it is proposed that these and other issues are to be resolved. Business Telecommunications Services BT is also the Company's principal competitor in providing business telecommunications services. In addition to BT, the Company competes with Mercury (which is part of C&WC), Energis, Scottish Telecom and Atlantic Telecom in Scotland and with other companies that have 32 recently been granted telecommunications licenses such as MFS Communications Limited. In the future, the Company may compete with additional entrants to the business telecommunications market, such as AT&T U.K. On February 9, 1996, the DTI announced the award of three licenses to NTL Group Limited , Mercury and IONICA and Scottish Telecom to operate radio fixed access services in the 10 GHz band throughout the United Kingdom (each, an "RFA license"). The RFA licenses permit the licensees to provide advanced digital business telecommunications services, such as ISDN, to small and medium sized businesses more quickly and at a lower cost than those services provided by other cable operators which must rely on networks constructed underground. Competition is based on price range and quality of services and the Company expects price competition to intensify if C&WC, Energis and other new market entrants compete aggressively. In addition, OFTEL's proposed changes to BT's pricing arrangements for service providers may increase competition from simple resellers. The Company believes that it will be able to compete effectively against BT, Mercury, C&WC and the others by emphasizing local customer service, local account management, higher quality technical service, additional calling features and lower prices. Examples of the Company's planned competitive strategies include: - - exploiting the Company's information, management, operational and control systems to gather detailed knowledge of local market trends and preferences and to provide improved localized customer service; - - developing product portfolios and prices tailored to meet local market needs and developments as they arise; - - utilizing modern network infrastructure, employing modern digital switches and substantial fiber optic plant which provides customers added value services, for example, in the form of a remotely managed network which can identify and isolate switching problems; - - providing business customers with special services and facilities including high capacity, private circuit digital lines (2 megabits and above), Internet access, CENTREX services, Virtual Private Networks and freephone services (0800 service); - - taking full advantage of number portability which is expected to aid the migration of telephone subscribers, particularly business customers, to cable operators and away from BT; and - - fully exploring the commercial feasibility of deploying advanced digital telecommunications services to small and medium sized businesses throughout the United Kingdom by means of radio fixed access pursuant to the Company's RFA License. As many of the Company's competitors in the business telecommunications market have resources substantially greater than that of the Company, there can be no assurance that the 33 Company will be able to continue to compete successfully with such competitors. National Telecoms Services Telecommunications Services The Company competes with BT, Mercury and Energis for a portion of the United Kingdom's national telecommunications market. The Company's national telecoms networks can deliver capacity to customers with requirements from 2 Mbit/sec. to 155 Mbit/sec. providing managed bandwidth for data and voice signals. The Company's infrastructure is separate from other network providers which, when coupled with its expertise gained in delivering quality broadcast services nationwide, allows the Company to offer some of the highest levels of link performance in the United Kingdom. Satellite Services The satellite transmission market involves the provision of services whereby video or audio, voice and/or data signals are "beamed up" from an "earth station" or dish to one or more satellite transponders and returned to a customer's receiving dish. The market for satellite services is competitive and expanding in scope and potential value. The Company estimates that video traffic currently comprises approximately 75% of the total market. Intra-European traffic in video uplinks is estimated by the Company to be approximately (Pounds) 39 million with (Pounds) 10 million originating in the United Kingdom. The Company offers satellite services primarily in the broadcast and video distribution sector with customers including CBS, United Artists and Turner Broadcasting Systems. The Company does not typically build or expand its satellite facilities until its customers are subject to long-term contracts, which typically are five year service agreements. Currently, the Company covers seven major satellites. Radio Communications The Company estimates that the total United Kingdom market for radio communications maintenance services is currently approximately (Pounds) 75 million annually of which the Company serves approximately 16%. In addition, this division provides services in the facilities leasing sector and installs and commissions radio-based systems for third parties. Broadcast Services Television Transmission Television transmission involves the conversion of audio and video signals created in television studios into UHF signals which are transmitted over-the- air to the receiving public. The United Kingdom terrestrial broadcast market is composed of two networks, one operated by Castle Tower Transmission and one operated by the Company. The Company currently transmits Channel 3, Channel 4/S4C and has a contract to transmit the Channel 5 signal when Channel 5 begins 34 broadcasting. Castle Tower transmits BBC 1 and BBC 2. Because the Company and Castle Tower control the tower sites and the transmission equipment for each of the television transmission networks respectively, the introduction of competition to these two transmission networks would depend on limitations such as availability of radio frequency spectrum, appropriate sites, environmental approach, financing and other similar factors. Subject to any relevant application of competition law, the Company does not anticipate that other operators would undertake the application of an analog terrestrial network in the existing terrestrial television market in the United Kingdom. The Company and Castle Tower are interdependent upon one another, as they share sites and facilities throughout the United Kingdom. This interdependence requires elaborate commercial arrangements that provide for site sharing. Under the present arrangements, one of the parties (the "Station Owner") is the owner, lessee or licensee of each site and the other party (the "Sharer") is entitled to request a license to use certain facilities at that site. Each site license granted pursuant to the site sharing agreement is for an initial period expiring on December 31, 2005 (subject to title and to the continuation in force of the site sharing agreement) and provides that, if requested by the Sharer, it will be extended for further periods. The site sharing agreement and each site license provide for the Station Owner to be paid a commercial license fee and for the Sharer to be responsible, in normal circumstances, for the costs of accommodation and equipment used exclusively by it. These arrangements continue between Castle Tower (as the BBC's successor) and the Company (as NTL Group Limited's successor). Either party may terminate the agreement by 5 years notice in writing to the other expiring on December 31, 2005 or at any date which is a date 10 years or a multiple of 10 years after December 31, 2005. Although the Company does not anticipate that the site sharing agreement or the site licenses will be terminated, there can be no assurance that such a termination will not occur. Termination of the site sharing agreements would have a material adverse effect on the Company's business and would also result in an event of default under the NTLIH bank facilities (see "Management Discussion and Analysis of Results of Operations and Financial Condition ") and the acceleration of the indebtedness outstanding thereunder. Each such event could have a material adverse effect on the Company. In particular, an acceleration of the indebtedness under the NTLIH bank facilities could lead to defaults under the indentures governing certain of the Company's other indebtedness. There can be no assurance that the Company would have sufficient resources to repay such indebtedness should it be accelerated. Analog television transmission is effected through a network of transmitters located at 51 main sites and over 1,100 secondary sites throughout the United Kingdom. Of these sites, the Company is the owner, lessee or licensee of 23 main transmitting sites and approximately 600 other sites. Castle Tower is the owner, lessee or licensee of the remainder. On a substantial majority of sites, the Company maintains separate transmitters for ITV and Channel 4/S4C and Castle Tower maintains its own transmitters for BBC 1 and BBC 2. At most sites, the output from the Company and Castle Tower transmitters is combined before being fed to a common aerial system. Where this occurs, the provision of the combining equipment, feeders and aerial system is the responsibility of the owner, lessee or licensee of the site. 35 Radio Services Radio signals are transmitted throughout the United Kingdom by over-the-air analog signals. The radio transmission market is similarly divided between the license fee funded BBC and the national, regional and Independent Local Radio ("ILR") companies. ILR in the United Kingdom is characterized by the wide variety of companies responsible for its provision to local service areas. This has resulted in a more competitive market for radio transmission services than there is for television transmission services, as some local companies have chosen to develop their own local networks. The market for the transmission of independent radio is estimated at approximately (Pounds) 12 million per annum of which the Company retains approximately 65%. The Company faces a continuous program of contract renewals with its ILR customers. Ownership of the ILR transmitters provides a clear benefit during negotiations, but the Company believes that it's focus on providing quality service is the key to its retention rate of over 90%. The Company has also bid successfully for the majority of new licenses awarded, including Classic FM, the United Kingdom's only national independent radio service that was tendered. NTL International There are only a few other companies in the United Kingdom providing services similar to NTL International (formerly called Nexus) and most of these are equipment manufacturers/suppliers and system specialists. NTL International's current share of the available market is estimated to be approximately 10%. NTL International operates on a relatively low cost base, employing only nine full time staff and expects capital expenditures increases to be directly linked to contracted revenue. OCOM OCOM sells retail long distance services to cellular customers in Ohio and in other portions of the U.S. The Company provides these services primarily through arrangements with other long distance carriers under tariff or contract. OCOM pays long distance companies a wholesale rate for these calls and bills its customers at a retail rate, thus earning a margin. In the provision of long distance services, OCOM competes with such long distance companies as AT&T, MCI and Sprint, all of which have resources and experience far in excess of that of OCOM. In addition, pursuant to a contract between OCOM and New Par, a subsidiary of AirTouch Communications, Inc. ("AirTouch"), the Company through OCOM provides New Par with cell site to switch and switch to switch private line transmission service over the Company's microwave facilities at competitive tariffed rates. The Company also offers tariffed private line transmission services to other customers. The equipment, facilities and services used to accomplish interconnections in and between cellular systems provided pursuant to a contract with New Par are owned and maintained by OCOM but are located on towers owned by New 36 Par. This contract provides that New Par may (i) give OCOM a termination notice that such contract will terminate one year from the date of such notice or (ii) exercise a right to buy all of OCOM's equipment and facilities at a price equal to the replacement cost of all such equipment and facilities based upon a bona- fide third party price (subject to AirTouch receiving certain regulatory approvals including approval of the Federal Communications Commission (the "FCC") for such purchase). In October 1996, New Par notified OCOM that it was exercising its option to purchase the equipment, which option was granted to New Par at an exercise price of replacement cost based upon a third party bid. In the exercise notice, New Par stated that replacement cost was approximately $770,000. The Company has informed New Par in a recent letter that as a result of OCOM's receipt of three bids to replace the equipment the closing payment due to OCOM as the result of New Par's option exercise is approximately $28 million. New Par has responded to OCOM's letter and has stated that New Par's exercise of this option was conditional upon paying approximately $770,000 and no other price. Nevertheless, New Par indicated that it would like to explore the continuation of OCOM's provision of microwave service to New Par on a newly negotiated contractual basis. There can be no assurances as to the outcome of this matter. REGULATION The following section summarizes certain regulatory matters relating to the businesses of the Company. Local Telecoms and Television Services Licensing CATV and cable telephony/telecommunications operators in the United Kingdom are governed by legislation under the Broadcasting Act 1990 (the "1990 Act") (which replaced the Cable and Broadcasting Act 1984 (the "CBA")), the Broadcasting Act 1996 (the "1996 Act") and the Telecommunications Act 1984 (the "Telecommunications Act"). An operator of a cable television and cable telephony franchise in the United Kingdom covering more than 1,000 homes requires the following two licenses for each cable franchise area: (a) a CATV license, which authorizes the provision of cable television services within a defined geographical area and which may be either: (i) a prescribed diffusion service license ("PDSL") (issued pursuant to the CBA prior to January 1, 1991 and continued in effect under the 1990 Act) which allows an operator to provide cable television services by means of a cable network; or (ii) a local delivery operator license ("LDL") issued since January 1, 1991 pursuant to the 1990 Act 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; and 37 (b) a telecommunications license, issued under the Telecommunications Act by the Department of Trade and Industry (a "DTI License") authorizes the installation and operation of the telecommunications network used to provide CATV and telecommunications services. The CATV licenses and telecommunications licenses contain various conditions which are enforced by the ITC or OFTEL, as appropriate. The ITC or the Secretary of State has the power ultimately to revoke such licenses. It is ITC policy to grant licensees the exclusive right to provide cable television services in the area covered by their licenses ("ITC Licenses"). The Company holds such licenses for each of its 16 franchise areas. The Company's United Kingdom businesses are further subject to regulation by the EU. See "-European Union Legislation." Duration of Licenses PDSLs. PDSLs are issued for an initial period of 15 years, although the licensee is entitled to seek an extension for a further 8-year period. If the licensee elects to extend a PDSL, upon expiration of an extended license, the licensee must apply for a new LDL under the competitive tendering process described above. If the licensee does not elect to extend a PDSL the licensee is entitled to apply for the grant of an LDL for the same area for a further 15 year period, and the ITC will set the amount of notional cash bid and PQR payments payable over the period of the license. The ITC can only refuse to grant the LDL to the existing licensee in such circumstances if (i) they propose to grant a new LDL in respect of a different area, (ii) the licensee is not operating throughout the whole of the franchise area, (iii) the licensee's proposed service under the LDL would not cover the entire franchise area or (iv) its proposed telecommunications system is not acceptable. LDLs. LDLs are issued for a period of 15 years and can be renewed on one or more occasions for 15 years. On renewal of the LDL, the ITC will set the amount of notional cash bid and PQR payments payable over the period of the renewed LDL. The ITC can only refuse to renew the LDL if: (i) the ITC proposes to grant a new LDL for a different area; or (ii) in the case of a licensee that fails to achieve the required coverage specified in its technical plan, the ITC is not satisfied that the licensee would be able to achieve the required coverage on renewal of the license. The majority of the Company's ITC Licenses will expire in December 2005 and are not currently due for renewal or extension. Applications for renewal of an LDL may be made within five years of the expiration of the LDL and not later than the date the ITC would need to invite applicants for a new LDL for the relevant franchise to replace the LDL upon its expiration. The Company has a number of "transitional" LDLs ("LDTs") for areas in South Wales acquired from Metro Cable TV Limited ("Metro") in 1995. LDTs were issued under the 1990 Act to replace old diffusion service licenses which were not PDSLs and which were outside a 38 cable franchise area. These are issued for an initial period of 5 years, and may be renewed for further 5-year periods. On renewal, the ITC may specify the amount of a notional cash bid and PQR payments over the period of the LDT. All the Company's LDTs have been renewed without any cash bid or PQR payment requirements and will expire in 1999. The Company will be entitled to seek a renewal of its LDTs for further 5-year periods. The ITC is empowered to revoke a license where it considers it necessary to do so for the purpose of complying with the restrictions on ownership contained in the 1990 Act as amended by the 1996 Act. Where the licensee is a corporate entity, the ITC may revoke the license if any change in the nature or characteristics of that corporate entity, or any change in the persons having control over or interests in it, are such that, had they occurred before the granting of the license, they would have induced the ITC to refrain from granting the license. A license can also be revoked if the operator fails to comply with any license condition (including, in the case of an LDL, the establishment of the service in accordance with the technical plan submitted by the licensee) or direction from the ITC and the ITC considers revocation to be in the public interest or if the ITC is satisfied that the licensee ceases to be a fit and proper person. With respect to LDLs and other licenses issued under the 1990 Act, the ITC can also impose fines and shorten license periods. DTI Licenses. DTI Licenses were originally granted for an initial period of either 15 or 23 years (depending on the technology used by the licensee), commencing on the date service was first provided to customers. In July 1992 following the Duopoly Review (a review of a government policy not to license operators other than BT and Mercury), technology-related discrimination in DTI License length was abandoned. The United Kingdom government invited all holders of 15-year DTI Licenses to apply for new 23-year licenses. However, a licensee also had the right to extend a 15-year DTI License to 23 years if it provided certain technical undertakings within five years of the date of the original grant of license. To date, the Company has given such undertakings with respect to all of its DTI Licenses and, consequently, the Company's DTI Licenses will expire at various times between 2008 and 2017. Upon expiration, a DTI License cannot be renewed and application must be made for a new license. If the ITC License is renewed for a franchise, a new DTI License for the same area covered by the ITC License is likely to be issued. A DTI License may be revoked if the licensee fails to pay the license fee when due, if the licensee fails to comply with an enforcement order, upon the occurrence of certain insolvency-related events or if any ITC License relating to a licensee's system is revoked. A DTI License may also be revoked if, among other things, the licensee fails to give the required notification to the DTI of changes in shareholders 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 United Kingdom government's international relations. 39 Restrictions on Transfer The 1990 Act permits the transfer of an ITC License to a third party with the prior written consent of the ITC. The ITC has absolute discretion to refuse any proposed transfer of such a license. A DTI License is not transferable. However, a change of control of a licensee may be permitted subject to compliance with a notification requirement provided that, among other things, the proposed change is not, in the opinion of the Secretary of State, against the interests of national security or international relations. Network Construction DTI Licenses for PDSL areas specify the build schedule of the system which the cable operator is required to implement (by reference to the numbers of premises passed) and the particular technical characteristics to which the system must adhere. It is OFTEL's responsibility to enforce compliance with the build schedules. The DTI Licenses for LDL areas, such as Northern Ireland and Glamorgan and Gwent, do not specify a build schedule. This schedule is contained in the LDL issued by the ITC, and it is the ITC's responsibility to enforce compliance with those build schedules. Failure to comply with the build schedules could result in license revocation. Under a DTI 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). Cable operators also have the benefit of the New Roads and Street Works Act 1991 which provides them with the same rights and responsibilities with respect to construction on public highways as other public utilities. Cable operators generally are required to post bonds with local authorities in respect of their obligation to ensure reinstatement of roads and streets in the event the operator becomes insolvent, ceases to carry on business or has its DTI License terminated. In order to install equipment on private property, cable operators should first seek the agreement of occupiers, property owners and others, but where such agreement is not forthcoming, they may apply for a court order dispensing with the requirement for such an agreement. A planning order issued in April 1994 imposes planning consent requirements on certain works carried out under the Telecommunications Code. Under this planning order, installation, alteration or replacement of any telecommunications apparatus on, or within the land surrounding, a dwelling house is deemed to be development for which planning consent is required. There is some uncertainty as to the extent to which this restriction will affect the development and maintenance of television and telecommunications systems. The Department of the Environment, however, takes the view that cabling a house is a "minor operation" and is not, therefore, "development" unless it alters the external appearance of a building. 40 Telephone Operations The ability of cable television operators to provide telephony services is subject to the restrictions contained in their DTI Licenses. All of the Company's DTI Licenses permit the Company to provide voice telephony services and to switch their own traffic. Additionally, under the United Kingdom regulatory regime, the Company has the right to require BT, Mercury and other PTOs (including cable operators) to provide interconnection and, failing agreement on the interconnection terms, the right to request OFTEL to determine the interconnection conditions. The Company has interconnection agreements with BT and Mercury. Telephone Number Portability. At the request of a DTI licensed operator, and if so directed by the Director General, BT is obligated to offer customers number portability (i.e., the ability of telephone customers to retain their telephone numbers when changing to another telephony operator). Pursuant to a hearing by the Monopolies and Mergers Commission (the "MMC"), BT's license was amended on July 29, 1996 in accordance with the MMC's findings. The license modifications require that BT split total number portability costs 70:30 with the cable operator requesting number portability. This means that BT will bear the systems' set up costs; the other operator will pay the per line set up costs; and BT and the other operator will share extra costs associated with routing a call to a ported number until October 1997 when BT will introduce a new method of routing ported number calls, called the "call dropback" method. BT will bear any costs associated with call dropback as well as any additional costs which BT incurs should it fail to introduce the "call dropback" method by October 1997. These costs are expected to be minimal. In 1997, the Company intends to offer number portability for customers migrating to the Company as well as to those migrating from the Company to another operator. OFTEL has indicated that it intends to seek the modification of all other DTI licences during the course of 1997 so that these other licensees are obliged to offer number portability when requested by an operator who is able to reciprocate number portability. DTI licensees are obliged to notify OFTEL of the rates for certain licensed services. The Company is required to publish rates with OFTEL for cable television and value added services such as the Internet. BT is currently subject to controls on most of the prices it may charge customers. Under provisions in BT's license, BT may not, until July 31, 1997, increase its aggregate retail prices for general public switched telecommunications services on an annual basis by more than the amount of the increase in the United Kingdom domestic Retail Prices Index ("RPI") minus 7.5%. The RPI increased 2.7% from October 31, 1995 to October 31, 1996. Based on this formula, BT may be required, and has been required to, decrease its prices. Within this limitation, BT may not increase its charges for certain individual services by more than certain other price limitations, generally RPI. In addition, BT's license contains separate restrictions on prices for private circuits. 41 On February 13, 1996, BT's DTI License was amended to remove, with effect from February 8, 1996, the control on the price of exchange line rentals (while new protection for light users was introduced in the form of a guarantee by OFTEL that the bills of these customers will not increase faster than the rate of inflation). BT has been permitted to offer retail discounts nationally to high volume users, albeit subject to several conditions. Importantly, BT is restricted in the manner in which it can offer discounted services by virtue of the obligation not to show undue preference to or exercise undue discrimination against particular persons or persons of any class or description (cable operators are also subject to a similar prohibition on undue preference or discrimination except in relation to voice telephony services). Except as mentioned above, BT is not, therefore, allowed to offer discounted services in local markets without offering them nationally. For so long as this policy of geographic averaging remains in effect, BT will be restricted in its ability to respond through differential pricing to local competition from cable operators. OFTEL has recently indicated that it remains firmly committed to the principle of geographic averaging for the majority of BT's services, including voice telephony. OFTEL will be reviewing this principle in 1997. OFTEL has completed its review of the controls on BT's retail pricing which are to apply for a 4 year period from July 1997. OFTEL has chosen to adopt a more deregulated approach to permit market forces to determine pricing where competition exists in particular markets. However OFTEL has linked this approach, both in terms of BT's price control review and with respect to the rest of the industry, to the introduction of the fair trading condition into the licensing regime. The principal features of the new regime are: (i) to control retail prices through 2001 only where consumer protection is required (namely, low to medium spending residential customers (approximately the first 80% by bill spend), and additional guarantees for small businesses-this control is expected to cover only approximately 25% of BT's revenues; (ii) a value of X, for the purposes of the price cap formula (RPI minus X), of 4.5 for those residential customers and protection for the top 20% of customers by bill spend and small businesses; (iii) that this will be the last retail price control; (iv) the introduction of price controls on network charges (the input costs of operators competing with BT) the detail to be determined in 1997; and (v) the so-called "fair trading" condition in BT's license which enables the Director General more effectively to deal with anti-competitive behavior by BT. OFTEL's price cap scheme represents a first step towards deregulation of pricing in the United Kingdom telecommunication markets. The introduction of price controls on network charges, with a price floor based on long run incremental costs and a price ceiling based on fully allocated costs is likely to provide operators with a predictable cost base to allow them effectively to compete with BT. OFTEL intends to incorporate a fair trading condition into all significant telecommunications operators licenses. On October 1, 1996, the fair trading condition was introduced into BT's license and came into effect on January 1, 1997. This fair trading condition provides similar prohibitions to those set out in Articles 85 and 86 of the EC Treaty in relation to anti-competitive agreements and the abuse of a dominant position in the United Kingdom. BT's consent to the insertion of this fair 42 trading condition in its license was expressly made subject to BT seeking a ruling from the court as to whether or not the Director General had the power to make this license modification. BT commenced judicial review proceedings in respect of the fair trading condition and the High Court confirmed the lawfulness of the fair trading condition on December 20, 1996. It is expected that all of the Company's DTI Licenses will be amended to include the fair trading condition during the course of 1997. Interconnection and Accounting Separation. The commercial viability of voice and other telecommunications services provided by cable operators depends on their ability to connect with other telecommunications systems in a cost effective manner. Cable operators' systems must connect with systems operated by other PTOs for calls that do not originate or terminate on their system. Each holder of a public telecommunications license (including the Company, BT and Mercury as well as cable operators) is required to negotiate an interconnection agreement with any other license holder that seeks one and either party may request intervention from the Director General if there is a failure to agree on terms. The Director General also has the power, at present, to make determinations and directions in respect of certain obligations of any party to an interconnection agreement. However, determinations by the Director General may be liable to challenge in the courts. In addition, BT is required by its license to make all interconnection agreements that it has entered into publicly available. On March 31, 1995, OFTEL modified BT's license to implement accounting separation for BT's "retail", "access" and "network" businesses. Interconnection charges are determined in accordance with certain provisions of BT's DTI License which require that the operator pays BT's fully allocated costs attributable to the services to be provided (taking into account relevant overhead and a reasonable rate of return on its attributable assets, with the allocation of such costs and the attribution of assets to be subject to the requirement that BT prepares separate accounts with respect to BT's "retail", "access" and "network" businesses). A list of standard rates with respect to most interconnect services were first determined by the Director General in April 1995. The charges for such services have since been reviewed twice yearly. The standard charges determined in this manner are payable by all operators, including BT's own "retail" business, which competes with the Company and other PTOs. In December 1995, the Director General issued a consultative document "Pricing of Telecommunications Services from 1997" (the "Consultative Document") which proposed a fundamental review of, among other matters, interconnection arrangements and competition. The Consultative Document suggested that after the price cap review in 1997, it may be more appropriate to move towards a regulatory framework which involves less detailed intervention by the Director General specifying a framework and allowing BT certain pricing freedoms within such framework, subject to a number of pricing restrictions on anti-competitive behavior. The Director General published a further Consultative Document on these issues in March 1996 and a Statement of OFTEL's proposals in June 1996. OFTEL has proposed in this statement of June 1996 that a new interconnection regime be introduced from August 1997 based on network price controls. This new regime will involve 43 the introduction of incremental cost charging in respect of interconnect fees (rather than the current method which is based upon fully allocated cost charging) and the introduction of a network price cap with respect to wholesale charges. OFTEL has stated that operators may be required to provide network information to BT for interconnection purposes in much the same way as BT must publish information about its own network and, once BT is subject to quality-of- service targets and publication requirements in relation thereto, similar requirements may apply to other operators. Such "symmetry" will be applied to other operators in respect of wider interconnection obligations (such as accounting separation and transparency of charge calculation for interconnection) if OFTEL concludes that any such operator has market power and is in a position to distort competition to the detriment of consumers. OFTEL does not currently propose to require other operators to publish their interconnection agreements. Indirect Access. In July 1996, OFTEL published a Statement of its policy on indirect access and equal access. It defined indirect access as the situation where a customer buys a telecommunications service from an operator to which it is not directly connected and where that operator pays another operator, to which the customer is connected, for use of that connection. This statement confirmed that while OFTEL has implemented a policy of indirect access to BT's customers, it remains of the view that it is generally undesirable to oblige non-dominant operators to provide indirect access. Accordingly, if a telecommunications operator does not have 25% of the connections in a relevant market, OFTEL would be unlikely to conclude that indirect access should be required. If the operator did have 25% or more of connections, OFTEL would want to consider other market conditions, such as the share of connections held by other operators, the existence of any barriers to switching or whether, in the long run, mandating indirect access under such circumstances was likely to enhance competition or diminish it. Consideration of these factors would create a framework in which a request to mandate indirect access could be considered. Equal Access. The licenses of BT, Mercury and the cable operators enable OFTEL to require them to make available to customers the ability to have their long-distance or international calls carried by another operator without extra procedures, either by pre-selection or on a call-by-call basis. OFTEL's statement of July 1996 also confirmed that in accordance with BT's DTI License, a full cost-benefit analysis of equal access had been undertaken. This analysis raised doubts about the overall economic benefit of introducing equal access. Accordingly, OFTEL has concluded that, on balance, there is no case at present for directing BT to provide equal access. 44 In addition, later in 1997, cable operator licenses will be amended to remove the obligations to provide equal access. The European Commission has published proposals under which equal access would be mandated throughout the European Union as a harmonising and liberalising measure. The U.K. Government and OFTEL have made their opposition to the application of such a policy in the U.K. very clear. There can be no assurance that the implementation of equal or indirect access will not adversely affect the ability of cable television/telecommunications operators to market their telecommunications services. Technical and Reporting Requirements The principal technical requirements for the cable systems are contained in the DTI Licenses and address technical requirements for transmissions, performance requirements specified as British Standards relating to wideband cable distribution systems and, in all cases, radio interference restrictions. The Company's DTI Licenses impose obligations to provide any information which OFTEL may require for the purpose of exercising their statutory functions. This includes financial reporting, market data, and information on customer complaint and fault handling procedures. International Facilities License On June 6, 1996, the UK Government announced the liberalization of the international telecommunications market. Historically, only BT and Mercury have been allowed to provide international facilities from the UK. Recently, however, two Company subsidiaries of the Company were each awarded an international facilities license. The licenses will enable the Company to take advantage of the expanding volumes of international telecommunication traffic, especially data services such as the Internet. The liberalization of this market is likely to substantially reduce the Company's international call conveyance costs over the next 12 months. European Union Legislation Telecommunications Regulation Most of the EU States' communications regimes are not as liberal as the UK's. Member States are now however typically in agreement on the importance of liberalizing their communications sectors, which is facilitating the European Commission's attempts to fully liberalize the voice telephony market and infrastructure across the EU by January 1, 1998 (subject to transitional periods for certain Member States). Some of the key Commission Directives in this field are: A Directive requiring Member States to abolish all restrictions on the supply of transmission capacity by CATV network operators to service operators and allow the use of cable networks for the carriage of telecommunications services, other than voice telephony, within Member States from January 1, 1996. The Directive does not affect the provision of CATV services. 45 A Directive which provides for full competition in telecommunication services and network infrastructure by January 1, 1998. This Directive also provides for the liberalization of self-provided infrastructure (such as utilities' networks) for the provision of services other than voice telephony from July 1, 1996. This liberalization will be extended to the provision of voice telephony by January 1, 1998. The Directive's provisions are generally comparable to the existing United Kingdom regime which is already liberalized with respect to the provision of telecommunication services and infrastructure. A Directive on the application of open network provision ("ONP") to voice telephony. This Directive sets rules and targets for basic telephone service in areas such as telephone directories, tariffs, billing procedures and quality of service. It also requires telephone companies to provide interconnection on open, objective and non-discriminatory terms (which is now generally the case for cable operators in the United Kingdom). The Commission has proposed a new Directive to replace this ONP voice telephony Directive from 1998. This new Directive will not deal with interconnection which is to be the subject of a further Directive. The European Commission has proposed a Directive on Interconnection in telecommunications with regard to ensuring universal service and interoperability through application of the ONP principles. The proposed Directive sets out a harmonized framework to be implemented by Member State regulatory authorities regarding the interconnection of public telecommunications networks and services utilizing the ONP principles of transparency, objectivity and non-discrimination. This proposal aims to ensure open access to networks and services and to guarantee the rights and obligations of operators and service providers for interconnection with the networks and services of others. It is not yet settled whether the Directive will seek to limit the scope of the interconnection obligations to interconnection between networks or whether the Directive will seek to extend the benefits of cost-based interconnection to service providers. The DTI has confirmed that the principles of the Common Position for this Directive (adopted on June 18, 1996) are broadly in line with the approach which OFTEL is implementing through its interconnection and accounting separation program in the United Kingdom. It is expected that the Directive will be adopted by mid 1997. The Directive aiming to establish a common framework for Member States' general authorization and individual licenses for telecommunications services and infrastructure by establishing principles for the procedures under which general authorizations or individual licenses might be granted and the conditions that might be attached to such authorizations or licenses was formerly adopted in March 1997. Member states must enact the Directive by December 31, 1997. Television Regulation The European Court of Justice has held that section 43 of the 1990 Act, in setting out criteria for determining which satellite broadcasters come under UK jurisdiction on the basis of transmission from the UK, is contrary to the Television Without Frontiers Directive. It has also 46 held that the UK has further failed to fulfill its obligations under the Directive by, in the context of an incorrect determination of jurisdiction, applying different regimes to domestic and non-domestic satellite services and exercising control over broadcasts which are transmitted by broadcasters falling under the jurisdiction of other Member States. As a consequence of this decision, non-domestic satellite services would, in the absence of appropriate action by the UK Government, become subject to a mandatory 50% European Union production quota and a 25% independent production requirement as outlined in the Directive. At present, it is likely that few, if any of the current satellite services in the United Kingdom would comply with both of these production requirements and it is possible that many of them would not be able to do so in the future. The Department of National Heritage is considering how to alleviate the principal effects of such a requirement. One proposal, which the Company believes that the UK Government is considering, is the removal of the current legislative and licensing criteria of the Broadcasting Act which distinguishes between domestic and non-domestic satellite services, so that the current legislative and licensing criteria which apply to non-domestic satellite services would be the criteria applied to regulate any satellite service established (and hence licensed) in the UK. If this proposal is adopted, compliance by satellite services with the production quotas in the Directive would continue to be regulated administratively in the UK. Unless such a proposal is implemented, cable operators may be required to substantially change the television programming they offer. Given that there are a limited number of program suppliers which may be able to satisfy the "production" requirements which may apply to United Kingdom satellite channels, the cost of programming to cable operators could also increase. There is no assurance that the loss of certain satellite channels and/or the increased costs of such channels would not have a material adverse effect on the Company's cable television business. Other Regulatory Issues Following a review completed by the OFT in July 1996, BSkyB has accepted new undertakings to the OFT to address concerns in respect of its wholesale pricing in addition to modifications to those undertakings agreed to in March 1995 (which addressed concerns about the bundling of programs and rate card discount schemes). The OFT also announced that a new industry ratecard would be approved only after consultation with the cable industry. This consultation ended on November 5, 1996. On December 16, 1996, the OFT approved the structure of the ratecard and made only minor amendments in response to the submissions made by the Cable Communications Association on behalf of the cable industry. BSkyB brought the new ratecard into effect on February 16, 1997. The Company estimates that, since the introduction of the revised ratecard in March 1995 through February 16, 1997, the overall aggregate increase in BSkyB's wholesale prices will have been between approximately 23% and 26% (although BSkyB has provided additional basic and bonus premium channels during this period). However, notwithstanding the OFT's approval of the ratecard structure, changes to the ratecard may occur as a result of commercial negotiations between BSkyB and the 47 cable operators regarding the pricing levels within the ratecard structure or following further regulatory developments. The OFT review also concluded that there was no evidence that the linkage between the DTH retail price and its wholesale price charged to cable operators was anti-competitive and that no action was required on this issue. Additionally, the OFT said that it had reviewed BSkyB's accounts and will continue to do so every six months, to ensure that BSkyB is not cross- subsidizing its retail DTH business from revenues of its wholesale cable supply business to the detriment of competition. However, in relation to BSkyB's requirement that cable operators carry its basic channels to 100% of their subscribers, the OFT found that this was inhibiting cable operators in their ability to offer tailored packages and was inhibiting the growth of local cable industry. BSkyB has accepted an undertaking not to require carriage in excess of 80% in the future, although BSkyB will be permitted to increase the prices of its basic channels by 1.25% for each percentage point by which carriage of the channels falls short of 100%. BSkyB also accepted an undertaking not to bundle bonus programs (such as occurred in respect of the Disney Channel) with premium channels in the future (the ITC is currently investigating a complaint concerning the terms of supply of the Disney Channel). Broadcast and National Telecoms Services A significant proportion of the Company's total revenues is attributable to the provisions of television and radio transmission and distribution services and the provision of telecommunications services. In the United Kingdom, the provision of such services is governed by the Telecommunications Act and The Wireless Telegraphy Act 1949 (the "Wireless Telegraphy Act"). Set forth below is a brief summary of the principal licenses of the Company's National Telecoms and Broadcast Services divisions granted pursuant to these Acts. Telecommunications Act Licenses The Company holds four licenses under the Telecommunications Act. Transmission License. The Transmission license, which enables the Company to run telecommunications systems for the provision of television and radio transmission services, is probably the most important of NTL Group Limited's licenses. It permits the Company to carry out its business of providing transmission services to television and radio broadcasters. The Transmission License was granted on December 20, 1990 for a period of 25 years from January 1, 1991. It is subject to revocation thereafter on 10 years' notice in writing. No notice may be given before the end of the fifteenth year. The Company's Transmission License contains conditions and other provisions which, among other things: (i) require the Company to provide specified telecommunications services to specified persons on request; (ii) specify certain criteria to be met by the Company in 48 providing those services; (iii) require the connection of the Company's telecommunications systems with those of certain other transmission operators and the transmission over those systems by such operators of messages for general reception; (iv) require the Company to publish its charges and terms and conditions of business and not to show undue preference to or exercise undue discrimination against particular persons in the provision of certain telecommunications services; (v) require the Company to hold Wireless Telegraphy Act licenses in respect of each item of wireless telegraphy comprised in its system; (vi) impose on the Company an obligation to share its transmission sites with other transmission operators; (vii) restrict the prices which the Company is allowed to charge for the provision of certain services. (see "-Price Cap Review" below); (viii) prohibit the Company from cross- subsidizing the unregulated side of its business; and (ix) impose a requirement for separate accounts to be produced in relation to both the regulated and unregulated parts of the Company's business. However, most of these obligations do not apply until certain levels of market share are obtained and, in any event, the Company is not obliged to do anything "not reasonably practicable." The Secretary of State may revoke the Transmission License in the circumstances described under "-Local Telecoms and Television Service -Duration of License" above. The OBS License. The OBS License, which permits the Company to run telecommunications systems for the provision of outside broadcasting services by means of satellite systems, enables the Company to operate satellite up-links from outside broadcast sites (sites which are not permanently equipped or adapted for television or radio broadcasting). The OBS License was granted on February 6, 1991 for a period of 25 years from February 7, 1991, thereafter revocable on 10 years' notice in writing. No notice may be given before the end of the fifteenth year. The OBS License contains conditions similar to those in the Transmission License. The OBS License specifies the circumstances in which it may be revoked by the Secretary of State which include on revocation of the Transmission License. The Telecoms License. The Telecoms License enables the Company to convey messages (including voice and data) between points on the Company's telecommunications networks. The Telecoms License also contains conditions and revocation provisions similar to those in the Transmission License. In compliance with the notification provisions in the license, NTL Group Limited notified the Secretary of State in March 1996 of its acquisition by the Company. The DTI has informed the Company (see below) that this license will need to be revoked as it has, for all intents and purposes, been replaced by the PTO license. The Telecoms License was granted on December 30, 1992 for a period of 10 years from 30 December 1992. Thereafter it is revocable on 5 years' written notice. No notice may be given before the end of the fifth year. The PTO License. The PTO License permits the Company to run telecommunications systems of every description within the United Kingdom and to provide telecommunications services; however, both authorizations are subject to certain exceptions. The Company's PTO License was granted on February 14, 1996 for a period of 25 years from that date. Thereafter, it is revocable on 10 years' written notice. No notice may be given before the end of the fifteenth 49 year. The Company's PTO License also includes a condition obliging it, subject to certain exceptions, to enter into an agreement to connect its system to the system of any operator which requires it to do so, provided that such operator has been granted a license authorizing it to connect its system to the Company's system. The PTO License differs from other Telecommunications Act Licenses in that it details the exceptions and conditions subject to which the Telecommunications Code will apply to the Company. The Telecommunications Code confers certain important rights on PTO's in relation to network construction, buildings and land. Wireless Telegraphy Act Licenses The Company holds a number of Wireless Telegraphy Act licenses of which the most important are the following: License for the Transmission of Broadcasting Services. This license was granted on January 1, 1991 and permits the licensee to operate wireless telegraphy stations at those sites set out in a schedule to the License. In respect of each station, site and mast heights, power, polarisation and frequency to be used are specified. Microwave Fixed Link License. This license permits the licensee to establish and use fixed stations for sending and receiving wireless telegraphy at those sites as detailed in the schedule to the license. Private Mobile Radio License. This license permits the licensee to establish sending and receiving stations for wireless telegraphy (both base stations and mobile stations) and to use these stations for the purpose of sending and receiving spoken messages concerning the business of the licensee. Earth Station Licenses. The Company holds 12 earth station licenses. These licenses permit the Company to establish earth stations at specified locations in the UK for the purpose of providing wireless telegraphy up-links between the earth station and specified geo-stationary satellites. Each of the four types of license referred to above continues in force from year to year unless revoked by the Secretary of State or unless any of the license fees are unpaid by the licensee in which case the relevant license expires. Licenses for the Transmission of Broadcasting Services (special status). The Company provides transmission services for a large number of radio stations pursuant to its License for the Transmission of Broadcasting Services dated January 1, 1991 (see above). In respect of two radio stations, Classic FM and Virgin Radio, the Company has been issued licenses which are specific for those radio stations. This has been done for the sake of administrative convenience because, in both cases, the license fees are paid direct to the Radio Communications Agency by 50 the radio station concerned. Radio Fixed Access License. The DTI has recently confirmed that the Company has been successful in its application for a Radio Fixed Access License at 10 GHz. It is expected that this license will be granted under the Wireless Telegraphy Act later in 1997. This license will allow the Company to provide short-range radio-links between business customers and its network. Miscellaneous Licenses. The Company holds a number of miscellaneous Wireless Telegraphy Act licenses including testing and development licenses and commissioned programme makers licenses. Conditions in the Wireless Telegraphy Act Licenses. The Company's Wireless Telegraphy Act licenses contain conditions relating to revocation of the Licenses and notifications to the Secretary of State. In general, the Secretary of State may revoke a Wireless Telegraphy Act license at any time. There are no notification requirements in respect of a change of control. The license for the transmission of broadcasting services contains provisions which enable the Secretary of State to revoke the license if, among other things, (1) the licensee is, in the opinion of the Secretary of State, not a fit and proper body to hold such a license; (ii) it appears to him requisite or expedient to do so for purposes connected with the EC or any other international organization or obligation or co-operation; (iii) the licensee ceases to hold any contracts for the broadcasting of television or sound broadcasting services; or (iv) the licensee's license granted under the Telecommunications Act is for any reason revoked. At present, Wireless Telegraphy License fees are set as to recover administrative costs only. The DTI has published proposals to supplement this system with additional fees designed to reflect the scarcity value of certain types of spectrum, notably congested microwave fixed link bands. These proposals would not affect broadcasting spectrum, nor that allocated in connection with the Company's 10GHz license. It is not clear whether this policy proposal will be pursued by the Government or how quickly the necessary legislation might be introduced. DAB Testing. The Company is currently testing DAB under a series of temporary licenses in anticipation of applying for a local or national radio multiplex license in accordance with proposals contained in the 1996 Act. These temporary licenses are issued by the Radio Authority under the 1990 Act. Under this Act, a body which is, or which is controlled by a body which is, not formed under the law of an EC member state is currently disqualified from holding a license to test DAB. The current license is, therefore, held by an independent industry association on behalf of the Company. However, under the 1996 Act, a non-EC company will not be prohibited from holding a license to provide local or national radio multiplex services, and this interim position will be regularized at that time. Price Cap Review The Company's regulated business may be divided into two categories: Price Regulated Business and Applicable Rate Business. The Price Regulated Business comprises those 51 telecommunication services which the Company is obliged to provide pursuant to its Transmission License and in respect of which price controls are imposed. The Company's Applicable Rate Business comprises those telecommunications services which the Company is obliged to provide but which do not fall within the definition of Price Regulated Business. Charges for Applicable Rate Business are agreed between the Company and the relevant customer. If despite all reasonable efforts agreement cannot be reached between the Company and a significant proportion of its customers in respect of any particular telecommunications service, the charge will be determined by the Director General. In respect of any services provided by the Company which are not Price Regulated Business or Applicable Rate Business, the prices charged by the Company are wholly unregulated, except for the overriding duty not to engage in any pricing policy which constitutes undue preference or undue discrimination against any person or class of person in respect of telecommunications services. The Company's unregulated income would include, for example, charges for site Rentals to PCN operators. The Company's Price Regulated Business is, essentially, the television transmission service provided to the ITV (Channel 3) companies and Channel 4/S4C including the operation and maintenance of transmission equipment and the provision to third party transmission operators of the accommodation, masts and antennae necessary for the operation of broadcast transmission services. On December 24, 1996, the Director General issued the formal modification to the Company's Telecommunications Act Licenses to effect the price controls which are to apply for the period from January 1, 1997 to December 31, 2002. The Price Cap Review had two purposes: (1) to establish a new "Po" (the Company's allowable revenues for the first year of the next control period, 1997, in respect of the Company's Maximum Price Regulated Business) and (2) to establish a new "X" (the percentage by which such revenues must, after allowing for consumer price inflation, be reduced each year thereafter). The Director General's review concluded that, on present assumptions, the new Po is (Pounds) 53.15 million and the new X is 4.0%. This compares with a current Po figure of (Pounds) 56.4 million in 1996 if the Channel 3 companies accept certain contractual conditions or (Pounds) 57.4 million if they do not. The previous price control formula was RPI-1.0. In addition to price control, the Price Cap Review raised a number of other issues which will impact upon the Company's Price Regulated Business in the future. In particular, the Director General suggested that it would be desirable for the Company to "unbundle" the prices for operational services and required site rentals which it charges to each broadcaster (currently Channel 3 and Channel 4/S4C) in the form of a transmission fee in order to expose those elements of the service which are potentially competitive and allow broadcasters to choose an alternative supplier if they wish. OFTEL has proposed to review whether the Company should publish a ratecard with a menu of prices for unbundled services in 2002 when the Company's regulated business is next due for full review. At present, the system for calculating the proportion of Channel 3's total transmission fee which is charged to each individual franchisee is 52 based on net advertising revenues ("NAR") accruing to each franchisee, rather than the costs of actually providing the transmission service to each of the franchisees. OFTEL proposed that the Company should continue to charge Channel 3 as a group a single price for each component of its transmission service, albeit that each component would be separately distinguished. This arrangement would continue unless and until NAR arrangements no longer applied. This decision could only be taken after agreement with the Department of National Heritage and consultation with other interested bodies. European Union Legislation The Company's Broadcast Services and National Telecoms Services businesses are further regulated by the EU including the various European Commission Directives referred to under "Regulation Local Telecoms and Television Services- European Union Legislation." In addition, EU law, in particular Directive 94/46, regulates the provision of satellite services within the EU. OCOM Generally, the construction, operation, management and acquisition of microwave systems in the United States are subject to regulation by the FCC under the Communications Act of 1934, as amended, and the regulations and policies of the FCC thereunder. GENERAL Research and Development The Company's research and development activities involve the analysis of technological developments affecting its cable television, telephone and telecommunications business, the evaluation of existing services and sales and marketing techniques and the development of new services and techniques. Patents, Copyrights and Licenses The Company does not have any material patents or copyrights nor does it believe that patents play a material role in its business. The Company, and its subsidiaries, are substantially dependent on the licenses and franchises granted by the legislative agencies which regulate their respective businesses. The loss of any one or more of the Company's licenses and franchises could have a material adverse effect on the Company's business and financial condition. There are no material intellectual property licenses used by the Company the loss of which would have such an effect. Customers The Company receives substantial revenues pursuant to its contracts with the ITV 53 companies, Channel 4/S4C and Vodafone, the loss of one or more of which may have a material adverse effect on the Company Employees At December 31, 1996 the Company and its subsidiaries had approximately 3,150 employees. Approximately 1,100 employees (who joined the Company through the NTL Group Limited acquisition) are represented by the Broadcasting, Entertainment, Cinematographic and Theatre Union with which the Company has a collective bargaining agreement. No other employees of the Company are represented by any labor organization. The Company believes that its relationship with its employees is good. ITEM 2. PROPERTIES - ------------------- The Company's subsidiaries own, lease or occupy under license eight business unit and regional head-offices in Glasgow, Cardiff, Newport, Huddersfield, Fleet, Belfast, Luton and London and the corporate head-office in Farnborough. In addition, the Company's subsidiaries own or lease seven switching centers/head-ends and 38 operational hub-sites together with warehouses and other non-operational properties, as well as various cable television, telephone and telecommunications equipment used in each of its regional systems. The Company, through the NTL Group Limited acquisition, also owns, leases or occupies under license approximately 770 properties, of which approximately 700 are used as transmitter sites. Company staff are located at 72 of such properties, which are used either as operational bases or as offices. Approximately 200 of the sites are freehold, approximately 440 leasehold and approximately 130 occupied under license. In addition, the Company is the lessee or licensee of approximately 600 transmitter sites which are owned by Castle Tower and shared between the two organizations pursuant to a site sharing agreement. Substantially all of these assets and properties are subject to fixed and floating charges securing the amounts outstanding under the NTLIH bank facilities (see "Management's Discussion and Analysis of Results of Operations and Financial Condition.") OCOM leases commercial office space in Ohio. In addition, OCOM owns the microwave equipment employed in its system and maintenance equipment and has a non-exclusive right to space on certain of the New Par cellular radio towers. The Company maintains offices under lease for its corporate staff in New York City and in Princeton, New Jersey. The Company believes that its facilities are presently adequate for their current use. The Company intends to continue to expand its systems in accordance with the requirements of its local telecoms and television network build schedules and acquire new sites as part of the ongoing expansion of its transmission. 54 See the Notes to the Company's Consolidated Financial Statements included elsewhere in this Form 10-K for information concerning lease commitments. ITEM 3. LEGAL PROCEEDINGS. - -------------------------- The Company is involved in, or has been involved in, certain disputes and litigation arising in the ordinary course of its business, including claims involving contractual disputes and claims for damages to property and personal injury resulting from the construction of the Company's networks and the maintenance and servicing of the Company's transmission masts, none of which are expected to have a material adverse effect on the Company's financial position. In March 1992, NTL Group Limited entered into a Facilities Management Contract with Classic FM (a national radio station) pursuant to which NTL Group Limited agreed to broadcast Classic FM. Pursuant thereto, NTL Group Limited was obliged, among other things, to use all reasonable endeavors to negotiate a reduction in certain charges levied by the BBC in respect of transmission sites shared by NTL Group Limited, which charges would be passed on to Classic FM. In September 1996, Classic FM issued a writ in the United Kingdom High Court of Justice against NTL Group Limited, claiming unliquidated damages for breach of contract and misrepresentation. Classic FM alleges that NTL Group Limited represented that it had the "best prospect of being able to negotiate reductions in the BBC's wind-loading charges" and that it would do so; and that, in breach of contract, NTL Group Limited failed to use all reasonable endeavors to achieve a price reduction. The Company considers Classic FM's position to be unmerited, and is defending the action. Although the claim is unliquidated, the Company estimates that the maximum price reduction that Classic FM could have achieved is estimated to be (Pounds) 4 million (plus interest and costs), representing a reduction of approximately (Pounds) 500,000 per annum over 8 years. The Company has filed a complaint in the U.S. District Court for the Southern District of New York against Le Groupe Videotron Ltee ("GVL") and its wholly owned subsidiary seeking damages of not less than $84 million. The complaint arises out of the Company's claim that GVL was unjustly enriched by actions it took in its dealing with the Company in connection with GVL's recent sale of its ownership interest in Videotron Holdings plc. GVL has, in lieu of an answer, moved to dismiss the complaints on the basis that the complaint does not state a valid claim for relief and on the basis that the choice of forum is not convenient. This motion is pending before the court. Wire TV, the supplier of the television program service "Live TV", has commenced a High Court proceeding against a subsidiary of the Company seeking an injunction to prohibit the Company's subsidiary from allegedly acting in breach of its Cable Affiliation Agreement with Wire TV. The injunction is expected to be heard in April 1997. The Company believes that its new First Choice package is not in breach of the Cable Affiliation Agreement and will vigorously defend the proceeding. There can, however, be no assurance as to the outcome of this proceeding, or its affect, if adversely determined, on actions that other suppliers of cable programming may take against the Company. 55 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS. - -------------------------------------------------------- There were no matters that were submitted to a vote of the Company's stockholders during the quarter ended December 31, 1996. 56 PART II ------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER - ------------------------------------------------------------------------ MATTERS. - ------- The Company's Common Stock is traded on the Nasdaq Stock Market's National Market under the symbol "NTLI". From October 14, 1993 through March 26, 1997, the Common Stock traded on Nasdaq Stock Market's National Market under the symbol "ICTL". The following table sets forth, for the periods indicated, the high and low last sale prices as reported on Nasdaq Stock Market's National Market (after giving retroactive effect to the four-for-three stock split by way of stock dividend in August 1995).
LAST SALE PRICE HIGH LOW -------------------------------- 1995 ---- First Quarter $25.13 $20.25 Second Quarter 26.25 20.63 Third Quarter 28.31 24.75 Fourth Quarter 27.38 23.75 1996 ---- First Quarter 30.13 22.00 Second Quarter 33.25 28.00 Third Quarter 30.00 22.63 Fourth Quarter 28.00 23.13 1997 ---- First Quarter (through March 24) 26.75 18.25
On March 24, 1997, the closing sale price for the Company's Common Stock, as reported on the Nasdaq Stock Market's National Market was $20.875. As of March 24, 1997, there were approximately 560 record holders of the Common Stock. This figure does not reflect beneficial ownership of shares held in nominee name. Neither the Company nor OCOM has ever paid cash dividends on its Common Stock. Pursuant to the indentures governing the Company's Senior Notes and the Certificates of Designation governing the Company's Preferred Stock, certain provisions currently materially limit the Company's ability to pay dividends on the Company's equity securities. In addition, there are legal and contractual restrictions on the ability of the Company's subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. See "Management Discussion and Analysis of Results of Operations and Financial Condition- Liquidity and Capital Resources". The Company does not currently intend to pay cash dividends in the foreseeable future on shares of its capital stock. The Company anticipates 57 that for the foreseeable future any cash flow generated from subsidiaries' operations will be used to develop and expand the Company's business and for debt service. Any future determination as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend upon the Company's operating results, financial condition and capital requirements, indenture and other contractual restrictions, general business conditions and such other factors as the Company's Board of Directors deems relevant. There can be no assurance that the Company will pay dividends at any time in the future. ITEM 6. SELECTED FINANCIAL DATA. - -------------------------------- The following table sets forth certain financial data for the years ended December 31, 1996, 1995, 1994, 1993, and 1992. This information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-K.
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------------------------------------------------------------------- (1) (2) INCOME STATEMENT DATA: Operating revenues $228,343 $33,741 $13,745 $10,078 $12,220 Net income (loss) (254,454) (90,785) (29,573) (11,076) 1,221 Net income (loss) per common share (3) (8.20) (3.01) (.98) (.83) .13 Weighted average number of common shares (3) 31,041 30,190 30,175 13,327 9,367
DECEMBER 31, ----------------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------------------------------------------------------------------- (1) (2) (2) BALANCE SHEET DATA: Working capital $242,102 $76,128 $251,544 $410,421 $28,750 Fixed assets, net 1,459,528 639,674 191,725 36,422 14,065 Total assets 2,454,611 1,010,669 664,366 594,976 45,647 Long-term debt 1,732,168 513,026 143,488 130,553 - Shareholders' equity 328,114 339,257 436,534 452,402 43,260
(1) In May 1996, the Company purchased NTL Group Limited for an aggregate purchase price of approximately $439,000,000, including goodwill of approximately $263,000,000. The net assets and results of operations of NTL Group Limited are included in the consolidated financial statements from the date of the acquisition. 58 (2) In 1993, the Company acquired certain of its U.K. subsidiaries in exchange for $3,142,246 in cash, 5,831,416 shares of common stock, options to purchase an aggregate of 44,832 shares of common stock and the assumption of certain liabilities of Insight U.K. The aggregate purchase price including expenses was $127,870,000. In addition, the Company sold 15,333,333 shares of common stock, receiving proceeds of $289,983,000 after expenses, and the Company issued $212,000,000 principal amount of its 10- 7/8% Senior Deferred Coupon Notes due 2003, receiving proceeds of $119,797,000 after original issue discount and expenses. (3) After giving retroactive effect to the four-for-three stock split by way of stock dividend paid in August 1995. The Company did not declare or pay any cash dividends during the years indicated. 59 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND - ------------------------------------------------------------------------- FINANCIAL CONDITION. ------------------- RESULTS OF OPERATIONS As a result of the acquisition of NTL Group Limited in May 1996, the Company consolidated the results of operations of NTL Group Limited from the date of acquisition. The results of NTL Group Limited are not included in the 1995 and 1994 consolidated results. Years Ended December 31, 1996 and 1995 - -------------------------------------- Network services revenues increased to $110,222,000 from none as a result of the acquisition of NTL Group Limited. Telecommunications revenues increased to $69,893,000 from $19,928,000. NTL Group Limited telecommunications revenues from May 9, 1996, the date of acquisition, through December 31, 1996 were $10,981,000. The remainder of the increase was the result of customer growth that increased the Company's current revenue stream. Cable television revenues increased to $40,900,000 from $13,813,000 as a result of customer growth that increased the Company's current revenue stream. Other revenue increased to $7,328,000 from none as a result of the acquisition of NTL Group Limited. Operating expenses increased to $144,315,000 from $24,415,000. NTL Group Limited operating expenses from May 9, 1996, the date of acquisition, through December 31, 1996 were $71,871,000. The remainder of the increase was the result of increases in programming costs, interconnection costs and costs of operating the telecommunications and cable television network. Selling, general and administrative expenses increased to $114,992,000 from $57,932,000. NTL Group Limited selling, general and administrative expenses from May 9, 1996, the date of acquisition, through December 31, 1996 were $9,384,000. The remainder of the increase was the result of increases in telecommunications and cable television sales and marketing costs and in additional personnel and overhead to service the increasing customer base. Franchise fees of $13,117,000 in 1996 are for the Northern Ireland license and are payable to the ITC beginning in January 1997. Corporate expenses increased to $14,899,000 from $14,697,000 due to an increase in personnel and related costs. The 1996 and 1995 amounts include $2,906,000 and $3,256,000, respectively, of non-cash expense related to non- compete agreements and current period expenses include $1,870,000 of expenses related to proposed acquisitions. 60 Depreciation and amortization expense increased to $98,653,000 from $29,823,000. Depreciation and amortization expense of NTL Group Limited and amortization of goodwill as a result of the acquisition was $20,339,000 from May 9, 1996, the date of acquisition, through December 31, 1996. The remainder of the increase was primarily due to an increase in depreciation of telecommunications and cable television equipment. Interest and other income increased to $33,634,000 from $21,185,000 due to an increase in funds available for short term investment. Interest expense increased to $137,032,000 from $28,379,000 due to the interest on the bank loan in connection with the NTL Group Limited acquisition in 1996 plus the issuance of the 11-1/2% Series B Senior Deferred Coupon Notes and the 7% Convertible Subordinated Notes in 1996. Interest of $37,889,000 and $13,918,000 was paid during the years ended December 31, 1996 and 1995, respectively. Foreign currency transaction gains of $2,408,000 in 1996 and $84,000 in 1995 are the result of changes in the exchange rate. Years Ended December 31, 1995 and 1994 - -------------------------------------- Telecommunications revenues increased to $19,928,000 from $9,267,000 primarily as a result of the activation of the telephone systems in August 1994. Cable television revenues increased to $13,813,000 from $4,478,000 as a result of customer growth that increased the Company's current revenue stream. Operating expenses increased to $24,415,000 from $7,827,000 due to the increase in the operating expenses of the cable television, telephone and telecommunications business to $21,030,000 from $4,119,000. The cable television, telephone and telecommunications business operating expenses increased as a result of the increases in programming costs, interconnection costs and costs of operating the network. Selling, general and administrative expenses increased to $57,932,000 from $19,468,000 principally because of the increase in costs of the cable television, telephone and telecommunications business to $50,578,000 from $18,077,000. The cable television, telephone and telecommunications business costs increased as a result of increases in sales and marketing costs and additional personnel and overhead to service the increasing customer base. In addition, OCOM's costs increased as a result of one-time fees of $2,468,000 incurred in connection with its participation in the equal access balloting process conducted by AT&T Wireless. Corporate expenses increased to $14,697,000 from $8,422,000 due to an increase in personnel and related costs. The 1995 and 1994 amounts include $3,256,000 and $3,144,000, respectively, of non-cash expense related to non- compete agreements in connection with the 61 acquisitions of certain United Kingdom subsidiaries. Depreciation and amortization expense increased to $29,823,000 from $17,916,000 primarily due to an increase in depreciation of cable television, telephone and telecommunications equipment. Interest and other income increased to $21,185,000 from $18,403,000 due to an increase in the interest rate on the Company's short term investments and an increase in funds available for short term investment from the issuance of the 12-3/4% Series A Senior Deferred Coupon Notes and the 7-1/4% Convertible Subordinated Notes. Interest expense increased to $28,379,000 from $11,410,000 due to the issuance of the 12-3/4% Series A Senior Deferred Coupon Notes and the 7-1/4% Convertible Subordinated Notes. Foreign currency transaction gains of $84,000 in 1995 and $2,062,000 in 1994 are the result of changes in the exchange rate. LIQUIDITY AND CAPITAL RESOURCES The Company will require significant amounts of capital to finance construction of its system network, for connection of telephone, telecommunications and cable television customers to the network, for working capital and for debt service. Based on the information currently available to the Company, the Company currently estimates that, from January 1, 1997 through December 31, 2002 (the date by which the Company currently estimates that its network will have passed the total of 2,090,000 homes required by its regulatory build schedules), the aggregate cost of network construction (including the license payments in respect of the Northern Ireland LDL and the Glamorgan and Gwent LDL) will be approximately (Pounds)860 million (approximately $1.567 billion), which includes the commitments for equipment and services at December 31, 1996 of approximately $49,000,000. Scheduled cash interest payments on and principal repayments of indebtedness of the Company and its subsidiaries (assuming no conversion of convertible debt or refinancing of existing indebtedness and no exchange of the Preferred Stock) from January 1, 1997 through December 31, 2002 will be approximately $875 million and $240 million, respectively. In addition, the Company will require significant amounts of capital to finance other capital expenditures and the cost of operations of the Company and its subsidiaries and meet all their other obligations as they fall due. The Company intends to fund the requirements referred to in the preceding paragraph from cash on hand of $446 million as of December 31, 1996, from the aggregate proceeds of $486 million (after discounts and commissions) from the issuance in February 1997 of $400 million principal amount, 10% Senior Notes due 2007 and $100 million of 13% Senior Redeemable Exchangeable Preferred Stock, further equity and/or debt financings (including, but not limited to, the Potential Credit Facilities (as defined below)) and funds internally generated by the operations of the Company's subsidiaries (including from the revenues receivable by NTL 62 Group Limited under contracts, which have a projected total value of approximately (Pounds)608 million). The Company expects that the capital required to build its telephone, telecommunications and cable television networks and connect residential and business subscribers will be approximately (Pounds)640-(Pounds)670 per home in its franchise areas. Certain locations may require more or less capital depending upon household density, business density and penetration rates. The construction and development of the systems will depend on, among other things, the Company's ability to design network routes, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner, at reasonable costs and on satisfactory terms and conditions. The exact amounts and timing of these expenditures could vary significantly with the actual number of subscribers and are subject to a variety of factors which may vary greatly by market and may be beyond the control of the Company. Accordingly, there can be no assurance that the amount of the funding actually required will not exceed the estimated amounts described above or that additional funding substantially in excess of the amounts estimated above will not be required. In addition, this amount includes various estimated inflation factors on certain components. Pursuant to the terms of the Northern Ireland LDL, CableTel Northern Ireland Limited (a wholly-owned subsidiary of the Company) is required to make annual cash payments to the ITC for fifteen years in the amount of approximately (Pounds)14.4 million (subject to adjustments for inflation). CableTel Northern Ireland Limited began making payments of (Pounds)1.2 million per month in January 1997. Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first ten years and 2% for the last five years of the fifteen-year license. Pursuant to the terms of the Glamorgan and Gwent LDL, CableTel South Wales Limited (a wholly-owned subsidiary of the Company) is required to make annual cash payments to the ITC for fifteen years, commencing in the first full calendar year after the start of operations, in the amount of approximately (Pounds)104,188 (subject to adjustment for inflation). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first five years, 2% for the second five years and 4% for the last five years of the fifteen-year license. Furthermore, if the Company were to make additional investments or acquire additional franchises, funding would be needed in addition to the anticipated funding requirements described above. If the Company's bid for one or more of the DTT multiplex licenses is successful, significant capital expenditures will be required to develop and implement DTT technology and equipment and to supply DTT services by July 1, 1998 or within one year of the grant of the license. The Company also incurs capital expenditures for the establishment of its business facilities and fixtures, office and computer equipment, its billing and subscriber management systems and vehicles. These costs also vary by location and size of franchise, but are substantially less than the capital costs of the network itself. The exact amounts and timing of all of these expenditures are subject to a variety of factors which may vary greatly by market and be beyond the control of the Company. 63 In addition to its capital expenditures, the Company incurs direct operating costs for such items as salaries and office rent. As network installation progresses, the Company will incur increased sales and marketing expenses (including sales commissions). Since the Company does not produce most of its own programming, it purchases programming from suppliers whose charges may exceed 65% of cable television revenues in the early years. The Company also incurs charges from other telecommunications systems in order to interconnect with the worldwide telephone network. 64 The Company is highly leveraged. At December 31, 1996, (as adjusted for the issuance of the 10% Senior Notes and the Redeemable Preferred Stock) the Company's total long term indebtedness would have been approximately $2.2 billion, representing 87% of total capitalization. A substantial portion of that indebtedness is comprised of convertible subordinated notes and senior deferred coupon notes issued by the Company. The following table summarizes the terms of those notes.
7% 7-1/4% 11-1/2% 12-3/4% 10-7/8% CONVERTIBLE CONVERTIBLE SERIES B SENIOR SERIES A SENIOR SENIOR DEFERRED SUBORDINATED SUBORDINATED DEFERRED COUPON DEFERRED COUPON COUPON NOTES NOTES NOTES NOTES NOTES -------------------------------------------------------------------------------------------------------- Net Proceeds ($) 267,437,000 186,065,000 582,000,000 145,125,000 119,797,000 Issue Date June 12, 1996 April 20, 1995 January 30, 1996 April 20, 1995 October 7, 1993 Issue Price/1/ 100% 100% 57.155% 53.995% 58.873% Aggregate Principal Amount at maturity ($) 275,000,000 191,750,000 1,050,000,000 277,803,500 212,000,000 Maturity Date June 15, 2008 April 15, 2005 February 1, 2006 April 15, 2005 October 15, 2003 Yield or Interest Rate/2/ 7% 7-1/4% 11-1/2% 12-3/4% 10-7/8% Interest or Dividend Payment Dates June 15 and April 15 and February 1 and April 15 and April 15 and December 15 October 15 August 1 October 15 October 15 from 12-15-96 from 10-15-95 from 8-1-01 from 10-15-00 from 4-15-99 Earliest Optional Redemption Date/4/ June 15, 1999 April 15, 1998 February 1, 2001 April 15, 2000 October 15, 1998 Redemption Price (%)/5/ 104.9 (1999) to 105.08 (1998) to 105.75 (2000) to 103.64 (2000) to 103.107 (1998) to 100 (2006) 100.73 (2004) 100 (2003) 100 (2002) 100 (2000) Conversion Price ($)/6/ 37.875 27.56 N/A N/A N/A Senior/Subordinated Subordinated Subordinated Senior Senior Senior REDEEMABLE 10% PERERRED SENIOR NOTES STOCK ---------------------------------------- Net Proceeds ($) 389,000,000 96,625,000 Issue Date February 7, 1997 February 7, 1997 Issue Price/1/ 100% 100% Aggregate Principal Amount at maturity ($) 400,000,000 100,000,000 Maturity Date February 15, 2007 February 15, 2009 Yield or Interest Rate/2/ 10% 13% Interest or Dividend Payment Dates February 15 and May 15, August August 15 15, November 15 from 8-15-97 and February 15 from 5-15-97(3) Earliest Optional Redemption Date/4/ February 15, 2002 February 15, 2002 Redemption Price (%)/5/ 105 (2002) to 106.5 (2002) to 100 (2005) 100 (2005) Conversion Price ($)/6/ N/A N/A Senior/Subordinated Senior N/A
1. Percent of aggregate principal amount at maturity. 2. Percent per annum. 3. Dividend Payments on the Redeemable Preferred Stock ("Preferred Stock") are payable in cash or additional shares of Preferred Stock, at the Company's option. From 5-15-04, dividend payments are payable in cash. 4. This is the first date when redeemable at the Company's option. 5. Expressed as a percentage of principal amount plus, in each case, accrued and unpaid interest or dividends thereon to the applicable redemption date. 6. This is the conversion price per share of the Company's common stock, adjusted for the four-for-three stock split in August 1995 and subject to furhter adjustments in certain events. The Company currently expects that cash on hand and cash equivalents as of December 31, 1996 of approximately $446 million plus the aggregate proceeds of $486 million from the issuance of the 10% Senior Notes and the Redeemable Preferred Stock in February 1997 should be sufficient to meet those obligations of the Company and its subsidiaries falling due in 1997 (including the costs of network construction, development and expansion of NTL Group Limited business, debt service, joint venture obligations and the payment of up to (Pounds)35 million deferred consideration in respect of NTL Group Limited due in May 1997). To the extent that such cash on hand is insufficient to meet NTL Group Limited's actual working capital and capital expenditure requirements, either the planned development and expansion of the Company's national telecoms network could be curtailed or additional funding will be necessary. The Company has recently resumed discussions with commercial banks regarding the arrangement of certain potential credit facilities in varying amounts up to an aggregate of (Pounds)500 million (the "Potential Credit Facilities"). The arrangement of the Potential Credit Facilities is subject to the satisfaction of a number of significant conditions, including, among other things, (i) reaching an agreement in principle regarding the terms of the Potential Credit Facilities, (ii) the banks' credit committee approval, (iii) the negotiation and execution of definitive credit agreements and related documents satisfactory to the Company and the banks, (iv) the completion of due diligence satisfactory to the banks and (v) nothing occurring or arising which might adversely affect the banks' ability to syndicate the Potential Credit Facilities. The Company can give no assurance that any such conditions will be satisfied or that the Potential Credit Facilities will be entered into on acceptable commercial terms or at all. The Company expects that the Potential Credit Facilities will contain various covenants, including financial covenants restricting changes of control (or making such an event of default) and limiting various other activities that the borrowing group may otherwise engage in, in particular, restricting the payment of dividends or distributions by the borrowing group to the Company and its other subsidiaries if an event of default under the Potential Credit Facilities has occurred and is continuing and restricting the payments of such dividends to a portion of excess cash flow. Indebtedness under each of the Potential Credit Facilities is expected to be incurred by each member of the relevant borrowing group and to be secured and guaranteed in a manner to be agreed with the banks. The Company estimates that, whether or not the Potential Credit Facilities are obtained and fully drawn, significant amounts of additional funding will be required to meet obligations of the Company and its subsidiaries falling due after 1997. The Company currently intends to obtain such additional funding from further debt and/or equity financings and funds internally generated by the operations of the Company's subsidiaries. The Company does not have any firm plans for any such financings at this time. The substantial costs of network construction and debt service will result in a negative cash flow until an adequate customer base is established. 66 There can be no assurance that (i) the Potential Credit Facilities will be obtained (or be available on acceptable terms), (ii) any other financings will be consummated or available on acceptable terms, (iii) actual construction costs will not exceed the amount estimated above or that additional funding substantially in excess of the amounts estimated above will not be required, (iv) conditions precedent to advances under the NTLIH Revolving Facility (see below under "The NTL Group Limited Acquisition"), the Potential Credit Facilities or any other credit facility will be satisfied when funds are required, (v) the Company will not acquire additional franchises or businesses that would require additional capital, (vi) the Company and its subsidiaries will be able to generate sufficient cash from operations to meet capital requirements, debt service and other obligations as they fall due when required, (vii) the Company will be able to access such cash flow or (viii) the Company's subsidiaries will not incur losses from their exposure to exchange rate fluctuations or be adversely affected by interest rate fluctuations. The Company does not have any firm additional financing plans to address any of the foregoing situation at this time. The inability of the Company to obtain the Potential Credit Facilities or secure additional financing could result in the Company and/or its subsidiaries defaulting on their respective obligations, all the indebtedness of the Company and its subsidiaries becoming immediately due and repayable and failure to comply with the minimum build milestones set forth in its licenses leading to the revocation of those licenses. The Company's operations are conducted through its direct and indirect wholly-owned subsidiaries. As a holding company, the Company holds no significant assets other than its investments in and advances to its subsidiaries. The Company is therefore dependent upon the receipt of sufficient funds from its subsidiaries to meet its own obligations. Accordingly, the Company's ability to make scheduled interest and principal payments (or any other payments that may become payable) when due to holders of indebtedness of the Company and the Company's ability to pay cash dividends to its stockholders is dependent upon the receipt of sufficient funds from its subsidiaries, which may be restricted in the manner described in the next two paragraphs. Each of the Company's subsidiaries which is a Delaware corporation is permitted to pay dividends on its capital stock, under the Delaware General Corporation Law (the "DGCL") only out of its surplus or, in the event it has no surplus, out of its net profits for the fiscal year in which the dividend is declared or the immediately preceding fiscal year. Each of the Company's subsidiaries which is a United Kingdom company is, under applicable United Kingdom law, prohibited from paying dividends unless such payments are made out of profits available for distribution (which consist of accumulated, realized profits, so far as not previously utilized by distribution or capitalization, less accumulated realized losses, so far as not previously written off in a reduction or reorganization of capital duly made). The Company's United Kingdom subsidiaries (excluding NTL Group Limited and its subsidiaries) do not currently have such profits and are not expected to have any such profits for the foreseeable future. In addition, the United Kingdom may impose a withholding tax on payments of interest and advance corporation tax on distributions of interest, dividends or otherwise by United Kingdom subsidiaries of the 67 Company. In light of the Company's strategy of continued growth, in part through acquisitions, the Company and its subsidiaries may incur substantial indebtedness in the future. The terms of existing and future indebtedness of the Company's subsidiaries (including the Potential Credit Facilities) may limit the payment of dividends, loans or other distributions to the Company. In particular, the loan facilities arranged to finance approximately (Pounds)200 million of the purchase price of NTL Group Limited prohibit NTLIH (defined below), the wholly-owned subsidiary of the Company which purchased NTL Group Limited and its subsidiaries, from paying dividends to the Company unless certain cash flow targets are met and, if such targets are met, require that 50% of all Excess Cash Flow of NTLIH and its subsidiaries must be applied to prepay amounts outstanding under the long term facility of (Pounds)140 million (the "Long Term Facility") comprised in the NTLIH facilities. See "The NTL Group Limited Acquisition." As a result of the restrictions referred to in the preceding paragraphs, there can be no assurance that the Company will be able to gain access to the cash flow of its subsidiaries in a timely manner or in amounts sufficient to pay interest on and to repay the principal of the Company's indebtedness when due or to meet the other obligations of the Company and its subsidiaries as they fall due. Even if the Company is able to gain access to the cash flow of its subsidiaries, its ability to meet cash debt service and repayment obligations of the Company and its subsidiaries will depend on the future operating performance and financial results of those subsidiaries, which will be subject, in part, to factors beyond the control of such subsidiaries, such as prevailing economic conditions and financial, business and other factors. In any event, management does not anticipate that the Company and its subsidiaries will generate sufficient cash flow from operations to repay the entire principal amount of the indebtedness of the Company and its subsidiaries as it falls due at maturity. Accordingly, the Company will be required to consider a number of measures, including (i) refinancing all or a portion of such indebtedness, (ii) seeking modifications of the terms of such indebtedness or (iii) seeking additional debt financing, each of which would be subject to obtaining necessary lender consents, (iv) additional equity financing, or (v) a combination of the foregoing. The particular measures the Company may undertake and the ability of the Company to accomplish those measures will depend on the financial condition of the Company and its subsidiaries at the time, as well as a number of factors beyond the control of the Company and subsidiaries, including prevailing economic and market conditions and financial, business and other factors. No assurance can be given that any of the foregoing measures can be accomplished, or can be accomplished in sufficient time to make timely payments of cash interest and principal on the Company's indebtedness. In addition, there can be no assurance that any such measures can be accomplished on terms which are favorable to the Company and its subsidiaries. In addition, the Company will encounter currency exchange rate risks which could be material relative to funding United Kingdom operations and to revenues. To the extent that the Company obtains financing in United States dollars and incurs costs in the construction and operation of the Company's regional systems in the United Kingdom in British pounds sterling, it 68 will encounter currency exchange rate risks. Furthermore, the Company's revenues are generated primarily in British pounds sterling while its interest and principal obligations with respect to most of the Company's existing indebtedness are payable in dollars. At December 31, 1996, the Company had invested approximately $335,000,000 in pounds sterling money market instruments and cash accounts to reduce this risk. While the Company may consider entering into transactions to hedge the risk of exchange rate fluctuations, there can be no assurances that the provisions governing the indebtedness of the Company and its subsidiaries would permit such transactions, and, if such provisions do permit such transactions, that they will be successful in preventing shifts in the currency exchange rates from having a material adverse effect on the Company. The information in the preceding paragraphs includes projections; in reviewing such information it should be kept in mind that actual results may differ materially from those in such projections. These projections were based on various factors and were derived utilizing numerous assumptions. Important assumptions and factors that could cause actual results to differ materially from those in these projections include the Company's ability to continue to design networks, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services. The failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligations to update these projections to reflect actual results, changes in assumptions or changes in other factors affecting such projections. THE NTL GROUP LIMITED ACQUISITION In May 1996, NTL Investment Holdings Limited ("NTLIH"), a wholly-owned subsidiary of the Company, acquired all the issued shares of NTL Group Limited for payments of approximately (Pounds)204 million (the "Initial Payment") at closing, (Pounds)17.1 million in October 1996 and (Pounds)35 million (subject to reduction) in May 1997. NTL Group Limited provides television and radio transmission services and a range of other services in the broadcasting and telecommunications industries. To finance a substantial portion of the purchase price for NTL Group Limited , a syndicate of lenders made available senior secured loan facilities (the "A Facilities" ) of a maximum principal amount of (Pounds)165 million comprised of (i) the Term Loan Facility of (Pounds)140 million and (ii) the Revolving Facility of (Pounds)25 million. The Term Loan Facility was fully drawn to finance a portion of the Initial Payment or refinance monies used to pay a portion of the Initial Payment including related acquisition expenses. Up to (Pounds)25 million is expected to be available under the Revolving Facility for capital expenditure and working capital purposes of NTLIH's group, subject to satisfaction of a number of significant conditions, including the receipt of subordinated debt or equity from the Company. Up to (Pounds) 2 million of the Revolving Facility is available by way of standby letters of credit to guarantee overdraft and other working capital facilities made available by any clearing banks to 69 NTLIH. At the end of the availability period, any amount outstanding under the Revolving Facility will be converted to term debt and be aggregated with the Term Loan Facility. All amounts outstanding under the Term Loan Facility are scheduled to be repaid in quarterly installments from 1998 to 2002 inclusive. The amount of the installments will be based upon an agreed percentage of the loans and will increase year to year. Final repayment of the Term Loan Facility is due on December 31, 2002. Loans under the A Facilities bear interest at an annual rate equal to LIBOR plus a margin that varies from 0.75% per annum to 1.75% per annum, based on certain financial ratios of NTLIH and certain of its subsidiaries. As of December 31, 1996, the effective rate was 7.972%. Interest is payable either monthly, quarterly or semiannually, at the option of NTLIH. The A Facilities are secured by guarantees from NTL Group Limited and certain of its subsidiaries and by first ranking fixed and floating charges over the present and future assets (subject to certain exceptions) of NTLIH, NTL Group Limited and certain of its subsidiaries. One of the lenders also made available to NTLIH a secured loan facility of (Pounds)60 million ("the Bridge Facility") to finance most of the remainder of the Initial Payment and acquisition costs and expenses due at closing. The Bridge Facility was repaid in full in August 1996. The NTLIH facilities contain various covenants and conditions including, among other things, a covenant prohibiting dividends and distributions by NTLIH to the Company unless certain cash flow targets are met and, if such targets are met, requiring 50% of all Excess Cash Flow to be applied to repay amounts outstanding under the A Facilities. 70 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 Cash used in operating activities was $21,405,000 in 1996 and $10,147,000 in 1995. The increase is primarily due to the significant increase in the net loss, which was offset by non-cash charges and changes in operating assets and liabilities. Purchases of fixed assets were $505,664,000 in 1996 and $445,550,000 in 1995 as a result of increased fixed asset purchases and construction in 1996. Cash provided by financing activities was $1,085,404,000 in 1996 primarily due to the proceeds from the NTLIH Facilities of $312,320,000, the 11-1/2% Notes of $600,128,000 and the 7% Convertible Subordinated Notes of $275,000,000, net of financing costs incurred of $41,258,000. Principal payments in 1996 consist of the repayment of the (Pounds)60,000,000 ($93,696,000) NTLIH Bridge Facility and the repayment of the subsidiary bank loan of (Pounds)1,016,000 ($1,587,000). In 1996, one of the Company's joint ventures borrowed (Pounds)30,000,000 from the Company and (Pounds)20,000,000 from the minority interest holder in the joint venture. The proceeds from borrowings from minority partner of $31,232,000 are the result of the cash received from the minority interest holder for the loan. 71 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - ---------------------------------------------------- The consolidated financial statements of the Company are filed under this Item commencing on page F-1 of this Report. The following is a summary of the quarterly results of operations for the years ended December 31, 1996 and 1995.
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 THREE MONTHS ENDED ---------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------------------------------------------------------------- Revenues $18,434 $47,783 $77,256 $84,870 Operating loss (28,183) (33,751) (44,390) (51,309) Net loss (42,724) (59,158) (74,070) (78,502) Net loss per common share (1.41) (1.95) (2.35) (2.45)
1995 THREE MONTHS ENDED ---------------------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------------------------------------------------------------- Revenues $ 4,633 $ 5,865 $ 8,555 $14,688 Operating loss (14,709) (18,374) (23,156) (36,887) Net loss (13,466) (18,219) (25,793) (33,307) Net loss per common share (0.45) (0.60) (0.85) (1.10)
72 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE. -------------------- Not applicable. PART III -------- ITEMS 10, 11, 12, and 13. - ------------------------- The information required by PART III (Items 10, 11, 12 and 13) is incorporated by reference from the Company's definitive proxy statement involving the election of directors which the Company expects to file, pursuant to Regulation 14A, within 120 days following the end of its fiscal year. 73 PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT - ------- ----------------------------- SCHEDULES, AND REPORTS ON FORM 8-K. ---------------------------------- (a)(1) Financial Statements - See list of Financial Statements on page F-1. (2) Financial statement schedules - see list of Financial Statement Schedules on page F-1. (3) Exhibits - See Exhibit Index on page 75. (b) During the fourth quarter of 1996, the Company filed Current Reports on Form 8-K dated October 1 (filed October 1) 1996, October 8 (filed October 9) 1996 and December 19 (filed December 20) 1996. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - See list of Financial Statement Schedules on page F-1. 74 EXHIBIT INDEX Exhibit No. - ----------- 2.1 Amended and Restated Agreement of Reorganization and Plan of Merger, dated as of May 28, 1993, among the Company, OCOM and CableTel Merger Inc. (Incorporated by Reference to Exhibit 2, Registration File No. 33-63570) 2.2 Deed of Irrevocable undertaking dated March 28, 1996 by and among Addroute Limited, certain shareholders in the NTL Group Limited NTL Group Limited and the Company (Incorporated by reference to the Company's Registration Statement on Form S-4, File No. 333-1010). 2.3 Form of Offer Document dated March 28, 1996 of Addroute Limited for NTL Group Limited (Incorporated by reference to the Company's Registration Statement on Form S-4, File No. 333-1010). 2.4 Deed of Adjustment dated March 28, 1996 by and among Addroute Limited and Mercury Asset Management plc. (Incorporated by reference to the Company's Registration Statement on Form S-4, File No. 333- 1010). 2.5 Share Exchange Agreement, dated as of August 30, 1996, by and among the Company, B/G Co., Booth American Company, Columbia Management, Inc. and Robert T. Goad (Incorporated by reference to the Company's Registration Statement on Form S-3, File No. 333-16751). 2.6 Share Purchase Agreement, dated October 7, 1996, by and among the Company, South Wales Electricity plc and Swalec Telco Investment Limited (Incorporated by reference to the Company's Registration Statement on Form S-3, File No. 333-16751). 3.1 Restated Certificate of Incorporation. (Incorporated by reference from the Company's Registration Statement on Form S-3, Registration File No. 333-07879) 3.1(a) Certificate of Ownership and Merger, dated as of March 26, 1997 (Incorporated by reference to Company's form 8-K, dated and filed with the Commission on March 26, 1997). 3.2 Restated By-Laws (Incorporated by Reference to Exhibit 3.2, Registration No. 33-63570) 4.1 Specimen of Common Stock Certificate (Incorporated by Reference to Exhibit 4.1, Registration File No. 33-63570) 75 4.2 Warrant Agreement dated February 14, 1996 between the Company and Chemical Bank as Warrant Agent (Incorporated by Reference to the Registrant Company's Registration Statement on Form S-4, File No. 333-00118) 4.3 Form of Warrant to Purchase Common Stock (included in Exhibit 4.2) 4.4 Indenture dated as of October 1, 1993 by and between the Company and Chemical Bank with respect to the 10-7/8% Senior Notes (Incorporated by Reference to Exhibit 4.1, Registration File No. 33-63572) 4.5 Indenture dated as of April 20, 1995 by and between the Company and Chemical Bank as Trustee, with respect to the 12-3/4% Senior Notes (Incorporated by Reference from the Registrant Company's Registration Statement on Form S-4, File No. 33-92794) 4.6 Indenture dated as of January 30, 1996 by and between the Company and Chemical Bank as Trustee, with respect to the 11-1/2% Senior Notes (Incorporated by Reference from the Company's Registration Statement on Form S-4, File No. 333-00118) 4.7 First Supplemental Indenture dated as of January 22, 1996 by and among the Company and Chemical Bank, as Trustee, with respect to the 12-3/4% Senior Notes (Incorporated by Reference from the Company's Registration Statement on Form S-4, File No. 333-00118) 4.8 First Supplemental Indenture dated as of January 23, 1996 by and among the Company and Chemical Bank, as Trustee, with respect to the 10-7/8% Notes (Incorporated by Reference from the Company's Registration Statement on Form S-4, File No. 333-00118) 4.9 Indenture, dated as of February 12, 1997, by and between the Company and The Chase Manhattan Bank, as Trustee, with respect to the 10% Senior Notes. 4.10 Certificate of Designation, dated February 12, 1997, with respect to the 13% Preferred Stock. 4.10(a)Certificate of Designation, dated October 7, 1996, in respect of the Company's Series A Preferred Stock (Incorporated by reference to the Company's Current Report on Form 8-K, filed on October 9, 1996). 4.11 Registration Rights Agreement, dated February 12, 1997, by and among the Company and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated with respect to the 10% Senior Notes. 76 4.12 Registration Rights Agreement, dated February 12, 1997, by and among the Company and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities, Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated with respect to the 13% Senior Notes. 4.13 Form of Preferred Stock 4.14 Indenture, dated as of June 12, 1996, by and between the Company and Chemical Bank, as Trustee, with respect to the 7% Convertible Notes (Incorporated by Reference from the Company's Registration Statement on Form S-3, File No. 333-07879) 4.15 Registration Rights Agreement, dated June 12, 1996, by and among the Company and Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Brothers Inc, with respect to the 7% Convertible Notes (Incorporated by Reference from the Company's Registration Statement on Form S-3, File No. 33-07879) 4.16 Indenture, dated as of April 20, 1995, by and among the Company and Chemical Bank, as Trustee, with respect to the 7-1/4% Convertible Notes (Incorporated by Reference from the Company's Registration Statement on Form S-3, File No. 333-92792) 4.17 Registration Agreement, dated April 12, 1995, by and among the Company and Salomon Brothers Inc, Donaldson, Lufkin & Jenrette Securities Corporation and Goldman Sachs & Co., with respect to the 7-1/4% Convertible Notes (Incorporated by Reference from the Company's Registration Statement on Form S-3, File No. 333-92792) 4.18 Rights Agreement entered into by the Company and Continental Stock Transfer & Trust Company (Incorporated by Reference to Exhibit 4.2, Registration No. 33-63570) 10.1 Compensation Plan Agreement - International CableTel, Inc. 1993 Stock Option Plan (Incorporated by Reference to Exhibit 10.8, Registration File No. 33-63570) 10.2 Compensation Plan Agreement - International CableTel, Inc. 1993 Non- Employee Stock Option Plan (Incorporated by Reference to Exhibit 10.9 Registration File No. 33-63570) 10.3 Compensation Plan Agreement - OCOM Corporation 1991 Stock Option Plan. (Incorporated by Reference to Exhibits 10.10, File No. 33- 63570) 77 10.4 Form of Non-Compete Agreement (Incorporated by Reference to Exhibits 10.7, Registration File No. 33-63570) 10.5 Form of Director and Officer Indemnity Agreement (together with a schedule of executed Indemnity Agreements) (Incorporated by reference from the Company's Registration Statement on Form S-4, File No. 33-92794). 10.6 The A Facilities Agreement, dated March 28, 1996, by and among Addroute Limited, Chase Investment Bank Limited and The Chase Manhattan Bank, N.A. (Incorporated by reference from the Company's Registration Statement on Form S-4, File No. 333-1010). 10.7 The B Facility Agreement, dated March 28, 1996, by and among Addroute Limited, Chase Investment Bank Limited and The Chase Manhattan Bank, N.A. (Incorporated by reference from the Company's Registration Statement on Form S-4, File No. 333-1010). 11 Statement re-computation of per share earnings 21 Subsidiaries of the Registrant 23.1 Consent of Ernst & Young LLP 27 Financial Data Schedule 99.1 Prescribed Diffusion Service License, dated July 21, 1987, issued to British Cable Services Limited (now held by CableTel Surrey and Hampshire Limited) for the area of West Surrey and East Hampshire, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.2 Prescribed Diffusion Service License, dated December 3, 1990, issued to Clyde Cablevision (renamed CableTel Glasgow) for the area of Inverclyde, Scotland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.3 Prescribed Diffusion Service License, dated December 3, 1990, issued to Clyde Cablevision (renamed CableTel Glasgow) for the area of Bearsden and Milngavie, Scotland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.4 Prescribed Diffusion Service License, dated December 3, 1990, issued to Clyde Cablevision (renamed CableTel Glasgow) for the area of Paisley and Renfrew, Scotland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 78 99.5 Prescribed Diffusion Service License, dated July 10, 1984, issued to Clyde Cablevision (renamed CableTel Glasgow) for the area of North Glasgow and Clydebank, Strathclyde, Scotland (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.6 Prescribed Diffusion Service License, dated December 3, 1990, issued to Clyde Cablevision (renamed CableTel Glasgow) for the area of Greater Glasgow, Scotland(Incorporated by Reference to Registrant (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.7 Prescribed Diffusion Service License, dated December 3, 1990, issued to Newport Cablevision Limited (renamed CableTel Newport) for the area of Newport, Wales(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.8 Prescribed Diffusion Service License, dated December 3, 1990, issued to Cable and Satellite Television Holdings Ltd (renamed CableTel West Glamorgan Limited) for the area of West Glamorgan, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.9 Prescribed Diffusion Service License, dated December 3, 1990, issued to British Cable Services Limited for the area of Cardiff and Penarth, Wales (now held by CableTel Cardiff Limited) (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.10 Prescribed Diffusion Service License, dated December 3, 1990, issued to Kirklees Cable (renamed CableTel Kirklees) for the area of Huddersfield and Dewsbury, West Yorkshire, England (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.11 Prescribed Diffusion Service License, dated December 3, 1990, issued to CableVision Communications Company of Hertfordshire Ltd (renamed CableTel Hertfordshire Limited) for the area of Broxbourne and East Hertfordshire, England (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.12 Prescribed Diffusion Service License, dated December 3, 1990, issued to CableVision Communications Company Ltd (renamed CableTel Central Hertfordshire Limited) for the area of Central Hertfordshire, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 79 99.13 Prescribed Diffusion Service License, dated March 26, 1990, issued to CableVision Bedfordshire Limited (renamed CableTel Bedfordshire Ltd.) for the area of Luton and South Bedfordshire (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.14 Prescribed Diffusion Service License, dated December 3, 1990, issued to CableVision North Bedfordshire Ltd (renamed CableTel North Bedfordshire Ltd.) for the area of North Bedfordshire, England (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.15 Local Delivery Service License, dated October 2, 1995, issued to CableTel Northern Ireland Limited for Northern Ireland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.16 Local Delivery Service License, dated December 6, 1995, issued to CableTel South Wales Limited for Glamorgan and Gwent, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.17 Local Delivery Service License, dated March 13, 1991, issued to Maxwell Cable TV Limited for Pembroke Dock, Dyfed, Wales (now held by Metro South Wales Limited)(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.18 Local Delivery Service License, dated March 15, 1991, issued to Maxwell Cable TV Limited for Camarthen, Wales (now held by Metro South Wales Limited)(Incorporation by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.19 Local Delivery Service License, dated March 15, 1991, issued to Maxwell Cable TV Limited for Milford Haven, Wales (now held by Metro South Wales Limited)(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.20 Local Delivery Service License, dated March 15, 1991, issued to Maxwell Cable TV Limited for Cwmgors (Amman Valley), West Glamorgan, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.21 Local Delivery Service License, dated March 15, 1991, issued to Maxwell Cable TV Limited for Ammanford, West Glamorgan, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.22 Local Delivery Service License, dated March 15, 1991, issued to Maxwell Cable TV Limited for Brecon, Gwent, Wales (Incorporated by Reference to the Company's 80 Form 8-K, filed with the Commission on March 19, 1996) 99.23 Local Delivery Service License, dated March 15, 1991, issued to Maxwell Cable TV Limited for Haverfordwest, Preseli, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.24 Local Delivery Service License, dated March 15, 1991, issued to Maxwell Cable TV Limited for Neyland, Preseli, Wales (now held by Metro South Wales Limited)(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.25 License, dated January 11, 1991, issued to Cablevision Communications Company of Hertfordshire Ltd (renamed CableTel Hertfordshire Limited) for the Hertford, Cheshunt and Ware (Lea Valley) cable franchise, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.26 License, dated December 8, 1990, issued to Cablevision Communications Company Limited for Central Hertfordshire (renamed CableTel Central Hertfordshire Limited), England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.27 License, dated August 23, 1989, issued to Cablevision Bedfordshire Limited for Bedford and surrounding areas, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.28 License, dated January 9, 1991, issued to Cablevision North Bedfordshire Ltd for North Bedfordshire, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.29 License, dated January 29, 1991, issued to Clyde Cablevision (renamed CableTel Glasgow) for the Inverclyde Cable Franchise, Scotland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.30 License, dated January 29, 1991, issued to Clyde Cablevision (renamed CableTel Glasgow) for the Bearsden and Milngavie Cable Franchise, Scotland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.31 License, dated January 29, 1991, issued to Clyde Cablevision (renamed CableTel Glasgow) for the Paisley and Renfrew Cable Franchise, Scotland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.32 License, dated June 7, 1985, issued to Clyde Cablevision Ltd (renamed CableTel Glasgow) for North West Glasgow and Clydebank, Scotland(Incorporated by 81 Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.33 License, dated January 29, 1991, issued to Clyde Cablevision (renamed CableTel Glasgow) for the Greater Glasgow cable franchise, Scotland(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.34 License, dated October 13, 1993, issued to Insight Communications Cardiff Limited (renamed CableTel Cardiff Limited) for Cardiff, Wales(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.35 License, dated January 22, 1991, issued to Newport Cablevision Limited (renamed CableTel Newport), for Newport Cable franchise Wales(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.36 License, dated May 18, 1990, issued to Cable and Satellite Television Holdings Limited (renamed CableTel West Glamorgan) for West Glamorgan, Wales(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.37 License, dated December 20, 1990, issued to Kirklees Cable (renamed CableTel Kirklees) for the Huddersfield and Dewsbury cable franchise, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.38 License, dated October 13, 1993, issued to Insight Communications Guildford Limited (renamed CableTel Surrey and Hampshire Limited) for the West Surrey/East Hampshire (Guildford) Cable Franchise, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.39 License, dated January 20, 1995, issued to CableTel Bedfordshire Ltd. for the area of South Bedfordshire, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.40 License, dated January 20, 1995, issued to CableTel North Bedfordshire Ltd. for the area of Bedford, England(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.41 License, dated January 20, 1992, issued to Cable and Satellite Television Holdings Limited (renamed CableTel West Glamorgan Limited) for the area of Swansea, Neath and Port Talbot, Wales(Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.42 License, dated January 20, 1995, issued to Cabletel Hertfordshire Ltd. for the area of Hertford, Cheshunt and Ware (Lea Valley), England (Incorporated by Reference to the 82 Company's Form 8-K, filed with the Commission on March 19, 1996) 99.43 License, dated January 20, 1995, issued to Cabletel Central Hertfordshire Ltd. for the area of Central Hertfordshire, England (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.44 License, dated July 21, 1995, issued to CableTel Kirklees (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.45 License, dated June 8, 1995, issued to CableTel Bedfordshire Ltd. (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.46 License, dated October 27, 1995, issued to Metro South Wales Limited for the area of Neyland, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.47 License, dated October 27, 1995, issued to Metro South Wales Limited for the area of Cwmgors, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.48 License, dated October 27, 1995, issued to Metro South Wales Limited for the area of Ammanford, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.49 License, dated October 27, 1995, issued to Metro South Wales Limited for the area of Carmarthen, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.50 License, dated October 27, 1995, issued to Metro South Wales Limited for the area of Haverfordwest, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.51 License, dated October 27, 1995, issued to Metro South Wales Limited for the area of Pembroke Dock, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.52 License, dated October 27, 1995, issued to Metro South Wales Limited for the area of Milford Haven, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 99.53 License, dated October 27, 1995, issued to CableTel South Wales Limited for the area of Glamorgan and Gwent, Wales (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996. 99.54 License, dated January 26, 1996, issued to Cabletel South Wales Limited, for part of 83 the Glamorgan area (Incorporated by Reference to the Company's Form 8-K, filed with the Commission on March 19, 1996) 84 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. Dated: March 27, 1997 NTL INCORPORATED By: /s/ J. Barclay Knapp -------------------------------------- J. Barclay Knapp President, Chief Executive Officer and Chief Financial Officer (Principal Executive and Principal Financial Officer) 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 in the capacities and on the date indicated.
Signature Title Date - --------- ----- ---- /s/ J. Barclay Knapp President, Chief ) - -------------------------- J. Barclay Knapp Executive Officer and ) Chief Financial Officer ) (Principal Executive and ) Principal Financial Officer) ) ) /s/ George S. Blumenthal Chairman of the Board ) - -------------------------- ) March 27, 1997 George S. Blumenthal and Treasurer ) ) ) /s/ Gregg Gorelick Vice President-Con- ) - -------------------------- ) Gregg Gorelick troller (Principal ) Accounting Officer) ) ) /s/ Sidney R. Knafel Director ) - -------------------------- ) Sidney R. Knafel )
85 ) /s/ Ted H. McCourtney Director ) - -------------------------- ) Ted H. McCourtney ) ) ) ) /s/ Del Mintz Director ) - -------------------------- ) Del Mintz ) ) ) ) /s/ Alan J. Patricof Director ) March 27, 1997 - -------------------------- ) Alan J. Patricof ) ) ) ) /s/ Warren Potash Director ) - -------------------------- ) Warren Potash ) ) ) /s/ Michael S. Willner Director ) - -------------------------- ) Michael S. Willner
86 Form 10-K--Item 14(a)(1) and (2) NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Index of Consolidated Financial Statements and Financial Statement Schedule The following consolidated financial statements of NTL Incorporated and Subsidiaries are included in Item 8: Report of Independent Auditors........................................ F-2 Consolidated Balance Sheets--December 31, 1996 and 1995............... F-3 Consolidated Statements of Operations--Years ended December 31, 1996, 1995 and 1994................................... F-5 Consolidated Statement of Shareholders' Equity--Years ended December 31, 1996, 1995 and 1994................................... F-6 Consolidated Statements of Cash Flows--Years ended December 31, 1996, 1995 and 1994................................... F-7 Notes to Consolidated Financial Statements............................ F-9 The following consolidated financial statement schedule of NTL Incorporated and Subsidiaries is included in Item 14(d): Schedule II--Valuation and Qualifying Accounts........................ F-34 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore have been omitted. F-1 Report of Independent Auditors The Board of Directors and Shareholders NTL Incorporated We have audited the consolidated balance sheets of NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 consolidated financial position of NTL Incorporated and Subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, New York March 27, 1997 F-2 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Consolidated Balance Sheets
December 31 1996 1995 ----------------------------------------- Assets Current assets: Cash and cash equivalents $ 445,884,000 $ 175,283,000 Accounts receivable--trade, less allowance for doubtful accounts of $3,870,000 (1996) and $767,000 (1995) 57,887,000 7,340,000 VAT receivable 16,992,000 17,464,000 Other 20,278,000 5,050,000 ----------------------------------------- Total current assets 541,041,000 205,137,000 Cash held in escrow - 1,598,000 Fixed assets, net 1,459,528,000 639,674,000 Intangible assets, net 392,933,000 137,578,000 Other assets, net of accumulated amortization of $21,789,000 (1996) and $9,537,000 (1995) 61,109,000 26,682,000 ----------------------------------------- Total assets $ 2,454,611,000 $ 1,010,669,000 =========================================
F-3 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Consolidated Balance Sheets (continued)
December 31 1996 1995 ------------------------------------------- Liabilities and shareholders' equity Current liabilities: Accounts payable $ 57,960,000 $ 50,848,000 Accrued expenses and other 101,228,000 34,914,000 Accrued construction costs 62,723,000 14,543,000 Deferred revenue 16,491,000 2,188,000 Deferred purchase price 60,537,000 - Current portion of long-term debt - 26,516,000 ------------------------------------------- Total current liabilities 298,939,000 129,009,000 Long-term debt 1,732,168,000 513,026,000 Other 459,000 661,000 Commitments and contingent liabilities Deferred income taxes 94,931,000 - Minority interests - 28,716,000 Shareholders' equity: Series preferred stock--$.01 par value; authorized 2,500,000 shares; issued and outstanding 780 shares (1996) and none (1995) - - Common stock--$.01 par value; authorized 100,000,000 shares; issued and outstanding 32,066,000 (1996) and 30,202,000 (1995) shares 321,000 302,000 Additional paid-in capital 548,647,000 462,223,000 Cumulative translation adjustment 163,141,000 6,273,000 (Deficit) (383,995,000) (129,541,000) ------------------------------------------- 328,114,000 339,257,000 ------------------------------------------- Total liabilities and shareholders' equity $ 2,454,611,000 $ 1,010,669,000 ===========================================
See accompanying notes. F-4 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Consolidated Statements of Operations
Year ended December 31 1996 1995 1994 -------------------------------------------------------- Revenues Network services $ 110,222,000 $ - $ - Telecommunications 69,893,000 19,928,000 9,267,000 Cable television 40,900,000 13,813,000 4,478,000 Other 7,328,000 - - -------------------------------------------------------- 228,343,000 33,741,000 13,745,000 Costs and expenses Operating expenses 144,315,000 24,415,000 7,827,000 Selling, general and administrative expenses 114,992,000 57,932,000 19,468,000 Franchise fees 13,117,000 - - Corporate expenses 14,899,000 14,697,000 8,422,000 Depreciation and amortization 98,653,000 29,823,000 17,916,000 -------------------------------------------------------- 385,976,000 126,867,000 53,633,000 -------------------------------------------------------- Operating (loss) (157,633,000) (93,126,000) (39,888,000) Other income (expense) Interest and other income 33,634,000 21,185,000 18,403,000 Interest expense (137,032,000) (28,379,000) (11,410,000) Foreign currency transaction gains 2,408,000 84,000 2,062,000 -------------------------------------------------------- (Loss) before income taxes and minority interests (258,623,000) (100,236,000) (30,833,000) Income tax benefit (provision) (7,653,000) 2,477,000 (1,630,000) -------------------------------------------------------- (Loss) before minority interests (266,276,000) (97,759,000) (32,463,000) Minority interests 11,822,000 6,974,000 2,890,000 -------------------------------------------------------- Net (loss) $ (254,454,000) $ (90,785,000) $ (29,573,000) ======================================================== Net (loss) per common share $(8.20) $(3.01) $(.98) ======================================================== Weighted average number of common shares used in computation of net (loss) per share 31,041,000 30,190,000 30,175,000 ========================================================
See accompanying notes. F-5 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Consolidated Statement of Shareholders' Equity
Common Stock-- Series $.01 Par Value Preferred Stock Additional Cumulative -------------------------------------------------- Paid-In Translation Shares Par Shares Par Capital Adjustment (Deficit) ------------------------------------------------------------------------------------------------- Balance, December 31, 1993 22,622,000 $226,000 $462,166,000 $ (807,000) $ (9,183,000) Exercise of stock options 13,000 31,000 Net loss for the year ended (29,573,000) December 31, 1994 Currency translation adjustment 13,674,000 ------------------------------------------------------------------------------------------------- Balance, December 31, 1994 22,635,000 226,000 462,197,000 12,867,000 (38,756,000) Exercise of stock options 20,000 1,000 101,000 Stock split 7,547,000 75,000 (75,000) Net loss for the year ended (90,785,000) December 31, 1995 Currency translation adjustment (6,594,000) ------------------------------------------------------------------------------------------------- Balance, December 31, 1995 30,202,000 302,000 462,223,000 6,273,000 (129,541,000) Exercise of stock options 396,000 4,000 1,362,000 Exercise of warrants 53,000 1,000 298,000 Issuance of warrants in connection with consent solicitations 1,641,000 Shares issued for acquisitions 1,415,000 14,000 780 $ - 83,123,000 Net loss for the year ended December 31, 1996 (254,454,000) Currency translation adjustment 156,868,000 ------------------------------------------------------------------------------------------------- Balance, December 31, 1996 32,066,000 $321,000 780 $ - $548,647,000 $ 163,141,000 $(383,995,000) =================================================================================================
See accompanying notes. F-6 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Consolidated Statements of Cash Flows
Year ended December 31 1996 1995 1994 ---------------------------------------------------- Operating activities Net loss $(254,454,000) $ (90,785,000) $ (29,573,000) Adjustment to reconcile net loss to net cash (used in) operating activities: Depreciation and amortization 98,653,000 29,823,000 17,916,000 Amortization of non competition agreements 2,906,000 3,256,000 3,144,000 Provision for losses on accounts receivable 2,597,000 709,000 444,000 Minority interests (11,822,000) (6,974,000) (2,890,000) Deferred income taxes 5,063,000 - - Amortization of original issue discount 104,264,000 29,379,000 14,258,000 Other 8,578,000 6,229,000 (183,000) Changes in operating assets and liabilities, net of effect from business acquisitions: Accounts receivable (16,894,000) (6,496,000) (324,000) VAT receivable (1,738,000) (3,789,000) (13,580,000) Other current assets 8,366,000 (2,960,000) (155,000) Other assets (24,000) (123,000) - Accounts payable (2,869,000) 20,583,000 5,876,000 Accrued expenses and other 34,358,000 19,213,000 2,599,000 Deferred revenue 278,000 1,075,000 116,000 Interest payable 1,333,000 (9,287,000) 124,000 ---------------------------------------------------- Net cash (used in) operating activities (21,405,000) (10,147,000) (2,228,000) Investing activities Purchase of fixed assets (505,664,000) (445,550,000) (122,962,000) Increase in other assets (6,013,000) (3,361,000) (4,439,000) Acquisitions of subsidiaries and minority interests, net of cash acquired (332,693,000) (12,412,000) (10,216,000) Proceeds from sales of marketable securities - - 15,000,000 ---------------------------------------------------- Net cash (used in) investing activities (844,370,000) (461,323,000) (122,617,000)
F-7 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Consolidated Statements of Cash Flows (continued)
Year ended December 31 1996 1995 1994 -------------------------------------------------------- Financing activities Proceeds from borrowings, net of financing costs $1,146,190,000 $ 326,166,000 $ 6,132,000 Principal payments (95,283,000) (9,963,000) (4,146,000) Cash held in escrow 1,600,000 2,810,000 (21,000) Capital contribution from minority partner - 12,626,000 6,132,000 Proceeds from borrowings from minority partner 31,232,000 19,065,000 - Proceeds from exercise of stock options and warrants 1,665,000 102,000 31,000 -------------------------------------------------------- Net cash provided by financing activities 1,085,404,000 350,806,000 8,128,000 Effect of exchange rate changes on cash 50,972,000 1,345,000 11,222,000 -------------------------------------------------------- Increase (decrease) in cash and cash equivalents 270,601,000 (119,319,000) (105,495,000) Cash and cash equivalents at beginning of year 175,283,000 294,602,000 400,097,000 -------------------------------------------------------- Cash and cash equivalents at end of year $ 445,884,000 $ 175,283,000 $ 294,602,000 ======================================================== Supplemental disclosure of cash flow information Cash paid during the period for interest exclusive of amounts capitalized $ 27,595,000 $ 1,735,000 $ 1,068,000 Income taxes paid 367,000 1,695,000 490,000 Supplemental schedule of noncash financing activities Warrants issued in connection with consent solicitations 1,641,000 - - Common stock issued for acquisition 34,137,000 - - Preferred stock issued for acquisition of minority interest, including notes payable to minority partner 49,000,000 - - Liabilities incurred in connection with acquisitions 81,906,000 - -
See accompanying notes. F-8 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements 1. Organization NTL Incorporated (formerly International CableTel Incorporated) (the "Company"), through its subsidiaries and joint ventures, owns and operates television and radio broadcasting, cable television, telephone and telecommunications systems in the United Kingdom, and long distance telephone and microwave transmission businesses in the United States. The Company changed its name in March 1997. Based on revenues and identifiable assets, the Company's predominant line of business is television and radio broadcasting, cable television, telephone and telecommunications services in the United Kingdom. 2. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and entities where the Company's interest is greater than 50%. Significant intercompany accounts and transactions have been eliminated in consolidation. Foreign Currency Translation The financial statements of the Company's foreign subsidiaries have been translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation." All balance sheet accounts have been translated using the current exchange rates at the respective balance sheet dates. Statement of operations amounts have been translated using the average exchange rates for the respective years. The gains or losses resulting from the change in exchange rates have been reported separately as a component of shareholders' equity. Cash Equivalents Cash equivalents are short-term highly liquid investments purchased with a maturity of three months or less. Cash equivalents were $330,612,000 and $99,488,000 at December 31, 1996 and 1995, respectively, which consisted primarily of repurchase agreements and corporate commercial paper. At December 31, 1996 and 1995, $238,862,000 and $13,931,000, respectively, of such cash equivalents were denominated in British pounds sterling. F-9 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) Fixed Assets Fixed assets are stated at cost, which includes amounts capitalized for labor and overhead expended in connection with the design and installation of operating equipment. Depreciation is computed by the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows: operating equipment--5 to 40 years and other equipment--3 to 22.5 years. Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and the carrying value of the asset. Intangible Assets Intangible assets include goodwill and license acquisition costs. Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for as purchases. Goodwill is amortized on a straight-line basis over the periods benefited, principally 30 years. License acquisition costs represent the portion of purchase price allocated to the cable television and telecommunications licenses acquired in business combinations. License acquisition costs are amortized on a straight-line basis over the remaining life of the license as follows: cable television license - 7 to 12 years and telecommunications license - 23 years. The Company continually reviews the recoverability of the carrying value of these assets using the same methodology that it uses for the evaluation of its long-lived assets. Other Assets Other assets consist primarily of deferred financing costs and noncompetition agreements obtained in exchange for the issuance of warrants to purchase an aggregate of 899,000 shares of common stock. Deferred financing costs represent costs incurred relating to the issuance of debt and are amortized over the term of the related debt. The noncompetition agreements were valued at the difference between the fair market value of the common stock on the date of grant and the exercise price of the warrants. The noncompetition agreements are being expensed on a straight-line basis over the noncompetition period of primarily five years. F-10 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) Capitalized Interest Interest is capitalized as a component of the cost of fixed assets constructed. In 1996, 1995 and 1994, interest of $10,294,000, $12,183,000 and $3,906,000, respectively, was capitalized. Revenue Recognition Revenues are recognized at the time the service is provided to the customer. Cable System Costs, Expenses and Revenues The Company accounts for costs, expenses and revenues applicable to the construction and operation of its cable television, telephone and telecommunications systems in accordance with SFAS No. 51, "Financial Reporting by Cable Television Companies." Advertising Expense The Company expenses the cost of advertising as incurred. Advertising costs were $22,727,000, $10,370,000 and $3,192,000 in 1996, 1995 and 1994, respectively. Net (Loss) Per Share Net (loss) per share is computed based on the weighted average number of common shares outstanding during the periods. Common stock equivalents are excluded from the net (loss) per share computations because they are antidilutive. F-11 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 2. Significant Accounting Policies (continued) Stock-Based Compensation The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its plans. Reclassifications Certain prior year amounts have been reclassified to conform to the 1996 presentation. 3. Certain Significant Risk and Uncertainties Need for Additional Financing The Company will require additional financing in the future to complete the construction of the network in its United Kingdom franchises. There can be no assurance that the required financing will be obtainable on acceptable terms. Requirements to Meet Build Milestones The telecommunications license for each United Kingdom franchise contains specific construction milestones. Based on current network construction scheduling, the Company believes it will be able to satisfy its milestones in the future, but there can be no assurance that such milestones will be met. In the event that the Company is unable to meet the construction milestones required by any of its licenses, and is unable to obtain modifications to the milestones, the relevant licenses could be revoked. Concentrations The Company's television and radio broadcasting business is substantially dependent upon contracts with a small group of companies for the right to broadcast their programming, and upon a site sharing agreement for a large number of its transmission sites. The loss of any one of these contracts or the site sharing agreement could have a material adverse effect on the business of the Company. F-12 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. Certain Significant Risks and Uncertainties (continued) Limited Access to Programming The Company's ability to profitably provide cable television services is dependent on the Company's ability to obtain programming from suppliers at a reasonable cost. The Company is involved in a court proceeding with one of its suppliers regarding the Company's flexibility in choosing which programming to offer in its service packages. There can be no assurance that the Company's current programming will continue to be available on acceptable terms or at all. Currency Risk To the extent that the Company obtains financing in United States dollars and incurs costs in the construction and operation of the Company's systems in the United Kingdom in British pounds sterling, it will encounter currency exchange rate risks. In addition, the Company's revenues are generated primarily in British pounds sterling while its interest and principal obligations with respect to much of the Company's existing indebtedness is payable in United States dollars. 4. Fixed Assets Fixed assets consists of:
December 31 1996 1995 --------------------------------------- Operating equipment $1,080,135,000 $ 424,019,000 Other equipment 197,368,000 39,717,000 Construction-in-progress 305,372,000 218,044,000 --------------------------------------- 1,582,875,000 681,780,000 Allowance for depreciation (123,347,000) (42,106,000) --------------------------------------- $1,459,528,000 $ 639,674,000 =======================================
5. Intangible Assets Intangible assets consists of:
December 31 1996 1995 -------------------------------- License acquisition costs, net of accumulated amortization of $34,894,000 (1996) and $22,789,000 (1995) $134,909,000 $137,578,000 Goodwill, net of accumulated amortization of $5,986,000 258,024,000 - -------------------------------- $392,933,000 $137,578,000 ================================
F-13 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. Intangible Assets (continued) In October 1996, the Company acquired the remaining 40% interest it did not already own in CableTel Newport in exchange for 780 shares of the Company's Series A Preferred Stock. CableTel Newport owns and operates cable television, telephone and telecommunications franchises in South Wales. The Series A Preferred Stock was valued at $49,000,000, based on an appraisal as of the date of issuance. The fair value of the net tangible assets acquired of $67,710,000 exceeded the aggregate purchase price of $49,062,000 (including costs incurred of $62,000) by $18,648,000, which is classified as a reduction to license acquisition costs. In September 1996, the Company acquired the remaining 30% minority interest of English Cable Enterprises, Inc. ("ECE") that the Company did not own, in exchange for 1,415,000 shares of its common stock. ECE, through its subsidiaries, owns four cable television, telephone and telecommunications licenses in the northern suburbs of London. The value of the shares, based on the market price on the date of issuance, of $34,137,000 plus costs incurred of $204,000 exceeded the fair value of the net tangible assets acquired by $28,649,000, which is classified as license acquisition costs. In May 1996, an indirect wholly-owned subsidiary of the Company, NTL Investment Holdings Limited ("NTLIH"), acquired NTL Group Limited for payments of approximately (pound)204,000,000 at closing, (pound)35,000,000, subject to adjustments, on the first anniversary of closing and (pound)17,100,000 in October 1996. NTL Group Limited provides television and radio transmission services and a range of other services in the broadcasting and telecommunications industries. NTLIH used (pound)200,000,000 from its bank facilities to finance the acquisition. This acquisition has been accounted for as a purchase, and, accordingly, the net assets and results of operations of NTL Group Limited have been included in the consolidated financial statements from the date of acquisition. The aggregate purchase price of (pound)256,100,000 ($439,000,000) plus costs incurred of $3,700,000 exceeded the fair value of the net tangible assets acquired by $263,000,000, which is classified as goodwill. In October 1995, CableTel South Wales Limited, a wholly-owned subsidiary of CableTel Newport, acquired the cable television business of Metro Cable TV Limited in South Wales ("Metro Wales"), and CableTel Central Hertfordshire Limited, a wholly-owned subsidiary of ECE, acquired the cable television business of Metro Cable TV Limited in Hertfordshire ("Metro Herts"), for an aggregate consideration of $12,125,000. These acquisitions have been accounted for as purchases, and, accordingly, the net assets and results of operations of Metro Wales and Metro Herts have been included in the F-14 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. Intangible Assets (continued) consolidated financial statements from the date of acquisition. The aggregate purchase price exceeded the fair value of the net tangible assets acquired by $10,167,000, which is classified as license acquisition costs. In 1996, the Metro Wales license acquisition costs were reduced by $565,000. The pro forma unaudited consolidated results of operations for the years ended December 31, 1996 and 1995 assuming consummation of the above mentioned transactions as of the beginning of the periods are as follows: Year ended December 31 1996 1995 --------------------------------- Total revenue $289,638,000 $211,987,000 Net loss (265,180,000) (118,897,000) Net loss per share (8.31) (3.76) In March 1994, the Company acquired approximately 70% of ECE. The Company contributed $34,560,000 in cash and the minority owners contributed the licenses and related assets and liabilities. The ECE acquisition was accounted for as a purchase and, accordingly, the net assets and results of operations of ECE have been included in the consolidated financial statements from the date of acquisition. The aggregate purchase price, including the related costs to create the joint venture, exceeded the fair value of the net tangible assets acquired by $29,707,000, which is classified as license acquisition costs. F-15 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt Long-term debt consists of:
December 31 1996 1995 ------------------------------ 10-7/8% Senior Deferred Coupon Notes ("10-7/8% Notes") (a) $175,368,000 $ 157,748,000 12-3/4% Series A Senior Deferred Coupon Notes ("12-3/4% Notes") (b) 185,043,000 163,528,000 11-1/2% Series B Senior Deferred Coupon Notes ("11-1/2% Notes) (c) 665,257,000 - 7-1/4% Convertible Subordinated Notes ("7-1/4 Convertible Notes") (d) 191,750,000 191,750,000 7% Convertible Subordinated Notes ("7% Convertible Notes") (e) 275,000,000 - Term Loan Facility (f) 239,750,000 - Subsidiary bank loan (g) - 1,576,000 Subsidiary notes payable (h) - 24,940,000 ------------------------------- 1,732,168,000 539,542,000 Less current portion - 26,516,000 ------------------------------- $1,732,168,000 $ 513,026,000 ===============================
(a) In October 1993, the Company issued $212,000,000 aggregate principal amount of 10-7/8% Senior Deferred Coupon Notes due 2003. The 10-7/8% Notes were issued at a price to the public of 58.873% or $124,811,000. The Company incurred $5,019,000 in fees and expenses which is included in deferred financing costs. The original issue discount on the 10-7/8% Notes accretes at a rate of 10-7/8%, compounded semiannually, to an aggregate principal amount of $212,000,000 by October 15, 1998. Interest will thereafter accrue at 10-7/8% per annum, payable semiannually beginning on April 15, 1999. During 1996, 1995 and 1994, the Company recognized $17,620,000, $15,851,000 and $14,258,000, respectively, of the original issue discount as interest expense. The 10-7/8% Notes are effectively subordinated to all existing and future indebtedness and other liabilities and commitments of the Company's subsidiaries. The 10-7/8% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after October 15, 1998 at 103.107% the first year, 101.554% the second year and 100% thereafter, plus accrued and unpaid interest to the date of redemption. The indenture governing the 10-7/8% Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and issuance of preferred stock; (ii) dividend and other payment restrictions; and (iii) mergers, consolidations and sales of assets. F-16 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt (continued) (b) In April 1995, the Company issued $277,803,500 aggregate principal amount of 12-3/4% Senior Deferred Coupon Notes due 2005. The 12-3/4% Notes were issued at a price to the public of 53.995% or $150,000,000. The Company incurred $6,192,000 in fees and expenses in connection with the issuance of 12-3/4% Notes which is included in deferred financing costs. The original issue discount accretes at a rate of 12-3/4%, compounded semiannually, to an aggregate principal amount of $277,803,500 by April 15, 2000. Interest will thereafter accrue at 12-3/4% per annum, payable semiannually beginning on October 15, 2000. During 1996 and 1995, the Company recognized $21,515,000 and $13,528,000, respectively, of original issue discount as interest expense. The 12-3/4% Notes are effectively subordinated to all existing and future indebtedness and other liabilities and commitments of the Company's subsidiaries, rank pari passu in right of payment with all senior unsecured indebtedness and rank senior in right of payment to all subordinated indebtedness of the Company. The 12-3/4% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after April 15, 2000 at 103.64% the first year, 101.82% the second year and 100% thereafter, plus accrued and unpaid interest to the date of redemption. The indenture governing the 12-3/4% Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. (c) In January 1996, the Company issued $1,050,000,000 aggregate principal amount of 11-1/2% Series B Senior Deferred Coupon Notes due 2006. The 11-1/2% Notes were issued at a price to investors of 57.155% of the aggregate principal amount at maturity or $600,127,500. The Company incurred $19,357,000 in fees and expenses in connection with the issuance of the 11-1/2% Notes which is included in deferred financing costs. The original issue discount accretes at a rate of 11-1/2%, compounded semiannually, to an aggregate principal amount of $1,050,000,000 by February 1, 2001. Interest will thereafter accrue at 11-1/2% per annum, payable semiannually beginning on August 1, 2001. During 1996, the Company recognized $65,129,000 of original issue discount as interest expense. The 11-1/2% Notes are effectively subordinated to all existing and future indebtedness and other liabilities and commitments of the Company's subsidiaries, rank pari passu in right of payment with all senior unsecured indebtedness and rank senior in right of payment to all subordinated indebtedness of the Company. The 11-1/2% Notes may be redeemed at the F-17 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt (continued) Company's option, in whole or in part, at any time on or after February 1, 2001 at 105.75% the first year, 102.875% the second year and 100% thereafter, plus accrued and unpaid interest to the date of redemption. The indenture governing the 11-1/2% Notes contains restrictions relating to, among other things: (i) incurrence of additional indebtedness and issuance of preferred stock; (ii) dividend and other payment restrictions and (iii) mergers, consolidations and sales of assets. (d) In April and May 1995, the Company issued $191,750,000 principal amount of 7-1/4% Convertible Subordinated Notes due 2005. Interest payments began on October 15, 1995 and interest is payable every six months thereafter. The 7-1/4% Convertible Notes will mature on April 15, 2005. The 7-1/4% Convertible Notes are unsecured obligations convertible into shares of common stock prior to maturity at a conversion price of $27.56 per share, subject to adjustment. There are approximately 6,958,000 shares of common stock reserved for issuance upon the conversion of the 7-1/4 % Convertible Notes. The 7-1/4% Convertible Notes are redeemable, in whole or in part, at the option of the Company at any time on or after April 15, 1998, at a redemption price of 105.08% that declines annually to 100.73% in 2004, in each case together with accrued interest to the redemption date. The Company incurred $6,822,000 in fees and expenses in connection with the issuance of the 7-1/4% Convertible Notes, which is included in deferred financing costs. (e) In June 1996, the Company issued $275,000,000 aggregate principal amount of 7% Convertible Subordinated Notes due 2008. Interest payments began on December 15, 1996 and interest is payable every six months thereafter. The 7% Convertible Notes mature on June 15, 2008. The 7% Convertible Notes are unsecured obligations convertible into shares of common stock prior to maturity at a conversion price of $37.875 per share, subject to adjustment. There are approximately 7,261,000 shares of common stock reserved for issuance upon conversion of the 7% Convertible Notes. The 7% Convertible Notes are redeemable, in whole or in part, at the option of the Company at any time on or after June 15, 1999, at a redemption price of 104.9% that declines annually to 100% in 2006, in each case together with accrued and unpaid interest to the redemption date. The Company incurred $8,571,000 in fees and expenses in connection with the issuance of the 7% Convertible Notes, which is included in deferred financing costs. F-18 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt (continued) (f) To finance the acquisition of NTL Group Limited, NTLIH entered into an agreement dated March 28, 1996 with a syndicate of lenders (the "Lenders") pursuant to which the Lenders made available to NTLIH senior secured loan facilities (the "A Facilities") of a maximum principal amount of (pound)165,000,000 comprised of: (i) a long term loan facility of (pound)140,000,000 (the "Term Loan Facility") and (ii) a revolving credit facility of (pound)25,000,000 (the "Revolving Facility"). One of the Lenders also agreed to make available to the NTLIH a secured loan facility of (pound)60,000,000 (the "Bridge Facility") to finance the remainder of the payment due at closing and acquisition costs and expenses due at closing. The Term Loan Facility and the Bridge Facility were used to finance the acquisition of NTL Group Limited including related acquisition expenses (an aggregate of (pound)200,000,000 or $342,500,000). The Bridge Facility was repaid in full in August 1996. The Revolving Facility is available until December 31, 1997 for capital expenditure and working capital purposes of NTLIH and subsidiaries. At the end of the availability period, any amount outstanding under the Revolving Facility will be converted to term debt and be aggregated with the Term Loan Facility. All amounts outstanding under the Term Loan Facility are scheduled to be repaid in quarterly installments from 1998 to 2002 inclusive. The amount of the installments will be based upon an agreed percentage of the loan and will increase year to year. Final repayment of the Term Loan Facility is due on December 31, 2002. Loans under the A Facilities bear interest at an annual rate equal to LIBOR plus a margin that varies from 0.75% per annum to 1.75% per annum, based on certain financial ratios of NTLIH and certain of its subsidiaries. Interest is payable either monthly, quarterly or semiannually, at the option of NTLIH. The effective interest rate on the Term Loan Facility at December 31, 1996 was 7.972%. The A Facilities are secured by guarantees from NTL Group Limited and each of its subsidiaries and by first ranking fixed and floating charges over all the present and future assets of the NTLIH, NTL Group Limited and its subsidiaries. The A Facilities do not, therefore, provide for the Lenders to have recourse to assets of the Company other than to the assets of NTLIH and its subsidiaries. F-19 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. Long-Term Debt (continued) The A Facilities contain various financial and other covenants, including covenants with respect to NTLIH and certain of its subsidiaries relating to minimum total debt to operating cash flow (as defined in the "A Facilities") and fixed charge coverage, net worth and pro-forma debt service ratios. The A Facilities also include restrictions on dividends and distributions by NTLIH to its shareholder. (g) The CableTel Glasgow bank loan was repaid in full in 1996. (h) The CableTel Newport notes payable were unsecured, non interest bearing obligations of the CableTel Newport joint venture to the minority interest holder in the joint venture. In October 1996, in connection with the Company's acquisition of the minority interest, the notes then outstanding were eliminated. Required annual principal payments of long-term debt as of December 31, 1996 are as follows:
Year ending December 31: 1997 $ - 1998 11,988,000 1999 47,950,000 2000 52,745,000 2001 59,938,000 Thereafter 1,559,547,000 ----------------- $ 1,732,168,000 =================
F-20 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Income Taxes The provision (benefit) for income taxes consists of the following:
Year ended December 31 1996 1995 1994 ----------------------------------------------------------- Current: Federal $ - $ (181,000) $ - State and local 344,000 167,000 203,000 Foreign 2,246,000 (2,463,000) 1,427,000 ----------------------------------------------------------- Total current 2,590,000 (2,477,000) 1,630,000 ----------------------------------------------------------- Deferred: Federal - - - State and local - - - Foreign 5,063,000 - - ----------------------------------------------------------- Total deferred 5,063,000 - - ----------------------------------------------------------- $ 7,653,000 $ (2,477,000) $ 1,630,000 ===========================================================
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax liabilities and assets are as follows:
December 31 1996 1995 ----------------------------------------------- Deferred tax liabilities: Fixed assets $ 78,433,000 $ - Depreciation and amortization 30,623,000 12,074,000 ----------------------------------------------- Total deferred tax liabilities 109,056,000 12,074,000 Deferred tax assets: Net operating losses 99,227,000 30,017,000 Net deferred interest expense 45,752,000 11,709,000 Other 10,396,000 7,989,000 ----------------------------------------------- Total deferred tax assets 155,375,000 49,715,000 Valuation allowance for deferred tax assets (141,250,000) (37,641,000) ----------------------------------------------- Net deferred tax assets 14,125,000 12,074,000 ----------------------------------------------- Net deferred tax liabilities $ 94,931,000 $ - ===============================================
F-21 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Income Taxes (continued) At December 31, 1996, the Company had net operating loss carryforwards of approximately $80,000,000 for U.S. federal income tax purposes that expire as follows: $2,000,000 in 2009, $23,000,000 in 2010 and $55,000,000 in 2011. The Company also has United Kingdom net operating loss carryforwards of approximately $216,000,000 which have no expiration date. Pursuant to United Kingdom law, these losses are only available to offset income of the separate entity that generated the loss. The reconciliation of income taxes computed at U.S. federal statutory rates to income tax expense is as follows:
Year ended December 31 1996 1995 1994 ------------------------------------------------------ Provision (benefit) at federal statutory rate (35%) $ (90,518,000) $ (35,083,000) $ (10,792,000) Add (deduct): State and local income tax, net of federal benefit 224,000 109,000 132,000 Foreign losses with no benefit 44,610,000 6,699,000 4,674,000 Amortization of goodwill and license acquisition costs 4,031,000 3,696,000 3,492,000 U.S. losses with no benefit 49,184,000 22,507,000 4,048,000 Other 122,000 (405,000) 76,000 ------------------------------------------------------ $ 7,653,000 $ (2,477,000) $ 1,630,000 ======================================================
8. Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents and cash held in escrow: The carrying amounts reported in the consolidated balance sheets approximate fair value. Long-term debt: The fair values of the 10-7/8% Notes, the 12-3/4% Notes, the 11-1/2% Notes, the 7-1/4% Convertible Notes and the 7% Convertible Notes are based on the quoted market price. The fair values of the Term Loan Facility, the subsidiary bank loan and notes payable are estimated using discounted cash flow analysis, based on the Company's incremental borrowing rate for similar types of borrowing arrangements. F-22 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 8. Fair Values of Financial Instruments (continued) The carrying amounts and fair values of the Company's financial instruments are as follows:
December 31, 1996 December 31, 1995 -------------------------------------- --------------------------------------- Carrying Carrying Amount Fair Value Amount Fair Value ------------------------------------------------------------------------------- Cash and cash equivalents $ 445,884,000 $ 445,884,000 $175,283,000 $175,283,000 Cash held in escrow - - 1,598,000 1,598,000 Long-term debt: 10-7/8% Notes 175,368,000 179,140,000 157,748,000 151,580,000 12-3/4% Notes 185,043,000 202,797,000 163,528,000 177,794,000 11-1/2% Notes 665,257,000 714,000,000 - - 7-1/4% Convertible Notes 191,750,000 206,611,000 191,750,000 206,131,000 7% Convertible Notes 275,000,000 251,625,000 - - Term Loan Facility 239,750,000 239,750,000 - - Subsidiary bank loan and notes payable - - 26,516,000 25,048,000
9. Related Party Transactions On July 25, 1990, Cellular Communications, Inc. ("CCI") and AirTouch Communications, Inc. ("AirTouch") entered into a Merger and Joint Venture Agreement, as amended as of December 14, 1990. In connection with this agreement, on July 31, 1991, CCI distributed to its shareholders the stock of the Company. Through August 1996, CCI provided management, financial and legal services to the Company. Amounts charged to the Company included direct costs where identifiable, and indirect costs allocated utilizing direct labor hours as reported by the common officers and employees of CCI and the Company. For the years ended December 31, 1996, 1995 and 1994, CCI charged $1,194,000, $1,644,000 and $977,000, respectively, which is included in corporate expenses. In August 1996, upon the merger of CCI with AirTouch, the Company commenced providing management, financial, legal and technical services to Cellular Communications International, Inc. ("CCII") and CoreComm Incorporated (formerly Cellular Communications of Puerto Rico, Inc.) ("CoreComm"). In 1996, the Company charged CCII and CoreComm $351,000 and $200,000, respectively, which included direct costs where identifiable and allocated corporate overhead based upon the amount of time incurred on CCII and CoreComm business by the common officers and employees of the Company, CCII and CoreComm. These charges reduced corporate expenses in 1996. It is not practicable to determine the amounts that would have been incurred had the Company operated as an unaffiliated entity. However, in the opinion of management of the Company, the allocation methods are reasonable. F-23 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 9. Related Party Transactions (continued) As of December 31, 1996, the Company had receivables of $586,000 and $101,000 from CCII and CoreComm, respectively. In January 1997, the Company, CoreComm and CCII agreed to a change in the Company's fee for the provision of services. The Company will charge CoreComm and CCII for direct costs where identifiable and a fixed percentage of its corporate overhead beginning January 1, 1997. In 1993, the Company entered into a consulting agreement with Insight Communications Company, L.P. ("Insight U.S."), under which Insight U.S. provided advice and assistance to the Company with respect to its cable television, telephone and telecommunications operations in the United Kingdom. Two members of the Company's Board of Directors are partners in Insight U.S. Pursuant to the consulting agreement, which had a term of three years, the Company paid Insight U.S. a fee of $50,000 per month for the first year, $40,000 per month for the second year and $30,000 per month for the third year. The fees for the years ended December 31, 1996, 1995 and 1994 of $270,000, $450,000 and $570,000, respectively, are included in corporate expenses. 10. Shareholders' Equity Stock Split On July 25, 1995, the Company declared a 4-for-3 stock split by way of stock dividend, which was paid on August 11, 1995. All common stock data in the Consolidated Financial Statements give effect to the stock split. Series Preferred Stock In October 1996, the Board of Directors created and authorized for issuance 2,000 shares of 5% Non-Voting Convertible Preferred Stock, Series A ("Series A Preferred Stock"), of which 780 shares were issued in connection with the CableTel Newport acquisition. Each share of Series A Preferred Stock has a stated value of $100,000, subject to certain exceptions. The holders of Series A Preferred Stock are entitled to receive cumulative dividends beginning in October 2001 at the rate of 5% of the stated value, payable semi-annually in arrears, subject to certain exceptions. Dividends may be paid, in the sole discretion of the Board of Directors, in cash, in common stock or in additional shares of Series A Preferred Stock. The Company has the right, exercisable at any time, to redeem all or some of the Series A Preferred Stock at a price equal to the aggregate stated value of the shares to be redeemed, together with all accrued and unpaid dividends, in cash or in shares of common stock (based on the average market price of the F-24 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. Shareholders' Equity (continued) common stock, as defined). The holder of Series A Preferred Stock has the right to convert shares of Series A Preferred Stock into common stock equal to the aggregate stated value of Series A Preferred Stock divided by the greater of (a) $40.00 or (b) the average market price of the common stock, as defined. The Series A Preferred Stock has a liquidation preference equal to the stated value per share plus accrued and unpaid dividends. Warrants In 1993, the Company issued warrants to purchase an aggregate of approximately 899,000 shares of common stock at an initial exercise price of $8.35 per share in connection with certain noncompetition agreements. The exercise price decreased to $6.96 per share in the second year after the grant and to $5.57 per share thereafter. The warrants were valued at $13,193,000, the difference between the fair market value of the common stock on the date of grant and $5.57 per share. The warrants expire in 2000. In 1996, pursuant to the terms of the consent solicitations to the holders of the 10-7/8% Notes and to the holders of the 12-3/4% Notes to gain consent to modify certain indenture provisions, the Company paid an aggregate of $3,592,000 in consent payments and issued warrants to purchase 164,000 shares of common stock at an exercise price of $23.78 per share in lieu of additional consent payments of $1,641,000. The warrants expire in 2006. Shareholder Rights Plan The Rights Agreement provides that one Right will be issued with each share of common stock issued on or after October 13, 1993. The Rights are exercisable upon the occurrence of certain potential takeover events and will expire in October 2003 unless previously redeemed by the Company. When exercisable, each Right entitles the owner to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock ("Rights Preferred Stock") at a purchase price of $100. The Rights Preferred Stock will be entitled to a minimum preferential quarterly dividend payment of $.01 per share and will be entitled to an aggregate dividend of 100 times the dividend, if any, declared per share of common stock. In the event of liquidation, the holders of Rights Preferred Stock will be entitled to a minimum preferential liquidation payment of $1 per share and will be entitled to an aggregate payment of 100 times the payment made per share of common stock. Each share of Rights Preferred Stock will have 100 votes and will vote together with the common stock. In the event of any merger, consolidation or other transaction in which shares of common stock are changed or exchanged, each share of Rights Preferred Stock will be entitled to receive 100 times the amount received per share of common stock. These rights are protected by customary antidilution provisions. There are 2,500,000 authorized shares of Series Preferred Stock of which 1,000,000 shares are designated Rights Preferred Stock. F-25 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. Shareholders' Equity (continued) Stock Options There are 2,164,000 shares of common stock reserved for issuance under the OCOM Corporation (a wholly-owned subsidiary of the Company) 1991 Stock Option Plan. The plan provides that incentive stock options ("ISOs") be granted at the fair market value of OCOM's common stock on the date of grant, and nonqualified stock options ("NQSOs") be granted at not less than 85% of the fair market value of OCOM's common stock on the date of grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each January 1 thereafter, while the optionee remains an employee of the Company. Options will expire ten years after the date of the grant. There are 5,053,000 shares of common stock reserved for issuance under the International CableTel Incorporated 1993 Stock Option Plan. The exercise price of an ISO may not be less than 100% of the fair market value of the Company's common stock on the date of grant, and the exercise price of a NQSO may not be less than 85% of the fair market value of the Company's common stock on the date of grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each January 1 thereafter, while the optionee remains an employee of the Company. Options will expire ten years after the date of the grant. There are 100,000 shares of common stock reserved for issuance under the OCOM Corporation Non-Employee Director Stock Option Plan. The plan provides that all options be granted at the fair market value of OCOM's common stock on the date of grant, and options will expire ten years after the date of the grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each subsequent anniversary of the grant date, while the optionee remains a director of the Company. Options will expire ten years after the date of the grant. There are 320,000 shares of common stock reserved for issuance under the International CableTel Incorporated 1993 Non-Employee Director Stock Option Plan. Under the terms of this plan, options will be granted to members of the Board of Directors who are not employees of the Company or any of its affiliates. The plan provides that all options be granted at the fair market value of the Company's common stock on the date of grant, and options will expire ten years after the date of the grant. Options are exercisable as to 20% of the shares subject thereto on the date of grant and become exercisable as to an additional 20% of the shares subject thereto on each subsequent anniversary of the grant date while the optionee remains a director of the Company. Options will expire ten years after the date of the grant. This plan provides for the automatic grant of options to purchase 1,333 shares to each member of the Board of Directors who is not an employee of the Company in 1997. F-26 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. Shareholders' Equity (continued) Pro forma information regarding net loss and net loss per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1996 and 1995: risk-free interest rates of 6.56% and 6.61%, respectively, dividend yield of 0%, volatility factor of the expected market price of the Company's common stock of .255 and a weighted-average expected life of the option of 10 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Following is the Company's pro forma information:
Year ended December 31 1996 1995 ------------------------------------- Pro forma net (loss) $(261,245,000) $(93,688,000) Pro forma net (loss) per share $(8.42) $(3.10)
F-27 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 10. Shareholders' Equity (continued) A summary of the Company's stock option activity and related information for the years ended December 31, follows:
1996 1995 1994 ---------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Number Exercise Number Exercise Number Exercise of Options Price of Options Price of Options Price ---------------------------------------------------------------------------------------------------- Outstanding-beginning of year 5,934,000 $11.04 4,795,000 $8.09 4,456,000 $7.29 Granted 1,390,000 25.94 1,164,000 23.07 360,000 17.83 Exercised (396,000) 3.44 (21,000) 4.78 (17,000) 1.90 Forfeited (190,000) 27.39 (4,000) 17.50 (4,000) 10.66 --------------- --------------- ---------------- Outstanding-end of year 6,738,000 $14.10 5,934,000 $11.04 4,795,000 $8.09 =============== =============== ================ Exercisable at end of year 4,258,000 $10.71 3,410,000 $ 8.22 2,323,000 $6.50 =============== =============== ================
Weighted-average fair value of options, calculated using the Black-Scholes option pricing model, granted during 1996 and 1995 is $13.98 and $12.47, respectively. The following table summarizes the status of the stock options outstanding and exercisable at December 31, 1996:
Stock Options Outstanding Stock Options Exercisable ---------------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices of Options Life Price of Options Price ---------------------------------------------------------------------------------------------------------- $0.19 to $0.56 77,000 4.5 Years $0.245 77,000 $0.245 $0.73 to $1.12 153,000 4.5 Years $0.751 153,000 $0.751 $1.53 to $2.69 365,000 4.5 Years $2.163 365,000 $2.163 $3.09 to $4.50 80,000 4.6 Years $3.223 79,000 $3.201 $8.81 to $14.63 3,355,000 6.4 Years $8.873 2,669,000 $8.858 $15.19 to $22.88 1,382,000 8.1 Years $21.821 624,000 $21.500 $23.06 to $32.38 1,326,000 9.3 Years $25.567 291,000 $25.496 ---------------------------------------------------------------------------------------------------------- Total 6,738,000 4,258,000 =========================================================================================================
The Company has 23,917,000 shares of its common stock reserved for issuance upon the exercise of warrants and stock options and the conversion of debt and preferred stock. F-28 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. Employee Benefit Plans Certain subsidiaries of NTL Group Limited operate a defined benefit pension plan in the United Kingdom. The assets of the Plan are held separately from those of NTL Group Limited and are invested in specialized portfolios under the management of an investment group. The regular pension cost is assessed using the attained age method. The Company's policy is to fund amounts to the defined benefit plan necessary to comply with the funding requirements as prescribed by the laws and regulations in the United Kingdom. The components of net pension costs in 1996 are as follows:
Service cost $ 7,997,000 Interest cost 11,679,000 Actual return on plan assets (16,103,000) Net amortization and deferral 4,241,000 --------------- $ 7,814,000 ===============
The funded status (assets exceed accumulated benefits) of the plan as of December 31, 1996, is as follows:
Accumulated benefit obligation: Vested $148,809,000 Nonvested - --------------- $148,809,000 =============== Fair value of plan assets, principally U.K. equity securities $166,195,000 Projected benefit obligation 170,795,000 --------------- Excess of projected benefit obligation over assets (4,600,000) Unrecognized net transition obligation 11,541,000 Unrecognized net gain (5,098,000) =============== Prepaid pension cost $ 1,843,000 =============== Actuarial assumptions: Weighted average discount rate 8.25% Weighted average rate of compensation increase 8.00% Expected long-term rate of return on plan assets 9.50%
F-29 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. Leases Leases for buildings, office space and equipment extend through 2031. Total rental expense for the years ended December 31, 1996, 1995 and 1994 under operating leases was $14,886,000, $2,607,000 and $1,108,000, respectively. Future minimum lease payments under noncancellable operating leases as of December 31, 1996 are as follows:
Year ended December 31: 1997 $17,547,000 1998 17,840,000 1999 17,711,000 2000 17,327,000 2001 17,033,000 Thereafter 99,310,000 ===================== $186,768,000 =====================
13. Commitments and Contingent Liabilities As of December 31, 1996, the Company was committed to pay approximately $49,000,000 for equipment and services. The Company has licenses issued by the United Kingdom Department of Trade and Industry ("DTI") and the United Kingdom Independent Television Commission ("ITC") for its cable television, telephone and telecommunications business and the Federal Communications Commission ("FCC") for its microwave transmission business. The F-30 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 13. Commitments and Contingent Liabilities (continued) initial terms of the Company's licenses was 23 years for the DTI licenses, 15 years for the ITC licenses and 10 years for the FCC licenses. The Company's licenses expire in 2008 to 2016 for the DTI licenses, 1999 to 2005 for the ITC licenses and 2001 for the FCC licenses. The DTI requires a fixed annual renewal fee of (pound)2,500 ($4,300) per license. The ITC requires an annual license fee ranging from (pound)1,300 ($2,200) to (pound)7,900 ($13,500) per license based on the number of homes in the licensed area, which is subject to adjustment annually. The FCC requires an annual license fee of $140 per license, which is subject to adjustment annually. The Company's license fees in 1996 were $200,000. In addition, the Company was awarded certain newly issued licenses by the ITC in 1995. Pursuant to the terms of the local delivery license ("LDL") for Northern Ireland granted to a wholly-owned subsidiary of the Company, the Company is required to make annual cash payments to the ITC for fifteen years commencing in January 1997, in the amount of approximately (pound)14,400,000 ($24,700,000) (subject to adjustments for inflation). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first ten years and 2% for the last five years of the fifteen year license. Pursuant to the terms of the LDL for Glamorgan and Gwent, Wales granted to a wholly-owned subsidiary of the Company, the Company is required to make annual cash payments to the ITC for fifteen years, commencing in the first full calendar year after the start of operations, in the amount of (pound)104,188 ($178,000). Such payments are in addition to the percentages of qualifying revenue already set by the ITC of 0% for the first five years, 2% for the second five years and 4% for the last five years of the fifteen-year license. A significant portion of NTL Group Limited's revenues is attributable to the provision of television and radio transmission and distribution services and the provision of telecommunications services. In the United Kingdom, the provision of such services is governed by the Telecommunications Act and The Wireless Telegraphy Act 1949. NTL Group Limited holds four licenses under the Telecommunications Act. The initial terms of these licenses were 10 or 25 years. These licenses expire in 2002 to 2016. NTL Group Limited holds a number of Wireless Telegraphy Act licenses which continue in force primarily from year to year unless revoked or unless any of the license fees are not paid. The current annual fees for these licenses is an aggregate of (pound)1,541,000 ($2,400,000), all of which have been paid in 1996. The Company is involved in, or has been involved in, certain disputes and litigation arising in the ordinary course of its business. In September 1996, a customer of NTL Group Limited issued a writ in the United Kingdom High Court of Justice claiming unliquidated damages for breach of contract and misrepresentation. The Company considers the claim to be unmerited, and is defending the action. In addition, the Company is involved in other contractual disputes and disputes involving claims for damages to property and personal injury resulting from the construction of the Company's networks and the maintenance and servicing of the Company's transmission masts. None of these matters are expected to have a material adverse effect on the Company's financial position, results of operations or cash flows. The Company has filed a complaint in the U.S. District Court for the Southern District of New York against Le Groupe Videotron Ltee ("GVL") and its wholly owned subsidiary seeking damages of not less than $84,000,000 arising out of the Company's claim that GVL was unjustly enriched by actions it took in its dealings with the Company in connection with GVL's recent sale of its ownership interest in Videotron Holdings plc. GVL has moved to dismiss the complaint, which motion is pending before the court. F-31 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 14. Industry Segments and Geographic Areas The Company operates its long distance telephone and microwave transmission business in the United States and its television and radio broadcasting, cable television, telephone and telecommunications businesses in the United Kingdom. The Company acquired its television and radio broadcasting and other telecommunications services business in 1996. Identifiable corporate assets consist primarily of cash and cash equivalents. The industry segments and geographic area information as of and for the years ended December 31, 1996, 1995 and 1994 are as follows:
Long Distance Telephone and Cable Television, Microwave Telephone and Television and Radio Transmission Telecommunications Broadcasting and Other Corporate Consolidated ------------------------------------------------------------------------------------------------ Year ended December 31, 1996 Total revenues $ 10,086,000 $ 89,726,000 $128,531,000 $ - $ 228,343,000 Operating income (loss) 773,000 (172,443,000) 26,937,000 (12,900,000) (157,633,000) Depreciation and amortization 2,744,000 70,614,000 20,339,000 4,956,000 98,653,000 Identifiable assets 15,660,000 1,667,585,000 621,927,000 149,439,000 2,454,611,000 Fixed asset additions 552,000 488,800,000 54,829,000 1,894,000 546,075,000 Year ended December 31, 1995 Total revenues $ 8,937,000 $ 24,804,000 $ - $ - $ 33,741,000 Operating (loss) (4,531,000) (76,161,000) - (12,434,000) (93,126,000) Depreciation and amortization 2,729,000 25,650,000 - 1,444,000 29,823,000 Identifiable assets 15,774,000 892,935,000 - 101,960,000 1,010,669,000 Fixed asset additions 1,557,000 473,795,000 - - 475,352,000 Year ended December 31, 1994 Total revenues $ 9,267,000 $ 4,478,000 $ - $ - $ 13,745,000 Operating income (loss) 1,288,000 (35,947,000) - (5,229,000) (39,888,000) Depreciation and amortization 2,880,000 14,515,000 - 521,000 17,916,000 Identifiable assets 15,520,000 533,178,000 - 115,668,000 664,366,000 Fixed asset additions 867,000 150,019,000 - 15,000 150,901,000
F-32 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Notes to Consolidated Financial Statements (continued) 15. Subsequent Event In February 1997, the Company issued $400,000,000 aggregate principal amount of 10% Senior Notes due 2007 (the "10% Notes") and $100,000,000 of 13% Senior Redeemable Exchangeable Preferred Stock (the "Redeemable Preferred Stock"). The Company received net proceeds of $389,000,000 and $96,625,000, after discounts and commissions, from the issuance of the 10% Notes and the Redeemable Preferred Stock, respectively. The 10% Notes accrue interest at 10% per annum, payable semiannually beginning on August 15, 1997. The 10% Notes may be redeemed at the Company's option, in whole or in part, at any time on or after February 15, 2002 at a redemption price of 105% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the date of redemption. Of the 2,500,000 authorized shares of Series Preferred Stock, 100,000 shares of Redeemable Preferred Stock were issued. Dividends accrue at 13% per annum ($130 per share) and are payable quarterly in arrears commencing on May 15, 1997. Dividends, whether or not earned or declared, will accrue without interest until declared and paid, which declaration may be for all or part of the accrued dividends. Dividends accruing on or prior to February 15, 2004 may, at the option of the Company, be paid in cash, by the issuance of additional Redeemable Preferred Stock or in any combination of the foregoing. The Redeemable Preferred Stock may be redeemed, at the Company's options, in whole or in part, at any time on or after February 15, 2002 at a redemption price of 106.5% of the liquidation preference of $1,000 per share that declines annually to 100% in 2005, in each case together with accrued and unpaid dividends to the redemption date. The Redeemable Preferred Stock is subject to mandatory redemption on February 15, 2009. On any scheduled dividend payment date, the Company may, at its option, exchange all of the shares of Redeemable Preferred Stock then outstanding for the Company's 13% Subordinated Exchange Debentures due 2009 (the "Subordinated Debentures"). The Subordinated Debentures will bear interest at a rate of 13% per annum, payable semiannually in arrears on February 15 and August 15 of each year commencing with the first such date to occur after the date of exchange. Interest accruing on or prior to February 15, 2004 may, at the option of the Company, be paid in cash, by the issuance of additional Subordinated Debentures or in any combination of the foregoing. The Subordinated Debentures will be redeemable, at the Company's options, in whole or in part, on or after February 15, 2002 at a redemption price of 106.5% that declines annually to 100% in 2005, in each case together with accrued and unpaid interest to the redemption date. F-33 NTL Incorporated (formerly International CableTel Incorporated) and Subsidiaries Schedule II--Valuation and Qualifying Accounts
Col. A Col. B Col. C Col. D Col. E - ------------------------------------------------------------------------------------------------------------------------------- Additions -------------------------------- (2) (1) Charged to Balance at Charged to Other Balance Beginning of Costs and Accounts-- Deductions at End Description Period Expenses Describe Describe of Period ------------------------------------------------------------------------------------------------------------------------------ Year ended December 31, 1996: Allowance for doubtful accounts $ 767,000 $2,597,000 $ - $ 506,000 (a) $ 3,870,000 ================================================================================== Year ended December 31, 1995: Allowance for doubtful accounts $ 22,000 $ 709,000 $ - $ 36,000 (b) $ 767,000 ================================================================================== Year ended December 31, 1994: Allowance for doubtful accounts $ 28,000 $ 444,000 $ - $ (450,000)(c) $ 22,000 ==================================================================================-
(a) Uncollectible accounts written-off, net of recoveries of $645,000, offset by $804,000 allowance for doubtful accounts as of acquisition date of purchased subsidiary and $347,000 foreign currency translation adjustments. (b) Recoveries of accounts previously written-off, net of uncollectible accounts written-off of $49,000 less $13,000 foreign currency translation adjustments. (c) Uncollectible accounts written-off, net of recoveries of $568,000, offset by $113,000 allowance for doubtful accounts as of acquisition date of purchased subsidiary and $5,000 foreign currency translation adjustments. F-34 EX-4.9 2 INDENTURE DATED FEBRUARY 12, 1997 EXHIBIT 4.9 _______________________________________________________________________________ INTERNATIONAL CABLETEL INCORPORATED Issuer ___________________ 10% Senior Notes Due 2007 and 10% Series B Senior Notes Due 2007 ___________________ INDENTURE Dated as of February 12, 1997 ___________________ THE CHASE MANHATTAN BANK as Trustee _______________________________________________________________________________ 1 TABLE OF CONTENTS Page ---- ARTICLE I Definitions and Incorporation by Reference SECTION 1.01. Definitions........................................... 1 SECTION 1.02. Other Definitions..................................... 13 SECTION 1.03. Incorporation by Reference of Trust Indenture Act........................................ 14 SECTION 1.04. Rules of Construction................................. 14 ARTICLE II The Securities SECTION 2.01. Form and Dating....................................... 15 SECTION 2.02. Execution and Authentication.......................... 17 SECTION 2.03. Registrar and Paying Agent............................ 17 SECTION 2.04. Paying Agent to Hold Money in Trust................... 18 SECTION 2.05. Noteholder Lists...................................... 18 SECTION 2.06. Transfer and Exchange................................. 18 SECTION 2.07. Replacement Securities................................ 21 SECTION 2.08. Outstanding Securities................................ 21 SECTION 2.09. Treasury Securities................................... 22 SECTION 2.10. Temporary Securities.................................. 22 SECTION 2.11. Cancellation.......................................... 23 SECTION 2.12. Defaulted Interest.................................... 23 ARTICLE III Redemption SECTION 3.01. Notices to Trustee.................................... 23 SECTION 3.02. Selection of Securities to Be Redeemed................ 24 SECTION 3.03. Notice of Redemption.................................. 24 SECTION 3.04. Effect of Notice of Redemption........................ 25 SECTION 3.05. Deposit of Redemption Price........................... 25 SECTION 3.06. Securities Redeemed in Part........................... 25 SECTION 3.07. Optional Redemption and Optional Tax Redemption........................................... 25 SECTION 3.08. Asset Sale Offer and Purchase Offer................... 25 ARTICLE IV Covenants SECTION 4.01. Payment of Securities................................. 28 SECTION 4.02. SEC Reports........................................... 28 2 SECTION 4.03. Compliance Certificate................................ 28 SECTION 4.04. Stay, Extension and Usury Laws........................ 29 SECTION 4.05. Corporate Existence................................... 29 SECTION 4.06. Taxes 29 SECTION 4.07. Limitations on Liens.................................. 30 SECTION 4.08. Limitation on Indebtedness and Issuance of Preferred Stock...................................... 30 SECTION 4.09. Limitation on Restricted Payments..................... 32 SECTION 4.10. Asset Sales........................................... 35 SECTION 4.11. Limitations on Transactions with Affiliates........................................... 39 SECTION 4.12. Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries.................. 40 SECTION 4.13. Change of Control..................................... 41 SECTION 4.14. Payment of Additional Amounts......................... 41 ARTICLE V Successors SECTION 5.01. Merger, Consolidation or Sale of Assets............... 42 SECTION 5.02. Successor Corporation Substituted..................... 43 ARTICLE VI Defaults and Remedies SECTION 6.01. Events of Default..................................... 43 SECTION 6.02. Acceleration.......................................... 45 SECTION 6.03. Other Remedies........................................ 46 SECTION 6.04. Waiver of Past Defaults............................... 46 SECTION 6.05. Control by Majority................................... 46 SECTION 6.06. Limitation on Suits................................... 46 SECTION 6.07. Rights of Noteholders to Receive Payment.............. 47 SECTION 6.08. Collection Suit by Trustee............................ 47 SECTION 6.09. Trustee May File Proofs of Claim...................... 47 SECTION 6.10. Priorities............................................ 47 SECTION 6.11. Undertaking for Costs................................. 47 ARTICLE VII Trustee SECTION 7.01. Duties of Trustee..................................... 48 SECTION 7.02. Rights of Trustee..................................... 49 SECTION 7.03. Individual Rights of Trustee.......................... 49 SECTION 7.04. Trustee's Disclaimer.................................. 49 SECTION 7.05. Notice of Defaults.................................... 49 SECTION 7.06. Reports by Trustee to Noteholders..................... 49 SECTION 7.07. Compensation and Indemnity............................ 50 SECTION 7.08. Replacement of Trustee................................ 50 3 SECTION 7.09. Successor Trustee by Merger, Etc...................... 51 SECTION 7.10. Eligibility; Disqualification......................... 51 SECTION 7.11. Preferential Collection of Claims Against Company..... 52 ARTICLE VIII Discharge of Indenture SECTION 8.01. Termination of Company's Obligations.................. 52 SECTION 8.02. Option to Effect Defeasance........................... 52 SECTION 8.03. Application of Trust Money............................ 54 SECTION 8.04. Repayment to Company.................................. 54 SECTION 8.05. Reinstatement......................................... 54 ARTICLE IX Amendments, Supplements and Waivers SECTION 9.01. Without Consent of Noteholders........................ 55 SECTION 9.02. With Consent of Noteholders........................... 55 SECTION 9.03. Compliance with Trust Indenture Act................... 56 SECTION 9.04. Revocation and Effect of Consents..................... 56 SECTION 9.05. Notation on or Exchange of Securities................. 57 SECTION 9.06. Trustee Protected..................................... 57 ARTICLE X Miscellaneous SECTION 10.01. Trust Indenture Act Controls......................... 57 SECTION 10.02. Notices.............................................. 57 SECTION 10.03. Communication by Noteholders with Other Noteholders.. 58 SECTION 10.04. Certificate and Opinion as to Conditions Precedent... 58 SECTION 10.05. Statements Required in Certificate or Opinion........ 58 SECTION 10.06. Rules by Trustee and Agents.......................... 58 SECTION 10.07. Legal Holidays....................................... 59 SECTION 10.08. No Recourse Against Others........................... 59 SECTION 10.09. Counterparts......................................... 59 SECTION 10.10. Variable Provisions.................................. 59 SECTION 10.11. GOVERNING LAW........................................ 60 SECTION 10.12. No Adverse Interpretation of Other Agreements........................................... 60 SECTION 10.13. Successors........................................... 60 SECTION 10.14. Severability......................................... 60 SECTION 10.15. Table of Contents, Headings, Etc..................... 60 SIGNATURES.............................................................. EXHIBIT A FORM OF INITIAL NOTE EXHIBIT B FORM OF EXCHANGE NOTE EXHIBIT C FORM OF TRANSFER CERTIFICATE PURSUANT 4 TO SECTION 2.06(a)(ii) EXHIBIT D FORM OF TRANSFER CERTIFICATE PURSUANT TO SECTION 2.06(a)(iii) EXHIBIT E FORM OF TRANSFER CERTIFICATE PURSUANT TO SECTION 2.06(a)(iv) or 2.06(a)(v) EXHIBIT F FORM OF TRANSFEREE CERTIFICATE PURSUANT TO SECTION 2.06(a)(iv) or 2.06(a)(v) EXHIBIT G FORM OF TRANSFER CERTIFICATE PURSUANT TO SECTION 2.06(a)(viii) EXHIBIT H FORM OF TRANSFER CERTIFICATE PURSUANT TO SECTION 2.06(a)(viii) EXHIBIT I FORM OF TRANSFER CERTIFICATE PURSUANT TO SECTION 2.06(a)(viii) 5 CROSS-REFERENCE TABLE* Trust Indenture Indenture Act Section Section 310(a)(1)......................................... 7.10 (a)(2)........................................... 7.10 (a)(3)........................................... N.A. (a)(4)........................................... N.A. (a)(5)........................................... 7.10 (b).............................................. 7.08, 7.10 (c).............................................. N.A. 311(a)............................................ 7.11 (b).............................................. 7.11 (c).............................................. N.A. 312(a)............................................ 2.05 (b).............................................. 10.03 (c).............................................. 10.03 313(a)............................................ 7.06 (b)(1)........................................... N.A. (b)(2)........................................... 7.06 (c).............................................. 7.06 (d).............................................. 7.06 314(a)............................................ 4.02, 4.03 (b).............................................. N.A. (c)(1)........................................... 10.04 (c)(2)........................................... 10.04 (c)(3)........................................... N.A. (d).............................................. N.A. (e).............................................. N.A. (f).............................................. N.A. 315(a)............................................ 7.01(b) (b).............................................. 7.05 (c).............................................. 7.01(a) (d).............................................. 7.01(c) (e).............................................. 6.11 316(a)(last sentence)............................. 2.09 (a)(1)(A)........................................ 6.05 (a)(1)(B)........................................ 6.04 (a)(2)........................................... N.A. (b).............................................. 6.07 (c).............................................. 9.04 317(a)(1)......................................... 6.08 (a)(2)........................................... 6.09 (b).............................................. 2.04 318(a)............................................ N.A. N.A. means not applicable. ______________ * This Cross-Reference Table is not part of the Indenture. 6 INDENTURE dated as of February 12, 1997 between International CableTel Incorporated, a Delaware corporation (the "Company"), and The Chase Manhattan ------- Bank, a New York corporation, as trustee (the "Trustee"). ------- Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders (as defined in Section 1.01) of the Company's 10% Senior Notes Due 2007 (the "Initial Notes") and if and when ------------- issued in exchange for Initial Notes, the Company's 10% Series B Senior Notes Due 2007 (the "Exchange Notes" and, together with the Initial Notes, the -------------- "Securities"): - ----------- ARTICLE I Definitions and Incorporation by Reference ------------------------------------------ SECTION 1.01. Definitions. ----------- "11 12% Notes" means the Company's 11 12% Series B Senior ------------- Deferred Coupon Notes Due 2006. "12 34% Notes" means the Company's 12 34% Series A Senior ------------- Deferred Coupon Notes Due 2005. "Acquired Debt" means, with respect to any specified person, ------------- Indebtedness of any other person existing at the time such other person merged with or into or became a Subsidiary of such specified person, including Indebtedness incurred in connection with, or in contemplation of, such other person merging with or into or becoming a Subsidiary of such specified person. "Affiliate" of any specified person means any other person directly or --------- indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, ----------------- that beneficial ownership of 10% or more of the voting securities of a person shall be deemed to be control. "Agent" means any Registrar, Paying Agent, or co-registrar. ----- "Annualized Pro Forma EBITDA" means, with respect to any person, such --------------------------- person's Pro Forma EBITDA for the latest fiscal quarter multiplied by four. "Applicable Notes" means the Company's 10 78% Senior Deferred Coupon ---------------- Notes Due 2003. "Asset Sale" means (i) any sale, lease, transfer, conveyance or other ---------- disposition of any assets (including by way of a sale-and-leaseback) other than the sale or transfer of inventory or goods held for sale in the ordinary course of business (provided that the sale, lease, transfer, conveyance or other 7 disposition of all or substantially all of the assets of the Company shall be governed by Section 4.13 or 5.01 hereof or (ii) any issuance, sale, lease, transfer, conveyance or other disposition of any Equity Interests of any of the Company's Restricted Subsidiaries to any person; in either case other than (A) to (w) the Company, (x) any Wholly Owned Subsidiary, or (y) any Controlled Subsidiary which is a Subsidiary of the Company on the Issuance Date provided that at the time of and after giving effect to such issuance, sale, lease, transfer, conveyance or other disposition to such Controlled Subsidiary, the Company's ownership percentage in such Controlled Subsidiary is equal to or greater than such percentage on the Issuance Date or (B) the issuance, sale, transfer, conveyance or other disposition of Equity Interests of a Controlled Subsidiary in exchange for capital contributions made on a pro rata basis by the holders of the Equity Interests of such Controlled Subsidiary. "Board of Directors" means the Board of Directors of the Company or ------------------ any authorized committee of the Board. "Business Day" means any day that is not a Legal Holiday. ------------ "Cable Assets" means tangible or intangible assets, licenses ------------ (including, without limitation, Licenses) and computer software used in connection with a Cable Business. "Cable Business" means any person directly or indirectly operating, or -------------- owning a license to operate, a cable andor television andor telephone andor telecommunications system or service principally within the United Kingdom andor the Republic of Ireland. "Cable Controlled Property" means a Cable Controlled Subsidiary or a ------------------------- Cable Asset held by a Cable Controlled Subsidiary. "Cable Controlled Subsidiary" means any Controlled Subsidiary which is --------------------------- a Cable Business. "Cable Related Business" means a person which directly or indirectly ---------------------- owns or provides a service or product used in a Cable Business, including, without limitation, any television programming, production andor licensing business or any programming guide or telephone directory business or content or software related thereto. "Capital Lease Obligation" means, at the time any determination ------------------------ thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be so required to be capitalized on the balance sheet in accordance with GAAP. "Capital Stock" means any and all shares, interests, participations, ------------- rights or other equivalents (however designated) of corporate stock, including, without limitation, partnership interests. "Capital Stock Sale Proceeds" means the aggregate net sale proceeds --------------------------- (including the fair market value of property, other than cash, as determined by an independent appraisal firm) received by the Company from the issue or sale (other than to a Subsidiary) by the Company of any class of its Capital Stock after October 14, 1993 (including Capital Stock of the Company issued after October 14, 1993 upon conversion of or in exchange for other securities of the Company). "Cash Equivalents" means (i) United States dollars or British pounds ---------------- sterling, (ii) securities issued or directly and fully guaranteed or insured by the United States or United Kingdom government 8 or any agency or instrumentality thereof having maturities of not more than six months and one day from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any commercial bank(s) domiciled in the United States, the United Kingdom or the Republic of Ireland having capital and surplus in excess of $500 million, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper rated P-1 or the equivalent thereof by Moody's or A-1 or the equivalent thereof by S & P and in each case maturing within six months and one day after the date of acquisition. "Change of Control" means (i) the sale, lease or transfer of all or ----------------- substantially all of the assets of the Company to any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act) (other than any Permitted Holder), (ii) the approval by the requisite stockholders of the Company of a plan of liquidation or dissolution of the Company, (iii) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d- 5(b)(1) under the Exchange Act), other than any Permitted Holder, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of all classes of the voting stock of the Company andor warrants or options to acquire such voting stock, calculated on a fully diluted basis, unless, as a result of such transaction, the ultimate direct or indirect ownership of the Company is substantially the same immediately after such transaction as it was immediately prior to such transaction, or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election or appointment by such board or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Company's Board of Directors then in office. "Change of Control Triggering Event" means the occurrence of both a ---------------------------------- Change of Control and a Ratings Decline. "Company" means the party named as such above until a successor ------- replaces it in accordance with Article V and thereafter means the successor. "Consolidated Interest Expense" means, for any person, for any period, ----------------------------- the amount of interest in respect of Indebtedness (including amortization of original issue discount, amortization of debt issuance costs, and non-cash interest payments on any Indebtedness and the interest portion of any deferred payment obligation and after taking into account the effect of elections made under any Interest Rate Agreement, however denominated, with respect to such Indebtedness), the amount of Redeemable Dividends, Restricted Subsidiary Preferred Stock Dividends and the interest component of rentals in respect of any capital lease obligation paid, in each case whether accrued or scheduled to be paid or accrued by such person and its Subsidiaries (other than Non- Restricted Subsidiaries) during such period to the extent such amounts were deducted in computing Consolidated Net Income, determined on a consolidated basis in accordance with GAAP. For purposes of this definition, interest on a capital lease 9 obligation shall be deemed to accrue at an interest rate reasonably determined by such person to be the rate of interest implicit in such capital lease obligation in accordance with GAAP consistently applied. "Consolidated Net Income" means, with respect to any person, for any ----------------------- period, the aggregate of the Net Income of such person and its Subsidiaries (other than Non-Restricted Subsidiaries) for such period, on a consolidated basis, determined in accordance with GAAP; provided that (i) the Net Income of any person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the referent person or a Wholly Owned Subsidiary, (ii) the Net Income of any person that is a Subsidiary (other than a Subsidiary of which at least 80% of the Capital Stock having ordinary voting power for the election of directors or other governing body of such Subsidiary is owned by the referent person directly or indirectly through one or more Subsidiaries) shall be included only to the extent of the amount of dividends or distributions paid to the referent person or a Wholly Owned Subsidiary, (iii) the Net Income of any person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Controlled Subsidiary" means any Restricted Subsidiary of the Company --------------------- in which the Company has significant influence over budgetary, dividend and capitalization decisions. "Convertible Subordinated Notes" means the Company's 7-14% ------------------------------ Convertible Subordinated Notes issued pursuant to an indenture dated as of April 20, 1995, between the Company and The Chase Manhattan Bank (formerly known as Chemical Bank), as trustee, and the Company's 7% Convertible Subordinated Notes issued pursuant to an indenture dated as of June 12, 1996, between the Company and The Chase Manhattan Bank, as trustee. "Cumulative EBITDA" means the cumulative EBITDA of the Company from ----------------- and after the Issuance Date to the end of the fiscal quarter immediately preceding the date of a proposed Restricted Payment, or, if such cumulative EBITDA for such period is negative, minus the amount by which such cumulative EBITDA is less than zero; provided, however, that EBITDA of Non-Restricted Subsidiaries shall not be included. "Cumulative Interest Expense" means the aggregate amount of --------------------------- Consolidated Interest Expense paid, accrued or scheduled to be paid or accrued by the Company from the Issuance Date to the end of the fiscal quarter immediately preceding a proposed Restricted Payment, determined on a consolidated basis in accordance with GAAP. "Default" means any event that is or with the passage of time or the ------- giving of notice or both would be an Event of Default. "Deferred Coupon Notes" means the Applicable Notes, the 12 34% Notes --------------------- and the 11 12% Notes. "Depositary" shall mean The Depository Trust Company, its nominees and ---------- their respective successors. "Disqualified Stock" means any Capital Stock 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 redeemable 10 at the option of the holder thereof, in whole or in part, on or prior to the date on which the Securities mature. "EBITDA" means, for any person, for any period, an amount equal to (A) ------ the sum of (i) Consolidated Net Income for such period (exclusive of any gain or loss realized in such period upon an Asset Sale), plus (ii) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such period, plus (iv) depreciation for such period on a consolidated basis, plus (v) amortization of intangibles for such period on a consolidated basis, plus (vi) any other non-cash item reducing Consolidated Net Income for such period, minus (B) all non-cash items increasing Consolidated Net Income for such period, all for such person and its Subsidiaries determined in accordance with GAAP consistently applied. "Equity Interests" means Capital Stock and all warrants, options or ---------------- other rights to acquire Capital Stock (but excluding any Indebtedness that is convertible into, or exchangeable for Capital Stock). "Exchange Act" means the Securities Exchange Act of 1934, as amended. ------------ "Exchange Rate Contract" means, with respect to any person, any ---------------------- currency swap agreements, forward exchange rate agreements, foreign currency futures or options, exchange rate collar agreements, exchange rate insurance and other agreements or arrangements, or combination thereof, the principal purpose of which is to provide protection against fluctuations in currency exchange rates. An Exchange Rate Contract may also include an Interest Rate Agreement. "Existing Indebtedness" means Indebtedness of the Company and its --------------------- Subsidiaries in existence on the Issuance Date, until such amounts are repaid, including, without limitation, Existing Notes. "Existing Notes" means the Deferred Coupon Notes and the Convertible -------------- Subordinated Notes. "GAAP" means generally accepted accounting principles set forth in the ---- opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, which are in effect on the Issuance Date and are applied on a consistent basis. "Guarantee" means a guarantee (other than by endorsement of negotiable --------- instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Indebtedness" means, with respect to any person, any indebtedness of ------------ such person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing the balance deferred and unpaid of the purchase price of any property (including pursuant to capital leases and sale-and-leaseback transactions) or representing any hedging obligations under an Exchange Rate Contract or an Interest Rate Agreement, except any such balance that constitutes an accrued expense or 11 trade payable, if and to the extent any of the foregoing indebtedness (other than obligations under an Exchange Rate Contract or an Interest Rate Agreement) would appear as a liability upon a balance sheet of such person prepared in accordance with GAAP, and also includes, to the extent not otherwise included, the Guarantee of items which would be included within this definition. "Indenture" means this Indenture as amended from time to time. --------- "Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities ------------------ Corporation, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. "Interest Rate Agreement" means, for any person, any interest rate ----------------------- swap agreement, interest rate cap agreement, interest rate collar agreement, or other similar agreement, the purpose of which is to protect the party indicated therein against fluctuations in interest rates. "Investment Grade" means BBB- or higher by S&P or Baa3 or higher by ---------------- Moody's or the equivalent of such ratings by S&P or Moody's. In the event that the Company shall be permitted to select any other Rating Agency, the equivalent of such ratings by such Rating Agency shall be used. "Investments" means, with respect to any person, all investments by ----------- such person in other persons (including Affiliates) in the forms of loans (including Guarantees), advances or capital contributions (excluding commission, travel and similar advances and loans, joint property ownership and other arrangements, in each case, made to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Issuance Date" means the date on which the Securities are first ------------- authenticated and issued. "License" means any license issued or awarded pursuant to the ------- Broadcasting Act 1990, the Cable and Broadcasting Act 1984, the Telecommunications Act 1984 or the Wireless Telegraphy Act 1948 (in each case, as such Acts may, from time to time, be amended, modified or re-enacted) (or equivalent statutes of any jurisdiction) to operate or own a Cable Business. "Lien" means, with respect to any asset, any mortgage, lien, pledge, ---- charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Long Distance/Microwave Assets" means any assets, tangible or ------------------------------ intangible, choate or inchoate, primarily used in the business conducted by OCOM in the United States as of the Issuance Date. "Material License" means a License held by the Company or any of its ---------------- Subsidiaries which License at the time of determination covers a number of Net Households which equals or exceeds 5% of the aggregate number of Net Households covered by all of the Licenses held by the Company and its Subsidiaries at such time. 12 "Material Subsidiary" means (i) OCOM, Cable Tel UK Group, Inc. ------------------- (formerly known as OCOM Sub II, Inc.), NTL Investment Holding Limited, NTL Group Limited, CableTel Surrey Limited, CableTel Cardiff Limited, CableTel Glasgow, CableTel Newport and CableTel Kirklees and (ii) any other Subsidiary of the Company which is a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the Securities Act and the Exchange Act (as such Regulation is in effect on the date hereof). "Monetize" means a strategy with respect to Capital Stock that -------- generates an amount of cash equal to the fair value of such Capital Stock. "Moody's" means Moody's Investors Service, Inc. and its successors. ------- "Net Households" means the product of (i) the number of households -------------- covered by a License in the United Kingdom and (ii) the percentage of the entity holding such License which is owned directly or indirectly by the Company. "Net Income" means, with respect to any person for a specific period, ---------- the net income (loss) of such person during such period, determined in accordance with GAAP, excluding, however, any gain (but not loss) during such period, together with any related provision for taxes on such gain (but not loss), realized during such period in connection with any Asset Sale (including, without limitation, dispositions pursuant to sale-and-leaseback transactions), and excluding any extraordinary gain (but not loss) during such period, together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the ------------ Company or any of its Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets. "Non-Controlled Subsidiary" means an entity which is not a Controlled ------------------------- Subsidiary. "Non-Recourse Debt" means Indebtedness or that portion of Indebtedness ----------------- (a) as to which none of the Company, nor any of its Restricted Subsidiaries: (i) provides credit support (including any undertaking, agreement or instrument which would constitute Indebtedness); (ii) is directly or indirectly liable; or (iii) constitutes the lender; and (b) 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 holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity. "Non-Restricted Subsidiary" means a Subsidiary that (a) at the time of ------------------------- its designation as a Non-Restricted Subsidiary has not acquired any assets (other than as specifically permitted by Section 4.09 hereof), at any previous time, directly or indirectly from the Company or any of its Subsidiaries, (b) has no Indebtedness other than Non-Recourse Debt and (c) that at the time of such designation, after giving pro forma effect to such designation, the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company is equal to or less than the ratio of Indebtedness to Annualized Pro Forma EBITDA of 13 the Company immediately preceding such designation, provided, however, that if the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company immediately preceding such designation is 6:1 or less, then the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company may be 0.5 greater than such ratio immediately preceding such designation. "Noteholder" or "holder" means a person in whose name a Security is ---------- ------ registered in the register referred to in Section 2.03. "Obligations" means any principal, interest, penalties, fees, ----------- indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "OCOM" means OCOM Corporation, a wholly owned subsidiary of the ---- Company. "Officers' Certificate" means a certificate signed by two Officers, --------------------- one of whom must be the Chairman of the Board, the President, the Treasurer or a Vice-President of the Company. See Sections 10.04 and 10.05 hereof. --- "Opinion of Counsel" means a written opinion from legal counsel who is ------------------ acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. See Sections 10.04 and 10.05 hereof. --- "Other Qualified Notes" means any outstanding senior indebtedness of --------------------- the Company issued pursuant to an indenture having a provision substantially similar to Section 4.10 hereof (including, without limitation, the 12 34% Notes and the 11 12% Notes), other than the Applicable Notes. "Permitted Designee" means (i) a spouse or a child of a Permitted ------------------ Holder, (ii) trusts for the benefit of a Permitted Holder or a spouse or child of a Permitted Holder, (iii) in the event of the death or incompetence of a Permitted Holder, his estate, heirs, executor, administrator, committee or other personal representative or (iv) any person so long as a Permitted Holder owns at least 50% of the voting power of all classes of the voting stock of such person. "Permitted Holders" means George S. Blumenthal, J. Barclay Knapp and ----------------- their Permitted Designees. "Permitted Investments" means (a) any Investments in the Company or in --------------------- a Cable Controlled Property or in a Qualified Subsidiary (including, without limitation, (i) Guarantees of Indebtedness of the Company, a Cable Controlled Subsidiary or a Qualified Subsidiary, (ii) Liens securing such Indebtedness or Guarantees or (iii) the payment of any balance deferred and unpaid of the purchase price of any Qualified Subsidiary); (b) any Investments in Cash Equivalents; (c) Investments by the Company in Indebtedness of a counter-party to an Exchange Rate Contract for hedging British pounds sterlingU.S. dollars exchange risk that are made, for purposes other than speculation, in connection with such contract to hedge not more than the aggregate principal amount of the Securities and the Deferred Coupon Notes; and (d) Investments by the Company or any Subsidiary of the Company in a person, if as a result of such Investment (i) such person becomes a Cable Controlled Subsidiary or (ii) such person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of the Company. 14 "Permitted Liens" means (a) Liens in favor of the Company; (b) Liens --------------- on property of a person existing at the time such person is merged into or consolidated with the Company or any Subsidiary of the Company; provided, that such Liens were in existence prior to the contemplation of such merger or consolidation and do not secure any property or assets of the Company or any of its Subsidiaries other than the property or assets subject to the Liens prior to such merger or consolidation; (c) liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than sixty (60) days past due or are being contested in good faith and by appropriate proceedings; (d) Liens existing on the Issuance Date; (e) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor and (f) easements, rights of way, restrictions and other similar easements, licenses, restrictions on the use of properties or minor imperfections of title that, in the aggregate, are not material in amount, and do not in any case materially detract from the properties subject thereto or interfere with the ordinary conduct of the business of the Company or its Subsidiaries. "person" means any individual, corporation, partnership, joint ------ venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means the 13% Senior Redeemable Exchangeable --------------- Preferred Stock of the Company with an original aggregate liquidation preference of $100,000,000. "principal" of a debt security means the principal of the security --------- plus the premium, if any, on the security. "Pro Forma EBITDA" means for any person, for any period, the EBITDA of ---------------- such person as determined on a consolidated basis in accordance with GAAP after giving effect to the following: (i) if, during or after such period, such person or any of its Subsidiaries shall have made any Asset Sale, Pro Forma EBITDA of such person and its Subsidiaries for such period shall be reduced by an amount equal to the Pro Forma EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Sale for the period or increased by an amount equal to the Pro Forma EBITDA (if negative) directly attributable thereto for such period and (ii) if, during or after such period, such person or any of its Subsidiaries completes an acquisition of any person or business which immediately after such acquisition is a Subsidiary of such person or whose assets are held directly by such person or a Subsidiary of such person, Pro Forma EBITDA shall be computed so as to give pro forma effect to the acquisition of such person or business; and provided further that, with respect to the Company, all of the foregoing references to "Subsidiary" or "Subsidiaries" shall be deemed to refer only to a "Restricted Subsidiary" or "Restricted Subsidiaries" of the Company. "Purchase Agreement" means the Purchase Agreement dated as of February ------------------ 7, 1997 between the Company and the Initial Purchasers. "Qualified Cable Asset" shall mean an asset used in a cable system or --------------------- a telephone system using a cable infrastructure. "Qualified Subsidiary" means a Wholly Owned Subsidiary, or an entity -------------------- that will become a Wholly Owned Subsidiary after giving effect to the transaction being considered, that at the time of and 15 after giving effect to the consummation of the transaction under consideration, (i) is a Cable Business or holds only Cable Assets, (ii) has no Indebtedness (other than Indebtedness being incurred to consummate such transaction) and (iii) has no encumbrances or restrictions (other than such encumbrances or restrictions imposed or permitted by this Indenture, the indentures governing the Deferred Coupon Notes or any other instrument governing unsecured indebtedness of the Company which is pari passu with the Securities) on its ability to pay dividends or make any other distributions to the Company or any of its Subsidiaries. "Rating Agencies" means (i) S&P, (ii) Moody's and (iii) if S&P or --------------- Moody's or both shall not make a rating of the Securities publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Company, which shall be substituted for S&P or Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following --------------- categories: BB, B, CCC, CC, C and D (or equivalent successor categories), (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (iii) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the Securities has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB to BB-, as well as from BB-to B+, will constitute a decrease of one gradation). "Rating Date" means that date which is 90 days prior to the earlier of ----------- (x) a Change of Control and (y) public notice of the occurrence of a Change of Control or of the intention by the Company or any Permitted Holder to effect a Change of Control. "Ratings Decline" means the occurrence of any of the following events --------------- on, or within six months after, the date of public notice of the occurrence of a Change of Control or of the intention of the Company or any person to effect a Change of Control (which period shall be extended so long as the rating of any of the Company's debt securities is under publicly announced consideration for possible downgrade by any of the Rating Agencies): (a) in the event that any of the Company's debt securities are rated by both of the Rating Agencies on the Rating Date as Investment Grade, the rating of such securities by either of the Rating Agencies shall be below Investment Grade, (b) in the event that any of the Company's debt securities are rated by either, but not both, of the Rating Agencies on the Rating Date as Investment Grade, the rating of such securities by both of the Rating Agencies shall be below Investment Grade, or (c) in the event any of the Company's debt securities are rated below Investment Grade by both of the Rating Agencies on the Rating Date, the rating of such securities by either Rating Agency shall be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Redeemable Dividend" means, for any dividend with regard to ------------------- Disqualified Stock, the quotient of the dividend divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Disqualified Stock. "Registered Exchange Offer" shall have the meaning set forth in the ------------------------- Registration Rights Agreement. 16 "Registration Rights Agreement" means the Registration Rights ----------------------------- Agreement relating to the Securities dated February 12, 1997, between the Company and the Initial Purchasers. "Restricted Investment" means an Investment other than a Permitted --------------------- Investment. "Restricted Subsidiary" means any Subsidiary of the Company which is --------------------- not a Non-Restricted Subsidiary. "Restricted Subsidiary Preferred Stock Dividend" means, for any ---------------------------------------------- dividend with regard to preferred stock of a Restricted Subsidiary, the quotient of the dividend divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such preferred stock. "S&P" means Standard & Poor's Ratings Group and its successors. --- "SEC" means the Securities and Exchange Commission. --- "Securities" shall have the meaning set forth in the Preamble hereto. ---------- "Securities Act" means the Securities Act of 1933, as amended. -------------- "Subordinated Debentures" means the Company's 13% Subordinated ----------------------- Exchange Debentures Due 2009 issuable in exchange for the Preferred Stock in accordance with the terms of the Certificate of Designation therefor and any such debenture issued in lieu of cash interest. "Subsidiary" means any corporation, association or other business ---------- entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any person or one or more of the other Subsidiaries of that person or a combination thereof. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) --- 77aaa-77bbbb) as in effect on the date of execution of this Indenture. "Trustee" means the party named as such above until a successor ------- replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor. "Trust Officer" means the Chairman of the Board, the President or any ------------- other officer or assistant officer of the Trustee assigned by the Trustee to administer its corporate trust matters. "Weighted Average Life to Maturity" means, when applied to any --------------------------------- Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness. 17 "Wholly Owned Subsidiary" means, at any time, a Restricted Subsidiary ----------------------- all of the Capital Stock of which (except directors' qualifying shares) is at the time owned directly or indirectly by the Company. SECTION 1.02. Other Definitions. ----------------- Defined in Term Section "Accredited Investors".................... 2.01 "Additional Amounts"...................... 4.14 "Affiliate Transaction"................... 4.11 "Agent Member"............................ 2.01 "Asset Sale Offer"........................ 4.10 "Bankruptcy Law".......................... 6.01 "Cedel"................................... 2.01 "Change of Control Payment"............... 4.13 "Commencement Date"....................... 3.08 "Custodian"............................... 6.01 "Defeasance".............................. 8.02 "Euroclear"............................... 2.01 "Event of Default"........................ 6.01 "Excess Proceeds"......................... 4.10 "Global Security"......................... 2.01 "IAI Global Security"..................... 2.01 "incur"................................... 4.08 "Legal Holiday"........................... 10.07 "Offer Amount"............................ 3.08 "Officer"................................. 10.10 "Paying Agent"............................ 2.03 "Payment Default"......................... 6.01 "Purchase Date"........................... 3.08 "Purchase Offer".......................... 4.13 "QIBs".................................... 2.01 "Refinancing Indebtedness"................ 4.08 "Regulation S"............................ 2.01 "Regulation S Permanent Global Security".. 2.06 "Regulation S Temporary Global Security".. 2.01 "Registrar"............................... 2.03 "Restricted Securities"................... 2.01 "Restricted Global Security".............. 2.01 "Restricted Payments"..................... 4.09 "Rule 144A"............................... 2.01 "Rule 144A Global Security"............... 2.01 "Tender Period"........................... 3.08 "Transferee".............................. 2.06 "U.S. Government Obligations"............. 8.01 18 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Securities; -------------------- "indenture security holder" means a Noteholder; ------------------------- "indenture to be qualified" means this Indenture; ------------------------- "indenture trustee" or "institutional trustee" means the Trustee; and ----------------- --------------------- "obligor" on the Securities means the Company or any other obligor on ------- the Securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04. Rules of Construction. Unless the context otherwise --------------------- requires: (a) a term has the meaning assigned to it; (b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP consistently applied; (c) references to "GAAP" shall mean GAAP in effect as of the time ---- when and for the period as to which such accounting principles are to be applied; (d) "or" is not exclusive; -- (e) words in the singular include the plural, and in the plural include the singular; and (f) provisions apply to successive events and transactions. ARTICLE II The Securities -------------- SECTION 2.01. Form and Dating. The Initial Notes and the Trustee's --------------- certificate of authentication shall be substantially in the form of Exhibit A which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B, which is hereby incorporated by reference and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage 19 (provided that any such notation, legend or endorsement is in a form acceptable to the Company). The Company shall furnish any such legend not contained in Exhibit A or Exhibit B to the Trustee in writing. Each Security shall be dated the date of its authentication. The terms and provisions of the Securities set forth in Exhibit A and Exhibit B are part of this Indenture and to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (a) Global Securities. The Initial Notes are being offered and sold ----------------- by the Company pursuant to the Purchase Agreement. Initial Notes offered and sold in reliance on Regulation S under the Securities Act ("Regulation S"), as provided in the Purchase Agreement, ------------ shall be issued initially in the form of a single, temporary Global Security in definitive, fully registered form without interest coupons with the Global Securities Legend and Restricted Securities Legend set forth in Exhibit A hereto (the "Regulation S Temporary Global Security") which shall -------------------------------------- be deposited on behalf of the purchasers of the Initial Notes represented thereby with the Trustee, at its New York office, as custodian, for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of the Euroclear System ("Euroclear") or Cedel Bank, societe anonyme --------- ("Cedel"), duly executed by the Company and authenticated by the Trustee as ----- hereinafter provided. The aggregate principal amount of the Regulation S Temporary Global Security may from time to time be increased or deceased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. Initial Notes offered and sold to Qualified Institutional Buyers ("QIBs") in reliance on Rule 144A under the Securities Act ("Rule 144A"), ------ --------- or offered and sold to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) ("Accredited Investors"), both as provided in the Purchase Agreement, shall -------------------- be issued initially in the form of one or more permanent Global Securities in definitive, fully registered form without interest coupons with the Global Securities Legend and Restricted Securities Legend set forth in Exhibit A hereto (each, respectively, a "Rule 144A Global Security" or an ------------------------- "IAI Global Security", as the case may be), which shall be deposited on -------------------- behalf of the purchasers of the Initial Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Rule 144A Global Security or the IAI Global Security, as the case may be, may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. Upon consummation of the Registered Exchange Offer, the Exchange Notes may be issued in the form of one or more permanent Global Securities in definitive, fully registered form without interest coupons with the Global Securities Legend but not the Restricted Securities Legend set forth in Exhibit A hereto, registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of such Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. 20 (b) Book-Entry Provisions. This Section 2.01 (b) shall apply only to --------------------- the Regulation S Temporary Global Security, the Rule 144A Global Security, the IAI Global Security, the Regulation S Permanent Global Security (as defined herein) and the Exchange Notes issued in the form of one or more permanent Global Securities (collectively, the "Global Securities") ----------------- deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.01 (b), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depositary for such Global Security or Global Securities or the nominee of such Depositary and (b) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as custodian for the Depositary. Members of, or participants in, the Depositary ("Agent Members") shall ------------- have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as the custodian of the Depositary or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of an owner of a beneficial interest in any Global Security. (c) Certificated Securities. In addition to the provisions of ----------------------- Section 2.10, owners of beneficial interests in Global Securities may, upon request to the Trustee, receive a certificated Initial Note, which certificated Initial Note shall bear the Restricted Securities Legend set forth in Exhibit A hereto ("Restricted Securities"). --------------------- After a transfer of any Initial Notes during the period of the effectiveness of a Shelf Registration Statement with respect to the Initial Notes, all requirements for Restricted Securities Legends on such Initial Note will cease to apply, and a certificated Initial Note without a Restricted Securities Legend will be available to the holder of such Initial Notes. Upon the consummation of a Registered Exchange Offer with respect to the Initial Notes pursuant to which holders of Initial Notes are offered Exchange Notes in exchange for their Initial Notes, certificated Initial Notes with the Restricted Securities Legend set forth in Exhibit A hereto will be available to holders of such Initial Notes that do not exchange their Initial Notes, and Exchange Notes in certificated form without the Restricted Securities Legend set forth in Exhibit A hereto will be available to holders that exchange such Initial Notes in such Registered Exchange Offer. SECTION 2.02. Execution and Authentication. Two Officers shall sign ---------------------------- the Securities for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Securities. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. 21 A Security shall not be valid until authenticated by the manual signature of an authorized officer of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. Upon a written order of the Company signed by two Officers, the Trustee shall authenticate (1) Initial Notes for original issue up to an aggregate principal amount stated in paragraph 6 of the Initial Notes and (2) Exchange Notes for issue only in a Registered Exchange Offer, pursuant to the Registration Rights Agreement, in exchange for Initial Notes for a like principal amount. The aggregate principal amount of Securities outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.07. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain -------------------------- in the Borough of Manhattan, City of New York, State of New York (i) an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar") and (ii) an office or agency where Securities may be --------- presented for payment ("Paying Agent"). The Registrar shall keep a register of ------------ the Securities and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents in such other locations as it shall determine. The term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent, Registrar or co-registrar without prior notice to any Noteholder. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Affiliates may act as Paying Agent, Registrar or co-registrar. SECTION 2.04. Paying Agent to Hold Money in Trust. The Company shall ----------------------------------- require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Noteholders or the Trustee all money held by the Paying Agent for the payment of principal or interest on the Securities, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee and to account for any money disbursed by it. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or an Affiliate of the Company) shall have no further liability for the money. If the Company or an Affiliate of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Noteholders all money held by it as Paying Agent. SECTION 2.05. Noteholder Lists. The Trustee shall preserve in as ---------------- current a form as is reasonably practicable the most recent list available to it of the names and addresses of Noteholders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Noteholders. SECTION 2.06. Transfer and Exchange. Where Securities are presented --------------------- to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount 22 of Securities of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Company shall issue and the Trustee shall authenticate Securities at the Registrar's request. No service charge shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05 hereof). The Company shall not be required (i) to issue, register the transfer of or exchange Securities during a period beginning at the opening of business 15 days before the day of any selection of Securities for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, or (ii) to register the transfer, or exchange, of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. (a) Notwithstanding any provision to the contrary herein, so long as a Global Security remains outstanding and is held by or on behalf of the Depositary, transfers of a Global Security, in whole or in part, or of any beneficial interest therein, shall only be made in accordance with Section 2.01 (b) and this Section 2.06(a); provided, however, that beneficial interests in a Global Security may be transferred to persons who take delivery thereof in the form of a beneficial interest in the same Global Security in accordance with the transfer restrictions set forth in the Restricted Securities Legend and under the heading "Notice to Investors" in the Company's Offering Memorandum dated February 7, 1997. (i) Except for transfers or exchanges made in accordance with clauses (ii) through (iv) of this Section 2.06(a), transfers of a Global Security shall be limited to transfers of such Global Security in whole, but not in part, to nominees of the Depositary or to a successor of the Depositary or such successor's nominee. (ii) Rule 144A Global Security or IAI Global Security to Regulation S ---------------------------------------------------------------- Temporary Global Security. If an owner of a beneficial interest in the ------------------------- Rule 144A Global Security or the IAI Global Security deposited with the Depositary or the Trustee as custodian for the Depositary wishes at any time to transfer its interest in such Rule 144A Global Security or such IAI Global Security, as the case may be, to a person who is required to take delivery thereof in the form of an interest in the Regulation S Temporary Global Security, such owner may, subject to the rules and procedures of the Depositary, exchange or cause the exchange of such interest for an equivalent beneficial interest in the Regulation S Temporary Global Securities. Upon receipt by the Trustee, as Registrar, at its office in The City of New York of (1) instructions given in accordance with the Depositary's procedures from an Agent Member directing the Trustee to credit or cause to be credited a beneficial interest in the Regulation S Temporary Global Security in an amount equal to the beneficial interest in the Rule 144A Global Security or in the IAI Global Security, as the case may be, to be exchanged, (2) a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary and the Euroclear or Cedel account to be credited with such increase and (3) a certificate in the form of Exhibit C attached hereto given by the holder of such beneficial interest, then the Trustee, as Registrar, shall instruct the Depositary to reduce or cause to be reduced the principal amount of the Rule 144A Global Security or the IAI Global Security, as the case may be, and to increase or cause to be increased the principal 23 amount of the Regulation S Temporary Global Security by the aggregate principal amount of the beneficial interest in the Rule 144A Global Security or the IAI Global Security, as the case may be, equal to the beneficial interest in the Regulation S Temporary Global Security to be exchanged or transferred, to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Regulation S Temporary Global Security equal to the reduction in the principal amount of the Rule 144A Global Security or the IAI Global Security, as the case may be, and to debit or cause to be debited from the account of the person making such exchange or transfer the beneficial interest in the Rule 144A Global Security or the IAI Global Security as the case may be, that is being exchanged or transferred. (iii) Regulation S Temporary Global Security to Rule 144A Global ---------------------------------------------------------- Security or IAI Global Security. If an owner of a beneficial interest ------------------------------- in the Regulation S Temporary Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary wishes at any time to transfer its interest in such Regulation S Temporary Global Security to a person who is required to take delivery thereof in the form of an interest in the Rule 144A Global Security or, subject to Section 2.06(a)(vii), in the IAI Global Security, such holder may, subject to the rules and procedures of Euroclear or Cedel, as the case may be, and the Depositary, exchange or cause the exchange of such interest for an equivalent beneficial interest in the Rule 144A Global Security or in the IAI Global Security, as the case may be. Upon receipt by the Trustee, as Registrar, at its office in The City of New York of (1) instructions from Euroclear or Cedel, if applicable, and the Depositary, directing the Trustee, as Registrar, to credit or cause to be credited a beneficial interest in the Rule 144A Global Security or in the IAI Global Security, as the case may be, equal to the beneficial interest in the Regulation S Temporary Global Security to be exchanged or transferred, such instructions to contain information regarding the participant account with the Depositary to be credited with such increase, (2) a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary and (3) a certificate in the form of Exhibit D attached hereto given by the owner of such beneficial interest, then Euroclear or Cedel or the Trustee, as Registrar, as the case may be, will instruct the Depositary to reduce or cause to be reduced the Regulation S Temporary Global Security and to increase or cause to be increased the principal amount of the Rule 144A Global Security or of the IAI Global Security, as the case may be, by the aggregate principal amount of the beneficial interest in the Regulation S Temporary Global Security to be exchanged or transferred, and the Trustee, as Registrar, shall instruct the Depositary, concurrently with such reduction, to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Rule 144A Global Security or in the IAI Global Security, as the case may be, equal to the reduction in the principal amount of the Regulation S Temporary Global Security and to debit or cause to be debited from the account of the person making such exchange or transfer the beneficial interest in the Regulation S Temporary Global Security that is being exchanged or transferred. (iv) Global Security to Restricted Security. If an owner of a -------------------------------------- beneficial interest in a Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary wishes at any time to transfer its interest in such Global Security to a person who is required to take delivery thereof in the form of a Restricted Security, such owner may, subject to the rules and procedures of Euroclear or Cedel, if applicable, and the 24 Depositary, cause the exchange of such interest for one or more Restricted Securities of any authorized denomination or denominations and of the same aggregate principal amount. Upon receipt by the Trustee, as Registrar, at its office in The City of New York of (1) instructions from Euroclear or Cedel, if applicable, and the Depositary directing the Trustee, as Registrar, to authenticate and deliver one or more Restricted Securities of the same aggregate principal amount as the beneficial interest in the Global Security to be exchanged, such instructions to contain the name or names of the designated transferee or transferees, the authorized denomination or denominations of the Restricted Securities to be so issued and appropriate delivery instructions, (2) a certificate in the form of Exhibit E attached hereto given by the owner of such beneficial interest to the effect set forth therein, (3) a certificate in the form of Exhibit F attached hereto given by the person acquiring the Restricted Securities for which such interest is being exchanged, to the effect set forth therein, and (4) such other certifications, legal opinions or other information as the Company may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, then Euroclear or Cedel, if applicable, or the Trustee, as Registrar, as the case may be, will instruct the Depositary to reduce or cause to be reduced such Global Security by the aggregate principal amount of the beneficial interest therein to be exchanged and to debit or cause to be debited from the account of the person making such transfer the beneficial interest in the Global Security that is being transferred, and concurrently with such reduction and debit the Company shall execute, and the Trustee shall authenticate and deliver, one or more Restricted Securities of the same aggregate principal amount in accordance with the instructions referred to above. (v) Restricted Security to Restricted Security. If a holder of a ------------------------------------------ Restricted Security wishes at any time to transfer such Restricted Security to a person who is required to take delivery thereof in the form of a Restricted Security, such holder may, subject to the restrictions on transfer set forth herein and in such Restricted Security, cause the exchange of such Restricted Security for one or more Restricted Securities of any authorized denomination or denominations and of the same aggregate principal amount. Upon receipt by the Trustee, as Registrar, at its office in The City of New York of (1) such Restricted Security, duly endorsed as provided herein, (2) instructions from such holder directing the Trustee, as Registrar, to authenticate and deliver one or more Restricted Securities of the same aggregate principal amount as the Restricted Security to be exchanged, such instructions to contain the name or authorized denomination or denominations of the Restricted Securities to be so issued and appropriate delivery instructions, (3) a certificate from the holder of the Restricted Security to be exchanged in the form of Exhibit E attached hereto, (4) a certificate in the form of Exhibit F attached hereto given by the person acquiring the Restricted Securities for which such interest is being exchanged, to the effect set forth therein, and (5) such other certifications, legal opinions or other information as the Company may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, then the Trustee, as Registrar, shall cancel or cause to be cancelled such Restricted Security and concurrently therewith, the Company shall execute, and the Trustee shall authenticate and deliver, one or more Restricted Securities of the same aggregate principal amount at maturity, in accordance with the instructions referred to above. 25 (vi) Other Exchanges. In the event that a beneficial interest in a --------------- Global Security is exchanged for Securities in definitive registered form pursuant to Section 2.10, prior to the effectiveness of a Shelf Registration Statement with respect to such Securities, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of clauses (ii) through (v) above (including the certification requirements intended to ensure that such transfers comply with Rule 144A, Rule 144, Rule 501(a)(1), (2), (3) or (7) of Regulation D, or Regulation S, as the case may be) and such other procedures as may from time to time be adopted by the Company. (vii) Restricted Period. Prior to the termination of the "restricted ----------------- period" (as defined in Regulation S) with respect to the issuance of the Securities, transfers of interests in the Regulation S Temporary Global Security to "U.S. persons" (as defined in Regulation S) shall be limited to transfers to QIBs made pursuant to the provisions of Sections 2.06(a)(iii). The Company shall advise the Trustee as to the termination of the restricted period and the Trustee may rely conclusively thereon. (viii) Regulation S Temporary Global Security to Regulation S ------------------------------------------------------ Permanent Global Security. Following the termination of the ------------------------- "restricted period" (as defined in Regulation S) with respect to the issuance of the Securities, beneficial interests in the Regulation S Temporary Global Security shall be exchanged for an interest in a Global Security in definitive, fully registered form without interest coupons, with the Global Securities Legend set forth in Exhibit A hereto, but without the Restricted Securities Legend as set forth therein (a "Regulation S Permanent Global Security"), pursuant to the rules and procedures of the Depositary; provided, however, that prior to (i) the payment of interest or principal with respect to a holder's beneficial interest in the Regulation S Temporary Global Security and (ii) any exchange of such beneficial interest for a beneficial interest in the Regulation S Permanent Global Security, Euroclear or Cedel shall receive a certificate substantially in the form of Exhibit G hereto from the beneficial owner of such beneficial interest and Euroclear and Cedel shall deliver a certificate substantially in the form of Exhibit H hereto to the Trustee (or the paying agent if different from the Trustee). Upon proper presentment to the Trustee of a certificate substantially in the form of Exhibit I hereto and subject to the rules and procedures of DTC or its direct or indirect participants, including Euroclear and Cedel, an interest in a Regulation S Permanent Global Security may be exchanged for a certificated Security that is free from any restriction on transfer (other than such as are solely attributable to any holder's status). (b) Except in connection with a Registered Exchange Offer or a Shelf Registration Statement contemplated by and in accordance with the terms of the Registration Rights Agreement, if Initial Notes are issued upon the transfer, exchange or replacement of Initial Notes bearing the Restricted Securities Legend set forth in Exhibit A hereto, or if a request is made to remove such Restricted Securities Legend on Initial Notes, the Initial Notes so issued shall bear the Restricted Securities Legend, or the Restricted Securities Legend shall not be removed, as the case may be, unless there is delivered to the Company such satisfactory evidence, which may include an opinion of counsel licensed to practice law in the State of New York, as may be reasonably required by the Company, that neither the legend nor the restrictions on transfer set forth therein are required to ensure that transfers thereof comply with the provisions of Rule 144A, Rule 144, Rule 501(a) (1), (2), (3) or (7) of Regulation D or Regulation S under the Securities Act or, with respect to Restricted Securities, that such Securities are not "restricted" 26 within the meaning of Rule 144 under the Securities Act. Upon provision of such satisfactory evidence, the Trustee, at the direction of the Company, shall authenticate and deliver Initial Notes that do not bear the legend. (c) Neither the Company nor the Trustee shall have any responsibility for any actions taken or not taken by the Depositary and the Company shall have no responsibility for any actions taken or not taken by the Trustee as agent or custodian of the Depositary. SECTION 2.07. Replacement Securities. If the holder of a Security ---------------------- claims that the Security has been lost, destroyed or wrongfully taken or if such Security is mutilated and is surrendered to the Trustee, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's and the Company's requirements are met. If required by the Trustee or the Company, an indemnity bond must be sufficient in the judgment of both to protect the Company, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Security is replaced. The Company may charge for its expenses in replacing a Security. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, or is about to be purchased by the Company pursuant to Article III hereof, the Company in its discretion may, instead of issuing a new Security, pay or purchase such Security, as the case may be. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. The Securities outstanding at ---------------------- any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, and those described in this Section as not outstanding. If a Security is replaced, paid or purchased pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced, paid or purchased Security is held by a bona fide purchaser. If Securities are considered paid under Section 4.01 hereof, they cease to be outstanding and interest on them ceases to accrue. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security. SECTION 2.09. Treasury Securities. In determining whether the ------------------- Noteholders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or an Affiliate of the Company shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities which the Trustee knows are so owned shall be so disregarded. SECTION 2.10. Temporary Securities. (a) Until definitive Securities -------------------- are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the 27 Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. (b) A Global Security deposited with the Depositary or with the Trustee as custodian for the Depositary pursuant to Section 2.01 shall be transferred to the beneficial owners thereof in the form of certificated Securities only if such transfer complies with Section 2.06 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing. (c) Any Global Security that is transferable to the beneficial owners thereof in the form of certificated Securities pursuant to this Section 2.10 shall be surrendered by the Depositary to the Trustee located in the Borough of Manhattan, The City of New York, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Initial Notes of authorized denominations in the form of certificated Securities. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any Initial Note in the form of certificated Securities delivered in exchange for an interest in the Global Securities shall, except as otherwise provided by Section 2.06(b) bear the Restricted Securities Legend set forth in Exhibit A hereto. (d) The registered holder of a Global Security may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a holder is entitled to take under this Indenture or the Securities. (e) In the event of the occurrence of either of the events specified in Section 2.10(b), the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form without interest coupons. SECTION 2.11. Cancellation. The Company at any time may deliver ------------ Securities to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall promptly cancel all Securities surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of canceled Securities as the Company directs. The Company may not issue new Securities to replace Securities that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12. Defaulted Interest. If the Company fails to make a ------------------ payment of interest on the Securities, it shall pay such defaulted interest plus any interest payable on the defaulted interest, in any lawful manner. It may pay such defaulted interest, plus any such interest payable on it, to the persons who are Noteholders on a subsequent special record date. The Company shall fix any such record date and payment date. At least 15 days before any such record date, the Company shall mail to Noteholders a notice that states the record date, payment date, and amount of such interest to be paid. 28 ARTICLE III Redemption ---------- SECTION 3.01. Notices to Trustee. If the Company elects to redeem ------------------ Securities pursuant to the optional redemption provisions of the Securities and Section 3.07 hereof or pursuant to the Optional Tax Redemption provision of the Securities (Section 8 of the Initial Notes and Section 7 of the Exchange Notes), it shall notify the Trustee of the redemption date and the principal amount of Securities to be redeemed and in connection with an Optional Tax Redemption as provided in the Securities, such notice shall be accompanied by an Officers' Certificate to the effect that the conditions to such redemption contained herein have been complied with. The Company shall give each notice provided for in this Section 3.01 at least 50 days before the redemption date (unless a shorter notice period shall be satisfactory to the Trustee). SECTION 3.02. Selection of Securities to Be Redeemed. If less than -------------------------------------- all the Securities are to be redeemed, the Trustee shall select the Securities to be redeemed pro rata or by lot or by a method that complies with the requirements of any exchange on which the Securities are listed and that the Trustee considers fair and appropriate. The Trustee shall make the selection not more than 75 days and not less than 30 days before the redemption date from Securities outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000. Securities and portions of them it selects shall be in amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Trustee shall notify the Company promptly of the Securities or portions of Securities to be called for redemption. SECTION 3.03. Notice of Redemption. At least 30 days but not more -------------------- than 60 days before a redemption date, the Company shall mail a notice of redemption to each holder whose Securities are to be redeemed. The notice shall identify the Securities to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the redemption date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion will be issued; (d) the name and address of the Paying Agent; (e) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price plus accrued interest; (f) that interest on Securities called for redemption ceases to accrue on and after the redemption date; and 29 (g) the paragraph of the Securities pursuant to which the Securities called for redemption are being redeemed. At the Company's request, the Trustee shall give notice of redemption in the Company's name and at its expense. SECTION 3.04. Effect of Notice of Redemption. Once notice of ------------------------------ redemption is mailed, Securities called for redemption become due and payable on the redemption date at the price set forth in the Security. SECTION 3.05. Deposit of Redemption Price. On or before the --------------------------- redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. The Trustee or the Paying Agent shall return to the Company any money not required for that purpose. SECTION 3.06. Securities Redeemed in Part. Upon surrender of a --------------------------- Security that is redeemed in part, the Company shall issue and the Trustee shall authenticate for the holder at the expense of the Company a new Security equal in principal amount to the unredeemed portion of the Security surrendered. SECTION 3.07. Optional Redemption and Optional Tax Redemption. The ----------------------------------------------- Company may redeem all or any portion of the Securities, upon the terms and at the redemption prices set forth in each of the Securities. The Company may also redeem all of the Securities in accordance with the Optional Tax Redemption provision of the Securities (Section 8 of the Initial Notes and Section 7 of the Exchange Notes). Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.07 hereof. SECTION 3.08. Asset Sale Offer and Purchase Offer. (a) In the event ----------------------------------- that, pursuant to Sections 4.10 or 4.13 hereof, the Company shall commence an offer to all holders of the Securities to purchase Securities (the "Asset Sale ---------- Offer" or "Purchase Offer"), the Company shall follow the procedures in this - ----- -------------- Section 3.08. (b) The Asset Sale Offer or the Purchase Offer, as the case may be, shall remain open for a period specified by the Company which shall be no less than 30 calendar days and no more than 40 calendar days following its commencement (the "Commencement Date") (as determined in accordance with Section ----------------- 4.10 or 4.13 hereof, as the case may be), except to the extent that a longer period is required by applicable law (the "Tender Period"). Upon the expiration ------------- of the Tender Period (the "Purchase Date"), the Company shall purchase the ------------- principal amount of Securities required to be purchased pursuant to Section 4.10 or 4.13 hereof (the "Offer Amount") or, if less than the Offer Amount has been ------------ tendered, all Securities tendered in response to the Asset Sale Offer or the Purchase Offer, as the case may be. (c) If the Purchase Date is on or after an interest payment record date and on or before the related interest payment date, any accrued interest will be paid to the person in whose name a Security is registered at the close of business on such record date, and no additional interest will be payable to Noteholders who tender Securities pursuant to the Asset Sale Offer or the Purchase Offer, as the case may be. 30 (d) The Company shall provide the Trustee with notice of the Asset Sale Offer or the Purchase Offer, as the case may be, at least 10 days before the Commencement Date. (e) On or before the Commencement Date, the Company or the Trustee (at the expense of the Company) shall send, by first class mail, a notice to each of the Noteholders, which shall govern the terms of the Asset Sale Offer or the Purchase Offer and shall state: (i) that the Asset Sale Offer or the Purchase Offer is being made pursuant to this Section 3.08 and, as applicable, Section 4.10 or 4.13 hereof and the length of time the Asset Sale Offer or the Purchase Offer will remain open; (ii) the Offer Amount, the purchase price (as determined in accordance with Section 4.10 or 4.13 hereof) and the Purchase Date, and in the case of a Purchase Offer made pursuant to Section 4.13 hereof, that all Securities tendered will be accepted for payment; (iii) that any Security or portion thereof not tendered or accepted for payment will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the purchase price, any Security or portion thereof accepted for payment pursuant to the Asset Sale Offer or the Purchase Offer shall cease to accrue interest after the Purchase Date; (v) that Noteholders electing to have a Security or portion thereof purchased pursuant to any Asset Sale Offer or Purchase Offer will be required to surrender the Security, with the form entitled "Option of Noteholder to Elect Purchase" on the reverse of the Security completed, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Purchase Date; (vi) that Noteholders will be entitled to withdraw their election if the Company, depositary or Paying Agent, as the case may be, receives, not later than the close of business on the second Business Day preceding the Purchase Date, or such longer period as may be required by law, a letter or a telegram, telex or facsimile transmission (receipt of which is confirmed and promptly followed by a letter) setting forth the name of the Noteholder, the principal amount of the Security or portion thereof the Noteholder delivered for purchase and a statement that such Noteholder is withdrawing his election to have the Security or portion thereof purchased; (vii) that, if the aggregate principal amount of Securities surrendered by Noteholders exceeds the Offer Amount (as defined in Section 4.10 hereof), the Trustee shall select the Securities to be purchased pro rata or by a method that complies with the requirements of any exchange on which the Securities are listed and that the Trustee considers fair and appropriate with such adjustments as may be deemed appropriate by the Company so that only Securities in denominations of $1,000, or integral multiples thereof, shall be purchased; and 31 (viii) that Noteholders whose Securities were purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered. In addition, the notice shall, to the extent permitted by applicable law, be accompanied by a copy of the information regarding the Company and its Subsidiaries which is required to be contained in the most recent Quarterly Report on Form 10-Q or Annual Report on Form 10-K (including any financial statements or other information required to be included or incorporated by reference therein) and any Reports on Form 8-K filed since the date of such Quarterly Report or Annual Report (or would have been required to file if the Company remained a company incorporated in the United States), as the case may be, which the Company has filed (or would have been required to file if it remained a company incorporated in the United States) with the SEC on or prior to the date of the notice. The notice shall contain all instructions and materials necessary to enable such Noteholders to tender Securities pursuant to the Asset Sale Offer or the Purchase Offer, as the case may be. (f) At least one Business Day prior to the Purchase Date, the Company shall irrevocably deposit with the Trustee or a Paying Agent in immediately available funds an amount equal to the Offer Amount to be held for payment in accordance with the terms of this Section. On the Purchase Date, the Company shall, to the extent lawful, (i) accept for payment the Securities or portions thereof tendered pursuant to the Asset Sale Offer or the Purchase Offer, (ii) deliver or cause the depositary or Paying Agent to deliver to the Trustee Securities so accepted and (iii) deliver to the Trustee an Officers' Certificate stating such Securities or portions thereof have been accepted for payment by the Company in accordance with the terms of this Section 3.08. The depositary, the Paying Agent or the Company, as the case may be, shall promptly (but in any case not later than ten (10) calendar days after the Purchase Date) mail or deliver to each tendering Noteholder an amount equal to the purchase price of the Securities tendered by such Noteholder and accepted by the Company for purchase, and the Trustee shall promptly authenticate and mail or deliver to such Noteholders a new Security equal in principal amount to any unpurchased portion of the Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by or on behalf of the Company to the holder thereof. The Company will publicly announce in a newspaper of general circulation the results of the Asset Sale Offer or the Purchase Offer on the Purchase Date. (g) The Asset Sale Offer or the Purchase Offer shall be made by the Company in compliance with all applicable provisions of the Exchange Act, and all applicable tender offer rules promulgated thereunder, and shall include all instructions and materials necessary to enable such Noteholders to tender their Securities. ARTICLE IV Covenants --------- SECTION 4.01. Payment of Securities. The Company shall pay the --------------------- principal of and interest on the Securities on the dates and in the manner provided in the Securities. Principal and interest shall be considered paid on the date due if the Paying Agent (other than the Company or an Affiliate of the Company) holds on that date money designated for and sufficient to pay all principal and interest then due. To the extent lawful, the Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on (i) overdue principal, at the rate borne by the Securities, 32 compounded semiannually; and (ii) overdue installments of interest (without regard to any applicable grace period) at the same rate, compounded semiannually. SECTION 4.02. SEC Reports. Whether or not required by the rules and ----------- regulations of the SEC, so long as any Securities are outstanding, the Company will file with the SEC and furnish to the Trustee and to the holders of Securities, all quarterly and annual financial information required to be contained in a filing with the SEC on Forms 10-Q and 10-K (or the equivalent thereof in the event the Company becomes a corporation organized under the laws of England and Wales), including a "Management's Discussion and Analysis of Results of Operations and Financial Condition" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants, in each case, in the form required by the rules and regulations of the SEC as in effect on the Issuance Date. This Section 4.02 will apply notwithstanding that the Company becomes a corporation organized under the laws of England and Wales. SECTION 4.03. Compliance Certificate. The Company shall deliver to ---------------------- the Trustee, within 90 days after the end of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company and its subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under, and complied with the covenants and conditions contained in, this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his knowledge the Company has kept, observed, performed and fulfilled each and every covenant, and complied with the covenants and conditions contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge) and that to the best of his knowledge no event has occurred and remains in existence by reason of which payments on account of the principal or of interest, if any, on the Securities are prohibited. One of the Officers signing such Officers' Certificate shall be either the Company's principal executive officer, principal financial officer or principal accounting officer. The Company will so long as any of the Securities are outstanding, deliver to the Trustee, forthwith upon becoming aware of any Default or Event of Default an Officers' Certificate specifying such Default or Event of Default. Immediately upon the occurrence of any event giving rise to the accrual of Special Interest (as such term is defined in Exhibit A hereto) or the cessation of such accrual, the Company shall give the Trustee notice thereof and of the event giving rise to such accrual or cessation (such notice to be contained in an Officers' Certificate) and prior to receipt of such Officers' Certificate the Trustee shall be entitled to assume that no such accrual has commenced or ceased, as the case may be. SECTION 4.04. Stay, Extension and Usury Laws. The Company covenants ------------------------------ (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution 33 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 4.05. Corporate Existence. Subject to Article V hereof, the ------------------- Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each subsidiary of the Company in accordance with the respective organizational documents of each subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any subsidiary, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its subsidiaries taken as a whole and that the loss thereof is not adverse in any material respect to the Noteholders. The Company shall notify the Trustee in writing of any subsidiary which qualifies as a Material Subsidiary and is not specified in clause (i) of the definition thereof. SECTION 4.06. Taxes. The Company shall, and shall cause each of its ----- subsidiaries to, pay prior to delinquency all taxes, assessments and governmental levies, except as contested in good faith and by appropriate proceedings. SECTION 4.07. Limitations on Liens. Neither the Company nor any of -------------------- its Restricted Subsidiaries may directly or indirectly create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except: (a) Permitted Liens; (b) Liens securing Indebtedness and related obligations to the extent such Indebtedness and related obligations are permitted under Sections 4.08(b)(i), (ii) and (iii) hereof; (c) Liens on the assets acquired or leased with the proceeds of Indebtedness permitted to be incurred under Section 4.08 hereof; and (d) Liens securing Refinancing Indebtedness permitted to be incurred under Section 4.08 hereof; provided that the Refinancing Indebtedness so issued and secured by such Lien shall not be secured by any property or assets of the Company or any of its Subsidiaries other than the property or assets subject to the Liens securing such Indebtedness being refinanced. SECTION 4.08. Limitation on Indebtedness and Issuance of Preferred ---------------------------------------------------- Stock. (a) The Company will not, and will not permit any of its Subsidiaries to, - ----- directly or indirectly, create, incur, issue, assume, guaranty or otherwise become directly or indirectly liable with respect to (collectively, "incur") any ----- Indebtedness (including Acquired Debt) and the Company will not issue any Disqualified Stock and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness or issue shares of Disqualified Stock and any of its Subsidiaries may issue shares of preferred stock if after giving effect to such issuance or incurrence on a pro forma basis, the sum of (x) Indebtedness of the Company and its Subsidiaries, on a consolidated basis, (y) the liquidation value of outstanding preferred stock of Subsidiaries and (z) the aggregate amount payable by the Company and its Subsidiaries, on a consolidated basis, upon redemption of Disqualified Stock to the extent such amount is not included in the preceding clause (y), shall be less than the product of 34 Annualized Pro Forma EBITDA for the latest fiscal quarter for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued multiplied by 7.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred, or the Disqualified Stock or preferred stock had been issued, as the case may be, at the beginning of such quarter. (b) The foregoing limitations in Section 4.08(a) above will not apply to: (i) the issuance by any Subsidiary of preferred stock (other than Disqualified Stock) to the Company, any Restricted Subsidiary of the Company or the holders of Equity Interests in any Controlled Subsidiary on a pro rata basis to such holders; (ii) the incurrence of Indebtedness or the issuance of preferred stock by the Company and its Subsidiaries if the proceeds of such preferred stock or such Indebtedness are (or the credit support provided by any such Indebtedness is) used to finance the construction and working capital needs of a Cable Business (including, without limitation, payments made pursuant to any License) or the acquisition of Cable Assets or the Capital Stock of a Qualified Subsidiary; (iii) the incurrence by the Company and its Subsidiaries of additional Indebtedness in an aggregate principal amount not to exceed $50 million; (iv) the incurrence by the Company or any Subsidiary of the Company of Indebtedness issued in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, or refund Existing Indebtedness or Indebtedness referred to in clauses (i), (ii) or (iii) above (the "Refinancing Indebtedness"); provided, however, that (1) ------------------------ the principal amount of, and any premium payable in respect of, such Refinancing Indebtedness shall not exceed the principal amount of Indebtedness so extended, refinanced, renewed, replaced or refunded (plus the amount of reasonable expenses incurred in connection therewith); (2) the Refinancing Indebtedness shall have (A) a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, and (B) a stated maturity no earlier than the stated maturity of, the Indebtedness being extended, refinanced, renewed, replaced or refunded; and (3) the Refinancing Indebtedness shall be subordinated in right of payment to the Securities as and to the extent of the Indebtedness being extended, refinanced, renewed, replaced or refunded; (v) the incurrence of Non-Recourse Debt by a Non-Restricted Subsidiary; (vi) the incurrence by the Company of Indebtedness represented by the Subordinated Debentures (x) upon the exchange of the Preferred Stock in accordance with the Certificate of Designation therefor or (y) issued in lieu of payment of cash interest on the Subordinated Debentures; (vii) Indebtedness under Exchange Rate Contracts (the approval for which is evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee), provided that such Exchange Rate Contracts are entered into in connection 35 with transactions entered into in the ordinary course of business and hedge not more than the aggregate principal amount of the Securities and the Deferred Coupon Notes; (viii) Indebtedness under Interest Rate Agreements (the approval for which is evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee), provided that the obligations under such agreements are related to payment obligations on Existing Indebtedness or Indebtedness otherwise permitted to be incurred pursuant to this paragraph; (ix) the incurrence of Indebtedness between the Company and any Controlled Subsidiary, between or among Controlled Subsidiaries and between any Controlled Subsidiary and other holders of Equity Interests of such Controlled Subsidiary (or other persons providing funding on their behalf) on a pro rata basis and on substantially identical principal financial terms, provided, however, that if any such Controlled Subsidiary ceases to be a Controlled Subsidiary or transfers such Indebtedness (other than to the Company or a Controlled Subsidiary of the Company), such events shall be deemed, in each case, to constitute the incurrence of such Indebtedness by the Company or by a Controlled Subsidiary, as the case may be, at the time of such event; and (x) Indebtedness of the Company andor any Subsidiary in respect of performance bonds of the Company or any Subsidiary or surety bonds provided by the Company or any Subsidiary received in the ordinary course of business in connection with the construction or operation of a Cable Business. SECTION 4.09. Limitation on Restricted Payments. (a) The Company will --------------------------------- not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (other than (x) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or such Subsidiary or (y) dividends or distributions payable to the Company or any Wholly Owned Subsidiary of the Company, or (z) pro rata dividends or pro rata distributions payable by a Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Restricted Subsidiary or other Affiliate of the Company (other than any such Equity Interests owned by the Company or any Wholly Owned Subsidiary of the Company); (iii) voluntarily purchase, redeem or otherwise acquire or retire for value any Indebtedness that is subordinated to the Securities; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (1) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and 36 (2) such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the Issuance Date (including Restricted Payments permitted by clauses (ii) through (ix) of the next succeeding paragraph), is less than the sum of (x) the difference between Cumulative EBITDA and 1.5 times Cumulative Interest Expense plus (y) Capital Stock Sale Proceeds plus (z) cash received by the Company or a Restricted Subsidiary from a Non-Restricted Subsidiary (other than cash which is or is required to be repaid or returned to such Non- Restricted Subsidiary); provided, however, that to the extent that any Restricted Investment that was made after the date of the Indenture is sold for cash or otherwise liquidated or repaid for cash, the amount credited pursuant to this clause (z) shall be the lesser of (A) the cash received with respect to such sale, liquidation or repayment of such Restricted Investment (less the cost of such sale, liquidation or repayment, if any) and (B) the initial amount of such Restricted Investment . (b) The foregoing provisions will not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) (x) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Company or any Restricted Subsidiary or (y) an Investment in any person, in each case, in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of other Equity Interests (other than any Disqualified Stock) of the Company; provided that the Company delivers to the Trustee: (1) with respect to any transaction involving in excess of $1 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such transaction is approved by a majority of the directors on the Board of Directors; and (2) with respect to any transaction involving in excess of $10 million, an opinion as to the fairness to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing with high yield experience, together with an Officers' Certificate to the effect that such opinion complies with this clause (2); (iii) Investments by the Company or any Restricted Subsidiary in a Non-Controlled Subsidiary which (A) has no Indebtedness on a consolidated basis other than Indebtedness incurred to finance the purchase of equipment used in a Cable Business, (B) has no restrictions (other than restrictions imposed or permitted by the Indenture or the indentures governing the Other Qualified Notes or the Applicable Notes or any other instrument governing unsecured indebtedness of the Company which is pari passu with the Securities) on its ability to pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries, (C) is or will be a Cable Business and (D) uses the proceeds of such Investment for constructing a Cable Business or the working capital needs of a Cable Business; (iv) the redemption, purchase, defeasance, acquisition or retirement of Indebtedness that is subordinated to the Securities (including premium, if any, and accrued and unpaid interest) made by exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary of the Company) of, (A) Equity Interests of the 37 Company or (B) Refinancing Indebtedness permitted to be incurred under Section 4.08 hereof; (v) Investments by the Company or any Restricted Subsidiary in a Non- Controlled Subsidiary which is or will be a Cable Business in an amount not to exceed $80 million in the aggregate plus the sum of (x) cash received by the Company or a Restricted Subsidiary from a Non- Restricted Subsidiary (other than cash which is or is required to be repaid or returned to such Non-Restricted Subsidiary) to the extent such cash has not been utilized to permit Investments pursuant to (vi) below and (y) Capital Stock Sale Proceeds (excluding the aggregate net sale proceeds to be received upon conversion of the Convertible Subordinated Notes) to the extent such Proceeds have not been utilized to permit a Restricted Payment pursuant to clause (a)(2) in this Section 4.09; (vi) Investments by the Company or any Restricted Subsidiary in a Controlled Subsidiary or Non-Controlled Subsidiary that is or will be a Cable Related Business in an amount not to exceed $40 million plus cash received by the Company or a Restricted Subsidiary from a Non- Restricted Subsidiary (other than cash which is or is required to be repaid or returned to such Non-Restricted Subsidiary) to the extent such cash has not been utilized to permit Investments pursuant to clause (v) above; (vii) the extension by the Company or any Restricted Subsidiary of trade credit to a Non-Restricted Subsidiary on usual and customary terms in the ordinary course of business, provided that the aggregate amount of such trade credit shall not exceed $10 million at any one time outstanding; (viii) the payment of cash dividends on the Preferred Stock accruing on or after February 15, 2004 or any mandatory redemption or repurchase of the Preferred Stock, in each case, in accordance with the terms of the Certificate of Designation therefor; and (ix) the exchange of all of the outstanding shares of Preferred Stock for Subordinated Debentures in accordance with the terms of the Certificate of Designation for the Preferred Stock. (c) Any Investment in a Subsidiary that becomes a Non-Restricted Subsidiary shall become a Restricted Payment made on such date in the amount of the greater of (x) the book value of such Subsidiary on the date such Subsidiary becomes a Non-Restricted Subsidiary and (y) the fair market value of such Subsidiary on such date as determined (A) in good faith by the Board of Directors of such Subsidiary if such fair market value is determined to be less than $10 million and (B) by an investment banking firm of national standing with high yield underwriting expertise if such fair market value is determined to be in excess of $10 million. (d) Not later than the date of making any Restricted Payment (other than those referred to in subclause (vii) of Section 4.09(b)), the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section were computed, which calculations may be based upon the Company's latest available financial statements. 38 SECTION 4.10. Asset Sales. (a) The Company will not, and will not ----------- permit any of its Restricted Subsidiaries to cause, make or suffer to exist any Asset Sale, unless: (i) no Default exists or is continuing immediately prior to and after giving effect to such Asset Sale; (ii) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets sold or otherwise disposed of; and (iii) (a) at least 80% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of Cash Equivalents or (b) the consideration therefor received by the Company or such Restricted Subsidiary is Cable Assets, or Capital Stock in a Qualified Subsidiary, the sole assets of which are Cable Assets, that are determined in the resolution referred to in (ii) above to be substantially comparable in type to the assets being sold or (c) the Company or such Restricted Subsidiary receives Capital Stock in a Cable Controlled Subsidiary (or an entity that will become a Cable Controlled Subsidiary after giving effect to such transaction) as consideration therefor, provided that the aggregate fair market value measured at such time of Capital Stock so received, and still held pursuant to all transactions under this clause (c), plus the aggregate fair market value of Capital Stock, if any, retained after the applicable 60 day period in all transactions under clause (d) below, will be no more than the proceeds that would be received from the sale of Equity Interests in a Cable Business (in which the Company has an Equity Interest) representing 5% of the Company's Net Households immediately prior to such transaction or (d) the Company or such Restricted Subsidiary receives as consideration therefor, Capital Stock in a company engaged in a Cable Business which is publicly traded either in the United Kingdom or in the United States, provided that (i) the aggregate fair market value measured at such time of Capital Stock so received will be no more than the proceeds that would be received from the sale of Equity Interests in a Cable Business (in which the Company has an Equity Interest) representing 10% of the Company's Net Households immediately prior to such transaction and (ii) within 60 days of an Asset Sale pursuant to this clause (d), the Company or such Restricted Subsidiary Monetizes an amount of such Capital Stock having a fair market value equal to the difference between (x) the aggregate fair market value measured at such time of Capital Stock received and still held in all transactions pursuant to this clause (d), plus the aggregate fair market value of Capital Stock, if any, received and still held in all transactions under clause (c) above, and (y) the proceeds that would be received from the sale of Equity Interests in a Cable Business (in which the Company has an Equity Interest) representing 5% of the Company's Net Households immediately prior to such transaction; provided, however, that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto), of the Company or any Restricted Subsidiary (other than liabilities that are by their terms subordinated to the Securities) that are assumed by the transferee of any such assets and (y) any notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are immediately converted by the Company or such Restricted Subsidiary into cash, shall be deemed to be Cash Equivalents 39 (to the extent of the Cash Equivalents received in such conversion) for purposes of this clause (iii). For purposes of this Indenture, the phrase "comparable in type" shall include, without limitation and irrespective of the asset being sold, a Qualified Cable Asset. (b) Within 360 days after any Asset Sale, the Company (or the Restricted Subsidiary, as the case may be) will cause the Net Proceeds from such Asset Sale: (i) to be used to permanently reduce Indebtedness of a Restricted Subsidiary; or (ii) to be invested or reinvested in a Cable Controlled Property. Any Net Proceeds from any Asset Sale that are not used or reinvested as provided in the preceding sentence constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15 million, the Company will make an offer (an "Asset Sale Offer") to all holders of Securities and Other ---------------- Qualified Notes to purchase the maximum principal amount of Securities and Other Qualified Notes (determined on a pro rata basis according to the accreted value or principal amount, as the case may be, of the Securities and the Other Qualified Notes; provided, however, that the asset sale offer must be made first to the holders of the Applicable Notes) that may be purchased out of the Excess Proceeds, if any, remaining after the consummation of the aforementioned Asset Sale Offer to the holders of the Applicable Notes (x) with respect to the Other Qualified Notes, based on the terms set forth in the indenture related to each issue of the Other Qualified Notes and (y) with respect to the Securities, at an offer price in cash in an amount equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in Section 3.08 hereof. To the extent that the aggregate principal amount or accreted value, as the case may be, of Securities and Other Qualified Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, if any, remaining after the consummation of any required asset sale offer to the holders of the Applicable Notes, the Company may use such deficiency for general corporate purposes. If the principal amount or aggregate accreted value, as the case may be, of Securities and Other Qualified Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, if any, remaining after the consummation of any required asset sale offer to the holders of the Applicable Notes, then such remaining Excess Proceeds will be allocated pro rata according to accreted value or principal amount, as the case may be, to the Securities and each issue of the Other Qualified Notes and, the Trustee will select the Securities to be purchased from the amount allocated to the Securities on the basis set forth in Section 3.08(e) hereof. Upon completion of any required asset sale offer to the holders of Applicable Notes and the completion of the Asset Sale Offer to the holders of the Securities and the Other Qualified Notes, the amount of Excess Proceeds will be reset at zero. No such Asset Sale Offer to purchase the Securities and Other Qualified Notes shall be required to be made by the Company pursuant to the foregoing provisions if there are no Excess Proceeds remaining after the consummation of any required asset sale offer made to holders of the Applicable Notes. (c) Notwithstanding the provisions of Sections 4.10(a) and (b): the Company and its Subsidiaries may: (i) sell, lease, transfer, convey or otherwise dispose of assets or property acquired after October 14, 1993, by the Company or any Subsidiary in a sale-and-leaseback transaction so long as the proceeds of such sale are immediately applied to permanently reduce 40 Indebtedness of a Restricted Subsidiary or if there is no such Indebtedness or such proceeds exceed the amount of such Indebtedness then such proceeds or excess proceeds are reinvested in a Cable Controlled Property within 360 days after such sale, lease, transfer, conveyance or disposition; (ii)(x) swap or exchange assets or property with a Cable Controlled Subsidiary or (y) issue, sell, lease, transfer, convey or otherwise dispose of equity securities of any of the Company's Subsidiaries to a Cable Controlled Subsidiary, in each of cases (x) and (y) so long as (A) the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company after such transaction is equal to or less than the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company immediately preceding such transaction provided, however, that if the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company immediately preceding such transaction is 6:1 or less, then the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company may be 0.5 greater than such ratio immediately preceding such transaction and (B) either (I) the assets so contributed consist solely of a license to operate a Cable Business and the Net Households covered by all of the licenses to operate cable and telephone systems held by the Company and its Restricted Subsidiaries immediately after and giving effect to such transaction equals or exceeds the number of Net Households covered by all of the licenses to operate cable and telephone systems held by the Company and its Restricted Subsidiaries immediately prior to such transaction or (II) the assets so contributed consist solely of Cable Assets and the value of the Capital Stock received, immediately after and giving effect to such transaction, as determined by an investment banking firm of recognized standing with knowledge of the Cable Business, equals or exceeds the value of Cable Assets exchanged for such Capital Stock; (iii) sell or transfer Long DistanceMicrowave Assets so long as the Net Proceeds of such sale or transfer are applied in accordance with Section 4.10(b) of this Indenture; or (iv) issue, sell, lease, transfer, convey or otherwise dispose of Equity Interests in any Cable Controlled Subsidiary if (A) the only consideration received therefor other than Cash Equivalents is Cable Assets and (B) within 270 days of such disposition the Company or such Subsidiary, as the case may be, commits to invest the cash (or Cash Equivalents) proceeds therefrom in a Cable Controlled Property and actually so invests such proceeds in a Cable Controlled Property within 15 months of such disposition; provided, however, that in connection with each transaction under clauses (ii) and (iv) above, the Company delivers to the Trustee: (1) with respect to any such transaction where the aggregate value of all the consideration received by the Company and its Subsidiaries exceeds $1 million or any series of such transactions where the aggregate value of all the consideration so received exceeds $1 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such disposition is approved by a majority of the disinterested directors on the Board of Directors, and (2) with respect to any such transaction or any series of such transactions where the aggregate value of all the consideration received by the Company and its Subsidiaries 41 exceeds $10 million, an opinion as to the fairness to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing with high yield experience together with an Officers' Certificate to the effect that such opinion complies with clause (2) of this proviso. SECTION 4.11. Limitations on Transactions with Affiliates. (a) The ------------------------------------------- Company will not, and will not permit any of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless: --------------------- (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Subsidiary than those that could have been obtained in a comparable transaction by the Company or such Subsidiary with an unrelated person, and (ii) the Company delivers to the Trustee: (1) with respect to any Affiliate Transaction involving aggregate payments in excess of $1 million or any series of Affiliate Transactions with an Affiliate involving aggregate payments in excess of $1 million, a resolution of the Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and such Affiliate Transaction is approved by a majority of the disinterested directors on the Board of Directors; and (2) with respect to any Affiliate Transaction involving aggregate payments in excess of $10 million or any series of Affiliate Transactions with an Affiliate involving aggregate payments in excess of $10 million, an opinion as to the fairness to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing with high yield experience together with an Officers' Certificate to the effect that such opinion complies with this clause (2). (b) Notwithstanding the provisions of subsection (a) of this Section 4.11, the following shall not be deemed to be Affiliate Transactions: (i) any employment agreement entered into by the Company or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Company or its predecessor or such Subsidiary; (ii) transactions between or among the Company andor its Restricted Subsidiaries; (iii) transactions permitted by the provisions of Section 4.09 hereof; (iv) Liens permitted under Section 4.07 hereof which are granted by the Company or any of its Subsidiaries to an unrelated person for the benefit of the Company or any other Subsidiary of the Company; (v) any transaction pursuant to an agreement in effect on the Issuance Date; and 42 (vi) the incurrence of Indebtedness by a Controlled Subsidiary where such Indebtedness is owed to the holders of the Equity Interests of such Controlled Subsidiary on a pro rata basis and on substantially identical principal financial terms. SECTION 4.12. Limitations on Dividends and Other Payment Restrictions ------------------------------------------------------- Affecting Subsidiaries. The Company will not, and will not permit any of its - ---------------------- Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to: (a) (i) pay dividends or make any other distributions to the Company or any of its Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits, or (ii) pay any indebtedness owed to the Company or any of its Subsidiaries, or (b) make loans or advances to the Company or any of its Subsidiaries, or (c) transfer any of its properties or assets to the Company or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of: (i) Existing Indebtedness as in effect on the Issuance Date, (ii) this Indenture and the Securities, (iii) any agreement covering or relating to Indebtedness permitted to be incurred under Section 4.08(b)(i), (b)(ii) or (b)(iii) hereof, provided that the provisions of such agreement permit any action referred to in clause (a) above in aggregate amounts sufficient to enable the payment of interest and principal and mandatory repurchases pursuant to the terms of this Indenture and the Securities, but provided further that (x) any such agreement may nevertheless encumber, prohibit or restrict any action referred to in clause (a) above if an event of default under such agreement has occurred and is continuing or would occur as a result of any such action and (y) any such agreement may nevertheless contain restrictions limiting the payment of dividends or the making of any other distributions to all or a portion of excess cash flow (or any similar formulation thereof) and subordination provisions governing Indebtedness owed to the Company or any Restricted Subsidiary, (iv) applicable law, (v) any instrument governing Indebtedness or Capital Stock of a person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with such acquisition), which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person, or the property or assets of the person, so acquired; provided that the EBITDA of such person is not taken into account in determining whether such acquisition was permitted by the terms of this Indenture, 43 (vi) customary nonassignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vii) customary provisions of joint venture or stockholder agreements, provided that such provisions are determined by a resolution of the Board of Directors to be, at the time of such determination, customary for such agreements, (viii) purchase money obligations for property acquired in the ordinary course of business or (ix) permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced. SECTION 4.13. Change of Control. (a) Upon the occurrence of a Change ----------------- of Control Triggering Event, each holder of Securities shall have the right, in accordance with this Section 4.13 and Section 3.08 hereof, to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's Securities pursuant to the offer described in Section 3.08 hereof (the "Purchase Offer") at a purchase price equal to 101% of the -------------- principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase (the "Change of Control Payment"). ------------------------- (b) Within 40 days following any Change of Control Triggering Event, the Company shall mail to each holder the notice provided by Section 3.08(e)(i). SECTION 4.14. Payment of Additional Amounts. At least 10 days prior ----------------------------- to the first date on which payment of principal and any premium or interest on the Securities is to be made, and at least 10 days prior to any subsequent such date if there has been any change with respect to the matters set forth in the Officers' Certificate described in this Section 4.14, the Company will furnish the Trustee and the Paying Agent, if other than the Trustee, with an Officers' Certificate instructing the Trustee and the Paying Agent whether the Company is obligated to pay Additional Amounts (as defined in Section 3 of the Initial Notes or Section 2 of the Exchange Notes) with respect to such payment of principal, or of any premium or interest on the Securities. If the Company will be obligated to pay Additional Amounts with respect to such payment, then such Officers' Certificate shall specify by country the amount, if any, required to be withheld on such payments to such holders and the Company will pay to the Trustee or the Paying Agent such Additional Amounts. The Company shall indemnify the Trustee and the Paying Agent for, and hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officers' Certificate furnished to them pursuant to this Section 4.14. Whenever in this Indenture there is mentioned, in any context, the payment of principal (and premium, if any), Offer Amount, interest or any other amount payable under or with respect to any Security such mention shall be deemed to include mention of the payment of Additional Amounts provided for in this Section 4.14 and Section 3 of the Initial Notes (or Section 2 of the Exchange Notes) to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to the provisions of this Section 4.14 and Section 3 of the Initial Notes (or Section 2 of the Exchange Notes) and express mention of the payment of Additional Amounts (if applicable) in any provisions hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made (if applicable). 44 ARTICLE V Successors ---------- SECTION 5.01. Merger, Consolidation or Sale of Assets. The Company --------------------------------------- may not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, another corporation, person or entity unless: (a) the Company is the surviving corporation or the entity or the person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of England and Wales or of the United States, any state thereof or the District of Columbia; (b) the entity or person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or person to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made assumes all the Obligations (including the due and punctual payment of Additional Amounts if the surviving corporation is a corporation organized or existing under the laws of England and Wales) of the Company, pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Securities and this Indenture; (c) immediately after such transaction no Default or Event of Default exists; (d) the Company or any entity or person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made will have a ratio of Indebtedness to Annualized Pro Forma EBITDA equal to or less than the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company immediately preceding the transaction, provided, however, that if the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company immediately preceding such transaction is 6:1 or less, then the ratio of Indebtedness to Annualized Pro Forma EBITDA of the Company may be 0.5 greater than such ratio immediately preceding such transaction; and (e) such transaction would not result in the loss of any material authorization or Material License of the Company or its Subsidiaries. SECTION 5.02. Successor Corporation Substituted. Upon any --------------------------------- consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor person has been named as the Company herein; provided, however, that the predecessor Company in the case of a sale, assignment, transfer, lease, conveyance or other disposition shall not be released from the obligation to pay the principal of and interest on the Securities. 45 ARTICLE VI Defaults and Remedies --------------------- SECTION 6.01. Events of Default. An "Event of Default" occurs if: ----------------- (a) the Company defaults in the payment of interest (and Additional Amounts, if applicable) on any Security when the same becomes due and payable and the Default continues for a period of 30 days after the date due and payable; (b) the Company defaults in the payment of the principal of any Security when the same becomes due and payable at maturity, upon redemption or otherwise; (c) the Company or any Subsidiary thereof fails to observe or perform any covenant or agreement contained in Section 4.08, 4.09, or 4.13 hereof; (d) the Company or any Subsidiary thereof fails to observe or perform any other covenant or agreement contained in this Indenture or the Securities, required by any of them to be performed and the Default continues for a period of 60 days after notice from the Trustee to the Company or from the holders of 25% in aggregate principal amount of the then outstanding Securities to the Company and the Trustee stating that such notice is a "Notice of Default"; (e) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any Restricted Subsidiary (or the payment of which is guaranteed by the Company or any Restricted Subsidiary), whether such Indebtedness or guarantee now exists or is created after the Issuance Date, which default (i) is caused by a failure to pay when due principal of or interest on such Indebtedness within the grace period provided for in such Indebtedness (which failure continues beyond any applicable grace period) (a "Payment Default") or (ii) results --------------- in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there is a Payment Default or the maturity of which has been so accelerated, aggregates $5 million or more; (f) a final judgment or final judgments (other than any judgment as to which a reputable insurance company has accepted full liability) for the payment of money are entered by a court or courts of competent jurisdiction against the Company or any Restricted Subsidiary of the Company which remains undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such judgments exceeds $5 million; (g) the Company or any Material Subsidiary pursuant to or within the meaning of any Bankruptcy Law; (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case in which it is the debtor, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is unable to pay its debts as the same become due; 46 (h) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Material Subsidiary in an involuntary case, (ii) appoints a Custodian of the Company or any Material Subsidiary or for all or substantially all of its property, or (iii) orders the liquidation of the Company or any Material Subsidiary, and the order or decree remains unstayed and in effect for 60 days; and (i) the revocation of a Material License. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar -------------- Federal, state or foreign law for the relief of debtors or the protection of creditors. The term "Custodian" means any receiver, trustee, assignee, --------- liquidator or similar official under any Bankruptcy Law. SECTION 6.02. Acceleration. If an Event of Default (other than an ------------ Event of Default specified in clauses (g) and (h) of Section 6.01 hereof) occurs and is continuing, the Trustee by notice to the Company, or the Noteholders of at least 25% in principal amount of the then outstanding Securities by notice to the Company and the Trustee, may declare all the Securities to be due and payable. Upon such declaration, the principal of, premium, if any, and interest on, the Securities shall be due and payable immediately. If an Event of Default specified in clause (g) or (h) of Section 6.01 hereof occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Noteholder. The Noteholders of a majority in principal amount of the then outstanding Securities by notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. In the case of any Event of Default pursuant to the provisions of Section 6.01 occurring by reason of any wilful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to Section 7 of the Initial Notes (Section 6 in the case of the Exchange Notes), an equivalent premium shall, upon demand of the Noteholders of at least 25% in principal amount of the then outstanding Securities delivered to the Company and the Trustee, also become and be immediately due and payable to the extent permitted by law, anything in this Indenture or in the Securities contained to the contrary notwithstanding. If an Event of Default occurs prior to February 15, 2002, by reason of any wilful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Securities prior to February 15, 2002, pursuant to Section 7 of the Initial Notes (Section 6 in the case of the Exchange Notes), then the premium payable for purposes of this paragraph for each of the years beginning on February 15 of the years (February 12 in the case of 1997) set forth below shall, subject to the foregoing demand, be as set forth in the following table expressed as a percentage of the amount that would otherwise be due pursuant to this Section 6.02 hereof but for the provisions of this sentence. Year Percentage ---- ---------- 1997 ................................................ 110.0% 1998 ................................................ 109.0% 1999 ................................................ 108.0% 2000 ................................................ 107.0% 2001 ................................................ 106.0% 47 SECTION 6.03. Other Remedies. If an Event of Default occurs and is -------------- continuing, the Trustee may pursue any available remedy to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Noteholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. The Noteholders of a majority ----------------------- in principal amount of the then outstanding Securities by notice to the Trustee may waive an existing Default or Event of Default and its consequences except a continuing Default or Event of Default in the payment of the principal of or interest on any Security. When a Default or Event of Default is waived, it is cured and ceases; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05. Control by Majority. The Noteholders of a majority in ------------------- principal amount of the then outstanding Securities may 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 it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, is unduly prejudicial to the rights of other Noteholders, or would involve the Trustee in personal liability. SECTION 6.06. Limitation on Suits. A Noteholder may pursue a remedy ------------------- with respect to this Indenture or the Securities only if: (a) the Noteholder gives to the Trustee notice of a continuing Event of Default; (b) the Noteholders of at least 25% in principal amount of the then outstanding Securities make a request to the Trustee to pursue the remedy; (c) such Noteholder or Noteholders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (e) during such 60-day period the Noteholders of a majority in principal amount of the then outstanding Securities do not give the Trustee a direction inconsistent with the request. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over another Noteholder. SECTION 6.07. Rights of Noteholders to Receive Payment. ---------------------------------------- Notwithstanding any other provision of this Indenture, the right of any Noteholder of a Security to receive payment of principal and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Noteholder made pursuant to this Section. 48 SECTION 6.08. Collection Suit by Trustee. If an Event of Default -------------------------- specified in Section 6.01 (a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid on the Securities and interest on overdue principal and interest and such further amount as shall be sufficient to cover the costs and, to the extent lawful, expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file -------------------------------- such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Noteholders allowed in any judicial proceedings relative to the Company, its creditors or its property. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Noteholder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money pursuant ----------- to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07 hereof; ----- Second: to Noteholders for amounts due and unpaid on the Securities ------ for principal and interest (and Additional Amounts, if applicable), ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third: to the Company. ----- The Trustee may fix a record date and payment date for any payment to Noteholders made pursuant to this Section. SECTION 6.11. 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 or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a holder pursuant to Section 6.07 hereof, or a suit by Noteholders of more than 10% in principal amount of the then outstanding Securities. ARTICLE VII Trustee ------- SECTION 7.01. Duties of Trustee. (a) If an Event of Default has ----------------- occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. 49 (b) Except during the continuance of an Event of Default: (i) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others and (ii) 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. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture and to confirm the correctness of all mathematical computations. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01. (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any ----------------- document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. (e) The Trustee shall not be charged with knowledge of any Event of Default under subsection (c), (d), (e), (f) or (i) of Section 6.01 or of the identity of any Material Subsidiary referred to in clause (ii) of the definition thereof unless either (1) a Trust Officer of the Trustee assigned to its Corporate Trustee Administration Department shall have actual knowledge thereof, or (2) the Trustee shall have received notice thereof in accordance with Section 10.02 hereof from the Company or any holder. SECTION 7.03. Individual Rights of Trustee. The Trustee in its ---------------------------- individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or 50 an Affiliate with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11 hereof. SECTION 7.04. Trustee's Disclaimer. The Trustee makes no -------------------- representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in the Indenture or any statement in the Securities other than its authentication or for compliance by the Company with the Registration Rights Agreement. SECTION 7.05. Notice of Defaults. If a Default or Event of Default ------------------ occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Noteholders a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment on any Security, the Trustee may withhold the notice if and so long as a committee of its Trust Officers in good faith determines that withholding the notice is in the interests of Noteholders. SECTION 7.06. Reports by Trustee to Noteholders. Within 60 days after --------------------------------- the reporting date stated in Section 10.10, the Trustee shall mail to Noteholders a brief report dated as of such reporting date that complies with TIA (S) 313(a) if and to the extent required by such (S) 313(a). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). A copy of each report at the time of its mailing to Noteholders shall be filed with the SEC and each stock exchange on which the Securities are listed. The Company shall notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.07. Compensation and Indemnity. The Company shall pay to -------------------------- the Trustee from time to time reasonable compensation for its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such disbursements and expenses may include the reasonable disbursements, compensation and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any loss or liability incurred by it except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees, disbursements and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnity against any loss or liability incurred by the Trustee through negligence or bad faith. To secure the Company's payment obligations in this Section, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except money or property held in trust to pay principal and interest on particular Securities. 51 When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(g) or (h) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08. Replacement of Trustee. A resignation or removal of the ---------------------- Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign by so notifying the Company. The Noteholders of a majority in principal amount of the then outstanding Securities may remove the Trustee by so notifying the Trustee and the Company. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof, unless the Trustee's duty to resign is stayed as provided in TIA (S) 310(b); (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Noteholders of a majority in principal amount of the then outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Noteholders of at least 10% in principal amount of the then outstanding Securities may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, unless the Trustee's duty to resign is stayed as provided in TIA (S) 310(b), any Noteholder who has been a bona fide holder of a Security for at least six months may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Noteholders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08 hereof, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring trustee with respect to expenses and liabilities incurred by it prior to such replacement. 52 SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee -------------------------------- consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 7.10. Eligibility; Disqualification. This Indenture shall ----------------------------- always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1) and (5). The Trustee shall always have a combined capital and surplus as stated in Section 10.10 hereof. The Trustee is subject to TIA (S) 310(b). The following indentures shall be deemed to be specifically described herein for the purposes of clause (i) of the first proviso contained in TIA (S) 310(b): (a) indenture dated as of October 14, 1993, between the Company and The Chase Manhattan Bank (formerly known as Chemical Bank), as trustee, relating to the Applicable Notes, as amended, (b) indenture dated as of April 20, 1995 between the Company and The Chase Manhattan Bank, as trustee, relating to the 12 34% Notes, as amended, and (c) indenture dated as of January 30, 1996 between the Company and The Chase Manhattan Bank, as trustee, relating to the 11 12% Notes. SECTION 7.11. Preferential Collection of Claims Against Company. The ------------------------------------------------- Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. ARTICLE VIII Discharge of Indenture ---------------------- SECTION 8.01. Termination of Company's Obligations. This Indenture ------------------------------------ shall cease to be of further effect (except that the Company's obligations under Sections 7.07 and 8.03 hereof shall survive) when all outstanding Securities theretofore authenticated and issued have been delivered to the Trustee for cancellation and the Company has paid all sums payable hereunder. SECTION 8.02. Option to Effect Defeasance. The Company may, at the --------------------------- option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have this Section 8.02 be applied to all outstanding Securities upon compliance with the conditions set forth below in this Section. Upon the Company's election to have this Section 8.02 apply to all the outstanding Securities, the Company shall, subject to the satisfaction of the conditions set forth in the next paragraph, be deemed to have been discharged from its obligations with respect to all outstanding Securities on the date such conditions are satisfied (hereinafter, "Defeasance"). For this purpose, Defeasance means that the Company shall be ---------- deemed to have paid and discharged the entire Obligations represented by the outstanding Securities, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.03 hereof and the other Sections of this Indenture referred to in clauses (a) and (b) below, and to have satisfied all its other obligations under such Securities and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of holders of outstanding Securities to receive solely from the trust fund described in the following paragraph, payments in respect of the principal of, premium, if any, and interest on such Securities when such payments are due, (b) the Company's obligations with respect to such Securities under Article II hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith, and (d) this Article VIII. 53 In order to exercise Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders, pursuant to an irrevocable trust and security agreement in form satisfactory to the Trustee, money or U.S. Government Obligations or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, expressed in a written certification thereof (in form satisfactory to the Trustee) to pay the principal of, premium, if any, and interest on the outstanding Securities on the stated date for payment thereof or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, and interest on the outstanding Securities; (b) the Company shall have delivered to the Trustee, an Opinion of Counsel (which counsel may be an employee of the Company) reasonably acceptable to the Trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Issuance Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the holders of the outstanding Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Defeasance had not occurred; (c) no Event of Default shall have occurred and be continuing on the date of such Defeasance (other than an Event of Default resulting from or related to the incurrence of Indebtedness, the proceeds of which are to be applied to such deposit) or, insofar as Sections 6.01 (g) and (h) hereof are concerned, at any time in the period ending on the 91st day after the date of deposit (or greater period of time in which any such deposit of trust funds may remain subject to Bankruptcy Law insofar as those apply to the deposit by the Company); (d) such Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (e) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that after the 91st day following the deposit (or such greater period referred to in (c) above), the trust funds will not be subject to the effect of any applicable Bankruptcy Law; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the holders of Securities over any other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; (g) the deposit shall not result in the Company, the Trustee or the trust fund established pursuant to (a) above being subject to regulation under the Investment Company Act of 1940, as amended; (h) holders of the Securities will have a valid, perfected and unavoidable (under applicable Bankruptcy Law), subject to the passage of time referred to clause (e) above, first priority security interest in the trust funds; and 54 (i) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel (subject to customary exceptions), each stating that all conditions precedent provided for or relating to the Defeasance have been complied with. "U.S. Government Obligations" means direct obligations of the United --------------------------- States of America for the payment of which the full faith and credit of the United States of America is pledged. In order to have money available on a payment date to pay principal or interest (including Additional Amounts, if applicable) on the Securities, the U.S. Government Obligations shall be payable as to principal or interest on or before such payment date in such amounts as will provide the necessary money. U.S. Government Obligations shall not be callable at the issuer's option. SECTION 8.03. Application of Trust Money. The Trustee shall hold in -------------------------- trust money or U.S. Government Obligations deposited with it pursuant to Section 8.02 hereof. It shall apply the deposited money and the money from U.S. Government Obligations through the Paying Agent and in accordance with this Indenture to the payment of principal and interest on the Securities. SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent -------------------- shall promptly pay to the Company upon request any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years after the date upon which such payment shall have become due; provided, however, that the Company shall have first caused notice of such payment to the Company to be mailed to each Noteholder entitled thereto no less than 30 days prior to such payment. After payment to the Company, the Trustee and the Paying Agent shall have no further liability with respect to such money and Noteholders entitled to the money must look to the Company for payment as general creditors unless any applicable abandoned property law designates another person. SECTION 8.05. Reinstatement. If (i) the Trustee or Paying Agent is ------------- unable to apply any money in accordance with Section 8.03 hereof by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application and (ii) the Noteholders of at least a majority in principal amount of the then outstanding Securities so request by written notice to the Trustee, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.03 hereof or such request is revoked by such Noteholders; provided, however, that if the Company makes any payment of interest on or principal of any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Noteholders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE IX Amendments, Supplements and Waivers ----------------------------------- SECTION 9.01. Without Consent of Noteholders. The Company and the ------------------------------ Trustee may amend or supplement this Indenture or the Securities without the consent of any Noteholder: 55 (a) to cure any ambiguity, defect or inconsistency; (b) to comply with Section 5.01 hereof; (c) to provide for uncertificated Securities in addition to or in place of certificated Securities; (d) to make any change that does not adversely affect the interests hereunder of any Noteholder; or (e) to qualify the Indenture under the TIA or to comply with the requirements of the SEC in order to maintain the qualification of the Indenture under the TIA. SECTION 9.02. With Consent of Noteholders. Subject to Section 6.07 --------------------------- hereof, the Company and the Trustee may amend or supplement this Indenture or the Securities with the written consent of the Noteholders of at least a majority in principal amount of the then outstanding Securities. Subject to Sections 6.04 and 6.07 hereof, the Noteholders of a majority in principal amount of the Securities then outstanding may also waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities. However, without the consent of each Noteholder affected, an amendment, supplement or waiver under this Section may not: (a) reduce the amount of Securities whose Noteholders must consent to an amendment, supplement or waiver; (b) reduce the rate of or change the time for payment of interest on any Security; (c) reduce the principal of or change the fixed maturity of any Security, or alter the provisions of Sections 7 and 8 of the Initial Note and Sections 6 and 7 of the Exchange Note; (d) make any Security payable in money other than that stated in the Security; (e) make any change in Section 6.04, 6.07 or 9.02 hereof (this sentence); or (f) waive a default in the payment of the principal of, or interest on, any Security. To secure a consent of the Noteholders under this Section 9.02, it shall not be necessary for the Noteholders to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to Noteholders a notice briefly describing the amendment or waiver. SECTION 9.03. Compliance with Trust Indenture Act. Every amendment to ----------------------------------- this Indenture or the Securities shall be set forth in a supplemental indenture that complies with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. Until an amendment, --------------------------------- supplement or waiver becomes effective, a consent to it by a Noteholder of a Security is a continuing consent by the 56 Noteholder and every subsequent Noteholder of a Security or portion of a Security that evidences the same debt as the consenting Noteholder's Security, even if notation of the consent is not made on any Security. However, any such Noteholder or subsequent Noteholder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date on which the Trustee receives an Officers' Certificate certifying that the Noteholders of the requisite principal amount of Securities have consented to the amendment, supplement or waiver. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Noteholders entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then notwithstanding the provisions of the immediately preceding paragraph, those persons who were Noteholders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be Noteholders after such record date. No consent shall be valid or effective for more than 90 days after such record date unless consents from Noteholders of the principal amount of Securities required hereunder for such amendment or waiver to be effective shall have also been given and not revoked within such 90-day period. After an amendment, supplement or waiver becomes effective it shall bind every Noteholder, unless it is of the type described in any of clauses (a) through (f) of Section 9.02 hereof. In such case, the amendment or waiver shall bind each Noteholder who has consented to it and every subsequent Noteholder that evidences the same debt as the consenting Noteholder's Security. SECTION 9.05. Notation on or Exchange of Securities. The Trustee may ------------------------------------- place an appropriate notation about an amendment or waiver on any Security thereafter authenticated. The Company in exchange for all Securities may issue and the Trustee shall authenticate new Securities that reflect the amendment or waiver. SECTION 9.06. Trustee Protected. The Trustee shall sign all ----------------- supplemental indentures, except that the Trustee may, but need not, sign any supplemental indenture that adversely affects its rights. ARTICLE X Miscellaneous ------------- SECTION 10.01. Trust Indenture Act Controls. This Indenture is ---------------------------- subject to the provisions of the TIA that are required to be incorporated into this Indenture (or, prior to the registration of the Securities pursuant to the Registration Rights Agreement, would be required to be incorporated into this Indenture if it were qualified under the TIA), and shall, to the extent applicable, be governed by such provisions. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required (or would be so required) to be incorporated in this Indenture by the TIA, the incorporated provision shall control. SECTION 10.02. Notices. Any notice or communication by the Company or ------- the Trustee to the other is duly given if in writing and delivered in person or mailed by first-class mail to the other's address stated in Section 10.10 hereof. The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. 57 Any notice or communication to a Noteholder shall be mailed by first- class mail to his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Noteholders, it shall mail a copy to the Trustee and each Agent at the same time. All other notices or communications shall be in writing. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice as required by the Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. SECTION 10.03. Communication by Noteholders with Other Noteholders. --------------------------------------------------- Noteholders may communicate pursuant to TIA (S) 312(b) with other Noteholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA (S) 312(c). SECTION 10.04. Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. SECTION 10.05. Statements Required in Certificate or Opinion. Each --------------------------------------------- certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 4.03) shall include: (a) a statement that the person signing such certificate or rendering such opinion has read such covenant or condition; (b) 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; (c) a statement that, in the opinion of such person, such person has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been complied with; and 58 (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 10.06. Rules by Trustee and Agents. The Trustee may make --------------------------- reasonable rules for action by, or a meeting of, Noteholders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 10.07. Legal Holidays. A "Legal Holiday" is a Saturday, a -------------- Sunday or a day on which banking institutions in the State of New York are not required to be open. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. If any other operative date for purposes of this Indenture shall occur on a Legal Holiday then for all purposes the next succeeding day that is not a Legal Holiday shall be such operative date. SECTION 10.08. No Recourse Against Others. A director, officer, -------------------------- employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company 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 Noteholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. SECTION 10.09. Counterparts. This Indenture may be executed in any ------------ number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 10.10. Variable Provisions. "Officer" means the Chairman of ------------------- the Board, the President, any Vice-President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of the Company. The Company initially appoints the Trustee as Paying Agent, Registrar and authenticating agent. The first certificate pursuant to Section 4.03 hereof shall be for the fiscal year ended on December 31, 1996. The reporting date for Section 7.06 hereof is March 15 of each year. The first reporting date is March 15, 1997. The Trustee shall always have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Company's address is: International CableTel Incorporated 110 East 59th Street, 26th Floor New York, New York 10022 Attention of: Richard J. Lubasch, Esq. General Counsel 59 The Trustee's address is: The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attention: Corporate Trustee Administration Department SECTION 10.11. GOVERNING LAW. THE INTERNAL LAWS OF THE STATE OF NEW ------------- YORK SHALL GOVERN THIS INDENTURE AND THE SECURITIES, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. SECTION 10.12. No Adverse Interpretation of Other Agreements. This --------------------------------------------- Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or an Affiliate. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 10.13. Successors. All agreements of the Company in this ---------- Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 10.14. Severability. In case any provision in this Indenture ------------ or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 10.15. Table of Contents, Headings, Etc. The Table of -------------------------------- Contents, Cross-Reference Table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. 60 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. INTERNATIONAL CABLETEL INCORPORATED, as Company By: /s/ Richard J. Lubasch ----------------------------- Name: Richard J. Lubasch Title: Senior Vice President THE CHASE MANHATTAN BANK, as Trustee By: /s/ Andrew M. Deck ----------------------------- Name: Andrew M. Deck Title: Senior Trust Officer 61 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) personally appeared before me, the undersigned authority in and for the said county and state, on this 12th day of February, 1997, within my jurisdiction, the within named Richard J. Lubasch acknowledged that he is Senior Vice President of International CableTel Incorporated, a Delaware corporation, and that for and on behalf of the said corporation, and as its act and deed he executed the above and foregoing instrument, after first having been duly authorized by said corporation so to do. /s/ Maureen P. Murphy --------------------- NOTARY PUBLIC MAUREEN P. MURPHY Notary Public, State of New York No. 24-4798844 Qualified in Richmond County Certificate Filed in New York County Commission Expires March 30, 1997 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) personally appeared before me, the undersigned authority in and for the said county and state, on this 12th day of February, 1997, within my jurisdiction, the within named Andrew M. Deck, who acknowledged that he is a Senior Trust Officer of The Chase Manhattan Bank, and that for and on behalf of the said corporation, and as its act and deed he executed the above and foregoing instrument, after first having been duly authorized by said corporation so to do. /s/ Maureen P. Murphy --------------------- NOTARY PUBLIC MAUREEN P. MURPHY Notary Public, State of New York No. 24-4798844 Qualified in Richmond County Certificate Filed in New York County Commission Expires March 30, 1997 62 EXHIBIT A [FORM OF FACE OF INITIAL NOTE] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO THE 63 EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(2) OF REGULATION S UNDER THE SECURITIES ACT), A CERTIFICATE THAT MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a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c)(2) OF REGULATION S UNDER THE SECURITIES ACT), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. 64 No. ________ $________ CUSIP No. [ ]/CINS No. [ ] 10% SENIOR NOTE DUE 2007 International CableTel Incorporated, a Delaware corporation (the "Company"), promises to pay to __________________________ or registered assigns, the principal sum of ____________________ Dollars $[ ] [,or such other amount as is indicated on Schedule A hereof*/,] on February 15, - 2007, subject to the further provisions of this Senior Note set forth on the reverse hereof which further provisions shall for all purposes have the same effect as if set forth at this place. * Applicable to Global Securities only. Interest Payment Dates: February 15 and August 15, commencing August 15, 1997. Record Dates: February 1 and August 1 IN WITNESS WHEREOF, International CableTel Incorporated has caused this Senior Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. Dated: ______________ INTERNATIONAL CABLETEL INCORPORATED by ________________________________ [Seal] by ________________________________ - ------------------------------- * Applicable to Global Securities only. 65 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the 10% Senior Notes Due 2007 described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee By:______________________________________ Authorized Officer 66 [FORM OF REVERSE OF INITIAL NOTE] INTERNATIONAL CABLETEL INCORPORATED 10% Senior Note Due 2007 1. Interest. INTERNATIONAL CABLETEL INCORPORATED, a Delaware corporation (the "Company"), is the issuer of 10% Senior Notes Due 2007 (the "Senior Notes"). The Senior Notes will accrue interest at a rate of 10% per annum. The Company promises to pay interest on the Senior Notes in cash semiannually on each February 15 and August 15, commencing on August 15, 1997, to holders of record on the immediately preceding February 1 and August 1, respectively. Interest on the Senior Notes will accrue from the most recent date to which interest has been paid, or if no interest has been paid, from February 12, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company will pay interest on overdue principal at the interest rate borne by the Senior Notes, compounded semiannually, and it shall pay interest on overdue installments of interest (without regard to any applicable grace period) at the same interest rate compounded semiannually. Any interest paid on this Senior Note shall be increased to the extent necessary to pay Additional Amounts as set forth in this Senior Note. 2. Special Interest. The holder of this Senior Note is entitled to ---------------- the benefits of the Registration Rights Agreement relating to the Senior Notes, dated as of February 12, 1997, between the Company and the Initial Purchasers (the "Registration Rights Agreement"). In the event that either (a) the Exchange Offer Registration Statement (as such term is defined in the Registration Rights Agreement) is not filed with the SEC on or prior to the 75th day following the date of original issuance of the Senior Notes, (b) the Exchange Offer Registration Statement is not declared effective prior to the 120th day following the date of original issuance of the Senior Notes (as such period may be extended in accordance with the SEC review delay provisions of the Registration Rights Agreement) or (c) the Registered Exchange Offer (as such term is defined in the Registration Rights Agreement) is not consummated or a Shelf Registration Statement (as such term is defined in the Registration Rights Agreement) is not declared effective on or prior to the 160th day following the date of original issuance of the Senior Notes (as such period may be extended in accordance with the SEC review delay provisions of the Registration Rights Agreement) (each such event referred to in clauses (a) through (c) above, a "Registration Default"), interest will accrue (in addition to the stated interest on the Senior Notes) from and including the next day following each of (i) such 75-day period in the case of clause (a) above and (ii) such 120-day period in the case of clause (b) above and (iii) such 160-day period in the case of clause (c) above (in each of cases (b) and (c) as such period is extended, if applicable, in the manner aforesaid) (each such period referred to in clauses (i)-(iii) above an "Accrual Period"), at a rate per annum equal to 0.50% of the principal amount of the Senior Notes (determined daily). The amount of such additional interest (the "Special Interest") will increase by an additional 0.50% of the principal amount with respect to each subsequent applicable Accrual Period until all Registration Defaults have been cured, up to a maximum amount of Special Interest of 1.50% per annum of the principal amount (determined daily). In each case such additional interest will be payable in cash semiannually in arrears on each February 15 and August 15, commencing August 15, 1997, to holders of record on the immediately preceding February 1 and August 1, respectively. 67 In the event that a Shelf Registration Statement is declared effective pursuant to the terms of the Registration Rights Agreement, if the Company fails to keep such Registration Statement continuously effective for the period required by the Registration Rights Agreement, then from such time as the Shelf Registration Statement is no longer effective until the earlier of (i) the date that the Shelf Registration Statement is again deemed effective, (ii) the date that is the third anniversary of the original issuance of the Senior Notes or (iii) the date as of which all of the Senior Notes are sold pursuant to the Shelf Registration Statement, Special Interest shall accrue at a rate per annum equal to 0.50% of the principal amount of the Senior Notes (1.00% thereof if the Shelf Registration Statement is no longer effective for 30 days or more) and shall be payable in cash semiannually in arrears on each February 15 and August 15, commencing August 15, 1997, to the holders of record on the immediately preceding February 1 and August 1, respectively. 3. Additional Amounts. This Section 3 will apply only in the event ------------------ that the Company becomes, or a successor to the Company is, a corporation organized or existing under the laws of England and Wales. All payments made by the Company on this Senior Note will be made without deduction or withholding, for or on account of, any and all present or future taxes, duties, assessments, or governmental charges of whatever nature unless the deduction or withholding of such taxes, duties, assessments or governmental charges is then required by law. If any deduction or withholding 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) shall at any time be required in respect of any amounts to be paid by the Company under this Senior Note, the Company will pay or cause to be paid such additional amounts ("Additional Amounts") as may be necessary in order that the net amounts received by a holder of this Senior Note after such deduction or withholding shall be not less than the amounts specified in this Senior Note to which the holder of this Senior Note is entitled; provided, however, that the Company shall not be required to make any payment of Additional Amounts for or on account of: (a) any tax, assessment or other governmental charge to the extent such tax, assessment or other governmental charge would not have been imposed but for (i) the existence of any present or former connection between such holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of a power over, such holder, if such holder is an estate, nominee, trust, partnership or corporation), other than the holding of this Senior Note or the receipt of amounts payable in respect of this Senior Note and the United Kingdom or any political subdivision or taxing authority thereof or therein, including, without limitation, such holder (or such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or having been a citizen or resident thereof or being or having been present or engaged in trade or business therein or having or having had a permanent establishment therein or (ii) the presentation of this Senior Note (where presentation is required) for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later, except to the extent that the holder would have been entitled to Additional Amounts had this Senior Note been presented on the last day of such period of 30 days; (b) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure to comply by the holder of this Senior Note or, if different, the beneficial owner of the interest payable on this Senior Note, with a timely request of the Company addressed to such holder or beneficial owner to provide information, documents or other evidence concerning the nationality, residence, identity or connection with the taxing jurisdiction of such 68 holder or beneficial owner which is required or imposed by a statute, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax, assessment or governmental charge; (c) any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or other governmental charge; (d) any tax, assessment or other governmental charge which is collectible otherwise than by withholding from payments of principal amount, redemption amount, Change of Control Payment or interest with respect to a Senior Note or withholding from the proceeds of a sale or exchange of a Senior Note; (e) any tax, assessment or other governmental charge required to be withheld by any Paying Agent from any payment of principal amount, redemption amount, Change of Control Payment or interest with respect to a Senior Note, if such payment can be made without such withholding by any other Paying Agent located inside the United States; (f) any tax, assessment or other governmental charge imposed on a holder that is not the beneficial owner of a Senior Note to the extent that the beneficial owner would not have been entitled to the payment of any such Additional Amounts had the beneficial owner directly held the Senior Note; (g) any combination of items (a), (b), (c), (d), (e) and (f) above; nor shall Additional Amounts be paid with respect to any payment of the principal of, or any interest on, this Senior Note to any holder who is a fiduciary or partnership or other than the sole beneficial owner of such payment to the extent that a beneficiary or settlor would not have been entitled to any Additional Amounts had such beneficiary or settlor been the holder of this Senior Note. All references to principal amount or interest on the Senior Notes in the Indenture or the Senior Notes shall include any Additional Amounts payable to the Company pursuant to this Section 3. 4. Method of Payment. The Company will pay interest on the Senior ----------------- Notes (except defaulted interest) to the persons who are registered holders of Senior Notes at the close of business on the record date for the next interest payment date even though Senior Notes are canceled after the record date and on or before the interest payment date. Noteholders must surrender Senior Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a holder's registered address. If a holder so requests, principal and interest may be paid by wire transfer of immediately available funds to an account previously specified in writing by such holder to the Company and the Trustee. 5. Paying Agent and Registrar. The Trustee will act as Paying Agent -------------------------- and Registrar. The Company may change any Paying Agent, Registrar or co- registrar without prior notice. The Company or any of its Affiliates may act in any such capacity. 6. Indenture. The Company issued the Senior Notes under an --------- Indenture, dated as of February 12th, 1997 (the "Indenture") between the Company and The Chase Manhattan Bank, as 69 Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. The Senior Notes are subject to, and qualified by, all such terms, certain of which are summarized hereon, and Noteholders are referred to the Indenture and such Act for a statement of such terms. The Senior Notes are unsecured general obligations of the Company limited to $400,000,000 in aggregate principal amount. 7. Optional Redemption. Except as provided in Section 8 hereof, the ------------------- Senior Notes are not redeemable at the Company's option prior to February 15, 2002. Thereafter, the Senior Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount ) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on February 15 of the years indicated below: Year Percentage ---- ---------- 2002 .......................................... 105.000% 2003 .......................................... 103.333% 2004 .......................................... 101.667% 2005 and thereafter ........................... 100.000% 8. Optional Tax Redemption. (a) The Senior Notes may be redeemed at ----------------------- the option of the Company, in whole but not in part, upon not less than 30 nor more than 60 days notice, at any time at a redemption price equal to the principal amount thereof plus accrued and unpaid interest to the date fixed for redemption if after the date on which Section 3 of this Senior Note becomes applicable (the "Relevant Date") there has occurred any change in or amendment to the laws (or any regulations or official rulings promulgated thereunder) of the United Kingdom (or any political subdivision or taxing authority thereof or therein), or any change in or amendment to the official application or interpretation of such laws, regulation or rulings (a "Change in Tax Law") which becomes effective after the Relevant Date, as a result of which the Company is or would be so required on the next succeeding Interest Payment Date to pay Additional Amounts with respect to the Senior Notes as described under Section 3 hereof with respect to withholding taxes imposed by the United Kingdom (or any political subdivision or taxing authority thereof or therein)(a "U.K. Withholding Tax") and such U.K. Withholding Tax is imposed at a rate that exceeds the rate (if any) at which U.K. Withholding Tax was imposed on the Relevant Date, provided, however, that (i) this paragraph shall not apply to the extent that, at the Relevant Date it was known or would have been known had professional advice of a nationally recognized accounting firm in the United Kingdom been sought, that a Change in Tax Law in the United Kingdom was to occur after the Relevant Date, (ii) no such notice of redemption may be given earlier than 90 days prior to the earliest date on which the Company would be obliged to pay such Additional Amounts were a payment in respect of the Senior Notes then due, (iii) at the time such notice of redemption is given, such obligation to pay such Additional Amount remains in effect and (iv) the payment of such Additional Amounts cannot be avoided by the use of any reasonable measures available to the Company. (b) The Senior Notes may also be redeemed, in whole but not in part, at any time at a redemption price equal to the principal amount thereof plus accrued and unpaid interest to the date fixed for redemption if the person formed after the Relevant Date by a consolidation, amalgamation, reorganization or reconstruction (or other similar arrangement) of the Company or the person into which the Company is merged after the Relevant Date or to which the Company conveys, transfers or leases its 70 properties and assets after the Relevant Date substantially as an entirety (collectively, a "Subsequent Consolidation") is required, as a consequence of such Subsequent Consolidation and as a consequence of a Change in Tax Law in the United Kingdom occurring after the date of such Subsequent Consolidation to pay Additional Amounts with respect to Senior Notes with respect to U.K. Withholding Tax as described under Section 3 hereof and such U.K. Withholding Tax is imposed at a rate that exceeds the rate (if any) at which U.K. Withholding Tax was or would have been imposed on the date of such Subsequent Consolidation, provided, however, that this paragraph shall not apply to the extent that, at the date of such Subsequent Consolidation it was known or would have been known had professional advice of a nationally recognized accounting firm in the United Kingdom been sought, that a Change in Tax Law in the United Kingdom was to occur after such date. The Company will also pay, or make available for payment, to holders on the Redemption Date any Additional Amounts (as described, but subject to the exceptions referred to, in Section 3 hereof) resulting from the payment of such Redemption Price. 9. Notice of Redemption. Notice of redemption will be mailed at -------------------- least 30 days but not more than 60 days before the redemption date to each holder of the Senior Notes to be redeemed at his address of record. The Senior Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000. In the event of a redemption of less than all of the Senior Notes, the Senior Notes will be chosen for redemption by the Trustee in accordance with the Indenture. On and after the redemption date, interest ceases to accrue on the Senior Notes or portions of them called for redemption. If this Senior Note is redeemed subsequent to a record date with respect to any interest payment date specified above and on or prior to such interest payment date, then any accrued interest will be paid to the person in whose name this Senior Note is registered at the close of business on such record date. 10. Mandatory Redemption. Except as set forth in Sections 4.10 and -------------------- 4.13 of the Indenture, the Company will not be required to make mandatory redemption or repurchase payments with respect to the Senior Notes. There are no sinking fund payments with respect to the Senior Notes. 11. Repurchase at Option of Holder. (a) If there is a Change of ------------------------------ Control Triggering Event, the Company shall be required to offer to purchase on the Purchase Date all outstanding Senior Notes at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the Purchase Date. Noteholders of Senior Notes that are subject to an offer to purchase will receive a Change of Control offer from the Company prior to any related Purchase Date and may elect to have such Senior Notes or portions thereof in authorized denominations purchased by completing the form entitled "Option of Noteholder to Elect Purchase" appearing below. (b) If the Company or a Subsidiary consummates any Asset Sales, and when the aggregate amount of Excess Proceeds from such Asset Sales exceeds $15 million, the Company shall be required to make an offer (an "Asset Sale Offer") to all holders of the Senior Notes and Other Qualified Notes to purchase the maximum principal amount of Senior Notes and Other Qualified Notes (determined on a pro rata basis according to the principal amount or accreted value, as the case may be, of the Senior Notes and the Other Qualified Notes; provided, however, that the asset sale offer must be made first to the holders of the Applicable Notes) that may be purchased out of the Excess Proceeds, if any, remaining after the consummation of an asset sale offer made to holders of the Applicable Notes, with respect to the 71 Senior Notes at an offer price in cash in an amount equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer. To the extent that the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the aggregate principal amount or accreted value, as the case may be, of Senior Notes and Other Qualified Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, if any, remaining after the consummation of an asset sale offer made to holders of the Applicable Notes, then any remaining Excess Proceeds will be allocated pro rata according to principal amount or accreted value, as the case may be, to the Senior Notes and each issue of the Other Qualified Notes and, the Trustee will select the Senior Notes to be purchased in accordance with Section 3.08(e) of the Indenture. Upon completion of such offer to purchase, the amount of Excess Proceeds will be reset at zero. 12. Denominations, Transfer, Exchange. The Senior Notes are in --------------------------------- registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered, and Senior Notes may be exchanged, as provided in the Indenture. The Registrar may require a Noteholder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Senior Note or portion of a Senior Note selected for redemption (except the unredeemed portion of any Senior Note being redeemed in part). Also, it need not exchange or register the transfer of any Senior Note for a period of 15 days before a selection of Senior Notes to be redeemed. 13. Persons Deemed Owners. Except as provided in paragraph 4 of this --------------------- Senior Note, the registered Noteholder of a Senior Note may be treated as its owner for all purposes. 14. Unclaimed Money. If money for the payment of principal or --------------- interest remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Company at its written request. After that, Noteholders of Senior Notes entitled to the money must look to the Company for payment unless an abandoned property law designates another person and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 15. Defaults and Remedies. The Senior Notes shall have the Events of --------------------- Default set forth in Section 6.01 of the Indenture. Subject to certain limitations in the Indenture, if an Event of Default occurs and is continuing, the Trustee by notice to the Company or the Noteholders of at least 25% in aggregate principal amount of the then outstanding Senior Notes by notice to the Company and the Trustee may declare all the Senior Notes to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all unpaid principal and interest accrued on the Senior Notes shall become due and payable immediately without further action or notice. The Noteholders of a majority in principal amount of the Senior Notes then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. Noteholders may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Noteholders of a majority in principal amount of the then outstanding Senior Notes issued under the Indenture may direct the Trustee in its exercise of any trust or power. The Company must furnish annually compliance certificates to the Trustee. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 72 16. Amendments, Supplements and Waivers. Subject to certain ----------------------------------- exceptions, the Indenture or the Senior Notes may be amended or supplemented with the consent of the Noteholders of at least a majority in principal amount of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for Senior Notes), and any existing default may be waived with the consent of the Noteholders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Noteholder, the Indenture or the Senior Notes may be amended among other things, to cure any ambiguity, defect or inconsistency, to provide for assumption of the Company's obligations to Noteholders, to make any change that does not adversely affect the rights of any Noteholder or to qualify the Indenture under the TIA or to comply with the requirements of the SEC in order to maintain the qualification of the Indenture under the TIA. 17. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Subsidiaries to, among other things, engage in certain transactions with Affiliates, incur additional indebtedness and make payments in respect of Capital Stock. The limitations are subject to a number of important qualifications and exceptions. 18. Trustee Dealings with the Company. The Trustee, in its --------------------------------- individual or any other capacity may become the owner or pledgee of the Senior Notes and may otherwise deal with the Company or an Affiliate with the same rights it would have, as if it were not Trustee, subject to certain limitations provided for in the Indenture and in the TIA. Any Agent may do the same with like rights. 19. No Recourse Against Others. A director, officer, employee or -------------------------- stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Noteholder of the Senior Notes by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Senior Notes. 20. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL ------------- GOVERN THE INDENTURE AND THE SENIOR NOTES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. 21. Authentication. The Senior Notes shall not be valid until -------------- authenticated by the manual signature of an authorized officer of the Trustee or an authenticating agent. 22. Abbreviations. Customary abbreviations may be used in the name ------------- of a Noteholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (- Custodian), and UGMA (= Uniform Gifts to Minors Act). The Company will furnish to any Noteholder of the Senior Notes upon written request and without charge a copy of the Indenture. Request may be made to: International CableTelIncorporated 110 East 59th Street, 6th Floor New York, New York 10022 Attention of: Richard J. Lubasch, Esq. General Counsel 73 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to - -------------------------------------------------------------------------------- (Insert assignee's social security or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint __________________________________________ agent to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Your Signature: ______________________________________________ (Sign exactly as your name appears on the other side of this Senior Note) Date: __________________ Signature Guarantee: *____________________________________________ In connection with any transfer of any of the Senior Notes evidenced by this certificate occurring prior to the date that is three years after the later of the date of original issuance of such Senior Notes and the last date, if any, on which such Senior Notes were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Senior Notes are being transferred: CHECK ONE BOX BELOW (1) [ ] to the Company; or (2) [ ] pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (3) [ ] pursuant to and in compliance with Regulation S under the Securities Act of 1933; or - ------------------ *. Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 74 (4) [ ] to an institutional "accredited investor" (as defined in Schedule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (5) [ ] pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Senior Notes evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (3), (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Senior Notes such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. --------------------------------- Signature Signature Guarantee* - ------------------------- ---------------------------------- Signature must be guaranteed Signature - -------------------------------------------------------------------------------- TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Senior Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: _____________________ ____________________________________ - ----------------------- *. Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 75 NOTICE: To be executed by an executive officer 76 OPTION OF NOTEHOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note or a portion thereof repurchased by the Company pursuant to Section 3.08, 4.10 or 4.13 of the Indenture, check the box: [ ] If the purchase is in part, indicate the portion (in denominations of $1,000 or any integral multiple thereof) to be purchased:______________________ Your Signature: _____________________________________________________ (Sign exactly as your name appears on the other side of this Senior Note) Date: ________________________ Signature Guarantee:**/ -- ___________________ **. Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 77 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE A SCHEDULE OF PRINCIPAL AMOUNT The initial principal amount of this Global Security shall be $__________________. The following increases or decreases in the principal amount of this Global Security have been made:
Amount of decrease in Amount of increase in Principal amount of Signature of authorized principal amount of principal amount of this Global Security officer of Trustee or Date of exchange this Global Security this Global Security following such decrease Securities Custodian or increase - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- ====================================================================================================================================
78 EXHIBIT B [FORM OF FACE OF EXCHANGE NOTE] [Global Securities Legend. if applicable] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. 79 No.___________ $ - CUSIP No. [ ]CINS No. [ ] 10% SERIES B SENIOR NOTE DUE 2007 International CableTel Incorporated, a Delaware corporation (the "Company") promises to pay to _____________________________________________ or registered assigns, the principal sum of [ ] Dollars $[ ] [or such other amount as is indicated on Schedule A hereof] ***** on February 15, 2007, subject to the further provisions of this Senior Note set forth on the reverse hereof which further provisions shall for all purposes have the same effect as if set forth at this place. Interest Payment Dates: February 15 and August 15, commencing August 15, 1997 Record Dates: February 1 and August 1 IN WITNESS WHEREOF, International CableTel Incorporated has caused this Senior Note to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon. Dated: ________________ INTERNATIONAL CABLETEL INCORPORATED, by _____________________________________ by _____________________________________ [Seal] - ------------------------------ ***** Applicable to Global Securities only. 80 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the 10% Series B Senior Notes described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee By: ________________________________ Authorized Officer 81 (FORM OF REVERSE OF EXCHANGE NOTE) INTERNATIONAL CABLETEL INCORPORATED 10% Series B Senior Note Due 2007 1. Interest. INTERNATIONAL CABLETEL INCORPORATED, a Delaware -------- corporation (the "Company"), is the issuer of 10% Series B Senior Notes Due 2007 (the "Senior Notes"). The Senior Notes will accrue interest at a rate of 10% per annum. The Company promises to pay interest on the Senior Notes in cash semiannually on each February 15 and August 15, commencing August 15, 1997, to holders of record on the immediately preceding February 1 and August 1, respectively, at the rate of 10% per annum. Interest on the Senior Notes will accrue from the most recent date to which interest has been paid, or if no interest has been paid, from February 12, 1997. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company will pay interest on overdue principal at the interest rate borne by the Senior Notes, compounded semiannually, and it shall pay interest on overdue installments of interest (without regard to any applicable grace period) at the same interest rate compounded semiannually. Any interest paid on this Senior Note shall be increased to the extent necessary to pay Additional Amounts as set forth in this Senior Note. 2. Additional Amounts. This Section 2 will apply only in the event ------------------ that the Company becomes, or a successor to the Company is. a corporation organized or existing under the laws of England and Wales. All payments made by the Company on this Senior Note will be made without deduction or withholding, for or on account of, any and all present or future taxes, duties, assessments, or governmental charges of whatever nature unless the deduction or withholding of such taxes, duties, assessments or governmental charges is then required by law. If any deduction or withholding 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) shall at any time be required in respect of any amounts to be paid by the Company under this Senior Note, the Company will pay or cause to be paid such additional amounts ("Additional Amounts") as may be necessary in order that the net amounts received by a holder of this Senior Note after such deduction or withholding shall be not less than the amounts specified in this Senior Note to which the holder of this Senior Note is entitled; provided, however, that the Company -------- ------- shall not be required to make any payment of Additional Amounts for or on account of: (a) any tax, assessment or other governmental charge to the extent such tax, assessment or other governmental charge would not have been imposed but for (i) the existence of any present or former connection between such holder (or between a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of a power over, such holder, if such holder is an estate, nominee, trust, partnership or corporation), other than the holding of this Senior Note or the receipt of amounts payable in respect of this Senior Note and the United Kingdom or any political subdivision or taxing authority thereof or therein, including, without limitation, such holder (or such fiduciary, settlor, beneficiary, member, shareholder or possessor) being or having been a citizen or resident thereof or being or having been present or engaged in trade or business therein or having or having had a permanent establishment therein or (ii) the presentation of this Senior Note (where presentation is required) for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever occurs later, except to the extent that the holder would have been entitled 82 to Additional Amounts had this Senior Note been presented on the last day of such period of 30 days; (b) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure to comply by the holder of this Senior Note or, if different, the beneficial owner of the interest payable on this Senior Note, with a timely request of the Company addressed to such holder or beneficial owner to provide information, documents or other evidence concerning the nationality, residence, identity or connection with the taxing jurisdiction of such holder or beneficial owner which is required or imposed by a statute, regulation or administrative practice of the taxing jurisdiction as a precondition to exemption from all or part of such tax, assessment or governmental charge; (c) any estate, inheritance, gift, sales, transfer, personal property or similar tax, assessment or other governmental charge; (d) any tax, assessment or other governmental charge which is collectible otherwise than by withholding from payments of principal amount, redemption amount, Change of Control Payment or interest with respect to a Senior Note or withholding from the proceeds of a sale or exchange of a Senior Note; (e) any tax, assessment or other governmental charge required to be withheld by any Paying Agent from any payment of principal amount, redemption amount, Change of Control Payment or interest with respect to a Senior Note, if such payment can be made without such withholding by any other Paying Agent located inside the United States; (f) any tax, assessment or other governmental charge imposed on a holder that is not the beneficial owner of a Senior Note to the extent that the beneficial owner would not have been entitled to the payment of any such Additional Amounts had the beneficial owner directly held the Senior Note; (g) any combination of items (a), (b), (c), (d), (e) and (f) above; nor shall Additional Amounts be paid with respect to any payment of the principal of, or any interest on, this Senior Note to any holder who is a fiduciary or partnership or other than the sole beneficial owner of such payment to the extent that a beneficiary or settlor would not have been entitled to any Additional Amounts had such beneficiary or settlor been the holder of this Senior Note. All references to principal amount or interest on the Senior Notes in the Indenture or the Senior Notes shall include any Additional Amounts payable to the Company pursuant to this Section 2. 3. Method of Payment. The Company will pay interest on the Senior ----------------- Notes (except defaulted interest) to the persons who are registered holders of Senior Notes at the close of business on the record date for the next interest payment date even though Senior Notes are canceled after the record date and on or before the interest payment date. Noteholders must surrender Senior Notes to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. However, the Company may pay principal and interest by check payable in such money. It may mail an interest check to a holder's registered address. If a holder so requests, principal and interest may be paid by wire 83 transfer of immediately available funds to an account previously specified in writing by such holder to the Company and the Trustee. 4. Paying Agent and Registrar. The Trustee will act as Paying Agent -------------------------- and Registrar. The Company may change any Paying Agent, Registrar or co- registrar without prior notice. The Company or any of its Affiliates may act in any such capacity. 5. Indenture. The Company issued the Senior Notes under an --------- indenture, dated as of February 12, 1997 (the "Indenture") between the Company and The Chase Manhattan Bank, as Trustee. The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. The Senior Notes are subject to, and qualified by, all such terms, certain of which are summarized hereon, and Noteholders are referred to the Indenture and such Act for a statement of such terms. The Senior Notes are unsecured general obligations of the Company limited to $400,000,000 in aggregate principal amount. 6. Optional Redemption. Except as provided in Section 7 herein, the ------------------- Senior Notes are not redeemable at the Company's option prior to February 15, 2002. Thereafter, the Senior Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on February 15 of the years indicated below: Year Percentage ---- ---------- 2002 ........................................ 105.000% 2003 ........................................ 103.333% 2004 ........................................ 101.667% 2005 and thereafter ......................... 100.000% 7. Optional Tax Redemption. (a) The Senior Notes may be redeemed at ----------------------- the option of the Company, in whole but not in part, upon not less than 30 nor more than 60 days notice, at any time at a redemption price equal to the principal amount thereof plus accrued and unpaid interest to the date fixed for redemption if after the date on which Section 2 of this Senior Note becomes applicable (the "Relevant Date") there has occurred any change in or amendment to the laws (or any regulations or official rulings promulgated thereunder) of the United Kingdom (or any political subdivision or taxing authority thereof or therein), or any change in or amendment to the official application or interpretation of such laws, regulations or rulings (a "Change in Tax Law") which becomes effective after the Relevant Date, as a result of which the Company is or would be so required on the next succeeding Interest Payment Date to pay Additional Amounts with respect to the Senior Notes as described under Section 2 hereof with respect to withholding taxes imposed by the United Kingdom (or any political subdivision or taxing authority thereof or therein) (a "U.K. Withholding Tax') and such U.K. Withholding Tax is imposed at a rate that exceeds the rate (if any) at which U.K. Withholding Tax was imposed on the Relevant Date, provided, however, that (i) this paragraph shall not apply to the -------- ------- extent that, at the Relevant Date it was known or would have been known had professional advice of a nationally recognized accounting firm in the United Kingdom been sought, that a change in Tax Law in the United Kingdom was to occur after the Relevant Date, (ii) no such notice of redemption may be given earlier than 90 days 84 prior to the earliest date on which the Company would be obliged to pay such Additional Amounts were a payment in respect of the Senior Notes then due, (iii) at the time such notice of redemption is given, such obligation to pay such Additional Amount remains in effect and (iv) the payment of such Additional Amounts cannot be avoided by the use of any reasonable measures available to the Company. (b) The Senior Notes may also be redeemed, in whole but not in part, at any time at a redemption price equal to the principal amount thereof plus accrued and unpaid interest to the date fixed for redemption if the person formed after the Relevant Date by a consolidation, amalgamation, reorganization or reconstruction (or other similar arrangement) of the Company or the person into which the Company is merged after the Relevant Date or to which the Company conveys, transfers or leases its properties and assets after the Relevant Date substantially as an entirety (collectively, a "Subsequent Consolidation") is required, as a consequence of such Subsequent Consolidation and as a consequence of a Change in Tax Law in the United Kingdom occurring after the date of such Subsequent Consolidation to pay Additional Amounts with respect to Senior Notes with respect to U.K. Withholding Tax as described under Section 2 hereof and such U.K. Withholding Tax is imposed at a rate that exceeds the rate (if any) at which U.K. Withholding Tax was or would have been imposed on the date of such Subsequent Consolidation, provided, however, that this paragraph shall not apply -------- ------- to the extent that, at the date of such Subsequent Consolidation it was known or would have been known had professional advice of a nationally recognized accounting firm in the United Kingdom been sought, that a Change in Tax Law in the United Kingdom was to occur after such date. The Company will also pay, or make available for payment, to holders on the Redemption Date any Additional Amounts (as described, but subject to the exceptions referred to, in Section 2 hereof) resulting from the payment of such Redemption Price. 8. Notice of Redemption. Notice of redemption will be mailed at -------------------- least 30 days but not more than 60 days before the redemption date to each holder of the Senior Notes to be redeemed at his address of record. The Senior Notes in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000. In the event of a redemption of less than all of the Senior Notes, the Senior Notes will be chosen for redemption by the Trustee in accordance with the Indenture. On and after the redemption date, interest ceases to accrue on the Senior Notes or portions of them called for redemption. If this Senior Note is redeemed subsequent to a record date with respect to any interest payment date specified above and on or prior to such interest payment date, then any accrued interest will be paid to the person in whose name this Senior Note is registered at the close of business on such record date. 9. Mandatory Redemption. Except as set forth in Sections 4.10 and -------------------- 4.13 of the Indenture, the Company will not be required to make mandatory redemption or repurchase payments with respect to the Senior Notes. There are no sinking fund payments with respect to the Senior Notes. 10. Repurchase at Option of Holder. (a) If there is a Change of ------------------------------ Control Triggering Event, the Company shall be required to offer to purchase on the Purchase Date all outstanding Senior Notes at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the Purchase Date. Noteholders of Senior Notes that are subject to an offer to purchase will receive a Change of Control offer from the Company prior to any related Purchase Date and may 85 elect to have such Senior Notes or portions thereof in authorized denominations purchased by completing the form entitled "Option of Noteholder to Elect Purchase" appearing below. (b) If the Company or a Subsidiary consummates any Asset Sales, and when the aggregate amount of Excess Proceeds from such Asset Sales exceeds $15 million, the Company shall be required to make an offer (an "Asset Sale Offer") to all holders of the Senior Notes and Other Qualified Notes to purchase the maximum principal amount of Senior Notes and other Qualified Notes (determined on a pro rata basis according to the principal amount or accreted value, as the case may be, of the Senior Notes and the Other Qualified Notes; provided, -------- however, that the asset sale offer must be made first to the holders of the - ------- Applicable Notes) that may be purchased out of the Excess Proceeds, if any, remaining after the consummation of an asset sale offer made to the holders of the Applicable Notes with respect to the Senior Notes at an offer price in cash in an amount equal to 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer. To the extent that the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company may use such deficiency for general corporate purposes. If the aggregate principal amount or accreted value, as the case may be, of Senior Notes and Other Qualified Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, if any, remaining after the consummation of an asset sale offer made to the holders of the Applicable Notes, then any remaining Excess Proceeds will be allocated pro rata according to principal amount or accreted value, as the case may be, to the Senior Notes and each issue of the Other Qualified Notes and, the Trustee will select the Senior Notes to be purchased in accordance with Section 3.08(e) of the Indenture. Upon completion of such offer to purchase, the amount of Excess Proceeds will be reset at zero. 11. Denominations, Transfer, Exchange. The Senior Notes are in --------------------------------- registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. The transfer of Senior Notes may be registered, and Senior Notes may be exchanged, as provided in the Indenture. The Registrar may require a Noteholder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Senior Note or portion of a Senior Note selected for redemption (except the unredeemed portion of any Senior Note being redeemed in part). Also, it need not exchange or register the transfer of any Senior Note for a period of 15 days before a selection of Senior Notes to be redeemed. 12. Persons Deemed Owners. Except as provided in paragraph 3 of this --------------------- Senior Note, the registered Noteholder of a Senior Note may be treated as its owner for all purposes. 13. Unclaimed Money. If money for the payment of principal or --------------- interest remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Company at its written request. After that, Noteholders of Senior Notes entitled to the money must look to the Company for payment unless an abandoned property law designates another person and all liability of the Trustee and such Paying Agent with respect to such money shall cease. 14. Defaults and Remedies. The Senior Notes shall have the Events of --------------------- Default as set forth in Section 6.01 of the Indenture. Subject to certain limitations in the Indenture, if an Event of Default occurs and is continuing, the Trustee by notice to the Company or the Noteholders of at least 25% in aggregate principal amount of the then outstanding Senior Notes by notice to the Company and the Trustee may declare all the Senior Notes to be due and payable immediately, except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all unpaid principal and 86 interest accrued on the Senior Notes shall become due and payable immediately without further action or notice. The Noteholders of a majority in principal amount of the Senior Notes then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. Noteholders may not enforce the Indenture or the Senior Notes as provided in the Indenture. Subject to certain limitations, Noteholders of a majority in principal amount of the then outstanding Senior Notes issued under the Indenture may direct the Trustee in its exercise of any trust or power. The Company must furnish annually compliance certificates to the Trustee. The above description of Events of Default and remedies is qualified by reference, and subject in its entirety, to the more complete description thereof contained in the Indenture. 15. Amendments, Supplements and Waivers. Subject to certain ----------------------------------- exceptions, the Indenture or the Senior Notes may be amended or supplemented with the consent of the Noteholders of at least a majority in principal amount of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for Senior Notes), and any existing default may be waived with the consent of the Noteholders of a majority in principal amount of the then outstanding Senior Notes. Without the consent of any Noteholder, the Indenture or the Senior Notes may be amended among other things, to cure any ambiguity, defect or inconsistency, to provide for assumption of the Company's obligations to Noteholders, to make any change that does not adversely affect the rights of any Noteholder or to qualify the Indenture under the TIA or to comply with the requirements of the SEC in order to maintain the qualification of the Indenture under the TIA. 16. Restrictive Covenants. The Indenture imposes certain limitations --------------------- on the ability of the Company and its Subsidiaries to, among other things, engage in certain transactions with Affiliates, incur additional Indebtedness and make payments in respect of Capital Stock. The limitations are subject to a number of important qualifications and exceptions. 17. Trustee Dealings with the Company. The Trustee, in its --------------------------------- individual or any other capacity may become the owner or pledgee of the Senior Notes and may otherwise deal with the Company or an Affiliate with the same rights it would have, as if it were not Trustee, subject to certain limitations provided for in the Indenture and in the TIA. Any Agent may do the same with like rights. 18. No Recourse Against Others. A director, officer, employee or -------------------------- stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Senior Notes or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Noteholder of the Senior Notes by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Senior Notes. 19. Governing Law. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL ------------- GOVERN THE INDENTURE AND THE SENIOR NOTES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. 20. Authentication. The Senior Notes shall not be valid until -------------- authenticated by the manual signature of an authorized officer of the Trustee or an authenticating agent. 21. Abbreviations. Customary abbreviations may be used in the name ------------- of a Noteholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT 87 TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and UGMA (= Uniform Gifts to Minors Act). The Company will furnish to any Noteholder of the Senior Notes upon written request and without charge a copy of the Indenture. Request may be made to: International CableTel Incorporated 110 East 59th Street, 26th Floor New York, New York 10022 Attention of:Richard J. Lubasch, Esq. General Counsel 88 ASSIGNMENT FORM To assign this Senior Note, fill in the form below: (I) or (we) assign and transfer this Senior Note to ______________________________________ (Insert assignee's social security or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ______________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint __________________________________________ agent to transfer this Senior Note on the books of the Company. The agent may substitute another to act for him. Your Signature:________________________________________ (Sign exactly as your name appears on the other side of this Senior Note) Date: __________________ Signature Guarantee: ** ______________________________ - -------------- **. Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 89 OPTION OF NOTEHOLDER TO ELECT PURCHASE If you want to elect to have this Senior Note or a portion thereof repurchased by the Company pursuant to Section 3.08, 4.10 or 4.13 of the Indenture, check the box: [ ] If the purchase is in part, indicate the portion (in denominations of $1,000 or any integral multiple thereof) to be purchased: _____________________ Your Signature: _____________________________________________ (Sign exactly as your name appears on the other side of this Senior Note) Date: ________________________ Signature Guarantee:*** _____________________ ***. Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 90 SCHEDULE A SCHEDULE OF PRINCIPAL AMOUNT The principal amount of this Global Security shall be $_________. The following increases or decreases in the principal amount of this Global Security have been made:
Amount of decrease in Amount of increase in Principal amount of Signature of authorized principal amount of principal amount of this Global Security officer of Trustee or Date of exchange this Global Security this Global Security following such decrease Securities Custodian or increase - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- ====================================================================================================================================
91 EXHIBIT C FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM RULE 144A GLOBAL SECURITY OR IAI GLOBAL SECURITY TO REGULATION S TEMPORARY GLOBAL SECURITY (Transfers pursuant to (S) 2.06(a)(ii) of the Indenture) The Chase Manhattan Bank, as Trustee 450 West 33rd Street New York, New York 10001 Attn: Corporate Trustee Administration Department Re: International CableTel Incorporated 10% Senior Notes Due 2007 (the "Senior Notes") ---------------------------------------------- Reference is hereby made to the Indenture dated as of February 12, 1997 (the "Indenture") between International CableTel Incorporated, as Issuer, and The Chase Manhattan Bank, as Trustee. This letter relates to U.S. $[ ] aggregate principal amount of Senior Notes which are held in the form of the [Rule 144A Global Security (CUSIP No. [ ])] [IAI Global Security (CUSIP No. [ ])] with the Depositary in the name of [name of transferor] (the "Transferor") to effect the transfer of the Senior Notes in exchange for an equivalent beneficial interest in the Regulation S Temporary Global Securities. In connection with such request, the Transferor does hereby certify that such transfer has been effected in accordance with the transfer restrictions set forth in the Senior Notes and (i) with respect to transfers made in reliance on Regulation S, does hereby certify that: (1) the offer of the Senior Notes was not made to a person in the United States; (2) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither the Transferor nor any person acting on its behalf knows that the transaction was pre-arranged with a buyer in the United States; (3) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or 904(b) of Regulation S, as applicable; and (4) the transaction is not part of a plan or scheme to evade the registration requirements of the United States Securities Act of 1933, as amended (the "Securities Act"); (ii) with respect to transfers made in reliance on Rule 144 does hereby certify that the Senior Notes are being transferred in a transaction permitted by Rule 144 under the Securities Act; (iii) with respect to transfers made in reliance on Rule 144A, does hereby certify that such Senior Notes are being transferred in accordance with Rule 144A under the Securities Act to a transferee that the Transferor reasonably believes is purchasing the Senior Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified 92 institutional buyer" within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A and in accordance with applicable securities laws of any state of the United States or any other jurisdiction; and (iv) with respect to transfers made in reliance on Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act does hereby certify that such Senior Notes are being transferred to a transferee that the Transferor reasonably believes is purchasing the Senior Notes for its own account or an account as to which the transferee exercises sole investment discretion and the transferee and any such account is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act and in accordance with applicable securities laws of any state, of the United States or any other jurisdiction. In addition, if the sale is made during a restricted period and the provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1) of Regulation S are applicable thereto, we confirm that such sale has been made in accordance with the applicable provisions of Rule 903(c)(2) or (3) or Rule 904(c)(1), as the case may be. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Capitalized terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S. [Name of Transferor] By:___________________________ Name: Title: Date: cc: International CableTel Incorporated 110 East 59th Street New York, New York 10022 Attn: Richard J. Lubasch, Esq. General Counsel 93 EXHIBIT D FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM REGULATION S TEMPORARY GLOBAL SECURITY TO RULE 144A GLOBAL SECURITY OR IAI GLOBAL SECURITY (Transfers pursuant to (S) 2.06(a)(iii) of the Indenture) The Chase Manhattan Bank, as Trustee 450 West 33rd Street New York, New York 10001 Attn: Corporate Trustee Administration Department Re: International CableTel Incorporated 10% Senior Notes Due 2007 (the "Senior Notes") ----------------------------------- Reference is hereby made to the Indenture dated as of February 12, 1997 (the "Indenture) between International CableTel Incorporated, as Issuer, and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined herein shall have the respective meanings given them in the Indenture. This letter relates to U.S. $[ ] aggregate principal amount of Senior Notes which are held in the form of the Regulation S Temporary Global Security (CINS No. [ ]) with the Depositary in the name of [name of transferor] (the "Transferor") to effect the transfer of the Senior Notes in exchange for an equivalent beneficial interest in the [Rule 144AI/AI] Global Security. In connection with such request, and in respect of such Senior Notes the Transferor does hereby certify that such Senior Notes are being transferred in accordance with (i) the transfer restrictions set forth in the Senior Notes and (ii) [Rule 144A under the United States Securities Act of 1933, as amended, to a transferee that the Transferor reasonably believes is purchasing the Senior Notes for its own account or an account with respect to which the transferee exercises sole investment discretion and the transferee and any such account is a "qualified institutional buyer" within the meaning of Rule 144A, in a transaction meeting the requirements of Rule 144A and] [to a transferee that the Transferor reasonably believes is purchasing the Senior Notes for its own account or an account as to which the transferee exercises sole investment discretion and the transferee and any such account is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D and] in accordance with applicable securities laws of any state of the United States or any other jurisdiction. 94 [Name of Transferor], By:___________________________ Name: Title: Dated: cc: International CableTel Incorporated 110 East 59th Street New York, New York 10022 Attn: Richard J. Lubasch, Esq. General Counsel 95 EXHIBIT E FORM OF TRANSFER CERTIFICATE FOR TRANSFER FROM GLOBAL SECURITY OR RESTRICTED SECURITY TO RESTRICTED SECURITY (Transfers pursuant to (S) 2.06(a)(iv) or (S) 2.06(a)(v) of the Indenture) The Chase Manhattan Bank, as Trustee 450 West 33rd Street New York, New York 10001 Attn: Corporate Trustee Administration Department Re: International CableTel Incorporated 10% Senior Notes Due 2007 (the "Senior Notes") ----------------------------------- Reference is hereby made to the Indenture dated as of February 12, 1997 (the "Indenture) between International CableTel Incorporated, as Issuer, and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined herein shall have the respective meanings given them in the Indenture. This letter relates to U.S. $[ ] aggregate principal amount of Senior Notes which are held [in the form of the [Rule 144A/IAI/Regulation S] [Global] [Restricted] Security (CUSIP No. [ ] CINS No. [ ]) with the Depositary in the name of [name of transferor] (the "Transferor") to effect the transfer of the Senior Notes. In connection with such request, and in respect of such Senior Notes, the Transferor does hereby certify that such Senior Notes are being transferred (i) in accordance with the transfer restrictions set forth in the Senior Notes and (ii) to a transferee that the Transferor reasonably believes is an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the United States Securities Act of 1933, as amended) and is acquiring at least $100,000 principal amount of Senior Notes for its own account or for one or more accounts as to which the transferee exercises sole investment discretion and (iii) in - -------------------------------- *Insert, if appropriate. 96 accordance with applicable securities laws of any state of the United States or any other jurisdiction. [Name of Transferor], By:___________________________ Name: Title: Dated: cc: International CableTel Incorporated 110 East 59th Street New York, New York 10022 Attn: Richard J. Lubasch, Esq. General Counsel 97 EXHIBIT F FORM OF ACCREDITED INVESTOR TRANSFEREE CERTIFICATE (Transfers pursuant to (S) 2.06(a)(iv) or (S) 2.06(a)(v)) The Chase Manhattan Bank, as Trustee 450 West 33rd Street New York, New York 10001 Attn: Corporate Trustee Administration Department Re: International CableTel Incorporated 10% Senior Notes Due 2007 (the "Senior Notes") ----------------------------------- Reference is hereby made to the Indenture dated as of February 12, 1997 (the "Indenture) between International CableTel Incorporated, as Issuer, and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined herein shall have the respective meanings given them in the Indenture. This letter relates to U.S. $[ ] aggregate principal amount of Senior Notes which are held [in the form of the [Rule 144/IAI/Regulation S] [Restricted] [Global] Security (CUSIP No. [ ] CINS No. [ ]) with the Depositary * in the name of [name of transferor] (the "Transferor") to effect the transfer of the Senior Notes to the undersigned. In connection with such request, and in respect of such Senior Notes we confirm that: 1. We understand that the Senior Notes were originally offered in a transaction not involving any public offering in the United States within the meaning of the United States Securities Act of 1933, as amended (the "Securities Act"), that the Senior Notes have not been registered under the Securities Act and that (A) the Senior Notes may be offered, resold, pledged or otherwise transferred only (i) to a person who the seller reasonably believes is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, in a transaction meeting the requirements of Rule 144 under the Securities Act, to a person who the seller reasonably believes is an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act), outside the United States in a transaction meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act or in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (ii) to the Company or (iii) pursuant to an effective registration statement, and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction and (B) the purchaser will, and each subsequent holder is required to, notify any subsequent purchaser from it of the resale restrictions set forth in (A) above. 2. We are a corporation, partnership or other entity having such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Senior Notes, and we are (or any account for which we are purchasing - --------------------------------- *Insert and modify, if appropriate. 98 under paragraph 4 below is) an institutional "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, able to bear the economic risk of our proposed investment in the Securities. 3. We are acquiring the Senior Notes for our own account (or for accounts as to which we exercise sole investment discretion and have authority to make, and do make, the statements contained in this letter) and not with a view to any distribution of the Senior Notes, subject, nevertheless, to the understanding that the disposition of our property shall at all times be and remain within our control. 4. We are, and each account (if any) for which we are purchasing Senior Notes is, purchasing Senior Notes having an aggregate principal amount of not less than $100,000. 5. We understand that (a) the Senior Notes will be delivered to us in registered form only and that the certificate delivered to us in respect of the Senior Notes will bear a legend substantially to the following effect: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE 'SECURITIES ACT'). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (`RULE 144A'), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO THE EXPIRATION OF THE '40 DAY RESTRICTED PERIOD' (WITHIN THE MEANING OF RULE 903(c)(2) OF REGULATION S UNDER THE SECURITIES ACT), A CERTIFICATE WHICH MAY BE OBTAINED FROM THE COMPANY OR THE TRUSTEE IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE, (4) TO AN INSTITUTION THAT IS AN `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`40 DAY RESTRICTED PERIOD' (WITHIN THE MEANING OF RULE 903(c)(2) OF REGULATION S UNDER THE SECURITIES ACT), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN 99 ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN `ACCREDITED INVESTOR' AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT." and (b) such certificates will be reissued without the foregoing legend only in accordance with the terms of the Indenture. 6. We agree that in the event that at some future time we wish to dispose of any of the Securities, we will not do so unless: (a) the Senior Notes are sold to the Company or any Subsidiary thereof; (b) the Senior Notes are sold to a qualified institutional buyer in compliance with Rule 144A under the Securities Act; (c) the Senior Notes are sold to an institutional accredited investor, as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, acquiring at least $100,000 principal amount of the Senior Notes that, prior to such transfer, furnishes to the Trustee a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Senior Notes (the form of which letter can be obtained from such Trustee); (d) the Senior Notes are sold outside the United States in compliance with Rule 903 or Rule 904 under the Securities Act; (e) the Senior Notes are sold by us pursuant to Rule 144 under the Securities Act; or (f) the Senior Notes are sold pursuant to an effective registration statement under the Securities Act. Very truly yours, [PURCHASER] By:___________________________ Name: Title: Dated: 100 cc: International CableTel Incorporated 110 East 59th Street New York, New York 10022 Attn: Richard J. Lubasch, Esq. General Counsel 101 EXHIBIT G FORM OF CERTIFICATE FOR TRANSFERS OF REGULATION S TEMPORARY GLOBAL SECURITY FOR REGULATION S PERMANENT GLOBAL SECURITY (Transfers pursuant to (S) 2.06(a)(viii)) (Transferor) [MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS OFFICE AS OPERATOR OF THE EUROCLEAR SYSTEM] [CEDEL BANK, SOCIETE ANONYME] Re: International CableTel Incorporated 10% Senior Notes Due 2007 (the "Senior Notes") ----------------------------------- Reference is hereby made to the Indenture dated as of February 12, 1997 (the "Indenture") between International CableTel Incorporated, as Issuer, and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This certificate relates to U.S. $[ ] aggregate principal amount of Senior Notes which are held in the form of the Regulation S Temporary Global Security (CINS No. [ ]) with the Depositary in the name of [name of transferor] (the "Transferor") to effect the transfer of the beneficial interest in such Regulation S Temporary Global Security for a beneficial interest in an equivalent aggregate principal amount of the Regulation S Permanent Global Security. In connection with such request, and in respect of such Senior Notes, we confirm that: 1. We are either not a U.S. person (as defined below) or we have purchased our beneficial interest in the above referenced Regulation S Temporary Global Security in a transaction that is exempt from the registration requirements under the Securities Act. 2. We are delivering this certificate in connection with obtaining a beneficial interest in the Regulation S Permanent Global Security in exchange for our beneficial interest in the Regulation S Temporary Global Security. For purposes of this certificate, "U.S. person" means (i) any individual resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any estate of which an executor or administrator is a U.S. person (other than an estate governed by foreign law and of which at least one executor or administrator is a non-U.S. person who has sole or shared investment discretion with respect to its assets), (iv) any trust of which any trustee is a U.S. person (other than a trust of which at least one trustee is a non-U.S. person who has sole or shared investment discretion with respect to its assets and no beneficiary of the trust (and no settlor if the trust is revocable) is a U.S. person), (v) any agency or branch of a foreign entity located in the United States, (vi) any non- discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person, (vii) any discretionary or similar account (other than 102 an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States (other than such an account held for the benefit or account of a non-U.S. person), (viii) any partnership or corporation organized or incorporated under the laws of a foreign jurisdiction and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act (unless it is organized or incorporated, and owned, by accredited investors within the meaning of Rule 501(a) under the Securities Act who are not natural persons, estates or trusts); provided, however, that the term "U.S. person" shall not include (A) a branch or - -------- ------- agency of a U.S. person that is located and operating outside the United States for valid business purposes as a locally regulated branch or agency engaged in the banking or insurance business, (B) any employee benefit plan established and administered in accordance with the law, customary practices and documentation of a foreign country and (C) the international organizations set forth in Section 902(o)(7) of Regulation S under the Securities Act and any other similar international organizations, and their agencies, affiliates and pension plans. We irrevocably authorize you to produce this certificate or a copy hereof to any interested party in any administrative or other proceedings with respect to the matters covered by this certificate. Very truly yours, [TRANSFEROR] By:___________________________ Name: Title: To be completed by the account holder as, or as agent for, the beneficial owner(s) of the Senior Notes to which this certificate relates. Dated: cc: International CableTel Incorporated 110 East 59th Street New York, New York 10022 Attn: Richard J. Lubasch, Esq. General Counsel 103 EXHIBIT H FORM OF CERTIFICATE FOR TRANSFERS OF REGULATION S TEMPORARY GLOBAL SECURITIES FOR REGULATION S PERMANENT GLOBAL SECURITIES (Transfers pursuant to (S) 2.06(a)(viii)) (Euroclear or Cedel) The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attn: Corporate Trustee Administration Department Re: International CableTel Incorporated 10% Senior Notes Due 2007 (the "Senior Notes") ------------------------------------ Reference is hereby made to the Indenture dated as of February 12, 1997 (the "Indenture") between International CableTel Incorporated, as Issuer, and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined herein shall have the meanings given them in the Indenture. This certificate relates to U.S. $[ ] aggregate principal amount of Senior Notes which are held in the form of the Regulation S Temporary Global Security (CINS No. [ ]) with the Depositary to effect the transfer of the beneficial interest in such Regulation S Temporary Global Security for a beneficial interest in an equivalent aggregate principal amount of the Regulation S Permanent Global Security. In connection with such request, this is to certify that, based solely on certificates we have received in writing, by tested telex or by electronic transmission from member organizations appearing in our records as persons being entitled to a portion of the principal amount of the Regulation S Temporary Global Security set forth above (our "Member Organizations") substantially to the effect set forth in the Indenture, U.S. $[ ] aggregate principal amount of the Senior Notes is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source or any other person deemed a "U.S. person" under Regulation S under the Securities Act of 1993, as amended. We further certify (i) that we are not making available herewith for exchange (or if relevant, exercise of any rights of collection of any interest) any portion of the Regulation S Global Security excepted in such certificates and (ii) that, as of the date hereof, we have not received any notification from any of our Member Organizations to the effect that the statements made by such Member Organizations with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights of collection of any interest) are no longer true and cannot be relied upon as of the date hereof. We understand that this certificate is required in connection with certain laws, and, if applicable, certain securities laws of the United States. In connection therewith, if administrative or legal 104 proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certification to any interested party in such proceedings. Very truly yours, [MORGAN GUARANTY TRUST COMPANY OF NEW YORK, BRUSSELS OFFICE AS OPERATOR OF THE EUROCLEAR SYSTEM] [CEDEL BANK, SOCIETE ANONYME] By:___________________________ Name: Title: Dated: cc: International CableTel Incorporated 110 East 59th Street New York, New York 10022 Attn: Richard J. Lubasch, Esq. General Counsel 105 EXHIBIT I FORM OF CERTIFICATE FOR TRANSFERS OF REGULATION S PERMANENT GLOBAL SECURITY FOR RESTRICTED SECURITIES (Transfers pursuant to (S) 2.06(a)(viii)) (Transferor) The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Attn: Corporate Trustee Administration Department Re: International CableTel Incorporated 10% Senior Notes Due 2007 (the "Senior Notes") ----------------------------------- Reference is hereby made to the Indenture dated as of February 12, 1997 (the "Indenture") between International CableTel Incorporated, as Issuer, and The Chase Manhattan Bank, as Trustee. Capitalized terms used but not defined herein shall have the respective meanings given them in the Indenture. This certificate relates to U.S. $[ ] aggregate principal amount of Senior Notes which are held in the form of the Regulation S Permanent Global Security (CINS No. [ ]) with the Depositary in the name of [name of transferor] (the "Transferor") to effect the transfer of the beneficial interest in such Regulation S Permanent Global Security for a beneficial interest in an equivalent aggregate principal amount of Restricted Securities. In connection with such request, and in respect of such Senior Notes, we confirm that: 1. We are either not a U.S. person (as defined below) or we have purchased our beneficial interest in the above referenced Regulation S Permanent Global Security in a transaction that is exempt from the registration requirements under the Securities Act. 2. We are delivering this certificate in connection with obtaining a beneficial interest in Restricted Securities in exchange for our beneficial interest in the Regulation S Permanent Global Security. For purposes of this certificate, "U.S. person" means (i) any individual resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any estate of which an executor or administrator is a U.S. person (other than an estate governed by foreign law and of which at least one executor or administrator is a non-U.S. person who has sole or shared investment discretion with respect to its assets), (iv) any trust of which any trustee is a U.S. person (other than a trust of which at least one trustee is a non-U.S. person who has sole or shared investment discretion with respect to its assets and no beneficiary of the trust (and no settlor if the trust is revocable) is a U.S. person), (v) any agency or branch of a foreign entity located in the United States, (vi) any non- discretionary or similar account (other than an estate or trust) held by a dealer or other fiduciary for the benefit or account of a U.S. person, (vii) any discretionary or similar account (other than 106 an estate or trust) held by a dealer or other fiduciary organized, incorporated or (if an individual) resident in the United States (other than such an account held for the benefit or account of a non-U.S. person), (viii) any partnership or corporation organized or incorporated under the laws of a foreign jurisdiction and formed by a U.S. person principally for the purpose of investing in securities not registered under the Securities Act (unless it is organized or incorporated, and owned, by accredited investors within the meaning of Rule 501(a) under the Securities Act who are not natural persons, estates or trusts); provided, however, that the term "U.S. person" shall not include (A) a -------- ------- branch or agency of a U.S. person that is located and operating outside the United States for valid business purposes as a locally regulated branch or agency engaged in the banking or insurance business, (B) any employee benefit plan established and administered in accordance with the law, customary practices and documentation of a foreign country and (C) the international organizations set forth in Section 902(o)(7) of Regulation S under the Securities Act and any other similar international organizations, and their agencies, affiliates and pension plans. We irrevocably authorize you to produce this certificate or a copy hereof to any interested party in any administrative or other proceedings with respect to the matters covered by this certificate. Very truly yours, [TRANSFEROR] By:___________________________ Name: Title: Dated: To be completed by the account holder as, or as agent for, the beneficial owner(s) of the Senior Notes to which this certificate relates. cc: International CableTel Incorporated 110 East 59th Street New York, New York 10022 Attn: Richard J. Lubasch, Esq. General Counsel 107 EX-4.10 3 CERTIFICATE OF DESIGNATION--DATED 2/12/97 EXHIBIT 4.10 CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 13% SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK AND 13% SERIES B SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- International CableTel Incorporated (the "Corporation"), a corporation ----------- organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Corporation (the "Board of Directors") by its ------------------ Certificate of Incorporation, as amended (hereinafter referred to as the "Certificate of Incorporation"), and pursuant to the provisions of Section 151 - ----------------------------- of the General Corporation Law of the State of Delaware, said Board of Directors duly approved and adopted the following resolution (the "Resolution"): ---------- RESOLVED, that, pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of 13% Senior Redeemable Exchangeable Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000.00 per share, consisting of 100,000 shares plus up to 150,000 shares issued in lieu of cash dividends, and 13% Series B Senior Redeemable Exchangeable Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share, consisting of 100,000 shares plus up to 150,000 shares issued in lieu of cash dividends, each having the designations, preferences, relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Certificate of Incorporation and in this Resolution as follows: (a) Designation. There is hereby created out of the authorized and ----------- unissued shares of preferred stock of the Corporation a class of preferred stock consisting of two series, one designated as the "13% Senior Redeemable Exchangeable Preferred Stock" (the "Series A Preferred") and the other ------------------ designated as the "13% Series B Senior Redeemable Exchangeable 1 Preferred Stock" (the "Series B Preferred"). The number of shares constituting ------------------ such class shall be 100,000 plus up to 150,000 shares issued in lieu of cash dividends, and are referred to as the "Preferred Stock." The liquidation --------------- preference of the Preferred Stock shall be $1,000.00 per share. (b) Rank. The Preferred Stock shall, with respect to dividends and ---- distributions upon liquidation, winding-up and dissolution of the Corporation, rank (i) senior to (a) all classes of Common Stock, (b) the Junior Preferred Stock, (c) the 5% Preferred Stock and (d) each other class of Capital Stock or series of preferred stock issued by the Corporation after the Issue Date the terms of which specifically provide that such class or series will rank junior to the Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Corporation or junior to or on a parity with any class of common stock of the Corporation or which do not specify their rank (the securities described in this clause (i), collectively, "Junior ------ Securities"); (ii) on a parity with each class of Capital Stock or series of - ---------- preferred stock issued by the Corporation after the Issue Date the terms of which specifically provide that such class or series will rank on a parity with the Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Corporation (the securities described in this clause (ii), collectively, "Parity Securities"); and (iii) ----------------- junior to each other class of Capital Stock or other series of preferred stock issued by the Corporation after the Issue Date the terms of which specifically provide that such series will rank senior to the Preferred Stock as to dividend distributions and distributions upon liquidation, winding-up and dissolution of the Corporation (the securities described in this clause (iii), collectively, "Senior Securities"). - ------------------ (c) Dividends. --------- (i) Beginning on the Issue Date, the Holders of the outstanding shares of Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends on the Preferred Stock at a rate equal to 13% per annum ($130 per share). Dividends will accrue from the Issue Date and will be payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year (each, a "Dividend Payment Date"), commencing on May 15, --------------------- 1997. Dividends, whether or not earned or declared, will accrue without interest until declared and paid, which declaration may be for all or part of the accrued dividends. Dividends accruing on or prior to February 15, 2004 may, at the option of the Corporation, be paid (i) in cash, (ii) by the 2 issuance of such number of additional fully paid and nonassessable shares (including fractional shares) of Preferred Stock equal to the amount of such dividends then payable divided by $1,000 or (iii) in any combination of the foregoing. Each dividend shall be payable to the Holders of record as they appear on the stock books of the Corporation on such record date as may be fixed by the Board of Directors, which record date will not be less than 10 nor more than 60 days prior to the applicable Dividend Payment Date. Dividends shall cease to accrue in respect of the Preferred Stock on the Exchange Date or on the date of their earlier redemption or repurchase by the Corporation, unless the Corporation shall have failed to issue the appropriate aggregate principal amount of Subordinated Debentures in respect of the Preferred Stock on such Exchange Date or shall have failed to pay the relevant redemption or repurchase price on the date fixed for redemption or repurchase. All dividends paid with respect to shares of the Preferred Stock shall be paid pro rata to the Holders entitled thereto. --- ---- (ii) No full dividends may be declared or paid or funds set apart for the payment of dividends on any Parity Securities for any period unless all accrued dividends have been or contemporaneously are declared and paid in full or declared and, if payable in cash, a sum in cash is set apart sufficient for such payment on the Preferred Stock. If all accrued dividends have not been so paid, the Preferred Stock shall share dividends pro rata with the Parity Securities based upon the relative liquidation --- ---- preferences of the outstanding shares of the Preferred Stock and such Parity Securities. No dividends may be declared or paid, nor may funds be set aside for such payment, on Junior Securities, except dividends on Junior Securities which are paid in additional Junior Securities (other than Disqualified Capital Stock), and no Parity Securities or Junior Securities may be repurchased, redeemed or otherwise retired, nor may funds be set apart for such payment, if all accrued dividends have not been paid (or deemed to have been paid) on the Preferred Stock. (iii) In the event that (a) the Exchange Offer Registration Statement is not filed with the Commission on or prior to the 75th day following the Issue Date, (b) the Exchange Offer Registration Statement is not declared effective prior to the 120th day following the Issue Date, (c) the Registered Exchange Offer is not consummated on or prior to the 160th day following the Issue Date or (d) if the Corporation is obligated to file the Shelf Registration Statement under the Registration Rights Agreement and the 3 Shelf Registration Statement is not declared effective on or prior to 160 days after the Issue Date (in each of cases (b), (c) and (d), as such period may be extended in accordance with the proviso of Section 2(a) of the Registration Rights Agreement) (each such event referred to in clauses (a) through (d) above, a "Registration Default"), dividends will accrue on -------------------- the Preferred Stock (in addition to the stated dividends on the Preferred Stock) from and including the next day following each of (i) such 75-day period in the case of clause (a) above, (ii) such 120-day period in the case of clause (b) above, (iii) such 160-day period in the case of clause (c) above and (iv) such 160-day period in the case of clause (d) above (in each of cases (b), (c) and (d) as such period is extended, if applicable, in the manner aforesaid) (each such period referred to in clauses (i) through (iv) above, an "Accrual Period"), at a rate per annum equal to 0.50% of the liquidation preference of the Preferred Stock (determined daily). The amount of such additional dividends (the "Special Dividends") will increase by an additional 0.50% per annum with respect to each subsequent applicable Accrual Period until all Registration Defaults have been cured, up to a maximum of Special Dividends of 1.50% per annum of the liquidation preference (determined daily). In each case, such additional dividends (the "Special Dividends") will be payable quarterly in arrears ----------------- each May 15, August 15, November 15 and February 15, commencing May 15, 1997, to Holders of record on the immediately preceding May 1, August 1, November 1 and February 1, respectively. In the event that a Shelf Registration Statement is declared effective pursuant to the Registration Rights Agreement, if the Corporation fails to keep the Shelf Registration Statement continuously effective for the period required by the Registration Rights Agreement, then from such time as the Shelf Registration Statement is no longer effective until the earliest of (i) the date that the Shelf Registration Statement is again deemed effective, (ii) the date that is the third anniversary of the Issue Date or (iii) the date as of which all of the Transfer Restricted Securities are sold pursuant to the Shelf Registration Statement, Special Dividends shall accrue at a rate per annum equal to 0.50% of the liquidation preference of the Preferred Stock (1.00% thereof if the Shelf Registration Statement is no longer effective for 30 days or more) and shall be payable quarterly in arrears each May 15, August 15, November 15 and February 15, commencing May 15, 1997, to Holders of record on the immediately preceding May 1, August 1, November 1 and February 1, respectively. 4 (iv) Nothing herein contained shall in any way or under any circumstances be construed or deemed to require the Board of Directors to declare, or the Corporation to pay or set apart for payment, any dividends on shares of the Preferred Stock at any time. In the event that the Corporation fails to pay dividends, the sole remedy available to Holders will be the election of directors as set forth in paragraph (f)(ii). (v) Accrued dividends may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders of record, not more than sixty (60) days prior to payment thereof, as may be fixed by the Board of Directors of the Corporation. (vi) Dividends payable on the Preferred Stock for any period less than a year shall be computed on the basis of a 360-day year of twelve 30- day months and the actual number of days elapsed in the period for which such dividends are payable. (vii) References in this Resolution to "dividends" include Special Dividends unless the context requires otherwise. (d) Liquidation Preference. ---------------------- (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holders of shares of Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, an amount in cash equal to the liquidation preference for each share outstanding, plus an amount in cash equal to accrued and unpaid dividends thereon, if any, to the date fixed for liquidation, dissolution or winding up (including an amount in cash equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding up), before any distribution shall be made or any assets distributed to the holders of any of the Junior Securities including, without limitation, any Common Stock. Except as provided in the preceding sentence, Holders shall not be entitled to any distribution in the event of any liquidation, dissolution or winding up of the affairs of the Corporation. If the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Preferred Stock and all Parity Securities, then the holders of all such shares shall share equally and ratably in such distribution 5 of assets of the Corporation in proportion to the full liquidation preference to which each is entitled. After payment in full of the liquidation preference to which Holders are entitled, such Holders will not be entitled to any further participation in any distribution of assets of the Corporation. (ii) For the purposes of this paragraph (d), neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities shall be deemed to be a liquidation, dissolution or winding up of the affairs of the Corporation. (e) Redemption. ---------- (i) Optional Redemption. (A) The Corporation may, at the option of ------------------- the Board of Directors, redeem in whole at any time or in part from time to time, in the manner provided for in paragraph (e)(iii) hereof, any or all of the shares of Preferred Stock, at the redemption prices (expressed as percentages of the liquidation preference thereof) set forth below plus all accrued and unpaid dividends (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) (the "Optional -------- Redemption Price") if redeemed during the 12-month period beginning ---------------- February 15 of each of the years set forth below: 2002...................................... 106.500% 2003...................................... 104.333% 2004...................................... 102.167% 2005 and thereafter....................... 100.000% (B) Upon a Change of Control Call Event, the Corporation will have the option to redeem all (but not less than all) of the outstanding shares of Preferred Stock at a redemption price (the "Change of Control Call Price") ---------------------------- equal to 100% of the liquidation preference thereof, plus the Applicable Premium, plus accrued and unpaid dividends to the date of repurchase; provided, however, no such redemption shall be consummated except -------- ------- contemporaneously with or after the merger, consolidation or business combination referred to in the definition of Change of Control Call Event. Notwithstanding anything to the contrary in paragraph (e)(iii), notice of any such redemption pursuant to this paragraph must be given no later than 90 days following the date upon which the Change of Control Call Event occurred 6 (or no later than 10 days after the date on which a notice of a Change of Control Offer must be mailed pursuant to paragraph (h) if the events giving rise to the Change of Control Call Event also give rise to a Change of Control Triggering Event), and the purchase date must be within 30 days of the date of notice. (C) In the event of a redemption pursuant to para graph (e)(i)(A) or (B) hereof of only a portion of the then outstanding shares of the Preferred Stock, the Corporation shall effect such redemption on a pro rata --- ---- basis according to the number of shares held by each Holder of the Preferred Stock, except that the Corporation may redeem such shares held by Holders of fewer than 10 shares (or all shares held by Holders who would hold less than 10 shares as a result of such redemption), as may be determined by the Corporation. No partial redemption of the Preferred Stock may be authorized or made unless prior thereto all accrued dividends thereon shall have been paid in cash or declared and a sum set apart for such payment. (ii) Mandatory Redemption. On February 15, 2009, the Corporation -------------------- shall redeem, to the extent of funds legally available therefor, in the manner provided for in paragraph (e)(iii) hereof, all of the shares of the Preferred Stock then outstanding at a redemption price equal to 100% of the liquidation preference per share, plus an amount in cash equal to all accrued and unpaid dividends per share (including an amount equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) (the "Mandatory --------- Redemption Price"). ---------------- (iii) Procedures for Redemption. (A) At least fifteen (15) days ------------------------- and not more than sixty (60) days prior to the date fixed for any redemption of the Preferred Stock, written notice (the "Redemption Notice") ----------------- shall be given by first class mail, postage prepaid, to each Holder of record on the record date fixed for such redemption of the Preferred Stock at such Holder's address as it appears on the stock books of the Corporation; provided, however, that no failure to give such notice nor any -------- ------- deficiency therein shall affect the validity of the procedure for the redemption of any shares of Preferred Stock to be redeemed except as to the Holder or Holders to whom the Corporation has failed to give said notice or to whom such notice was defective. If any Preferred Stock is to be redeemed in part only, the Redemption Notice that relates to such Preferred Stock will state the number of shares thereof to be redeemed. Shares of Preferred Stock that have been issued 7 and reacquired in any manner, including shares purchased or redeemed or exchanged, will (upon compliance with any applicable provisions of Delaware law) have the status of authorized but unissued shares of preferred stock of the Corporation undesignated as to series and may, with any and all other authorized but unissued shares of preferred stock of the Corporation, be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Corporation, except that such shares may not be reissued or sold as shares of the Preferred Stock (other than in payment of dividends on the Preferred Stock). The Redemption Notice shall state: (1) whether the redemption is pursuant to paragraph (e)(i)(A), (e)(i)(B) or (e)(ii) hereof; (2) the Optional Redemption Price, the Change of Control Call Price or the Mandatory Redemption Price, as the case may be; (3) whether all or less than all the outstanding shares of the Preferred Stock are to be redeemed and the total number of shares of the Preferred Stock being redeemed; (4) the date fixed for redemption; (5) that the Holder is to surrender to the Corporation, in the manner, at the place or places and at the price designated, such Holder's certificate or certificates representing the shares of Preferred Stock to be redeemed; and (6) that dividends on the shares of the Preferred Stock to be redeemed shall cease to accrue on such Redemption Date unless the Corporation defaults in the payment of the Optional Redemption Price, the Change of Control Call Price or the Mandatory Redemption Price, as the case may be. (B) Each Holder of shares of Preferred Stock shall surrender the certificate or certificates representing such shares to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Optional Redemption Price, the Change of Control Call Price or the Mandatory Redemption Price, as the case may be, for such shares shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner 8 thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (C) On the Redemption Date, unless the Corporation defaults in the payment in full of the applicable redemption price, dividends on the Preferred Stock called for redemption shall cease to accrue, and all rights of the Holders of redeemed shares shall terminate with respect thereto, other than the right to receive the Optional Redemption Price, the Change of Control Call Price or the Mandatory Redemption Price, as the case may be, without interest; provided, however, that if a notice of redemption -------- ------- shall have been given as provided in paragraph (iii)(A) above and the funds necessary for redemption (including an amount in respect of all dividends that will accrue to the Redemption Date) shall have been irrevocably deposited in trust for the equal and ratable benefit for the Holders of the shares to be redeemed, then, at the close of business on the day on which such funds are segregated and set aside, the Holders of the shares to be redeemed shall cease to be stockholders of the Corporation and shall be entitled only to receive the Optional Redemption Price, the Change of Control Call Price or the Mandatory Redemption Price, as the case may be, without interest. (f) Voting Rights. ------------- (i) The Holders of Preferred Stock, except as otherwise required under Delaware law or as set forth in this paragraph (f), shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Corporation. (ii) If (a) dividends on the Preferred Stock are in arrears and unpaid (after February 15, 2004, in cash) for six quarterly periods (whether or not consecutive), (b) the Corporation fails to effect a redemption of the Preferred Stock when required by, and in accordance with, paragraph (e)(ii) or (c) the Corporation fails to make an offer to purchase all of the outstanding shares of Preferred Stock following a Change of Control Triggering Event, if such offer to purchase is required by paragraph (h), or fails to purchase all of the shares of Preferred Stock validly tendered pursuant thereto (each such event described in clauses (a) through (c) above being referred to herein as a "Voting Rights Triggering ------------------------ Event"), then the number of directors constituting the Board of Directors ----- of the 9 Corporation will be increased by two and the holders of the majority of the then outstanding shares of Preferred Stock, voting separately as a class, will be entitled to elect the two additional directors. Such voting rights will continue until such time as, in the case of a default under clause (a), all accrued dividends on the Preferred Stock are paid in full and, in all other cases, any failure, breach or default referred to in clause (b) or (c) is remedied, at which time the term of any directors elected pursuant to the provisions of this paragraph shall immediately terminate. Any vacancy occurring in the office of a director elected by the Holders may be filled by the remaining director elected by such holders unless and until such vacancy shall be filled by such holders. Regardless of the number of Voting Rights Triggering Events, in no event shall the Holders have the right to elect and have serve more than two members of the Board of Directors of the Corporation at any one time. At any time after voting power to elect directors shall have become vested and be continuing in the Holders of shares of the Preferred Stock pursuant to this paragraph (f)(ii), or if vacancies shall exist in the offices of directors elected by the Holders of shares of the Preferred Stock, a proper officer of the Corporation may, and upon the written request of the Holders of record of at least 10% of the shares of Preferred Stock then outstanding addressed to the Secretary of the Corporation shall, call a special meeting of the Holders of Preferred Stock, for the purpose of electing the directors which such Holders are entitled to elect. If such meeting shall not be called by the proper officer of the Corporation within 20 days after personal service of said written request upon the Secretary of the Corporation, or within 20 days after mailing the same within the United States by certified mail, addressed to the Secretary of the Corporation at its principal executive offices, then the Holders of record of at least 20% of the outstanding shares of the Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders or such other place in the United States as shall be designated in such notice. Notwithstanding the foregoing, no such special meeting shall be called if any such request is received less than 30 days before the date fixed for the next ensuing annual or special meeting of stockholders of the Corporation. Any Holder of shares of the Preferred Stock so designated shall have, and the Corporation shall provide, access to the lists of Holders of 10 shares of the Preferred Stock for purposes of calling a meeting pursuant to the provisions of this paragraph (f)(ii). (iii) The Corporation shall not, without the affirmative vote or consent of Holders of a majority of the shares of Preferred Stock then outstanding, voting or consenting, as the case may be, separately as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting, (x) create, authorize or issue any class of Senior Securities or Parity Securities or (y) amend the Certificate of Designation so as to affect adversely the specified rights, preferences, privileges or voting rights of holders of Preferred Stock or authorize the issuance of any additional shares of Preferred Stock (other than in payment of dividends on the Preferred Stock); provided, however, -------- ------- that the Corporation may, without the approval of any Holders, issue or have outstanding shares of Parity Securities (other than Disqualified Capital Stock) issued from time to time in exchange for, or all of the proceeds of which are used to redeem or repurchase, any or all of the shares of Preferred Stock. The Holders of a majority of the outstanding shares of Preferred Stock, voting or consenting, as the case may be, separately as one class, may waive compliance with any provision of the Certificate of Designation. Except as set forth in this paragraph (f)(iii), neither (a) the creation, authorization or issuance of any shares of Junior Securities, Parity Securities or Senior Securities, including the designation of a series thereof within the existing class of Preferred Stock, nor (b) the increase or decrease in the amount of authorized capital stock of any class, including any preferred stock, shall require the consent of any Holders or shall be deemed to affect adversely the rights, preferences, privileges or voting rights of shares of Preferred Stock. (iv) Without the affirmative vote or consent of Holders of a majority of the issued and outstanding shares of Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting, the Corporation shall not, in a single transaction or series of related transactions, consolidate or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to, another Person or adopt a plan of liquidation unless: (A) either (1) the Corporation is the surviving or continuing Person or (2) the Person (if other than the Corporation) formed by such consolidation or into which the Corporation is merged or the Person that acquires by conveyance, 11 transfer or lease the properties and assets of the Corporation as an entirety or substantially as an entirety or in the case of a plan of liquidation, the Person to which assets of the Corporation have been transferred, shall be a corporation, partnership or trust organized and existing under the laws of the United States or any State thereof or the District of Columbia; (B) the Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting Person, having in respect of such successor, transferee or resulting Person the same powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereon that the Preferred Stock had immediately prior to such transaction; and (C) the Corporation has delivered to the transfer agent for the Preferred Stock prior to the consummation of the proposed transaction an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer complies with the terms hereof and that all conditions precedent herein relating to such transaction have been satisfied. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of related transactions) of all or substantially all of the properties or assets of one or more subsidiaries of the Corporation, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Corporation shall be deemed to be the transfer of all or substantially all of the properties and assets of the Corporation. (v) On or prior to the Exchange Date, the Corporation shall not amend or modify the form of Indenture (except as expressly provided therein in respects of amendments without the consent of holders of Subordinated Debentures) without the affirmative vote or consent of Holders of at least a majority of the shares of Preferred Stock then outstanding, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (vi) In any case in which the Holders shall be entitled to vote as described herein or pursuant to Delaware law, each Holder shall be entitled to one vote for each share of Preferred Stock held by such Holder. (g) Exchange. -------- (i) Requirements. On any Dividend Payment Date, the Corporation ------------ may, at its option, exchange the Preferred Stock, in whole but not in part, for the Subordinated 12 Debentures; provided, however, that any such exchange may only be made if -------- ------- on or prior to the date of such exchange (i) the Corporation has paid all accrued dividends on the Preferred Stock (including the dividends payable on the Exchange Date) and there shall be no contractual impediment to such exchange; (ii) there shall be funds legally available sufficient therefor; (iii) the Indenture has been qualified under the Trust Indenture Act of 1939, as amended, if required at the time of such exchange for public indentures; and (iv) the Corporation shall have delivered an Officers' Certificate and an Opinion of Counsel to the effect that all conditions to be satisfied prior to such exchange have been satisfied. Holders of Preferred Stock so exchanged will be entitled to receive $1.00 in principal amount of Subordinated Debentures for each $1.00 of liquidation preference of Preferred Stock held by such holder at the time of exchange. In connection with any such exchange, dividends on shares of Preferred Stock exchanged which have accrued on or prior to February 15, 2004 which have not been paid as of the Exchange Date shall be paid, at the Corporation's option, in cash, in additional Subordinated Debentures in an equivalent principal amount of such accrued and unpaid dividends or in a combination of the foregoing. Dividends on any shares of Preferred Stock accruing after February 15, 2004 which have not been paid as of the Exchange Date must be paid in cash on the Exchange Date. On the Exchange Date, all dividends on the Preferred Stock will cease to accrue. Subordinated Debentures issued in exchange for Preferred Stock will be issued in principal amounts of $1,000 and integral multiples thereof to the extent possible, and will also be issued in principal amounts of less than $1,000 so that each holder of Preferred Stock will receive certificates representing the entire amount of Subordinated Debentures to which its shares of Preferred Stock entitle it; provided, however, that the -------- ------- Corporation may, at its option, pay cash in lieu of issuing a Subordinated Debenture in a principal amount less than $1,000. (ii) Procedures. The Corporation shall send by first-class mail, ---------- postage prepaid, to each Holder of record on the record date fixed for such exchange of Preferred Stock, at such Holder's address as the same appears on the stock books of the Corporation, written notice (the "Exchange -------- Notice") of its intention to exchange the Preferred Stock for Subordinated Debentures at least 30 and not more than 60 days prior to the Exchange Date; provided, however, that no failure to give such notice nor any -------- ------- deficiency therein shall affect the validity of the procedure for the exchange of any shares of Preferred Stock to be exchanged except as to the 13 Holder or Holders to whom the Corporation has failed to give said notice or to whom such notice was defective. Each Exchange Notice must state (i) the Exchange Date, (ii) the place or places where certificates for shares of Preferred Stock are to be surrendered for exchange into Subordinated Debentures, (iii) that dividends on the shares of Preferred Stock to be exchanged will cease to accrue on the Exchange Date whether or not certificates for shares of Preferred Stock are surrendered for exchange on such Exchange Date unless the Corporation shall default in the delivery of Subordinated Debentures and (iv) that interest on the Subordinated Debentures shall accrue from the Exchange Date whether or not certificates for shares of Preferred Stock are surrendered for exchange on such Exchange Date. (A) On or before the Exchange Date, each Holder shall surrender the certificate or certificates representing such shares of Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Corporation shall cause the Subordinated Debentures to be executed on the Exchange Date and, upon surrender in accordance with the Exchange Notice of the certificates for any shares of Preferred Stock so exchanged, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), such shares shall be exchanged by the Corporation for Subordinated Debentures. The Series A Preferred shall be exchanged for Series A Debentures and the Series B Preferred shall be exchanged for Series B Debentures. The Corporation shall pay interest on the Subordinated Debentures at the rate and on the dates specified therein from the Exchange Date. (B) If notice has been mailed as aforesaid, and if before the Exchange Date specified in such notice (1) the Indenture shall have been duly executed and delivered by the Corporation and the trustee thereunder and (2) all Subordinated Debentures necessary for such exchange shall have been duly executed by the Corporation and delivered to the trustee under the Indenture with irrevocable instructions to authenticate the Subordinated Debentures necessary for such exchange, then the rights of the Holders of Preferred Stock so exchanged as stockholders of the Corporation shall cease (except the right to receive Subordinated Debentures, an amount in cash equal to the amount of accrued and unpaid dividends to the Exchange Date and, if the Corporation so elects, cash in lieu of any Subordinated Debenture with a principal amount not an integral multiple of $1,000), and the Person or Persons entitled to receive the Subordinated Debentures issuable upon exchange shall be treated for all purposes as the 14 registered holder or holders of such Subordinated Debentures as of the Exchange Date. (iii) No Exchange in Certain Cases. Notwithstanding the foregoing ---------------------------- provisions of this paragraph (g), the Corporation shall not be entitled to exchange the Preferred Stock for Subordinated Debentures if such exchange, or any term or provision of the Indenture or the Subordinated Debentures, or the performance of the Corporation's obligations under the Indenture or the Subordinated Debentures, shall violate any applicable law or if, at the time of such exchange, the Corporation is insolvent or if it would be rendered insolvent by such exchange. (h) Change of Control Put. --------------------- (i) In the event of a Change of Control Triggering Event, the Corporation shall notify each Holder in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") such ----------------------- Holder's shares of Preferred Stock at a purchase price in cash equal to 101% of the liquidation preference thereof plus accrued and unpaid dividends per share (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Change of Control Payment Date to the Change of Control Payment Date (as defined herein)). (ii) Not later than 90 days following the date upon which the Change of Control Triggering Event occurred, the Corporation shall send, by first class mail, postage prepaid, a notice to each Holder of Preferred Stock at such Holder's last registered address with a copy to the Registrar, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Preferred Stock pursuant to the Change of Control Offer. Such notice shall state: (A) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this paragraph (h) and that all Preferred Stock validly tendered and not withdrawn will be accepted for payment; (B) the purchase price (including the amount of accumulated and unpaid dividends, if any) and the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed, other than as may be required by law) (the "Change of --------- Control Payment Date"); provided, however, -------------------- -------- ------- 15 that there shall be no right of any Holder to require the Corporation to purchase such Holder's shares of Preferred Stock until the earlier of the date on which all of the Deferred Coupon Notes have been repaid or have matured; (C) that any shares of Preferred Stock not tendered will continue to accrue dividends; (D) that, unless the Corporation defaults in making payment therefor, any share of Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends after the Change of Control Payment Date; (E) that Holders electing to have any shares of Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender the certificate or certificates representing such shares, properly endorsed for transfer together with such customary documents as the Corporation and the transfer agent may reasonably require, in the manner and at the place specified in the notice prior to the close of business on the Business Day prior to the Change of Control Payment Date; (F) that Holders will be entitled to withdraw their election if the Corporation receives, not later than five Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the number of shares of Preferred Stock the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such shares of Preferred Stock purchased; (G) that Holders whose shares of Preferred Stock are purchased only in part will be issued a new certificate representing the unpurchased shares of Preferred Stock; and (H) the circumstances and relevant facts regarding such Change of Control Triggering Event. (iii) Each Change of Control Offer shall remain open for at least 20 Business Days or such longer period as may be required by law. The Corporation shall comply with Rules 13e-4 and 14e-4 and 14e-1 under the Exchange Act and other provisions of state and federal securities laws and regulations, to the extent such laws and regulations are 16 applicable to the repurchase of the Preferred Stock in connection with a Change of Control Offer. (iv) On the Change of Control Payment Date the Corporation shall (A) accept for payment the shares of Preferred Stock validly tendered pursuant to the Change of Control Offer, (B) pay to the Holders of shares so accepted the purchase price therefor in cash and (C) cancel and retire each surrendered certificate. Unless the Corporation defaults in the payment for the shares of Preferred Stock tendered pursuant to the Change of Control Offer, dividends will cease to accrue with respect to the shares of Preferred Stock tendered and all rights of Holders of such tendered shares will terminate, except for the right to receive payment therefor, on the Change of Control Payment Date. (v) Notwithstanding the foregoing, prior to the mailing of the notice of a Change of Control Offer referred to above, the Corporation shall (i) within 60 days following a Change of Control Triggering Event, either (a) repay in full all indebtedness for borrowed money of the Corporation, and terminate all commitments, under the Potential Credit Facilities, in each case, to the extent required upon a change of control pursuant to the terms thereof (or offer to repay in full all such indebtedness and terminate all such commitments and repay all such indebtedness owed to each lender which has accepted such offer and terminate all such commitments of each such lender), or (b) obtain the requisite consents under the Potential Credit Facilities to permit the repurchase of the Preferred Stock as provided above and (ii) within 90 days following a Change of Control Triggering Event, purchase all Senior Notes (or permitted refinancings thereof) which it is required to purchase by reason of such change of control pursuant to the provisions of the indenture therefor. The Corporation shall first comply with the covenant described in the immediately preceding sentence before it shall be required to repurchase Preferred Stock pursuant to the provisions described above. (i) Conversion or Exchange. The Holders of shares of Preferred Stock ---------------------- shall not have any rights hereunder to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of Capital Stock of the Corporation. (j) Preemptive Rights. No shares of Preferred Stock shall have any ----------------- rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such 17 securities or such warrants, rights or options may be designated, issued or granted. (k) Reissuance of Preferred Stock. Shares of Preferred Stock that ----------------------------- have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of Preferred Stock, provided that any issuance of such -------- shares as Preferred Stock must be in compliance with the terms hereof. (l) Business Day. If any payment, redemption, purchase or exchange ------------ shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption, purchase or exchange shall be made on the immediately succeeding Business Day. (m) Reports. Whether or not required by the rules and regulations of ------- the Commission, so long as any Preferred Stock is outstanding, the Corporation will file with the Commission and furnish to the Holders of Preferred Stock all quarterly and annual financial information required to be contained in a filing with the Commission on Forms 10-Q and 10-K (or the equivalent thereof in the event the Corporation becomes a corporation organized under the laws of England and Wales), including a "Management's Discussion and Analysis of Results of Operations and Financial Condition" and, with respect to the annual information only, a report thereon by the Corporation's certified independent accountants, in each case, as required by the rules and regulations of the Commission as in effect on the Issue Date. (n) Definitions. As used in this Certificate of Designation, the ----------- following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), ---- ----- unless the context otherwise requires: "Accrual Period" shall have the meaning ascribed to it in paragraph -------------- (c)(iii). "Applicable Premium" means, with respect to any share of Preferred ------------------ Stock, the greater of (x) 1.0% of the liquidation preference thereof and (y) the excess, if any, of (a) the present value of dividends accruing until and including February 15, 2002 (assuming payment thereof in cash on the applicable Dividend Payment Date) and the liquidation preference and any applicable optional redemption premium therefor payable on such date for such 18 share (in each case assuming payment thereof on February 15, 2002), computed using a discount rate equal to the Treasury Rate plus 100 basis points over (b) the sum of the liquidation preference of such share plus accrued and unpaid dividends to the redemption date. "Board of Directors" shall have the meaning ascribed to it in the ------------------ first paragraph of this Resolution. "Board Resolution" means a copy of a resolution certified pursuant to ---------------- an Officers' Certificate to have been duly adopted by the Board of Directors of the Corporation and to be in full force and effect, and delivered to the Holders. "Business Day" means any day except a Saturday, a Sunday, or any day ------------ on which banking institutions in New York, New York are required or authorized by law or other governmental action to be closed. "Capital Stock" means any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of the Corporation. "Certificate of Incorporation" shall have the meaning ascribed to it ---------------------------- in the first paragraph of this Resolution. "Change of Control" means (i) the sale, lease or transfer of all or ----------------- substantially all of the assets of the Corporation to any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act) (other than any Permitted Holder), (ii) the approval by the requisite stockholders of the Corporation of a plan of liquidation or dissolution of the Corporation, (iii) any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act or any successor provision to either of the foregoing, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than any Permitted Holder, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of all classes of the voting stock of the Corporation and/or warrants or options to acquire such voting stock, calculated on a fully diluted basis, unless, as a result of such transaction, the ultimate direct or indirect ownership of the Corporation is substantially the 19 same immediately after such transaction as it was immediately prior to such transaction, or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the Corporation's Board of Directors (together with any new directors whose election or appointment by such board or whose nomination for election by the shareholders of the Corporation was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Corporation's Board of Directors then in office. "Change of Control Call Event" means the entering by the Corporation ---------------------------- into a binding agreement providing for a merger, consolidation or business combination of the Corporation with another corporation, association or other entity, which agreement provides that upon consummation thereof that the holders of the Common Stock will own less than 80% of the voting and economic power of the entity, if any, in which holders of the Common Stock will hold equity interests immediately following consummation of any such transaction. "Change of Control Call Price" shall have the meaning ascribed to it ---------------------------- in paragraph (e)(ii)(B). "Change of Control Offer" shall have the meaning ascribed to it in ----------------------- paragraph (h)(i). "Change of Control Payment Date" shall have the meaning ascribed to it ------------------------------ in paragraph (h)(ii)(B). "Change of Control Triggering Event" means the occurrence of both a ---------------------------------- Change of Control and a Ratings Decline. "Commission" means the Securities and Exchange Commission. ---------- "Common Stock" means any and all shares, interests or other ------------ participations in, and other equivalents (however designated and whether voting or non-voting) of, the Corporation's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Corporation" shall have the meaning ascribed to it in the first ----------- paragraph of this Resolution. 20 "Deferred Coupon Notes" means (i) the Corporation's 10-7/8% Senior Deferred --------------------- Coupon Notes Due 2003, (ii) the Corporation's 12-3/4% Senior Deferred Coupon Notes Due 2005 and (iii) the Corporation's 11-1/2% Senior Deferred Coupon Notes Due 2006. "Disqualified Capital Stock" means any Capital Stock 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 redeemable at the option of the holder thereof, in whole or in part, on or prior to February 15, 2009. "Dividend Payment Date" shall have the meaning ascribed to it in --------------------- paragraph (c)(i). "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations promulgated thereunder. "Exchange Date" means the date of issuance of the Subordinated ------------- Debentures in accordance with paragraph (g) hereof. "Exchange Notice" shall have the meaning ascribed to it in paragraph --------------- (g)(ii) hereof. "Exchange Offer Registration Statement" shall have the meaning ------------------------------------- ascribed to it in the Registration Rights Agreement. "5% Preferred Stock" means the 5% Non-voting Convertible Preferred ------------------ Stock, Series A, of the Corporation. "GAAP" means generally accepted accounting principles as in effect in ---- the United States from time to time. "Holder" means a holder of shares of Preferred Stock as reflected in ------ the stock books of the Corporation. "Indenture" means the indenture governing the Subordinated Debentures --------- to be entered into between the Corporation and The Chase Manhattan Bank, as trustee, on the Exchange Date, substantially in the form on file with the secretary of the Corporation, which form is available to each Holder without charge upon request. "Investment Grade" means BBB- or higher by S&P or Baa3 or higher by ---------------- Moody's. In the event that the Corporation 21 shall be permitted to select any other Rating Agency, the equivalent of such ratings of S&P and Moody's used by such other Rating Agency shall be used. "Issue Date" means February 12, 1997, the date of original issuance of ---------- the Preferred Stock. "Junior Preferred Stock" means the 1,000,000 shares of Series A Junior ---------------------- Participating Preferred Stock designated and reserved for issuance in the Corporation's Certificate of Incorporation. "Junior Securities" shall have the meaning ascribed to it in paragraph ----------------- (b) hereof. "Mandatory Redemption Price" shall have the meaning ascribed to it in -------------------------- paragraph (e)(ii) hereof. "Moody's" means Moody's Investors Service, Inc. and its successors. ------- "Officers' Certificate" means a certificate signed by two officers or --------------------- by an officer and either an Assistant Treasurer or an Assistant Secretary of the Corporation which certificate shall include a statement that, in the opinion of such signers all conditions precedent to be performed by the Corporation prior to the taking of any proposed action have been taken. In addition, such certificate shall include (i) a statement that the signatories have read the relevant covenant or condition, (ii) a brief statement of the nature and scope of such examination or investigation upon which the statements are based, (iii) a statement that, in the opinion of such signatories, they have made such examination or investigation as is reasonably necessary to express an informed opinion and (iv) a statement as to whether or not, in the opinion of the signatories, such relevant conditions or covenants have been complied with. "Opinion of Counsel" means an opinion of counsel that, in such ------------------ counsel's opinion, all conditions precedent to be performed by the Corporation prior to the taking of any proposed action have been taken. Such opinion shall also include the statements called for in the second sentence under the definition of "Officers' Certificate". "Optional Redemption Price" shall have the meaning ascribed to it in ------------------------- paragraph (e)(i)(A) hereof. "Parity Securities" shall have the meaning ascribed to it in paragraph ----------------- (b) hereof. 22 "Permitted Designee" means (i) a spouse or a child of a Permitted Holder, ------------------ (ii) trusts for the benefit of a Permitted Holder or a spouse or child of a Permitted Holder, (iii) in the event of the death or incompetence of a Permitted Holder, his estate, heirs, executor, administrator, committee or other personal representative or (iv) any Person so long as a Permitted Holder owns at least 50% of the voting power of all classes of the voting stock of such Person. "Permitted Holders" means George S. Blumenthal, J. Barclay Knapp and ----------------- their Permitted Designees. "Person" means an individual, partnership, corporation, unincorporated ------ organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Potential Credit Facilities" has the meaning ascribed to such term in --------------------------- the Corporation's Offering Memorandum dated February 7, 1997 relating to the offering of the Senior Notes and the Preferred Stock. "Preferred Stock" shall have the meaning ascribed to it in paragraph --------------- (a) hereof. "Rating Agencies" means (i) S&P, (ii) Moody's and (iii) if S&P or --------------- Moody's or both shall not make a rating of the Securities publicly available, a nationally recognized securities rating agency or agencies, as the case may be, selected by the Corporation, which shall be substituted for S&P or Moody's or both, as the case may be. "Rating Category" means (i) with respect to S&P, any of the following --------------- categories: BB, B, CCC, CC, C and D (or equivalent successor categories), (ii) with respect to Moody's, any of the following categories: Ba, B, Caa, Ca, C and D (or equivalent successor categories) and (iii) the equivalent of any such category of S&P or Moody's used by another Rating Agency. In determining whether the rating of the Securities has decreased by one or more gradations, gradations within Rating Categories (+ and - for S&P; 1, 2 and 3 for Moody's; or the equivalent gradations for another Rating Agency) shall be taken into account (e.g., with respect to S&P, a decline in a rating from BB to BB-, as well as from BB- to B+, will constitute a decrease of one gradation). "Rating Date" means that date which is 90 days prior to the earlier of ----------- (x) a Change of Control and (y) public notice of the occurrence of a Change of Control or of the intention 23 by the Corporation or any Permitted Holder to effect a Change of Control. "Ratings Decline" means the occurrence of any of the following events --------------- on, or within six months after, the date of public notice of the occurrence of a Change of Control or of the intention of the Corporation or any person to effect a Change of Control (which period shall be extended so long as the rating of any of the Corporation's debt securities is under publicly announced consideration for possible downgrade by any of the Rating Agencies): (a) in the event that any of the Corporation's debt securities are rated by both of the Rating Agencies on the Rating Date as Investment Grade, the rating of such debt securities by either of the Rating Agencies shall be below Investment Grade, (b) in the event that any of the Corporation's debt securities are rated by either, but not both, of the Rating Agencies on the Rating Date as Investment Grade, the rating of such debt securities by both of the Rating Agencies shall be below Investment Grade, or (c) in the event any of the Corporation's debt securities are rated below Investment Grade by both of the Rating Agencies on the Rating Date, the rating of such debt securities by either Rating Agency shall be decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). "Redemption Date", with respect to any shares of Preferred Stock, --------------- means the date on which such shares of Preferred Stock are redeemed by the Corporation. "Redemption Notice" shall have the meaning ascribed to it in paragraph ----------------- (e)(iii) hereof. "Registered Exchange Offer" shall have the meaning ascribed to such ------------------------- term in the Registration Rights Agreement. "Registrar" means Continental Stock Transfer & Trust Company, as --------- transfer agent and Registrar for the Preferred Stock. "Registration Defaults" shall have the meaning ascribed to it in --------------------- paragraph (c)(iii). "Registration Rights Agreement" means the Registration Rights ----------------------------- Agreement relating to the Preferred Stock and the Subordinated Debentures dated as of February 12, 1997 between the Corporation and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a copy of which 24 is available to each Holder without charge upon request from the secretary of the Corporation. "S&P" means Standard & Poor's Ratings Group and its successors. --- "Securities Act" means the Securities Act of 1933, as amended, and the -------------- rules and regulations promulgated thereunder. "Senior Notes" means the 10% Senior Notes Due 2007 of the Corporation. ------------ "Senior Securities" shall have the meaning ascribed to it in paragraph ----------------- (b) hereof. "Series A Debentures" means the 13% Subordinated Exchange Debentures ------------------- Due 2009 issuable under the Indenture. "Series B Debentures" means the 13% Series B Subordinated Exchange ------------------- Debentures Due 2009 issuable under the Indenture. "Series A Preferred" shall have the meaning ascribed to it in ------------------ paragraph (a) hereof. "Series B Preferred" shall have the meaning ascribed to it in ------------------ paragraph (a) hereof. "Shelf Registration Statement" shall have the meaning ascribed to such ---------------------------- term in the Registration Rights Agreement. "Special Dividends" shall have the meaning ascribed to it in paragraph ----------------- (c)(iii). "Subordinated Debentures" means the Series A Debentures and the Series ----------------------- B Debentures. "Transfer Agent" means Continental Stock Transfer & Trust Company, as -------------- Transfer Agent for the Preferred Stock. "Transfer Restricted Securities" shall have the meaning ascribed to it ------------------------------ in the Registration Rights Agreement. "Treasury Rate" means the yield to maturity at the time of computation ------------- of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two business days prior to the date fixed for redemption of the Preferred 25 Stock (or, if such Statistical Release is no longer published, any publicly available source of similar data)) most nearly equal to the then remaining period to the date scheduled for the mandatory redemption of the Preferred Stock; provided, however, that if such period is not equal to the constant -------- ------- maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period to the date scheduled for the mandatory redemption of the Preferred Stock is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "Voting Rights Triggering Event" shall have the meaning ascribed to it ------------------------------ in paragraph (f)(i) hereof. 26 IN WITNESS WHEREOF, said International CableTel Incorporated has caused this Certificate of Designation to be signed by Richard J. Lubasch, its Senior Vice President - General Counsel, and attested by Sandra Barnet, its Assistant Secretary, this 12th day of February, 1997. INTERNATIONAL CABLETEL INCORPORATED By: /s/ Richard J. Lubasch -------------------------------- Richard J. Lubasch Senior Vice President - General Counsel Attested: By: /s/ Sandra Barnet -------------------------- Sandra Barnet Assistant Secretary 27 EX-4.11 4 REGISTRATION RIGHTS AGREEMENT (10% SENIOR NOTES) EXHIBIT 4.11 ================================================================================ 10% SENIOR NOTES DUE 2007 REGISTRATION RIGHTS AGREEMENT Dated as of February 12, 1997 by and among INTERNATIONAL CABLETEL INCORPORATED and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ================================================================================ 1 This Registration Rights Agreement (this "Agreement") is made and entered into as of February 12, 1997 by and among International CableTel Incorporated, a Delaware corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial purchasers (the "Initial Purchasers"). The Company proposes to issue and sell to the Initial Purchasers $400,000,000 aggregate principal amount of its 10% Senior Notes Due 2007 (the "Notes") (the "Initial Placement"). As an inducement to the Initial Purchasers to enter into the purchase agreement, dated as of February 7, 1997 (the "Purchase Agreement"), and in satisfaction of a condition to the Initial Purchasers' obligations thereunder, the Company agrees with the Initial Purchasers, (i) for the benefit of the Initial Purchasers and (ii) for the benefit of the holders from time to time of the Notes whose names appear in the register maintained by the Registrar in accordance with the provisions of the Indenture (as defined in Section 1 hereof) (including the Initial Purchasers) (each of the foregoing a "Holder" and together the "Holders"), as follows: 1. Definitions. Capitalized terms used herein without definition shall ----------- have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Affiliate" of any specified person means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Closing Date" has the meaning set forth in the Purchase Agreement. "Commission" means the Securities and Exchange Commission. "Commission Delay Period" has the meaning set forth in Section 2(a) hereof. "Consummate" means the occurrence of (i) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Exchange Notes to be issued in the Registered Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Registered Exchange Offer open for a period not less than the minimum period required pursuant to Section 2(c)(ii) hereof, and 2 (iii) the delivery by the Company to the Registrar under the Indenture of Exchange Notes of a like aggregate principal amount to the Notes that were tendered by Holders thereof pursuant to the Registered Exchange Offer. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Notes" means debt securities of the Company identical in all material respects to the Notes (except that paragraph 2 of, and the transfer restrictions on the Notes will be modified or eliminated, as appropriate), to be issued under the Indenture or the Exchange Notes Indenture. "Exchange Notes Indenture" means an indenture between the Company and the Exchange Notes Trustee, identical in all material respects with the Indenture (except that paragraph 2 of, and the transfer restrictions on, the Notes will be modified or eliminated, as appropriate). "Exchange Notes Trustee" means a bank or trust company reasonably satisfactory to the Initial Purchasers, as trustee with respect to the Exchange Notes under the Exchange Notes Indenture. "Exchange Offer Registration Period" means a period expiring upon the earliest to occur of (i) the 1 year period following the Consummation of the Registered Exchange Offer; (ii) the date on which, in the opinion of counsel to the Company, all of the Transfer Restricted Securities then held by the Holders may be sold by such Holders in the public United States securities markets in the absence of a registration statement covering such sales and (iii) the date on which there ceases to be outstanding any Transfer Restricted Securities. "Exchange Offer Registration Statement" means a registration statement of the Company on an appropriate form under the Act with respect to the Registered Exchange Offer, all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchanging Dealer" means any Holder (which may include the Initial Purchasers) which is a broker-dealer, electing to exchange Transfer Restricted Securities acquired for its own account as a result of market-making activities or other trading activities, for Exchange Notes. "Final Offering Memorandum" has the meaning set forth in the Purchase Agreement. 3 "Holder" has the meaning set forth in the preamble hereto. "Indenture" means the Indenture relating to the Notes dated as of February 12, 1997, between the Company and The Chase Manhattan Bank, as trustee, as the same may be amended from time to time in accordance with the terms thereof. "Initial Placement" has the meaning set forth in the preamble hereto. "Majority Holders" means the Holders of a majority of the aggregate principal amount of securities registered under a Registration Statement. "Managing Underwriters" means the investment banker or investment bankers and manager or managers that shall administer an underwritten offering. "Notes" has the meaning set forth in the preamble hereto. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of Transfer Restricted Securities or the Exchange Notes, covered by such Registration Statement, and all amendments and supplements to the Prospectus, including post-effective amendments. "Registered Exchange Offer" means the proposed offer to the Holders to issue and deliver to such Holders, in exchange for Notes, a like principal amount of the Exchange Notes. "Registration Statement" means any Exchange Offer Registration Statement or any Shelf Registration Statement, which is filed pursuant to the provisions hereof, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. "Shelf Registration" means a registration effected pursuant to Section 3 hereof. "Shelf Registration Period" has the meaning set forth in Section 3(b) hereof. "Shelf Registration Statement" means a "shelf" registration statement of the Company pursuant to the provisions of Section 3 hereof which covers some or all of the Transfer Restricted Securities as applicable, on an appropriate form under Rule 415 4 under the Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post- effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Supplement Delay Period" means any period commencing on the date of receipt by a Holder of Transfer Restricted Securities or Exchange Notes of any notice from the Company of the existence of any fact or event of the kind described in Section 4(b)(2) hereof and ending on the date of receipt by such Holder of an amended or supplemented Registration Statement or Prospectus, as contemplated by Section 4(j) hereof, or the receipt by such Holder of written notice from the Company (the "Advice") that the use of the Prospectus may be resumed, and receipt of copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. "Transfer Restricted Securities" means each Note until (i) the date on which such Note has been exchanged by a person other than a broker-dealer for an Exchange Note in the Registered Exchange Offer, (ii) following the exchange by an Exchanging Dealer in the Registered Exchange Offer of a Note for an Exchange Note, the date on which such Exchange Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act. "Trustee" means the trustee with respect to the Notes under the Indenture. "underwriter" means any underwriter of Notes in connection with an offering thereof under a Shelf Registration Statement. 2. Registered Exchange Offer; Resales of Exchange Notes by Exchanging ------------------------------------------------------------------ Dealers; Private Exchange. - ------------------------- (a) The Company shall prepare and, on or prior to 75 days following the Closing Date, shall file with the Commission the Exchange Offer Registration Statement with respect to the Registered Exchange Offer. The Company shall use its best efforts to cause the Exchange Offer Registration Statement to become effective under the Act on or prior to 120 days after the Closing Date; provided that, if as a result of there being no federal governmental budget for any year following the 1996 fiscal year, the Commission ceases to review registration statements like the Registration Statements in the time within which the Commission normally reviews such registration statements in the ordinary 5 course (a "Commission Delay Period"), then such 120 day period during which the Company must cause the Exchange Offer Registration Statement to become effective shall be extended by the number of days of which the Commission Delay Period is comprised. The Company shall use its best efforts to Consummate the Registered Exchange Offer on or prior to 160 days after the Closing Date. (b) Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Transfer Restricted Securities for Exchange Notes (assuming that such Holder is not an Affiliate of the Company within the meaning of the Act, acquires the Exchange Notes in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Notes) to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the Act and without material restrictions under the securities laws of a substantial proportion of the several states of the United States. (c) In connection with the Registered Exchange Offer, the Company shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (ii) keep the Registered Exchange Offer open for not less than 30 days and not more than 45 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) utilize the services of a depositary or an exchange agent (which, in either case, may be the Trustee) for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; and (iv) comply in all material respects with all applicable laws. (d) As soon as practicable after the close of the Registered Exchange Offer, the Company shall: (i) accept for exchange all Transfer Restricted Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (ii) deliver to the Trustee for cancellation all Transfer Restricted Securities so accepted for exchange; and 6 (iii) cause the Trustee or the Exchange Notes Trustee, as the case may be, promptly to authenticate and deliver to each Holder of Transfer Restricted Securities, Exchange Notes of a like principal amount to the Transfer Restricted Securities of such Holder so accepted for exchange. (e) The Initial Purchasers and the Company acknowledge that, pursuant to interpretations by the Commission's staff of Section 5 of the Act, and in the absence of an applicable exemption therefrom, each Exchanging Dealer is required to deliver a Prospectus in connection with a sale of any Exchange Notes received by such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange for Transfer Restricted Securities acquired for its own account as a result of market-making activities or other trading activities. Accordingly, the Company shall: (i) include the information set forth in Annex A hereto on the cover of the Exchange Offer Registration Statement, in Annex B hereto in the forepart of the Exchange Offer Registration Statement in a section setting forth details of the Registered Exchange Offer, in Annex C hereto in the underwriting or plan of distribution section of the Prospectus forming a part of the Exchange Offer Registration Statement and in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (ii) use its best efforts to keep the Exchange Offer Registration Statement continuously effective (subject to the existence of a Supplement Delay Period) under the Act during the Exchange Offer Registration Period for delivery by Exchanging Dealers in connection with sales of Exchange Notes received pursuant to the Registered Exchange Offer, as contemplated by Section 4 (g) below. (f) In the event that any Initial Purchaser determines that it is not eligible to participate in the Registered Exchange Offer with respect to the exchange of Transfer Restricted Securities constituting any portion of an unsold allotment of Notes, at the written request of such Initial Purchaser, the Company shall issue and deliver to such Initial Purchaser or the party purchasing Exchange Notes registered under a Shelf Registration Statement as contemplated by Section 3 hereof from such Initial Purchaser, in exchange for such Transfer Restricted Securities, a like principal amount of Exchange Notes. Exchange Notes issued in exchange for Transfer Restricted Securities constituting any portion of an unsold allotment of Notes which are not registered under a Shelf Registration Statement as contemplated by Section 3 hereof shall bear a legend as to restrictions on transfer. The Company shall seek to cause the CUSIP Service Bureau to issue the same CUSIP number for such Exchange Notes as for Exchange Notes issued pursuant to the Registered Exchange Offer. 7 3. Shelf Registration. If, (i) the Company is not required to file the ------------------ Exchange Offer Registration Statement or permitted to Consummate the Registered Exchange Offer because the Registered Exchange Offer is not permitted by applicable law or Commission policy or (ii) any Holder of Transfer Restricted Securities notifies the Company in writing within 10 business days of the filing and effectiveness under the Act of the Exchange Offer Registration Statement (A) it is prohibited by law or Commission policy from participating in the Registered Exchange Offer or (B) that it may not resell the Exchange Notes acquired by it in the Registered Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales or (C) that it is a broker-dealer and owns Notes acquired directly from the Company or an Affiliate (it being understood that, for purposes of this Section 3, (x) the requirement that an Initial Purchaser deliver a Prospectus containing the information required by Items 507 and/or 508 of Regulation S-K under the Act in connection with sales of Exchange Notes acquired in exchange for such Notes shall result in such Exchange Notes being not "freely tradeable" but (y) the requirement that an Exchanging Dealer deliver a Prospectus in connection with sales of Exchange Notes acquired in the Registered Exchange Offer in exchange for Notes acquired as a result of market-making activities or other trading activities shall not result in such Exchange Notes being not "freely tradeable"), the following provisions shall apply: (a) The Company shall as promptly as practicable, file with the Commission and thereafter shall use its best efforts to cause to be declared effective under the Act on or prior to 120 days (plus any additional days allowed as a result of a Commission Delay Period) after the date of original issuance of the Notes, a Shelf Registration Statement relating to the offer and sale of the Transfer Restricted Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement; provided, however, that, with respect to Exchange Notes received by an Initial Purchaser in exchange for Transfer Restricted Securities constituting any portion of an unsold allotment of Notes, the Company may, if permitted by current interpretations by the Commission's staff, file a post-effective amendment to the Exchange Offer Registration Statement containing the information required by Regulation S-K Items 507 and/or 508, as applicable, in satisfaction of its obligations under this paragraph (a) with respect thereto, and any such Exchange Offer Registration Statement, as so amended, shall be referred to herein as, and governed by the provisions herein applicable to, a Shelf Registration Statement. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of three years from the date the Shelf Registration 8 statement is declared effective by the Commission (or until one year after such effective date if such Shelf Registration Statement is filed at the request of an Initial Purchaser) or such shorter period that will terminate when (i) all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement, (ii) the date on which, in the opinion of counsel to the Company, all of the Transfer Restricted Securities then held by the Holders may be sold by such Holders in the public United States securities markets in the absence of a registration statement covering such sales or (iii) the date on which there ceases to be outstanding any Transfer Restricted Securities (in any such case, such period being called the "Shelf Registration Period"). The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such securities during that period, unless (i) such action is required by applicable law, (ii) such action is taken by the Company in good faith and for valid business reasons (not including avoidance of the Company's obligations hereunder), including the acquisition or divestiture of assets, so long as the Company promptly thereafter complies with the requirements of Section 4(j) hereof, if applicable or (iii) such action is taken because of any fact or circumstance giving rise to a Supplement Delay Period. 4. Registration Procedures. In connection with any Shelf Registration ----------------------- Statement and, to the extent applicable, any Exchange Offer Registration Statement, the following provisions shall apply: (a) The Company shall ensure that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto complies in all material respects with the Act and the rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. (b) (1) The Company shall advise the Initial Purchasers and, in the case of a Shelf Registration Statement, the Holders of Transfer Restricted Securities covered thereby, and, if requested by the Initial Purchasers or any such Holder, confirm such advice in writing when a Registration Statement and any amendment thereto has been filed with the Commission and when 9 the Registration Statement or any post-effective amendment thereto has become effective. (2) The Company shall advise the Initial Purchasers and, in the case of a Shelf Registration Statement, the Holders of Transfer Restricted Securities covered thereby, and, in the case of an Exchange Offer Registration Statement, any Exchanging Dealer which has provided in writing to the Company a telephone or facsimile number and address for notices, and, if requested by the Initial Purchasers or any such Holder or Exchanging Dealer, confirm such advice in writing: (i) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus included therein or for additional information; (ii) of the initiation by the Commission of proceedings relating to a stop order suspending the effectiveness of the Registration Statement; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the securities included therein for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the existence of any fact and the happening of any event (including, without limitation, pending negotiations relating to, or the consummation of, a transaction or the occurrence of any event which would require additional disclosure of material non-public information by the Company in the Shelf Registration Statement as to which the Company has a bona fide business purpose for preserving confidential or which renders the Company unable to comply with Commission requirements) that, in the opinion of the Company, makes untrue any statement of a material fact made in its Shelf Registration Statement, the Prospectus or any amendment or supplement thereto or any document incorporated by reference therein or requires the making of any changes in the Registration Statement or the Prospectus so that, as of such date, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading. 10 Such advice may be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made. (c) The Company shall use its best efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement at the earliest possible time. (d) The Company shall use its best efforts to furnish to each selling Holder included within the coverage of any Shelf Registration Statement who so requests in writing and who has provided to the Company an address for notices, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and, if the Holder so requests in writing, all exhibits and schedules (including those incorporated by reference). (e) The Company shall, during the Shelf Registration Period, deliver to each Holder of Transfer Restricted Securities covered by any Shelf Registration Statement and who has provided to the Company an address for notices, without charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and subject to any notice by the Company in accordance with Section 5(b) hereof, the Company consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders for the purposes of offering and resale of the Transfer Restricted Securities covered by the Prospectus in accordance with the applicable regulations promulgated under the Act. (f) The Company shall furnish to each Exchanging Dealer which so requests in writing, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements, and, if the Exchanging Dealer so requests in writing, any documents incorporated by reference therein and all exhibits and schedules (including those incorporated by reference). (g) The Company shall, during the Exchange Offer Registration Period, promptly deliver to each Exchanging Dealer, without charge, as many copies of the Prospectus included in such Exchange Offer Registration Statement and any amendment or supplement thereto as such Exchanging Dealer may reasonably request for delivery by such Exchanging Dealer in connection with a sale of Exchange Notes received by it pursuant to the Registered Exchange Offer; and the Company consents to the use of the Prospectus or any amendment or supplement thereto by any such Exchanging Dealer for the purposes contemplated by the Act or the applicable regulations promulgated under the Act. 11 (h) Prior to the Registered Exchange Offer or any offering of Transfer Restricted Securities pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of Transfer Restricted Securities named therein and their respective counsel in connection with the registration or qualification of such Transfer Restricted Securities for offer and sale under the securities or blue sky laws of such jurisdictions of the United States as any such Holders reasonably request in writing not later than the date that is five business days prior to the date upon which this Agreement specifies that the Registration Statement shall become effective; provided, however, that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company shall endeavor to cooperate with the Holders of Transfer Restricted Securities to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as Holders may request in writing at least two Business Days prior to sales of securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraph (b)(2)(v) hereof, the Company shall promptly prepare a post-effective amendment to any Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that as thereafter delivered to purchasers of the Transfer Restricted Securities covered thereby, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, in the event of a material business transaction (including, without limitation, pending negotiations relating to such a transaction) which would, in the opinion of counsel to the Company, require disclosure by the Company in the Shelf Registration Statement of material non-public information which the Company has a bona fide business purpose for not disclosing, then for so long as such circumstances exist, the Company shall not be required to prepare and file a supplement or post-effective amendment hereunder. (k) Not later than the effective date of any such Registration Statement hereunder, the Company shall cause to be provided a CUSIP number for the Notes or Exchange Notes, as the case may be, registered under such Registration Statement, and provide the applicable trustee with printed certificates for 12 such Notes or Exchange Notes, in a form eligible for deposit with The Depository Trust Company. (l) The Company shall use its best efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to its security holders in a regular filing on Form 10-Q or 10-K an earnings statement satisfying the provisions of Rule 158 (which need not be audited) for the twelve-month period commencing after effectiveness of the Shelf Registration Statement. (m) The Company shall cause the Indenture or the Exchange Notes Indenture, as the case may be, to be qualified under the Trust Indenture Act in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be sold pursuant to any Shelf Registration Statement to furnish to the Company within 20 Business Days after written request for such information has been made by the Company, such information regarding the Holder and the distribution of such securities as the Company may from time to time reasonably require for inclusion in such Registration Statement and such other information as may be necessary or advisable in the reasonable opinion of the Company and its counsel, in connection with such Shelf Registration Statement. No Holder of Transfer Restricted Securities shall be entitled to use the Prospectus unless and until such Holder shall have furnished the information required by this Section 4(n) and all such information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. (o) The Company shall, if requested, promptly incorporate in a Prospectus supplement or post-effective amendment to a Shelf Registration Statement, such information as the Managing Underwriters and Majority Holders reasonably agree should be included therein and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided however, that the Company shall not be required to take any action pursuant to this Section 4(o) that would, in the opinion of counsel for the Company, violate applicable law or to include information the disclosure of which at the time would have an adverse effect on the business or operations of the Company and/or its subsidiaries, as determined in good faith by the Company. (p) In the case of any Shelf Registration Statement, the Company shall enter into such agreements (including underwriting agreements) and take all other reasonably appropriate actions in order to expedite or facilitate the registration or the disposition of the Transfer Restricted Securities, and in 13 connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 7 (or such other provisions and procedures acceptable to the Majority Holders and the Managing Underwriters, if any), with respect to all parties to be indemnified pursuant to Section 7 from Holders of Notes to the Company. (q) In the case of any Shelf Registration Statement, the Company shall (i) make reasonably available for inspection by representatives of the Holders of Transfer Restricted Securities to be registered thereunder, the Managing Underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by the Holders or any such Managing Underwriter, at the office where normally kept during normal business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Holders or any Managing Underwriter, attorney, accountant or other agent in connection with any such Registration Statement as is customary for similar due diligence examinations; provided, however, that such persons shall first agree in writing with the Company that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such person, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (ii) make such representations and warranties to the Holders of Transfer Restricted Securities registered thereunder and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement; (iii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iv) obtain "cold comfort" letters (or, in the case of any person that does not satisfy the conditions for receipt of a "cold comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed-upon procedures letter") and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and 14 financial data are, or are required to be, included in the Registration Statement), addressed where reasonably practicable to each selling Holder of Transfer Restricted Securities registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (v) deliver such documents and certificates as may be reasonably requested by the Majority Holders and the Managing Underwriters, if any, including those to evidence compliance with Section 4(j) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The foregoing actions set forth in clauses (ii), (iii), (iv) and (v) of this Section 4(q) shall, if reasonably requested by the Majority Holder or the Majority Underwriters, be performed at (A) the effectiveness of such Registration Statement and each post- effective amendment thereto and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. (r) The Company may offer securities of the Company other than the Notes or the Exchange Notes under the Shelf Registration Statement, except where such offer would conflict with the terms of the Purchase Agreement. 5. Holders' Agreements. Each Holder of Transfer Restricted Securities and ------------------- Exchange Notes, by the acquisition of such Transfer Restricted Securities or Exchange Notes, as the case may be, agrees: (a) To furnish the information required to be furnished pursuant to Section 4(n) hereof within the time period set forth therein. (b) That upon receipt of a notice of the commencement of a Supplement Delay Period, it will keep the fact of such notice confidential, forthwith discontinue disposition of its Transfer Restricted Securities or Exchange Notes, as the case may be, pursuant to the Registration Statement, and will not deliver any Prospectus forming a part thereof until receipt of the amended or supplemented Registration Statement or Prospectus, as applicable, as contemplated by Section 4(j) hereof, or until receipt of the Advice. If a Supplement Delay Period should occur, the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, shall be extended by the number of days of which the Supplement Delay Period is comprised; provided that the Shelf Registration Period shall not be extended if the Company has received an opinion of counsel (which counsel, if different from counsel to the Company referred to in Section 6(a) and (b) of the Purchase Agreement, shall be reasonably satisfactory to the Majority Holders of the Transfer Restricted Securities named in the Shelf Registration Period) to the effect that the Transfer Restricted Securities 15 can be freely tradeable without the continued effectiveness of the Shelf Registration Statement. (c) If so directed by the Company in a notice of the commencement of a Supplement Delay Period, each Holder of Transfer Restricted Securities or Exchange Notes, as the case may be, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering the Transfer Restricted Securities or Exchange Notes, as the case may be. (d) Sales of such Transfer Restricted Securities pursuant to a Registration Statement shall only be made in the manner set forth in such currently effective Registration Statement. 6. Registration Expenses. The Company shall bear all expenses incurred in --------------------- connection with the performance of its obligations under Sections 2, 3 and 4 hereof and, in the event of any Shelf Registration Statement, will reimburse the Holders for the reasonable fees and disbursements of one firm or counsel designated by the Majority Holders to act as counsel for the Holders in connection therewith, and, in the case of any Exchange Offer Registration Statement, will reimburse the Initial Purchasers for the reasonable fees and disbursements of counsel acting in connection therewith. Notwithstanding the foregoing or anything in this Agreement to the contrary, each Holder shall pay all underwriting discounts and commission of any underwriters with respect to any Transfer Restricted Securities sold by it. 7. Indemnification and Contribution. (a) In connection with any -------------------------------- Registration Statement, the Company agrees to indemnify and hold harmless each Holder of Transfer Restricted Securities covered thereby (including each Initial Purchaser and, with respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer), the directors, officers, employees and agents of each such Holder and each person who controls any such Holder within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment thereof, or in any preliminary Prospectus or Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with 16 investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the Company will not be liable in any case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such Holder or by the Managing Underwriters specifically for inclusion therein and (ii) the Company will not be liable to any indemnified party under this indemnity agreement with respect to the Registration Statement or Prospectus to the extent that any such loss, claim, damage or liability of such indemnified party results solely from an untrue statement of a material fact contained in, or the omission of a material fact from, the Registration Statement or Prospectus which untrue statement or omission was corrected in an amended or supplemented Registration Statement or Prospectus, if the person alleging such loss, claim, damage or liability was not sent or given, at or prior to the written confirmation of such sale, a copy of the amended or supplemented Registration Statement or Prospectus if the Company had previously furnished copies thereof to such indemnified party and if delivery of a prospectus is required by the Act and was not so made. This indemnity agreement will be in addition to any liability which the Company may otherwise have. The Company also agrees to indemnify or contribute to Losses of, as provided in Section 6(d), any underwriters of Notes registered under a Shelf Registration Statement, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Initial Purchaser and the selling Holders provided in this Section 6(a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 4(q) hereof. (b) Each Holder of Transfer Restricted Securities or Exchange Notes covered by a Registration Statement (including each Initial Purchaser and, with respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees to indemnify and hold harmless (i) the Company, (ii) each of its directors, (iii) each of its officers who signs such Registration Statement and (iv) each person who controls the Company within the meaning of either the Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any such Holder may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 6 or notice of the commencement of any action, such 17 indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel) if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 6 is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have a joint and several obligation to 18 contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the Initial Placement and the Registration Statement which resulted in such Losses; provided, however, that in no case shall any Initial Purchaser or any subsequent Holder of any Note or Exchange Note be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to such Note, or in the case of an Exchange Note, applicable to the Note which was exchangeable into such Exchange Note, as set forth on the cover page of the Final Offering Memorandum, nor shall any underwriter be responsible for any amount in excess of the underwriting discount or commission applicable to the securities purchased by such underwriter under the Registration Statement which resulted in such Losses. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the sum of (x) the total net proceeds from the Initial Placement (before deducting expenses) as set forth on the cover page of the Final Offering Memorandum and (y) the total amount of additional interest which the Company was not required to pay as a result of registering the securities covered by the Registration Statement which resulted in such Losses. Benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions as set forth on the cover page of the Final Offering Memorandum, and benefits received by any other Holders shall be deemed to be equal to the value of receiving Notes or Exchange Notes, as applicable, registered under the Act. Benefits received by any underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Registration Statement which resulted in such Losses. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the indemnifying party, on the one hand, or by the indemnified party, on the other hand. The parties agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not 19 guilty of such fraudulent misrepresentation. For purposes of this Section 6, each person who controls a Holder within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such Holder, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The provisions of this Section 6 will remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the officers, directors or controlling persons referred to in Section 6 hereof, and will survive the sale by a Holder of Transfer Restricted Securities or Exchange Notes. 8. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company has not, as of the date -------------------------- hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (b) Amendments and Waivers. The provisions of this Agreement, including ---------------------- the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Holders of at least a majority of the then outstanding aggregate principal amount of Notes (or, after the consummation of any Registered Exchange Offer in accordance with Section 2 hereof, of Exchange Notes); provided, however, that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Company shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by the Majority Holders, determined on the basis of Notes being sold rather than registered under such Registration Statement. (c) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery: 20 (1) if to a Holder, at the most current address given by such holder to the Company in accordance with the provisions of this Section 7(c), which address initially is, with respect to each Holder, the address of such Holder maintained by the registrar under the Indenture or the Exchange Note Indenture, as the case may be, with a copy in like manner to Donaldson, Lufkin & Jenrette Securities Corporation; (2) if to the Initial Purchasers, initially at the respective addresses set forth in the Purchase Agreement; and (3) if to the Company, initially at its address set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given when received. The Initial Purchasers or the Company by notice to the other may designate additional or different addresses for subsequent notices or communications. (d) Successors and Assigns. This Agreement shall inure to the benefit of ---------------------- and be binding upon the successors and assigns of each of the parties hereto, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Notes and/or Exchange Notes. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Notes and/or Exchange Notes and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (e) Counterparts. This agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This agreement shall be governed by and construed in ------------- accordance with the internal laws of the State of New York applicable to agreements made and to be performed in said State (without reference to the conflict of law rules thereof). (h) Severability. In the event that any one of more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected 21 thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (i) Notes Held by the Company, etc. Whenever the consent or approval of ------------------------------ Holders of a specified percentage of principal amount of Notes or Exchange Notes is required hereunder, Notes or Exchange Notes, as applicable, held by the Company or its Affiliates (other than subsequent Holders of Notes or Exchange Notes if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Notes or Exchange Notes) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. [signature page follows] 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. INTERNATIONAL CABLETEL INCORPORATED By: /s/ Richard J. Lubasch ------------------------ Name: Richard J. Lubasch Title: Senior Vice President and General Counsel DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Anthony S. Belinkoff --------------------------- Name: Anthony S. Belinkoff Title: Managing Director 23 ANNEX A Each broker-dealer that receives Exchange Notes for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange 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 Exchange Notes received in exchange for Notes where such Exchange Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date (as defined herein) and ending on the close of business on the 180th day following the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 24 ANNEX B Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such 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 Exchange Notes. See "Plan of Distribution." 25 ANNEX C PLAN OF DISTRIBUTION -------------------- Each broker-dealer that receives Exchange Notes for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date and ending on the close of business on the 180th day following the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange 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 on the Exchange Notes or by 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 at negotiated prices. Any such resale may be made directly to purchaser 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 Exchange Notes. Any broker- dealer that resells Exchange Notes that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of Exchange 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 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the 26 Registered Exchange Offer (including the expenses of one counsel for the holders of the Notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. [Add information required by Regulation S-K Items 507 and/or 508.] 27 ANNEX D Rider A ------- CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:_______________________________ Address:______________________________________________________________ ______________________________________________________________ Rider B ------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 28 EX-4.12 5 REGISTRATION RIGHTS AGREEMENT (PREFERRED STOCK) EXHIBIT 4.12 ================================================================================ 13% SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT Dated as of February 12, 1997 by and among INTERNATIONAL CABLETEL INCORPORATED and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ================================================================================ 1 This Registration Rights Agreement (this "Agreement") is made and entered into as of February 12, 1997 by and among International CableTel Incorporated, a Delaware corporation (the "Company"), and Donaldson, Lufkin & Jenrette Securities Corporation, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial purchasers (the "Initial Purchasers"). The Company proposes to issue and sell to the Initial Purchasers 100,000 shares of its 13% Senior Redeemable Exchangeable Preferred Stock (collectively, the "Shares") (the "Initial Placement"). As an inducement to the Initial Purchasers to enter into the purchase agreement, dated as of February 7, 1997 (the "Purchase Agreement"), and in satisfaction of a condition to the Initial Purchasers' obligations thereunder, the Company agrees with the Initial Purchasers, (i) for the benefit of the Initial Purchasers and (ii) for the benefit of the Holders (as defined below): 1. Definitions. Capitalized terms used herein without definition shall ----------- have their respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following capitalized defined terms shall have the following meanings: "Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Affiliate" of any specified person means any other person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such specified person. For purposes of this definition, control of a person means the power, direct or indirect, to direct or cause the direction of the management and policies of such person whether by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means (i) prior to the Exchange Date, the Registrar and (ii) at or after the Exchange Date, the Trustee. "Amount" means (i) prior to the Exchange Date, the number of Shares and (ii) at or after the Exchange Date, the principal amount of Debentures. "Closing Date" has the meaning set forth in the Purchase Agreement. "Commission" means the Securities and Exchange Commission. "Commission Delay Period" has the meaning set forth in Section 2(a) hereof. "Consummate" means the occurrence of (i) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the Exchange Securities to be issued in the 2 Registered Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Registered Exchange Offer open for a period not less than the minimum period required pursuant to Section 2(c)(ii) hereof, and (iii) the delivery by the Company to the Agent of the same Amount of Exchange Securities as the Amount of Securities that were tendered by Holders thereof pursuant to the Registered Exchange Offer. "Debentures" means the Company's 13% Subordinated Exchange Debentures Due 2009. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exchange Date" means the time at which the Shares are exchanged into the Debentures or on which the Exchange Shares are exchanged into the Exchange Debentures, in each case, in accordance with the Certificate of Designation for the Shares and Exchange Shares. "Exchange Debentures" means the debt securities of the Company identical in all material respects to the Debentures, except that paragraph 2 of, and the transfer restrictions on, the Debentures, will be modified or eliminated, as appropriate. "Exchange Offer Registration Period" means a period expiring upon the earliest to occur of (i) the 1 year period following the Consummation of the Registered Exchange Offer; (ii) the date on which, in the opinion of counsel to the Company, all of the Transfer Restricted Securities then held by the Holders may be sold by such Holders in the public United States securities markets in the absence of a registration statement covering such sales and (iii) the date on which there ceases to be outstanding any Transfer Restricted Securities. "Exchange Offer Registration Statement" means a registration statement of the Company on an appropriate form under the Act with respect to the Registered Exchange Offer, all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Exchange Securities" means (i) prior to the Exchange Date, the Exchange Shares and (ii) at or after the Exchange Date, the Exchange Debentures. "Exchange Shares" means the shares of preferred stock of the Company identical in all material respects to the Shares, 3 except that the transfer restrictions on the Shares will be modified or eliminated, as appropriate. "Exchanging Dealer" means any Holder (which may include the Initial Purchasers) which is a broker-dealer, electing to exchange Transfer Restricted Securities acquired for its own account as a result of market-making activities or other trading activities, for Exchange Securities. "Final Offering Memorandum" has the meaning set forth in the Purchase Agreement. "Holders" means the holders from time to time of (i) prior to the Exchange Date, the Shares whose names appear in the register maintained by the Registrar (including the Initial Purchasers) and (ii) at or after the Exchange Date, the Debentures whose names appear in the register maintained by the Trustee (including the Initial Purchasers). "Indenture" means the indenture, if any, entered into between the Company and The Chase Manhattan Bank, as Trustee, governing the Debentures and Exchange Debentures, if issued. "Initial Placement" has the meaning set forth in the preamble hereto. "Majority Holders" means the Holders of a majority of the aggregate Amount of Securities registered under a Registration Statement. "Managing Underwriters" means the investment banker or investment bankers and manager or managers that shall administer an underwritten offering. "Prospectus" means the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of Transfer Restricted Securities or the Exchange Securities, covered by such Registration Statement, and all amendments and supplements to the Prospectus, including post-effective amendments. "Registered Exchange Offer" means the proposed offer to the Holders to issue and deliver to such Holders, in exchange for Shares, a like Amount of the Exchange Securities. "Registrar" means Continental Stock Transfer & Trust Company, as registrar for the Shares and the Exchange Shares. 4 "Registration Statement" means any Exchange Offer Registration Statement or any Shelf Registration Statement, which is filed pursuant to the provisions hereof, in each case, including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. "Securities" means (i) prior to the Exchange Date, the Shares and (ii) at or after the Exchange Date, the Debentures. "Shares" has the meaning set forth in the preamble hereto. "Shelf Registration" means a registration effected pursuant to Section 3 hereof. "Shelf Registration Period" has the meaning set forth in Section 3(b) hereof. "Shelf Registration Statement" means a "shelf" registration statement of the Company pursuant to the provisions of Section 3 hereof which covers some or all of the Transfer Restricted Securities as applicable, on an appropriate form under Rule 415 under the Act, or any similar rule that may be adopted by the Commission, amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Supplement Delay Period" means any period commencing on the date of receipt by a Holder of Transfer Restricted Securities or Exchange Securities of any notice from the Company of the existence of any fact or event of the kind described in Section 4(b)(2) hereof and ending on the date of receipt by such Holder of an amended or supplemented Registration Statement or Prospectus, as contemplated by Section 4(j) hereof, or the receipt by such Holder of written notice from the Company (the "Advice") that the use of the Prospectus may be resumed, and receipt of copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. "Transfer Restricted Securities" means each Security until (i) the date on which such Security has been exchanged by a person other than a broker-dealer for an Exchange Security in the Registered Exchange Offer, (ii) following the exchange by an Exchanging Dealer in the Registered Exchange Offer of a Security for an Exchange Security, the date on which such Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, (iii) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iv) the 5 date on which such Security is distributed to the public pursuant to Rule 144 under the Act. "Trustee" means The Chase Manhattan Bank, as Trustee, under the Indenture. "underwriter" means any underwriter of Securities in connection with an offering thereof under a Shelf Registration Statement. 2. Registered Exchange Offer; Resales of Exchange Securities by Exchanging ----------------------------------------------------------------------- Dealers; Private Exchange. - ------------------------- (a) The Company shall prepare and, on or prior to 75 days following the Closing Date, shall file with the Commission the Exchange Offer Registration Statement with respect to the Registered Exchange Offer. The Company shall use its best efforts to cause the Exchange Offer Registration Statement to become effective under the Act on or prior to 120 days after the Closing Date; provided that, if as a result of there being no federal governmental budget for any year following the 1996 fiscal year, the Commission ceases to review registration statements like the Registration Statements in the time within which the Commission normally reviews such registration statements in the ordinary course (a "Commission Delay Period"), then such 120 day period during which the Company must cause the Exchange Offer Registration Statement to become effective shall be extended by the number of days of which the Commission Delay Period is comprised. The Company shall use its best efforts to Consummate the Registered Exchange Offer on or prior to 160 days after the Closing Date. (b) Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Transfer Restricted Securities for Exchange Securities (assuming that such Holder is not an Affiliate of the Company within the meaning of the Act, acquires the Exchange Securities in the ordinary course of such Holder's business and has no arrangements with any person to participate in the distribution of the Exchange Securities) to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Act and without material restrictions under the securities laws of a substantial proportion of the several states of the United States. (c) In connection with the Registered Exchange Offer, the Company shall: (i) mail to each Holder a copy of the Prospectus forming part of the Exchange Offer Registration Statement, 6 together with an appropriate letter of transmittal and related documents; (ii) keep the Registered Exchange Offer open for not less than 30 days and not more than 45 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); (iii) utilize the services of a depositary or an exchange agent (which, in either case, may be the Agent) for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; and (iv) comply in all material respects with all applicable laws. (d) As soon as practicable after the close of the Registered Exchange Offer, the Company shall: (i) accept for exchange all Transfer Restricted Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (ii) deliver to the Agent for cancellation all Transfer Restricted Securities so accepted for exchange; and (iii) cause the Agent promptly to authenticate or countersign, as applicable, and deliver to each Holder of Transfer Restricted Securities so accepted for exchange a like Amount of Exchange Securities. (e) The Initial Purchasers and the Company acknowledge that, pursuant to interpretations by the Commission's staff of Section 5 of the Act, and in the absence of an applicable exemption therefrom, each Exchanging Dealer is required to deliver a Prospectus in connection with a sale of any Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange for Transfer Restricted Securities acquired for its own account as a result of market-making activities or other trading activities. Accordingly, the Company shall: (i) include the information set forth in Annex A hereto on the cover of the Exchange Offer Registration Statement, in Annex B hereto in the forepart of the Exchange Offer Registration Statement in a section setting forth details of the Registered Exchange Offer, in Annex C hereto in the underwriting or plan of distribution section of the Prospectus forming a part of the Exchange Offer Registration Statement and in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and 7 (ii) use its best efforts to keep the Exchange Offer Registration Statement continuously effective (subject to the existence of a Supplement Delay Period) under the Act during the Exchange Offer Registration Period for delivery by Exchanging Dealers in connection with sales of Exchange Securities received pursuant to the Registered Exchange Offer, as contemplated by Section 4 (g) below. (f) In the event that any Initial Purchaser determines that it is not eligible to participate in the Registered Exchange Offer with respect to the exchange of Transfer Restricted Securities constituting any portion of an unsold allotment of Securities, at the written request of such Initial Purchaser, the Company shall issue and deliver to such Initial Purchaser or the party purchasing Exchange Securities registered under a Shelf Registration Statement as contemplated by Section 3 hereof from such Initial Purchaser, in exchange for such Transfer Restricted Securities, a like Amount of Exchange Securities. Exchange Securities issued in exchange for Transfer Restricted Securities constituting any portion of an unsold allotment of Securities which are not registered under a Shelf Registration Statement as contemplated by Section 3 hereof shall bear a legend as to restrictions on transfer. The Company shall seek to cause the CUSIP Service Bureau to issue the same CUSIP number for such Exchange Securities as for Exchange Securities issued pursuant to the Registered Exchange Offer. 3. Shelf Registration. If (i) the Company is not required to file the ------------------ Exchange Offer Registration Statement or permitted to Consummate the Registered Exchange Offer because the Registered Exchange Offer is not permitted by applicable law or Commission policy or (ii) any Holder of Transfer Restricted Securities notifies the Company in writing within 10 business days of the filing and effectiveness under the Act of the Exchange Offer Registration Statement (A) it is prohibited by law or Commission policy from participating in the Registered Exchange Offer or (B) that it may not resell the Exchange Securities acquired by it in the Registered Exchange Offer to the public without delivering a prospectus and the prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales or (C) that it is a broker-dealer and owns Securities acquired directly from the Company or an Affiliate (it being understood that, for purposes of this Section 3, (x) the requirement that an Initial Purchaser deliver a Prospectus containing the information required by Items 507 and/or 508 of Regulation S-K under the Act in connection with sales of Exchange Securities acquired in exchange for such Securities shall result in such Exchange Securities being not "freely tradeable" but (y) the requirement that an Exchanging Dealer deliver a Prospectus in connection with sales of Exchange Securities acquired in the Registered Exchange Offer in exchange for Securities acquired as a result of market-making activities or other trading activities 8 shall not result in such Exchange Securities being not "freely tradeable"), the following provisions shall apply: (a) The Company shall as promptly as practicable, file with the Commission and thereafter shall use its best efforts to cause to be declared effective under the Act on or prior to 120 days (plus any additional days allowed as a result of a Commission Delay Period) after the date of original issuance of the Securities, a Shelf Registration Statement relating to the offer and sale of the Transfer Restricted Securities by the Holders from time to time in accordance with the methods of distribution elected by such Holders and set forth in such Shelf Registration Statement; provided, however, that, with respect to Exchange Securities received by an Initial Purchaser in exchange for Transfer Restricted Securities constituting any portion of an unsold allotment of Securities, the Company may, if permitted by current interpretations by the Commission's staff, file a post-effective amendment to the Exchange Offer Registration Statement containing the information required by Regulation S-K Items 507 and/or 508, as applicable, in satisfaction of its obligations under this paragraph (a) with respect thereto, and any such Exchange Offer Registration Statement, as so amended, shall be referred to herein as, and governed by the provisions herein applicable to, a Shelf Registration Statement. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the Prospectus forming part thereof to be usable by Holders for a period of three years from the date the Shelf Registration statement is declared effective by the Commission (or until one year after such effective date if such Shelf Registration Statement is filed at the request of an Initial Purchaser) or such shorter period that will terminate when (i) all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement, (ii) the date on which, in the opinion of counsel to the Company, all of the Transfer Restricted Securities then held by the Holders may be sold by such Holders in the public United States securities markets in the absence of a registration statement covering such sales or (iii) the date on which there ceases to be outstanding any Transfer Restricted Securities (in any such case, such period being called the "Shelf Registration Period"). The Company shall be deemed not to have used its best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such securities during that period, unless (i) such action is required by applicable law, (ii) such action is taken by the Company in good faith and for valid business reasons (not including avoidance of the Company's obligations hereunder), including the acquisition or divestiture of assets, so long as the Company 9 promptly thereafter complies with the requirements of Section 4(j) hereof, if applicable or (iii) such action is taken because of any fact or circumstance giving rise to a Supplement Delay Period. 4. Registration Procedures. In connection with any Shelf Registration ----------------------- Statement and, to the extent applicable, any Exchange Offer Registration Statement, the following provisions shall apply: (a) The Company shall ensure that (i) any Registration Statement and any amendment thereto and any Prospectus forming part thereof and any amendment or supplement thereto complies in all material respects with the Act and the rules and regulations thereunder, (ii) any Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any Prospectus forming part of any Registration Statement, and any amendment or supplement to such Prospectus, does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading. (b) (1) The Company shall advise the Initial Purchasers and, in the case of a Shelf Registration Statement, the Holders of Transfer Restricted Securities covered thereby, and, if requested by the Initial Purchasers or any such Holder, confirm such advice in writing when a Registration Statement and any amendment thereto has been filed with the Commission and when the Registration Statement or any post-effective amendment thereto has become effective. (2) The Company shall advise the Initial Purchasers and, in the case of a Shelf Registration Statement, the Holders of Transfer Restricted Securities covered thereby, and, in the case of an Exchange Offer Registration Statement, any Exchanging Dealer which has provided in writing to the Company a telephone or facsimile number and address for notices, and, if requested by the Initial Purchasers or any such Holder or Exchanging Dealer, confirm such advice in writing: (i) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus included therein or for additional information; (ii) of the initiation by the Commission of proceedings relating to a stop order suspending the effectiveness of the Registration Statement; 10 (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the securities included therein for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the existence of any fact and the happening of any event (including, without limitation, pending negotiations relating to, or the consummation of, a transaction or the occurrence of any event which would require additional disclosure of material non-public information by the Company in the Shelf Registration Statement as to which the Company has a bona fide business purpose for preserving confidential or which renders the Company unable to comply with Commission requirements) that, in the opinion of the Company, makes untrue any statement of a material fact made in its Shelf Registration Statement, the Prospectus or any amendment or supplement thereto or any document incorporated by reference therein or requires the making of any changes in the Registration Statement or the Prospectus so that, as of such date, the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading. Such advice may be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made. (c) The Company shall use its best efforts to obtain the withdrawal of any order suspending the effectiveness of any Registration Statement at the earliest possible time. (d) The Company shall use its best efforts to furnish to each selling Holder included within the coverage of any Shelf Registration Statement who so requests in writing and who has provided to the Company an address for notices, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and, if the Holder so requests in writing, all exhibits and schedules (including those incorporated by reference). (e) The Company shall, during the Shelf Registration Period, deliver to each Holder of Transfer Restricted Securities covered by any Shelf Registration Statement and who has provided to the Company an address for notices, without 11 charge, as many copies of the Prospectus (including each preliminary Prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and subject to any notice by the Company in accordance with Section 5(b) hereof, the Company consents to the use of the Prospectus or any amendment or supplement thereto by each of the selling Holders for the purposes of offering and resale of the Transfer Restricted Securities covered by the Prospectus in accordance with the applicable regulations promulgated under the Act. (f) The Company shall furnish to each Exchanging Dealer which so requests in writing, without charge, at least one copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements, and, if the Exchanging Dealer so requests in writing, any documents incorporated by reference therein and all exhibits and schedules (including those incorporated by reference). (g) The Company shall, during the Exchange Offer Registration Period, promptly deliver to each Exchanging Dealer, without charge, as many copies of the Prospectus included in such Exchange Offer Registration Statement and any amendment or supplement thereto as such Exchanging Dealer may reasonably request for delivery by such Exchanging Dealer in connection with a sale of Exchange Securities received by it pursuant to the Registered Exchange Offer; and the Company consents to the use of the Prospectus or any amendment or supplement thereto by any such Exchanging Dealer for the purposes contemplated by the Act or the applicable regulations promulgated under the Act. (h) Prior to the Registered Exchange Offer or any offering of Transfer Restricted Securities pursuant to any Registration Statement, the Company shall register or qualify or cooperate with the Holders of Transfer Restricted Securities named therein and their respective counsel in connection with the registration or qualification of such Transfer Restricted Securities for offer and sale under the securities or blue sky laws of such jurisdictions of the United States as any such Holders reasonably request in writing not later than the date that is five business days prior to the date upon which this Agreement specifies that the Registration Statement shall become effective; provided, however, that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. 12 (i) The Company shall endeavor to cooperate with the Holders of Transfer Restricted Securities to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as Holders may request in writing at least two Business Days prior to sales of securities pursuant to such Registration Statement. (j) Upon the occurrence of any event contemplated by paragraph (b)(2)(v) hereof, the Company shall promptly prepare a post-effective amendment to any Registration Statement or an amendment or supplement to the related Prospectus or file any other required document so that as thereafter delivered to purchasers of the Transfer Restricted Securities covered thereby, the Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, in the event of a material business transaction (including, without limitation, pending negotiations relating to such a transaction) which would, in the opinion of counsel to the Company, require disclosure by the Company in the Shelf Registration Statement of material non-public information which the Company has a bona fide business purpose for not disclosing, then for so long as such circumstances exist, the Company shall not be required to prepare and file a supplement or post-effective amendment hereunder. (k) Not later than the effective date of any such Registration Statement hereunder, the Company shall cause to be provided a CUSIP number for the Securities or Exchange Securities, as the case may be, registered under such Registration Statement, and provide the applicable trustee with printed certificates for such Securities or Exchange Securities, in a form eligible for deposit with The Depository Trust Company. (l) The Company shall use its best efforts to comply with all applicable rules and regulations of the Commission and shall make generally available to its security holders in a regular filing on Form 10-Q or 10-K an earnings statement satisfying the provisions of Rule 158 (which need not be audited) for the twelve-month period commencing after effectiveness of the Shelf Registration Statement. (m) At or after the Exchange Date, the Company shall cause the Indenture to be qualified under the Trust Indenture Act in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be sold pursuant to any Shelf 13 Registration Statement to furnish to the Company within 20 Business Days after written request for such information has been made by the Company, such information regarding the Holder and the distribution of such securities as the Company may from time to time reasonably require for inclusion in such Registration Statement and such other information as may be necessary or advisable in the reasonable opinion of the Company and its counsel, in connection with such Shelf Registration Statement. No Holder of Transfer Restricted Securities shall be entitled to use the Prospectus unless and until such Holder shall have furnished the information required by this Section 4(n) and all such information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. (o) The Company shall, if requested, promptly incorporate in a Prospectus supplement or post-effective amendment to a Shelf Registration Statement, such information as the Managing Underwriters and Majority Holders reasonably agree should be included therein and shall make all required filings of such Prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided however, that the Company shall not be required to take any action pursuant to this Section 4(o) that would, in the opinion of counsel for the Company, violate applicable law or to include information the disclosure of which at the time would have an adverse effect on the business or operations of the Company and/or its subsidiaries, as determined in good faith by the Company. (p) In the case of any Shelf Registration Statement, the Company shall enter into such agreements (including underwriting agreements) and take all other reasonably appropriate actions in order to expedite or facilitate the registration or the disposition of the Transfer Restricted Securities, and in connection therewith, if an underwriting agreement is entered into, cause the same to contain indemnification provisions and procedures no less favorable than those set forth in Section 7 (or such other provisions and procedures acceptable to the Majority Holders and the Managing Underwriters, if any), with respect to all parties to be indemnified pursuant to Section 7 from Holders of Securities to the Company. (q) In the case of any Shelf Registration Statement, the Company shall (i) make reasonably available for inspection by representatives of the Holders of Transfer Restricted Securities to be registered thereunder, the Managing Underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by the Holders or any such Managing 14 Underwriter, at the office where normally kept during normal business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all relevant information reasonably requested by the Holders or any Managing Underwriter, attorney, accountant or other agent in connection with any such Registration Statement as is customary for similar due diligence examinations; provided, however, that such persons shall first agree in writing with the Company that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such person, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality; (ii) make such representations and warranties to the Holders of Transfer Restricted Securities registered thereunder and the underwriters, if any, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and covering matters including, but not limited to, those set forth in the Purchase Agreement; (iii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Managing Underwriters, if any) addressed to each selling Holder and the underwriters, if any, covering such matters as are customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iv) obtain "cold comfort" letters (or, in the case of any person that does not satisfy the conditions for receipt of a "cold comfort" letter specified in Statement on Auditing Standards No. 72, an "agreed-upon procedures letter") and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed where reasonably practicable to each selling Holder of Transfer Restricted Securities registered thereunder and the underwriters, if any, in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with primary underwritten offerings; and (v) deliver such documents and certificates as may be reasonably requested by the Majority Holders and the Managing Underwriters, if any, including those to evidence compliance with Section 4(j) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The foregoing actions set forth in clauses (ii), (iii), (iv) and (v) of this Section 4(q) shall, if 15 reasonably requested by the Majority Holder or the Majority Underwriters, be performed at (A) the effectiveness of such Registration Statement and each post-effective amendment thereto and (B) each closing under any underwriting or similar agreement as and to the extent required thereunder. (r) The Company may offer securities of the Company other than the Securities or the Exchange Securities under the Shelf Registration Statement, except where such offer would conflict with the terms of the Purchase Agreement. 5. Holders' Agreements. Each Holder of Transfer Restricted Securities and ------------------- Exchange Securities, by the acquisition of such Transfer Restricted Securities or Exchange Securities, as the case may be, agrees: (a) To furnish the information required to be furnished pursuant to Section 4(n) hereof within the time period set forth therein. (b) That upon receipt of a notice of the commencement of a Supplement Delay Period, it will keep the fact of such notice confidential, forthwith discontinue disposition of its Transfer Restricted Securities or Exchange Securities, as the case may be, pursuant to the Registration Statement, and will not deliver any Prospectus forming a part thereof until receipt of the amended or supplemented Registration Statement or Prospectus, as applicable, as contemplated by Section 4(j) hereof, or until receipt of the Advice. If a Supplement Delay Period should occur, the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, shall be extended by the number of days of which the Supplement Delay Period is comprised; provided that the Shelf Registration Period shall not be extended if the Company has received an opinion of counsel (which counsel, if different from counsel to the Company referred to in Section 6(a) and (b) of the Purchase Agreement, shall be reasonably satisfactory to the Majority Holders of the Transfer Restricted Securities named in the Shelf Registration Period) to the effect that the Transfer Restricted Securities can be freely tradeable without the continued effectiveness of the Shelf Registration Statement. (c) If so directed by the Company in a notice of the commencement of a Supplement Delay Period, each Holder of Transfer Restricted Securities or Exchange Securities, as the case may be, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering the Transfer Restricted Securities or Exchange Securities, as the case may be. 16 (d) Sales of such Transfer Restricted Securities pursuant to a Registration Statement shall only be made in the manner set forth in such currently effective Registration Statement. 6. Registration Expenses. The Company shall bear all expenses incurred in --------------------- connection with the performance of its obligations under Sections 2, 3 and 4 hereof and, in the event of any Shelf Registration Statement, will reimburse the Holders for the reasonable fees and disbursements of one firm or counsel designated by the Majority Holders to act as counsel for the Holders in connection therewith, and, in the case of any Exchange Offer Registration Statement, will reimburse the Initial Purchasers for the reasonable fees and disbursements of counsel acting in connection therewith. Notwithstanding the foregoing or anything in this Agreement to the contrary, each Holder shall pay all underwriting discounts and commission of any underwriters with respect to any Transfer Restricted Securities sold by it. 7. Indemnification and Contribution. (a) In connection with any -------------------------------- Registration Statement, the Company agrees to indemnify and hold harmless each Holder of Transfer Restricted Securities covered thereby (including each Initial Purchaser and, with respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer), the directors, officers, employees and agents of each such Holder and each person who controls any such Holder within the meaning of either Section 15 of the Act or Section 20 of the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement as originally filed or in any amendment thereof, or in any preliminary Prospectus or Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the Company will not be liable in any case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such Holder or by the Managing Underwriters specifically for inclusion therein and (ii) the Company will not be liable to any indemnified party under this indemnity agreement with respect to 17 the Registration Statement or Prospectus to the extent that any such loss, claim, damage or liability of such indemnified party results solely from an untrue statement of a material fact contained in, or the omission of a material fact from, the Registration Statement or Prospectus which untrue statement or omission was corrected in an amended or supplemented Registration Statement or Prospectus, if the person alleging such loss, claim, damage or liability was not sent or given, at or prior to the written confirmation of such sale, a copy of the amended or supplemented Registration Statement or Prospectus if the Company had previously furnished copies thereof to such indemnified party and if delivery of a prospectus is required by the Act and was not so made. This indemnity agreement will be in addition to any liability which the Company may otherwise have. The Company also agrees to indemnify or contribute to Losses of, as provided in Section 6(d), any underwriters of Securities registered under a Shelf Registration Statement, their officers and directors and each person who controls such underwriters on substantially the same basis as that of the indemnification of the Initial Purchaser and the selling Holders provided in this Section 6(a) and shall, if requested by any Holder, enter into an underwriting agreement reflecting such agreement, as provided in Section 4(q) hereof. (b) Each Holder of Transfer Restricted Securities or Exchange Securities covered by a Registration Statement (including each Initial Purchaser and, with respect to any Prospectus delivery as contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees to indemnify and hold harmless (i) the Company, (ii) each of its directors, (iii) each of its officers who signs such Registration Statement and (iv) each person who controls the Company within the meaning of either the Act or the Exchange Act to the same extent as the foregoing indemnity from the Company to each such Holder, but only with reference to written information relating to such Holder furnished to the Company by or on behalf of such Holder specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any such Holder may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 6 or notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any 18 event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel) if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 6 is unavailable to or insufficient to hold harmless an indemnified party for any reason, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall have a joint and several obligation to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which such indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by such indemnifying party, on the one hand, and such indemnified party, on the other hand, from the 19 Initial Placement and the Registration Statement which resulted in such Losses; provided, however, that in no case shall any Initial Purchaser or any subsequent Holder of any Security or Exchange Security be responsible, in the aggregate, for any amount in excess of the purchase discount or commission applicable to such Security, or in the case of an Exchange Security, applicable to the Security which was exchangeable into such Exchange Security, as set forth on the cover page of the Final Offering Memorandum, nor shall any underwriter be responsible for any amount in excess of the underwriting discount or commission applicable to the securities purchased by such underwriter under the Registration Statement which resulted in such Losses. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the indemnifying party and the indemnified party shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of such indemnifying party, on the one hand, and such indemnified party, on the other hand, in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the sum of (x) the total net proceeds from the Initial Placement (before deducting expenses) as set forth on the cover page of the Final Offering Memorandum and (y) the total amount of additional dividends and interest which the Company was not required to pay as a result of registering the securities covered by the Registration Statement which resulted in such Losses. Benefits received by the Initial Purchasers shall be deemed to be equal to the total purchase discounts and commissions as set forth on the cover page of the Final Offering Memorandum, and benefits received by any other Holders shall be deemed to be equal to the value of receiving Securities or Exchange Securities, as applicable, registered under the Act. Benefits received by any underwriter shall be deemed to be equal to the total underwriting discounts and commissions, as set forth on the cover page of the Prospectus forming a part of the Registration Statement which resulted in such Losses. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the indemnifying party, on the one hand, or by the indemnified party, on the other hand. The parties agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 6, each person who controls a Holder within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of such Holder shall have the same rights to contribution as such 20 Holder, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). (e) The provisions of this Section 6 will remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the officers, directors or controlling persons referred to in Section 6 hereof, and will survive the sale by a Holder of Transfer Restricted Securities or Exchange Securities. 8. Miscellaneous. ------------- (a) No Inconsistent Agreements. The Company has not, as of the date -------------------------- hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders herein or otherwise conflicts with the provisions hereof. (b) Amendments and Waivers. The provisions of this Agreement, including ---------------------- the provisions of this sentence, may not be amended, qualified, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of the Holders of at least a majority of the then outstanding aggregate Amount of Securities (or, after the consummation of any Registered Exchange Offer in accordance with Section 2 hereof, of Exchange Securities); provided, however, that, with respect to any matter that directly or indirectly affects the rights of any Initial Purchaser hereunder, the Company shall obtain the written consent of each such Initial Purchaser against which such amendment, qualification, supplement, waiver or consent is to be effective. Notwithstanding the foregoing (except the foregoing proviso), a waiver or consent to departure from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by the Majority Holders, determined on the basis of Securities being sold rather than registered under such Registration Statement. (c) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, first-class mail, telex, telecopier, or air courier guaranteeing overnight delivery: (1) if to a Holder, at the most current address given by such holder to the Company in accordance with the provisions of this Section 7(c), which address initially 21 is, with respect to each Holder, the address of such Holder maintained by the Agent, with a copy in like manner to Donaldson, Lufkin & Jenrette Securities Corporation; (2) if to the Initial Purchasers, initially at the respective addresses set forth in the Purchase Agreement; and (3) if to the Company, initially at its address set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given when received. The Initial Purchasers or the Company by notice to the other may designate additional or different addresses for subsequent notices or communications. (d) Successors and Assigns. This Agreement shall inure to the benefit of ---------------------- and be binding upon the successors and assigns of each of the parties hereto, including, without the need for an express assignment or any consent by the Company thereto, subsequent Holders of Securities and/or Exchange Securities. The Company hereby agrees to extend the benefits of this Agreement to any Holder of Securities and/or Exchange Securities and any such Holder may specifically enforce the provisions of this Agreement as if an original party hereto. (e) Counterparts. This agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This agreement shall be governed by and construed in ------------- accordance with the internal laws of the State of New York applicable to agreements made and to be performed in said State (without reference to the conflict of law rules thereof). (h) Severability. In the event that any one of more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the 22 rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (i) Securities Held by the Company, etc. Whenever the consent or approval ----------------------------------- of Holders of a specified percentage of Amount of Securities or Exchange Securities is required hereunder, Securities or Exchange Securities, as applicable, held by the Company or its Affiliates (other than subsequent Holders of Securities or Exchange Securities if such subsequent Holders are deemed to be Affiliates solely by reason of their holdings of such Securities or Exchange Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. [signature page follows] 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. INTERNATIONAL CABLETEL INCORPORATED By: /s/ Richard J. Lubasch ------------------------ Name: Richard J. Lubasch Title: Senior Vice President and General Counsel DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION CHASE SECURITIES INC. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: DONALDSON LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Anthony S. Belinkoff ----------------------------- Name: Anthony S. Belinkoff Title: Managing Director 24 ANNEX A Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. 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 Exchange Securities received in exchange for Securities where such Exchange Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date (as defined herein) and ending on the close of business on the 180th day following the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." 25 ANNEX B Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such 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 Exchange Securities. See "Plan of Distribution." 26 ANNEX C PLAN OF DISTRIBUTION -------------------- Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, starting on the Expiration Date and ending on the close of business on the 180th day following the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered 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 on the Exchange Securities or by 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 at negotiated prices. Any such resale may be made directly to purchaser 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 Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit of any such resale of Exchange Securities 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 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the holders of the Securities) other than commissions or 27 concessions of any brokers or dealers and will indemnify the holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. [Add information required by Regulation S-K Items 507 and/or 508.] 28 ANNEX D Rider A ------- CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name:_______________________________________________________ Address:____________________________________________________ ____________________________________________________ Rider B ------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 29 EX-4.13 6 FORM OF PREFERRED STOCK EXHIBIT 4.13 UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTA TIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE CORPORATION OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFI CATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH BELOW. THE CORPORATION SHALL FURNISH A COPY OF THE CERTIFICATE OF INCORPORATION WITHOUT CHARGE TO EACH STOCKHOLDER WHO MAKES A REQUEST FOR THE SAME. THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE CORPORA TION THAT THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE THIRD ANNIVERSARY OF THE ISSUANCE HEREOF (OR ANY PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE CORPORATION AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE CORPORATION, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFI CATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFF SHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER WITHIN THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVEST MENT PURPOSES AND NOT FOR DISTRIBUTION, THAT HAS FURNISHED TO THE REGISTRAR A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE REGISTRAR), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATE MENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT WILL FURNISH TO THE CORPORATION AND THE REGISTRAR SUCH CERTIFI CATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE CORPORA TION THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEAN ING OF RULE 144A OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVES TOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING THE RE QUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT. 2 CUSIP _________ INTERNATIONAL CABLETEL INCORPORATED No. ____ _______ Shares This certifies that ________ is the owner of _______ fully paid and non-assessable shares of the 13% Senior Redeemable Exchangeable Preferred Stock, par value $0.01 per share, of International CableTel Incorporated, a Delaware corporation (the "Corporation"). The shares represented by this Certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof, or by his duly authorized attorney or legal representative, upon the surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed manually or by the facsimile signatures of its duly authorized officers and has caused its corporate seal to be hereunto affixed. Dated: ____________ INTERNATIONAL CABLETEL INCORPORATED By: _____________________________________________ Name: Title: By: _____________________________________________ Name: Title: Countersigned and Registered: CONTINENTAL STOCK TRANSFER & TRUST COMPANY, Transfer Agent and Registrar By: ______________________________________________ Authorized Signature 3 INTERNATIONAL CABLETEL INCORPORATED This Certificate and the shares represented hereby are issued and shall be subject to all the provisions of the Certificate of Incorporation and By-Laws of the Corpora tion and the amendments from time to time made thereto, copies of which are on file at the principal office of the Corporation, to all of which the holder of this Certificate assents by acceptance hereof. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT -________________ Custodian ________________________________ (Cust) (Minor) under Uniform Gifts to Minors Act _____________________________________________ (State) Additional abbreviations may also be used though not in the above list. 4 CERTIFICATE OF TRANSFER FOR VALUE received,___________________________________________ hereby sell, assign and transfer unto_________________________________________________ _______________________________________________________________________________ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _______________________________________________________________________________ PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE _______________________________________________________________________________ _______________________________________________________________________ Shares of the preferred stock represented by the within Certificate and do hereby irrevocably constitute and appoint ____________________________________________ ____________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated: ______________________________ _______________________________________ __________________________________________________ NOTICE: THE SIGNATURE(S) TO THIS CERTIFICATE MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICU LAR, WITHOUT ALTERATION OR ENLARGE MENT, OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: ___________________________________________________ NOTICE: SIGNATURE(S) SHOULD BE GUARANTEED BY A QUALIFIED MEDALLION GUARANTEE MEMBER AND MUST CORRE SPOND EXACTLY WITH THE NAME AS WRIT TEN UPON THE FACE OF THE CERTIFICATE. 5 In connection with any transfer of any of the Preferred Stock evidenced by this certificate occurring prior to the date that is three years after the later of the date of original issuance of such and the last date, if any, on which such Preferred Stock were owned by the Corporation or any affiliate of the Corporation, the undersigned confirms that such Preferred Stock are being transferred: CHECK ONE BOX BELOW (1) [ ] to the Corporation; or (2) [ ] pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (3) [ ] pursuant to and in compliance with Regulation S under the Securities Act of 1933; or (4) [ ] to an institutional "accredited investor" (as defined in Schedule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that has furnished to the Registrar a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Registrar); or (5) [ ] pursuant to another available exemption from the registration require ments of the Securities Act of 1933. Unless one of the boxes is checked, the Registrar will refuse to register any of the Preferred Stock evidenced by this certificate in the name of any person other than the registered holder thereof; provided, however, that if box (3), (4) or (5) is checked, the Registrar may require, prior to registering any such transfer of the Preferred Stock such legal opinions, certifications and other information as the Corporation has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act. --------------------------------- Signature 1 Signature Guarantee - ---------------------------- ---------------------------------------------- Signature must be guaranteed Signature - -------------------------------------------------------------------------------- _____________________ 1 Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 6 TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing the shares of Preferred Stock evidenced by this certificate for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowl edges that it has received such information regarding the Corporation as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: _____________________ ____________________________________ NOTICE: To be executed by an executive officer 7 OPTION OF STOCKHOLDER TO ELECT PURCHASE If you want to elect to have this certificate or a portion thereof repurchased by the Corporation pursuant to paragraph (h) of the Certificate of Designation, check the box: [ ] If the purchase is in part, indicate the number of shares to be purchased: __________ Your Signature: _____________________________________________________ (Sign exactly as your name appears on the other side of this certificate) Date: ________________________ 2 Signature Guarantee: ____________________________ 2 Signature must be guaranteed by a commercial bank, trust company or member firm of the New York Stock Exchange. 8 SCHEDULE A SCHEDULE OF PRINCIPAL AMOUNT The initial number of shares represented by this Global Security shall be ______ shares. The following increases or decreases in such number have been made:
Amount of decrease in Amount of increase in Number of shares Signature of authorized number of shares number of shares represented by this officer of Registrar Date of exchange represented by this represented by this Global Security following Global Security Global Security such decrease or increase - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- ============================================================================================================================
9 EX-11 7 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 - ---------- NTL INCORPORATED CALCULATION OF NET (LOSS) PER SHARE
Weighted Average Number of Shares --------------------------------------------------------------------- Date Total Year Ended Year Ended Year Ended Issued Description of Issuance Outstanding 31-Dec-96 31-Dec-95 31-Dec-94 - ----------------------------------------------------------------------------------------------------------------------------- 01/01/94 Common Stock 30,163,283 30,163,283 30,163,283 30,163,283 01/05/94 Common Stock 5,925 5,925 5,925 5,844 01/12/94 Common Stock 133 133 133 129 02/16/94 Common Stock 88 88 88 77 04/28/94 Common Stock 519 519 519 351 05/10/94 Common Stock 6,668 6,668 6,668 4,293 05/20/94 Common Stock 889 889 889 548 06/08/94 Common Stock 89 89 89 51 07/06/94 Common Stock 223 223 223 108 07/25/94 Common Stock 400 400 400 175 07/28/94 Common Stock 133 133 133 57 08/19/94 Common Stock 223 223 223 81 11/30/94 Common Stock 875 875 875 75 12/05/94 Common Stock 667 667 667 48 01/01/95 Common Stock 20 20 20 01/12/95 Common Stock 200 200 193 02/02/95 Common Stock 2,075 2,075 1,887 02/23/95 Common Stock 556 556 474 04/04/95 Common Stock 1,333 1,333 990 06/08/95 Common Stock 2,667 2,667 1,505 08/04/95 Common Stock 200 200 82 08/07/95 Common Stock 417 417 167 08/21/95 Common Stock 156 156 56 09/05/95 Common Stock 13,333 13,333 4,274 02/13/96 Common Stock 2,223 1,956 02/22/96 Common Stock 533 456 02/28/96 Common Stock 4,919 4,126 03/06/96 Common Stock 1,133 929 03/12/96 Common Stock 5,925 4,759 03/20/96 Common Stock 3,450 2,696 03/25/96 Common Stock 75,000 57,582 04/11/96 Common Stock 10,419 7,515 04/26/96 Common Stock 25,000 17,008 05/30/96 Common Stock 1,333 783 06/13/96 Common Stock 128,793 70,731 06/14/96 Common Stock 132,000 72,131 07/29/96 Common Stock 1,415,000 599,249 11/06/96 Common Stock 44 7 11/25/96 Common Stock 1,112 109 12/26/96 Common Stock 5,500 75 12/27/96 Common Stock 2,000 22 12/31/96 Common Stock 50,667 0 --------------------------------------------------------------------- Total 32,066,123 31,041,206 30,189,763 30,175,120 ===================================================================== Net (loss) ($254,454,000) ($90,785,000) ($29,573,000) ================================================= Net (loss) per common share ($8.20) ($3.01) ($0.98) =================================================
- ------------------------------------------------------------------------------- Note: Adjusted to give retroactive effect to the 4-for-3 stock split by way of a stock dividend paid on August 11, 1995. Page 1 EX-21 8 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF NTL INCORPORATED All of the corporations listed below were organized in the United Kingdom. CableTel Newport CableTel South Wales Ltd. CableTel Cardiff Ltd. CableTel West Glamorgan Ltd. CableTel (UK) Limited CableTel Limited CableTel Surrey and Hampshire Limited CableTel Scotland Ltd. CableTel Glasgow CableTel Kirklees CableTel West Riding Limited CableTel Hertfordshire Limited CableTel Central Hertfordshire Limited CableTel North Bedfordshire Limited CableTel Telecom Supplies Limited CableTel Northern Ireland Limited CableTel Ventures Limited CableTel Investments Limited Cable Online Limited Columbia Management Limited Metro South Wales Limited Secure Backup Systems Limited Digital Television Network Ltd. Chamber OnLine Ltd. DTELS Ltd. Enablis Ltd. National Transcommunications Ltd. NTL Group Limited Ltd. NTL Insurance Ltd. NTL Investment Holdings Ltd. NTL Ltd. NTL Networks Ltd. NTL Trustees Ltd. All of the corporations listed below were incorporated in Delaware: OCOM Corporation NTL (UK) Group, Inc. (formerly CableTel (UK) Group, Inc., formerly OCOM Sub II, Inc.) L.D. Data, Inc. Cellular Paging, Inc. CableTel Programming, Inc. European CableTel, Inc. CableTel Ventures Limited EX-23 9 CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the (i) Registration Statements (Forms S-8 No. 33-41527, No. 33-55446, No. 33-55448, No. 33-78848, No. 33-78844, No. 33-78834, No. 33-95270, No. 333-13015 and No. 333-07879) of NTL Incorporated (formerly International CableTel Incorporated (the "Company")) and (ii) Registration Statements (Forms S-3 No. 333-00118, No. 33-92792, No. 333- 07879, and No. 333-16751) of the Company and in the related Prospectuses of our report dated March 27, 1997, with respect to the consolidated financial statements and schedule of the Company included in the Annual Report (Form 10-K) for the year ended December 31, 1996. ERNST & YOUNG LLP New York, New York March 27, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 DEC-31-1996 JAN-01-1996 445,884,000 0 61,757,000 (3,870,000) 0 37,270,000 1,582,875,000 (123,347,000) 2,454,611,000 298,939,000 1,732,168,000 0 0 321,000 327,793,000 2,454,611,000 0 228,343,000 0 0 114,315,000 0 137,032,000 (246,801,000) 7,653,000 (254,454,000) 0 0 0 (254,454,000) (8.20) 0
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