EXHIBIT 99.2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
:
In re :
: Chapter 11
NTL INCORPORATED, et al., : Case No. 02-41316 (ALG)
: (Jointly Administered)
Debtors. :
:
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AMENDED DISCLOSURE STATEMENT WITH RESPECT TO
SECOND AMENDED JOINT REORGANIZATION PLAN OF
NTL INCORPORATED AND CERTAIN SUBSIDIARIES
Skadden, Arps, Slate, Meagher & Flom llp
Kayalyn A. Marafioti (KM 9362)
Jay M. Goffman (JG 6722)
Lawrence V. Gelber (LG 9384)
Four Times Square
New York, New York 10036-6522
(212) 735-3000
Attorneys for NTL Incorporated, et
al.,
Debtors and Debtors-in-Possession
Dated: New York, New York
July 15, 2002
DISCLAIMER
ALL CREDITORS AND INTEREST HOLDERS ARE ADVISED AND ENCOURAGED TO READ THIS
DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY BEFORE VOTING TO ACCEPT
OR REJECT THE PLAN. ALL SUMMARIES OF THE PLAN AND OTHER STATEMENTS
CONTAINED IN THIS DISCLOSURE STATEMENT ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE PLAN, THE EXHIBITS ANNEXED TO THE PLAN, AND THE EXHIBITS
ANNEXED TO THIS DISCLOSURE STATEMENT. THE STATEMENTS CONTAINED IN THIS
DISCLOSURE STATEMENT ARE MADE ONLY AS OF THE DATE HEREOF UNLESS OTHERWISE
INDICATED, AND THERE CAN BE NO ASSURANCE THAT THE STATEMENTS CONTAINED
HEREIN WILL BE CORRECT AT ANY TIME AFTER THE DATE HEREOF.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION 1125
OF THE BANKRUPTCY CODE AND RULE 3016(c) OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE AND NOT NECESSARILY IN ACCORDANCE WITH FEDERAL OR STATE
SECURITIES LAWS OR OTHER APPLICABLE LAW. THIS DISCLOSURE STATEMENT HAS BEEN
NEITHER APPROVED NOR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
(THE "SEC"), NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THE
STATEMENTS CONTAINED HEREIN. PERSONS OR ENTITIES TRADING IN OR OTHERWISE
PURCHASING, SELLING OR TRANSFERRING SECURITIES OR CLAIMS OF THE DEBTORS IN
THESE CASES SHOULD EVALUATE THIS DISCLOSURE STATEMENT AND THE PLAN IN LIGHT
OF THE PURPOSE FOR WHICH THEY WERE PREPARED.
AS TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS, AND OTHER PENDING OR
THREATENED LITIGATION OR ACTIONS, THIS DISCLOSURE STATEMENT DOES NOT
CONSTITUTE AND MAY NOT BE CONSTRUED AS AN ADMISSION OF ANY FACT OR
LIABILITY, STIPULATION, OR WAIVER, BUT RATHER AS A STATEMENT MADE IN
SETTLEMENT NEGOTIATIONS.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED BY THE DEBTORS IN THEIR
CAPACITIES AS DEBTORS-IN-POSSESSION UNDER THE BANKRUPTCY CODE. IT HAS NOT
BEEN PREPARED BY OR ON BEHALF OF THE DIAMOND ADMINISTRATORS. ACCORDINGLY,
THE DIAMOND ADMINISTRATORS ACCEPT NO RESPONSIBILITY OR LIABILITY WHATSOEVER
IN CONNECTION WITH THIS DISCLOSURE STATEMENT.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT IS INCLUDED HEREIN
FOR PURPOSES OF SOLICITING ACCEPTANCES OF THE PLAN AND MAY NOT BE RELIED
UPON FOR ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON THE PLAN OR HOW
TO ACT IN CONNECTION WITH THE OFFERINGS. THE DESCRIPTIONS SET FORTH HEREIN
OF THE ACTIONS, CONCLUSIONS, OR RECOMMENDATIONS OF THE DEBTORS, THE
CREDITORS' COMMITTEE, FRANCE TELECOM, OR ANY OTHER PARTY IN INTEREST HAVE
BEEN PASSED UPON BY SUCH PARTY, BUT NO SUCH PARTY MAKES ANY REPRESENTATION
OR WARRANTY REGARDING SUCH DESCRIPTIONS.
THIS DISCLOSURE STATEMENT WILL NOT BE ADMISSIBLE IN ANY NON-BANKRUPTCY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY, NOR WILL IT BE
CONSTRUED TO CONSTITUTE CONCLUSIVE ADVICE ON THE TAX, SECURITIES, OR OTHER
LEGAL EFFECTS OF THE REORGANIZATION AS TO HOLDERS OF CLAIMS AGAINST, OR
INTERESTS IN, THE DEBTORS. FURTHERMORE, SAVE INSOFAR AS THE OFFERINGS
CONSTITUTE OFFERS OF SECURITIES, NOTHING IN THIS DISCLOSURE STATEMENT
SHOULD BE TREATED AS AN INVITATION OR INDUCEMENT TO ENGAGE IN INVESTMENT
ACTIVITY NOR AS CONSTITUTING INVESTMENT OR LEGAL ADVICE.
THE INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT (OTHER THAN SECTIONS
V, XI.B, XI.C, XI.D, AND XIII AND EXHIBITS G AND H) CONSTITUTES VOLUME I OF
A PROSPECTUS (THE "UK PROSPECTUS") IN RELATION TO NEW NTL UNDER THE UK
PUBLIC OFFERS OF SECURITIES REGULATIONS 1995, AS AMENDED (THE "POS
REGULATIONS") SOLELY WITH RESPECT TO THE ISSUANCE OF NEW NTL COMMON STOCK
AND SERIES A WARRANTS UNDER THE OFFERINGS AND THE ISSUANCE OF THE SERIES A
WARRANTS UNDER THE PLAN BY NEW NTL TO PERSONS IN THE UNITED KINGDOM. SUCH
PERSONS SHOULD ALSO CONSULT VOLUME II WHICH ACCOMPANIES THIS DOCUMENT AND
PROVIDES FURTHER INFORMATION REQUIRED UNDER THE POS REGULATIONS. THIS
DISCLOSURE STATEMENT IS BEING ISSUED BY NTL INC. TO HOLDERS OF OLD COMMON
STOCK AND OLD PREFERRED STOCK AND BY EACH OF THE DEBTORS TO THEIR
RESPECTIVE NOTEHOLDERS, IF ANY. THE POS REGULATIONS REQUIRE RESPONSIBILITY
TO BE TAKEN BY NEW NTL AND ITS DIRECTORS FOR INFORMATION TO WHICH THE UK
PROSPECTUS RELATES AND IN CERTAIN CIRCUMSTANCES FOR MATERIAL CHANGES OF
FACT TO BE THE SUBJECT OF A SUPPLEMENTARY UK PROSPECTUS. THE DISCLAIMERS
CONTAINED IN THIS DISCLOSURE STATEMENT SHALL IN NO CIRCUMSTANCES OPERATE TO
EXCLUDE ANY LIABILITY OR RESTRICT ANY OBLIGATION UNDER THE POS REGULATIONS.
TABLE OF CONTENTS
TABLE OF EXHIBITS...............................................................................................vii
GLOSSARY.......................................................................................................viii
EXECUTIVE SUMMARY...............................................................................................S-1
Summary Of The Plan........................................................................................S-1
SUMMARY TREATMENT OF CLAIMS AND INTERESTS
UNDER SECOND AMENDED JOINT PLAN OF REORGANIZATION OF
NTL INCORPORATED AND CERTAIN SUBSIDIARIES..................................................................S-3
Summary Of Anticipated Distributions Under The Plan (By Class).............................................S-3
Summary Of Anticipated Distributions Under The Plan (By Debt Security).....................................S-9
Summary Of Anticipated Distributions Under The Plan (Consideration Per Note: 1,000 Face Value)............S-14
Certain Information Concerning Valuation Of Alternative Plan And Liquidation..............................S-16
Conditions................................................................................................S-17
Summary Of Post-Confirmation Operations...................................................................S-17
I. INTRODUCTION..................................................................................................1
II. VOTING INSTRUCTIONS AND PROCEDURES...........................................................................2
A. Definitions..............................................................................................2
B. Notice To Holders Of Claims And Interests................................................................3
C. Solicitation Package.....................................................................................3
D. Voting Procedures, Ballots, And Voting Deadline..........................................................4
E. Confirmation Hearing And Deadline For Objections To Confirmation.........................................4
III. GENERAL INFORMATION ........................................................................................5
A. Purpose And Effect Of The Plan...........................................................................5
B. The Debtors' Businesses..................................................................................6
1. Overview............................................................................................6
2. Significant Corporate Restructurings................................................................7
3. Executive Officers..................................................................................7
C. Outstanding Securities...................................................................................8
1. Old Common Stock....................................................................................8
2. Old Junior Preferred Stock..........................................................................8
3. Old Senior Preferred Stock.........................................................................10
4. Debt Securities....................................................................................10
5. Old Warrants.......................................................................................11
6. Old Options........................................................................................12
7. Old Shareholder Rights Plan........................................................................13
D. Events Leading To Chapter 11 Cases......................................................................13
1. Background To The Restructuring....................................................................13
2. Interest Payment And Covenant Defaults; Failure To Pay Dividends...................................14
3. Delisting Of Old Common Stock......................................................................15
4. Negotiations With The Secured Lenders..............................................................15
5. Negotiations With The Lenders Under The Cablecom Credit Facility...................................16
6. Negotiations With The Noteholders' Steering Committee And The Preferred Shareholders...............16
7. Execution Of Heads Of Terms As To UK Credit Facilities.............................................16
8. The Pre-Negotiated Reorganization Plan.............................................................17
9. Prepetition Solicitation And Acceptance In Principle Of Plan.......................................17
IV. CERTAIN MATTERS REGARDING NEW NTL...........................................................................18
A. Businesses To Comprise New NTL..........................................................................18
1. Overview...........................................................................................18
2. Operations In The UK...............................................................................18
3. Operations In The Republic Of Ireland..............................................................28
4. Other Operations...................................................................................29
5. Competition........................................................................................29
6. Regulation.........................................................................................31
7. Research And Development...........................................................................35
8. Patents, Trademarks, Copyrights, And Licenses......................................................35
9. Customers..........................................................................................35
10. Employees..........................................................................................36
11. Properties.........................................................................................36
12. Statistics On Businesses To Comprise New NTL.......................................................36
13. Current Trading And Prospects......................................................................37
B. Management Of New NTL...................................................................................38
1. Board Of Directors.................................................................................38
2. Executive Officers.................................................................................38
3. Management Incentive Plan..........................................................................38
C. Securities To Be Issued By New NTL......................................................................38
1. New NTL Common Stock...............................................................................39
2. Series A Warrants..................................................................................39
3. Equity Rights......................................................................................41
4. Noteholder Election Option.........................................................................41
5. Resale Of Securities...............................................................................42
D. Risk Factors Relating To New NTL........................................................................43
1. Historical Losses And Negative Cash Flows; No Assurance Of Future Profitability....................43
2. Uncertainty With Respect To New NTL's Financial Condition..........................................43
3. Holding Company Structure..........................................................................44
4. Inability To Cause New NTL Common Stock And Series A Warrants To Be Or Remain Listed...............44
5. Lack Of Established Market For New NTL Common Stock And Series A Warrants..........................44
6. Dilution Of New NTL Common Stock...................................................................45
7. Prevention Of Transactions Involving A Change Of Control Of New NTL................................45
8. Uncertainty Regarding New NTL's Interests In Joint Ventures........................................45
9. Failure To Successfully Market Broadband...........................................................45
10. Lack Of Insurance For Underground Portion Of Cable Network ........................................46
11. Currency Risk......................................................................................46
12. Technological Changes In Industry .................................................................46
13. Defense Of The Putative Class Action Suits Against NTL Inc. And Certain Of Its Officers And
Directors..........................................................................................46
E. New NTL Stockholder Rights Agreement....................................................................47
F. Certain Financing Matters...............................................................................49
1. Senior Credit Facility.............................................................................49
2. Working Capital Facility...........................................................................50
3. Triangle Notes.....................................................................................52
4. Diamond Holdings Notes.............................................................................52
5. The New NTL Exit Facility..........................................................................52
G. Transitional Arrangements With Euroco...................................................................53
H. Legal Proceedings.......................................................................................53
V. CERTAIN MATTERS REGARDING EUROCO.............................................................................54
A. Businesses To Comprise Euroco...........................................................................54
1. Overview...........................................................................................54
2. Cablecom GmbH (Switzerland)........................................................................55
3. iesy Hessen GmbH (Germany).........................................................................58
4. B2 (Sweden)........................................................................................60
5. Other Operations...................................................................................61
6. Competition........................................................................................62
7. Regulation.........................................................................................63
8. Research And Development...........................................................................66
9. Patents, Trademarks, Copyrights, And Licenses......................................................66
10. Employees..........................................................................................66
11. Properties.........................................................................................66
12. Statistics On Principal Businesses To Comprise Euroco..............................................67
B. Management Of Euroco....................................................................................68
1. Board Of Directors Of Euroco.......................................................................68
2. Executive Officers Of Euroco.......................................................................68
3. Management Incentive Plan .........................................................................68
C. Securities To Be Issued By Euroco.......................................................................69
1. Euroco Common Stock................................................................................69
2. Euroco Preferred Stock.............................................................................69
3. Resale Of Securities...............................................................................70
D. Risk Factors Relating To Euroco.........................................................................71
1. Sale Of Or Outside Investment In The Cablecom Group................................................71
2. Repayment Of Cablecom Credit Facility; No Assurance Of Future Funding..............................72
3. Restructuring Of iesy Financings...................................................................72
4. The iesy Banking Syndicate Has Placed Conditions On Future Drawdowns...............................73
5. Significant Debt Of iesy...........................................................................73
6. iesy May Become "Overindebted" Under German Law In The Future......................................74
7. Inability To Cause Euroco Common Stock To Be Or Remain Listed......................................74
8. Lack Of Established Market For Euroco Common Stock And Euroco Preferred Stock......................74
9. Potential Lack Of Surplus Available To Pay Dividends On Or Redeem Euroco Preferred Stock...........75
10. Prevention Of Transactions Involving A Change Of Control Of Euroco ................................75
11. Implications Of Funding Requirements In Respect Of Joint Ventures..................................75
12. Detrimental Effects Of Sales Of Interests Or Restructurings........................................76
13. Uncertainty Regarding Euroco's Interests In Premium TV Limited And Other Joint Ventures............76
14. Prejudice To Euroco's Interests In Content Joint Ventures..........................................77
15. Additional Financing Requirements For iesy And B2..................................................77
16. Funding Obligations With Respect To New NTL Liabilities............................................77
17. Failure Of Cablecom And iesy To Maintain Direct Billing Relationships With Customers...............77
18. Limited Operating History Of iesy..................................................................78
19. Limited Operating History Of B2....................................................................78
20. Relationship With New NTL..........................................................................78
21. Technological Changes In Industry..................................................................78
22. Defense Of The Putative Class Action Suits Against NTL Inc. And Certain Of Its Officers And
Directors..........................................................................................78
E. Euroco Stockholder Rights Agreement.....................................................................79
F. Certain Financing Matters...............................................................................81
G. Transitional Arrangements With New NTL..................................................................82
H. Legal Proceedings.......................................................................................83
VI. EVENTS DURING THE CHAPTER 11 CASES..........................................................................83
A. Commencement Of The Chapter 11 Cases....................................................................83
B. Court Orders - Chapter 11...............................................................................83
C. Appointment Of Creditors' Committee.....................................................................84
D. Retention Of Professionals..............................................................................84
E. Commencement Of The Diamond Administration Cases........................................................85
F. Orders - Diamond Administration Cases...................................................................85
G. Future Developments In The Diamond Administration Cases.................................................85
VII. SUMMARY OF THE PLAN........................................................................................85
A. Introduction............................................................................................85
B. Certain Matters Regarding Classification And Treatment Of Claims And Interests..........................86
1. Unclassified Claims................................................................................86
2. Unimpaired Classes Of Claims.......................................................................87
3. Impaired Classes Of Claims And Interests...........................................................89
4. Impaired Classes Of Interests......................................................................94
5. Additional Impaired Classes........................................................................95
C. Summary Of Other Provisions Of The Plan.................................................................97
1. Means For Implementation Of The Plan...............................................................97
2. Provisions Governing Distributions.................................................................99
3. Treatment Of Executory Contracts And Unexpired Leases.............................................103
4. Objections To Claims; Disputed Claims.............................................................103
5. Retention Of Jurisdiction.........................................................................103
6. Compromises And Settlements.......................................................................103
7. Miscellaneous.....................................................................................105
D. Confirmation Of The Plan...............................................................................108
1. Classes Entitled To Vote; Requisite Acceptances...................................................108
2. Confirmation Hearing..............................................................................108
3. Requirements For Confirmation Of The Plan.........................................................108
4. Confirmation Without Acceptance Of All Impaired Classes - "Cramdown"..............................109
5. Conditions To Confirmation And Effective Date.....................................................110
E. Effects Of Confirmation................................................................................112
1. Binding Effect....................................................................................112
2. Authorization Of Corporate Action.................................................................112
3. Discharge Of The Debtors..........................................................................112
4. Injunction........................................................................................113
5. Releases..........................................................................................113
F. Insurance Proceeds.....................................................................................114
VIII. TREATMENT OF EMPLOYEES DURING THE CHAPTER 11 CASES.......................................................114
IX. FINANCING DURING THE CHAPTER 11 CASES......................................................................114
X. CERTAIN ADDITIONAL RISK FACTORS TO BE CONSIDERED............................................................116
A. Certain General Business Risks.........................................................................116
1. Competition.......................................................................................116
2. Customers.........................................................................................116
3. Constraints On Growth Due To Limited Funding .....................................................116
4. Efforts To Reduce Customer Churn..................................................................116
5. Dependence On Key Personnel.......................................................................117
6. Government Regulation.............................................................................117
7. Loss Or Reduction Of Tax Attributes...............................................................117
B. Current Financing......................................................................................117
1. Defaults Under Credit Facilities..................................................................117
2. Defaults On Outstanding Notes.....................................................................118
3. No Current Availability Under Credit Facilities...................................................118
C. Maintenance Of Operations And Postpetition Financing...................................................118
D. Certain Bankruptcy Considerations......................................................................119
1. Effect Of Chapter 11 Cases On Non-Debtor Subsidiaries.............................................119
2. Failure To Confirm The Plan.......................................................................119
3. Failure To Consummate The Plan....................................................................119
4. Loss Of NOLs......................................................................................120
E. Certain Tax Considerations.............................................................................120
F. Inherent Uncertainty Of Financial Projections..........................................................120
G. Dividends..............................................................................................120
XI. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN..........................................120
A. Consequences To The Debtors............................................................................121
1. COD Income........................................................................................121
2. NOLs..............................................................................................122
B. Consequences To Certain Exchanging Noteholders.........................................................123
1. United States Noteholders.........................................................................123
2. Non-United States Noteholders.....................................................................125
C. Certain Consequences To Exchanging Stockholders........................................................125
1. United States Stockholders........................................................................125
2. Non-United States Stockholders....................................................................126
D. Exercise Of Rights And Series A Warrants, Basis, And Holding Period Of Acquired New NTL
Common Stock...........................................................................................126
E. Information Reporting And Backup Withholding ..........................................................126
XII. CERTAIN UNITED KINGDOM INCOME TAX CONSEQUENCES OF THE PLAN................................................127
A. Diamond Cable..........................................................................................127
B. Holders Of Diamond Cable Notes, Certain NTL CC Senior Notes, And Old Common Stock......................127
1. Holders Of Notes..................................................................................127
2. Holders Of Old Common Stock.......................................................................130
3. Dividends Received By UK Resident Holders Of New Securities ......................................131
4. Stamp Duty And Stamp Duty Reserve Tax.............................................................131
XIII. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS TEST.........................................131
A. Feasibility Of The Plan................................................................................131
B. Best Interests Test....................................................................................133
C. Liquidation Analysis...................................................................................134
D. Valuation Of The Reorganized Debtors...................................................................134
1. Valuation Overview................................................................................135
2. Methodology.......................................................................................135
3. Valuation Of The Reorganized Debtors..............................................................137
4. Further Information On Valuation Of Euroco........................................................138
XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN.................................................141
A. Alternative Plan.......................................................................................141
B. Liquidation Under Chapter 7 Or Chapter 11..............................................................141
XV. SOLICITATION; VOTING PROCEDURES............................................................................142
A. Voting Deadline........................................................................................142
B. Voting Procedures......................................................................................142
C. Special Note For Holders Of Debt Securities And Equity Securities......................................142
1. Beneficial Owners.................................................................................143
2. Nominees..........................................................................................143
3. Securities Clearing Agencies......................................................................144
4. Miscellaneous.....................................................................................144
5. Delivery Of Notes.................................................................................144
D. Fiduciaries And Other Representatives..................................................................145
E. Parties In Interest Entitled To Vote...................................................................145
F. Classes Impaired Under The Plan........................................................................146
XVI. FINANCIAL ADVISORS; SOLICITATION AGENT; FEES; EXPENSES;
AND OTHER ARRANGEMENTS.....................................................................................146
A. Credit Suisse First Boston.............................................................................146
B. J.P. Morgan plc........................................................................................147
C. Morgan Stanley & Co. Inc...............................................................................147
D. Arrangements Regarding Financial Advisory Services.....................................................147
E. Kane Reece.............................................................................................148
F. Innisfree M&A Incorporated.............................................................................148
RECOMMENDATION AND CONCLUSION...................................................................................149
TABLE OF EXHIBITS
Exhibit Name
A Second Amended Joint Reorganization Plan Of NTL Incorporated And Certain Subsidiaries
B NTL Incorporated's Annual Report On Form 10-K For Fiscal Year Ended December 31,
2001*
C NTL Incorporated's Quarterly Report On Form 10-Q For The Three Months Ended March
31, 2002*
D Amendment No. 1 To NTL Incorporated's Annual Report On Form 10-K/A For Fiscal Year
Ended December 31, 2001*
E NTL Communications Corp.'s Annual Report On Form 10-K For Fiscal Year Ended
December 31, 2001*
F NTL Communications Corp.'s Quarterly Report On Form 10-Q For The Three Months Ended
March 31, 2002
G Liquidation Analysis
H Projected Financial Information
- -------------------
* On June 28, 2002, NTL Inc. received a
letter from the Staff of the Securities
and Exchange Commission in respect of
the Staff's review of these public
filings. NTL Inc. intends to respond to
these comments by filing amended
versions of these public documents with
the Securities and Exchange Commission,
to the extent necessary. Upon filing of
these amended public documents with the
Securities and Exchange Commission,
persons will be able to review such
public documents at the public
reference facilities that the
Securities and Exchange Commission
maintains at: Judiciary Plaza, Room
1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549; 233 Broadway,
New York, New York 10279; and Citicorp
Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. These
public documents may also be obtained
at the Securities and Exchange
Commission website at www.sec.gov or by
written request sent to NTL
Incorporated, 110 East 59th Street,
26th Floor, Attention: Corporate
Secretary, New York, New York 10022.
GLOSSARY
Administrative Bar Date the date designated by the Bankruptcy Court as the last date for filing
requests for payment of Administrative Claims against the Debtors.
Administrative Claim a Claim for payment of an administrative expense of a kind specified in section 503(b)
or 1114(e)(2) of the Bankruptcy Code and entitled to priority under section 507(a)(1)
of the Bankruptcy Code, including (a) actual, necessary costs and expenses, incurred
after the Petition Date, of preserving the Debtors' Estates and operating their
businesses, including wages, salaries, or commissions for services rendered after the
Petition Date, (b) Professional Fees, (c) all fees and charges assessed against the
Estates under Chapter 123 of Title 28, United States Code, (d) all Allowed Claims that
are entitled to be treated as Administrative Claims by virtue of a Final Order entered
under section 546(c)(2)(A) of the Bankruptcy Code, and (e) the reasonable post-
petition fees and expenses of the Indenture Trustees, including successors thereto,
including reasonable attorneys' fees and expenses of such Indenture Trustees.
Aggregate Investments the sum of all investments made between April 10, 2002 and the Effective Date in those
assets that will become the property of Euroco pursuant to the Plan.
Aggregate Operating the aggregate corporate overhead expenses (excluding Restructuring Expenses) at
Expenses NTL Inc. and NTL Delaware incurred during the period from April 10, 2002 to the
Effective Date.
Allowed with respect to a Claim or Interest within a particular class, an Allowed Claim or
Allowed Interest of the type described in such class.
Allowed Claim any Claim against any Debtor, which is listed by such Debtor in its books and records
as liquidated in amount and not disputed or contingent; provided, however, that to the
extent that a Claim is a Disputed Claim, the determination of whether such Claim shall
be allowed and/or the amount of any such Claim shall be determined, resolved, or
adjudicated, as the case may be, in the manner in which such Claim would have been
determined, resolved, or adjudicated if the Chapter 11 Cases had not been commenced;
provided further, however, the Reorganized Debtors may, in their discretion, bring an
objection or other motion before the Bankruptcy Court with respect to a Disputed Claim
for resolution. An Allowed Claim (a) includes a Disputed Claim to the extent such
Disputed Claim becomes Allowed after the Effective Date and (b) shall be net of any
valid setoff exercised with respect to such Claim under the provisions of the
Bankruptcy Code and applicable law. Unless otherwise specified herein, in section
506(b) of the Bankruptcy Code, or in any order of the Bankruptcy Court, "Allowed Claim"
shall not, for purposes of distributions under the Plan, include for prepetition
Claims, interest on such Claims accruing from or after the Petition Date. In addition,
a Claim is an Allowed Claim if it is deemed Allowed by the provisions of the Plan.
Allowed Interest an Interest in any Debtor, which has been or hereafter is listed by such Debtor in its
books and records as liquidated in an amount and not disputed or contingent; provided,
however, that to the extent an Interest is a Disputed Interest, the determination of
whether such Interest shall be allowed and/or the amount of any such Interest shall be
determined, resolved, or adjudicated, as the case may be, in the manner in which such
Interest would have been determined, resolved, or adjudicated if the Chapter 11 Cases
had not been commenced; and provided further, however, that proofs of Interest need not
and should not be filed in the Bankruptcy Court with respect to any Interests; and
provided further, however, that the Reorganized Debtors may, in their discretion, bring
an objection or other motion with respect to a Disputed Interest before the Bankruptcy
Court for resolution.
Amended and Restated Reorganized NTL CC's certificate of incorporation and by-laws in effect under the laws of
Certificate of the State of Delaware, as amended and restated by the Plan, in substantially the form
Incorporation and By-laws annexed as Exhibit A to the Plan.
of NTL CC
Amended and Restated Reorganized NTL Inc.'s certificate of incorporation and by-laws in effect under the of the State of
Certificate of Delaware, as amended and restated by the Plan, in substantially the form annexed as Exhibit B to
Incorporation and By-laws the Plan.
of NTL Inc.
Annual Section 382 the limitation, under Section 382, on the ability of a corporation undergoing an ownership change
Limitation to utilize historic NOLs, capital loss carryforwards, and certain subsequently recognized "built-in"
losses and deductions.
B2 B2 Bredband AB.
Ballot each of the ballot forms distributed with the Disclosure Statement to holders of
Impaired Claims and Impaired Interests entitled to vote under Article II of the Plan in
connection with the solicitation of acceptances of the Plan, for the purpose of
indicating an acceptance or rejection of the Plan.
Bankruptcy Code the Bankruptcy Reform Act of 1978, as codified in Title 11 of the United States
Code, 11 U.S.C. ss.ss. 101-1330, as now in effect or hereafter amended and as
applicable to these Chapter 11 Cases.
Bankruptcy Court the United States Bankruptcy Court for the Southern District of New York or any
other court with jurisdiction over the Chapter 11 Cases.
Bankruptcy Exception the exception, provided by Section 382, to the application of the Annual
Section 382 Limitation for corporations under the jurisdiction of a court in a
bankruptcy case.
Bankruptcy Rules collectively, the Federal Rules of Bankruptcy Procedure promulgated under Section
2075 of Title 28 of the United States Code and the Official Bankruptcy Forms, the
Federal Rules of Civil Procedure, as applicable to the Chapter 11 Cases or proceedings
therein, and the Local Rules of the Bankruptcy Court, all as now in effect or hereafter
amended, and as applicable to these Chapter 11 Cases.
BBC British Broadcasting Corporation.
BT British Telecommunications plc.
Business Day any day, excluding Saturdays, Sundays, or "legal holidays" (as defined in
Bankruptcy Rule 9006(a)), on which commercial banks are open for business in New York,
New York or London, England, as the context requires.
Cable Funding Communications Cable Funding Corp., a Delaware corporation, which is a wholly-owned
subsidiary of NTL CC and the immediate parent of NTL (UK) Group, Inc.
Cablecom Bank Steering the steering committee of the Cablecom Banks.
Committee
Cablecom Banks the financial institutions named in Part C of Schedule 1 of the Cablecom Credit
Facility, or which have become a party thereto thereafter, and which have not ceased to
be a party thereto in accordance with the terms thereof.
Cablecom Credit Facility the credit agreement, dated March 28, 2000, as amended on May 16, 2000 and as amended
and restated as of May 2, 2002, between, among others, NTL Delaware as parent, NTL
Cablecom Holding GmbH as shareholder, Cablecom GmbH as principal borrower, J.P. Morgan
plc and Morgan Stanley Senior Funding, Inc. as arrangers and joint book managers, J.P.
Morgan Europe Limited as agent, and the lenders party thereto, as may be further
amended and/or restated from time to time.
Cablecom Group NTL Cablecom Holding GmbH and its subsidiaries from time to time.
Carve-Out in the context of the DIP Facility, a carve-out in an aggregate amount not in excess of
$10 million for (i) in the event of the occurrence and during the continuance of an
event of default, or an event that would constitute an event of default with the giving
of notice or lapse of time or both, the payment of Allowed and unpaid Professional Fees
and disbursements incurred following such occurrence by the Debtors and any statutory
committees appointed in the Chapter 11 Cases (plus all unpaid Professional Fees and
disbursements incurred prior to the occurrence of an event of default to the extent
allowed by the Bankruptcy Court at any time) and (ii) the payment of fees pursuant to
28 U.S.C.ss.1930 and to the Clerk of the Bankruptcy Court.
Case Interest Rate the federal judgment rate described in 28 U.S.C. ss. 1961 in effect on
the Petition Date, compounded annually on each anniversary of the Petition Date.
Cash United States currency, a certified check, a cashier's check, or a wire transfer of
good funds from any source, or a check drawn on a United States or UK bank by the
Debtors or any other Person making any payment or distribution under the Plan.
Cause of Action any and all actions, causes of action, suits, accounts, controversies, agreements,
promises, rights to legal remedies, rights to equitable remedies, rights to payment,
and claims, whether known or unknown, reduced to judgment, not reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
secured, unsecured, and whether asserted or assertable directly or derivatively, in
law, equity, or otherwise.
Certificate an instrument evidencing a Claim or Interest on account of an Existing Security.
Chapter 11 Case(s) individually, the Chapter 11 Case of any of NTL Inc., NTL Delaware, NTL CC, Cable
Funding, Diamond Cable, and Diamond Holdings, and, collectively, the jointly
administered Chapter 11 Cases of NTL Inc., NTL Delaware, NTL CC, Cable Funding,
Diamond Cable, and Diamond Holdings.
Claim a claim against any Debtor, whether or not asserted, as defined in section 101(5) of
the Bankruptcy Code.
Class one of the classes of Claims or Interests listed in Article III of the Plan.
Class 7 Euroco Value the value of 331,222 shares of Euroco Common Stock.
Class . . . Noteholder the Pro Rata share of the Noteholder Election Option allocable to the identified Class.
Election Option
COD cancellation of indebtedness.
Comparables comparable public company analysis.
Confirmation entry by the Bankruptcy Court of the Confirmation Order.
Confirmation Date the date of entry of the Confirmation Order on the docket maintained by the Clerk of
the Bankruptcy Court with respect to these Chapter 11 Cases.
Confirmation Hearing the hearing held by the Bankruptcy Court pursuant to section 1128(a) of the Bankruptcy
Code, to consider confirmation of the Plan under section 1129 of the Bankruptcy Code,
as such hearing may be adjourned or continued from time to time.
Confirmation Hearing notice of, among other things, the time for submitting Ballots to accept or reject the
Notice Plan, the date, time and place of the hearing to consider the confirmation of the Plan
and related matters, and the time for filing objections to the confirmation of the Plan.
Confirmation Order the order of the Bankruptcy Court confirming the Plan under section 1129 of the
Bankruptcy Code.
Covered Persons the Debtors' present and former directors, officers or employees.
Credit Facilities individually and collectively, the Senior Credit Facility, the Working Capital
Facility, and the Cablecom Credit Facility.
Creditor a creditor, within the meaning of section 101(10) of the Bankruptcy Code, of one or
more of the Debtors.
Creditors' Committee the official committee of unsecured creditors appointed in the Chapter 11 Cases
pursuant to section 1102(a) of the Bankruptcy Code on June 21, 2002, as such committee
may be reconstituted from time to time.
CSFB Credit Suisse First Boston Corporation.
Cumulative Convertible the shares of cumulative convertible preferred stock, Series A, of NTL Inc.
Preferred Stock outstanding immediately prior to the Petition Date.
Cure the distribution of Cash, or such other property as may be agreed upon by the parties
or ordered by the Bankruptcy Court, with respect to the assumption of an executory
contract or unexpired lease under section 365(b) of the Bankruptcy Code, in an amount
equal to all unpaid monetary obligations, without interest, or such other amount as may
be agreed upon by the parties, under such executory contract or unexpired lease, to the
extent such obligations are enforceable under the Bankruptcy Code and applicable
bankruptcy law.
CWC NTL (CWC) Limited, a company registered in England and Wales with company number
0328898, formerly registered under the name Cable & Wireless Communications plc.
DCF discounted cash flow analysis.
Debt Securit(ies) individually and collectively, the Senior Notes and Subordinated Notes.
Debt Securities Claim a Securities Claim, if any, arising from a Debt Security.
Debtor(s) individually and collectively, NTL Inc., NTL Delaware, NTL CC, Diamond Cable, Diamond
Holdings and, when the context so requires, Cable Funding, including in their
capacities as debtors-in-possession under sections 1107 and 1108 of the Bankruptcy Code
and, when appropriate, as post-confirmation entities reorganized under the Plan.
Debtor Subsidiaries collectively, NTL Delaware, NTL CC, Cable Funding, Diamond Cable, and Diamond
Holdings.
Debtor Subsidiary collectively, the issued and outstanding shares of common stock of the Debtor
Interests Subsidiaries as of the Petition Date, all of which shares are directly or indirectly
owned by NTL Inc.
Delaware Cash Amount 79.1% of the Delaware/Inc. Cash Amount.
Delaware/Inc. Cash the sum of (a) available cash at NTL Inc. and NTL Delaware as of April 10, 2002,
Amount which is $279,533,000, plus (b) the principal and accrued interest on the Delaware/NTL
(UK) Group Note, plus (c) the France Telecom Payment, plus (d) Excess Restructuring
Expenses, minus (e) the sum of (i) Euroco Cash, (ii) Aggregate Operating Expenses,
(iii) Aggregate Investments, and (iv) Delaware/Inc. Restructuring Expenses.
Delaware/Inc. an amount equal to Restructuring Expenses less NTL CC Restructuring Expenses.
Restructuring Expenses
Delaware/NTL (UK) the(pound)90 million aggregate principal amount 23% senior note due 2006, dated as of
Group Note April 5, 2002, from NTL (UK) Group, Inc. to NTL Delaware, as may be amended and/or
restated and/or novated or assigned from time to time, in accordance with the DIP
Facility.
Diamond Administration the administration(s) of Diamond Cable and Diamond Holdings pursuant to the
Case(s) Diamond Administration Orders.
Diamond Administration the administration orders of the Courts of England and Wales under Part II of the
Orders Insolvency Act relating to Diamond Cable and Diamond Holdings.
Diamond Administrators collectively, Nicholas Guy Edwards and James Robert Drummond Smith of Deloitte
& Touche.
Diamond Cable Diamond Cable Communications Limited, a company registered in England and Wales with
company number 02965241.
Diamond Cable Guaranty the guaranty by Diamond Cable of the obligations of Diamond Holdings as issuer of the
Diamond Holdings Notes.
Diamond Cable Notes collectively, the (a) 13 1/4% Senior Discount Notes due 2004, issued by Diamond Cable
under an indenture dated September 28, 1994, as amended by a First Supplemental
Indenture dated May 31, 1996, (b) 11 3/4% Senior Discount Notes due 2005, issued by
Diamond Cable under an indenture dated December 15, 1995, and (c) 10 3/4% Senior
Discount Notes due 2007, issued by Diamond Cable under an indenture dated February 27,
1997.
Diamond Cable Notes a Claim of a Diamond Cable Notes Holder arising under or as a result of the Diamond
Claim Cable Notes; provided, however, that the term "Diamond Cable Notes Claim" shall
not include any claim by or of New NTL, as the sole holder of Diamond Cable Notes
(or any other rights and interests associated thereto that are delivered, assigned,
conveyed or transferred to New NTL) pursuant to Article III.C.2 of the Plan, or under
the Diamond Cable Notes from and after the Effective Date.
Diamond Cable Notes a holder of Diamond Cable Notes.
Holder
Diamond Holdings Diamond Holdings Limited, a company registered in England and Wales with company number
03483724.
Diamond Holdings Notes collectively, the (a) 10% Senior Notes due 2008 issued by Diamond Holdings (and
guaranteed by Diamond Cable) under an indenture dated February 6, 1998 and (b) 91/8%
Senior Notes due 2008 issued by Diamond Holdings (and guaranteed by Diamond Cable)
under an indenture dated February 6, 1998.
Diamond Holdings Notes a Claim of a Diamond Holdings Notes Holder arising under or as a result of the
Claim Diamond Holdings Notes.
Diamond Holdings Notes a holder of Diamond Holdings Notes.
Holder
DIP Facility the debtor-in-possession credit facility to be provided to Cable Funding during the
Chapter 11 Cases in the principal amount of $630,000,000 pursuant to the DIP Facility
Agreement.
DIP Facility Agreement the Debtor-In-Possession Credit And Guaranty Agreement, expected to be dated as of July
15, 2002, by, among others, Cable Funding, as borrower, and the various lenders,
including NTL Delaware, signatory thereto.
DIP Facility Claim a Claim arising under or as a result of the DIP Facility.
Disallowed Claim any Claim against any Debtor which has been disallowed, in whole or in part, by Final
Order of the Bankruptcy Court, or which has been withdrawn, in whole or in part, by the
holder thereof.
Disallowed Interest any Interest in any Debtor which has been disallowed, in whole or in part, by Final
Order of the Bankruptcy Court, or which has been withdrawn, in whole or in part, by the
holder thereof.
Disbursing Agent New NTL or any party designated by New NTL, in its sole discretion, to serve as a
disbursing agent under the Plan.
Disputed Claim any Claim against a Debtor, or any portion thereof, that is not an Allowed Claim or a
Disallowed Claim, as the case may be.
Disputed Interest any Interest in a Debtor, or any portion thereof, that is not an Allowed Interest or a
Disallowed Interest, as the case may be.
Distributable Securities the New NTL Common Stock, Euroco Common Stock, Euroco Preferred Stock, Series A
Warrants, and Rights.
Distribution Date the date, occurring on or as soon as practicable after the Effective Date, on which the
Disbursing Agent first makes distributions to holders of Allowed Claims and Allowed
Interests as provided in Article VII of the Plan.
Distribution Record Date the record date for purposes of making distributions under the Plan on account of
Allowed Claims and Allowed Interests, which date shall be designated in an
order of the Bankruptcy Court.
Effective Date the date that is two Business Days after the closing of the Offerings, or, if such date
is not a Business Day, the next succeeding Business Day, or such later date after such
closing as is determined by the Debtors so long as no stay of the Confirmation Order
is in effect on such date; provided, however, that if, on or prior to such date, all
conditions to the Effective Date set forth in Article X.B of the Plan have not been
satisfied or waived, then the Effective Date shall be the first Business Day following
the day on which all such conditions to the Effective Date have been satisfied or
waived, or such later date as the Debtors may determine.
Effectuating Transactions individually and collectively, the transactions to be consummated on the Effective Date
to implement the provisions of Article IV.C.1.a and Article IV.C.1.b of the Plan, as
described in Exhibit P annexed to the Plan.
Employment Agreements the employment agreements to be entered into between New NTL and Euroco and their
respective key executives, which agreements shall be in substantially the form annexed
to the Plan as Exhibit M.
Equity Rights the rights to purchase shares of New NTL Common Stock and Series A Warrants that will
be offered pro rata to the holders of Equity Rights Eligible Preferred Stock and Old
Common Stock pursuant to the Equity Rights Offering and which will be exercisable for
the 20-Business Day period after the entry of the Confirmation Order, as such period
may be extended, and on an oversubscription basis.
Equity Rights Eligible collectively, the Old Senior Preferred Stock and Other Junior Preferred Stock.
Preferred Stock
Equity Rights Offering the offer of Equity Rights to holders of Equity Rights Eligible Preferred Stock and Old
Common Stock as of the Equity Rights Offering Record Date to acquire, as a detachable
unit, New NTL Common Stock and Series A Warrants.
Equity Rights Offering the price per share of New NTL Common Stock (accompanied by a Series A Warrant) purchased
Price in the Equity Rights Offering, which shall be equal to (a)(i) $10.5 billion, minus (ii)
New NTL's pro forma debt as of the Effective Date as set forth in the Confirmation
Order, plus (iii) New NTL's pro forma cash (with such pro forma amounts to be
determined in accordance with New NTL's most recent monthly financials available prior
to the commencement of the Equity Rights Offering), divided by (b) 200 million.
Equity Rights Offering the Equity Rights Offering Procedures in substantially the form annexed as Exhibit F
Procedures to the Plan.
Equity Rights Offering the date for determination of holders of Equity Rights Eligible Preferred Stock and
Record Date Old Common Stock eligible to participate in the Equity Rights Offering, which date
will be designated in an order of the Bankruptcy Court.
Equity Securit(ies) individually and collectively, the Old Preferred Stock, Old Common Stock, Old Warrants,
and Old Options.
Equity Securities Claim a Securities Claim arising from an Equity Security.
Estate(s) the estate(s) of any of the Debtors in the Chapter 11 Cases, as created under section
541 of the Bankruptcy Code.
Euroco NTL Inc., on and after the Effective Date.
Euroco Cash the sum of (i) $100 million, plus (ii) the France Telecom Payment, minus (iii) the sum
of (x) Aggregate Operating Expenses, plus (y) Aggregate Investments.
Euroco Chapter 11 any holder of an Allowed Claim or Interest or any Person or group of affiliated or
Acquiring Person associated Persons to such holder who, with respect to any determination date, would
beneficially own 15% or more of the outstanding shares of Euroco Common Stock on
account of such Allowed Claim or Interest, assuming that the Plan is consummated on
such determination date.
Euroco Common Stock the 60 million shares of common stock of Euroco, par value $0.01 per share, authorized
under Article IV.C.2.b.i of the Plan and the Amended Certificate of Incorporation of
NTL Inc., including the associated Euroco Stockholder Rights, to be issued by Euroco
under the Plan as of the Effective Date.
Euroco Grandfathered any Euroco Chapter 11 Acquiring Person who, as determined in the sole and absolute
Distributee discretion of the Debtors and the Creditors' Committee, (i) would hold, after giving
effect to the consummation of the Plan, its Euroco Common Stock for investment purposes
only, such that such Euroco Chapter 11 Acquiring Person would qualify to file a
Schedule 13-G pursuant to Section 13 of the Exchange Act, (ii) would not directly or
indirectly, through investments or otherwise, constitute a competitor of any of the
business lines of Euroco, (iii) would not own or operate, in the United States or
elsewhere, a business that operates or holds a license to operate a cable television
system or service, fixed-line telephone or telecommunications system or service, or
broadcasting transmission system or service, and (iv) would not be a strategic investor
in Euroco.
Euroco Management the options to be issued by Euroco pursuant to the provisions of the Euroco Management
Incentive Options Incentive Plan.
Euroco Management the management incentive plan pursuant to which the Euroco Management Incentive Options
Incentive Plan will be issued, to be adopted by the compensation committee of the board of directors
of Euroco on or after the Effective Date.
Euroco Preferred Stock the shares of preferred stock of Euroco, par value $0.01 per share, authorized under
Article IV.C.2.b.i of the Plan and the Amended and Restated Certificate of
Incorporation of NTL Inc., with a liquidation preference of $1,000 per share and an
aggregate liquidation preference equal to the sum of (a) $250 million, plus (b) the
Aggregate Investments, plus (c) the Euroco Cash, plus (d) accrued and unpaid dividends
on the Euroco Preferred Stock.
Euroco Registration the registration rights agreement governing the registration of Euroco Common Stock and
Rights Agreement Euroco Preferred Stock issued under the Plan, in substantially the form annexed as
Exhibit L to the Plan, by and among Euroco and certain holders from time to time of
Euroco Common Stock and Euroco Preferred Stock who are or may be deemed to be
"affiliates" or "underwriters" of Euroco for purposes of the Securities Act of 1933.
Euroco Rights Agent Continental Stock Transfer & Trust Company, in its capacity as rights agent under the
Euroco Rights Agreement.
Euroco Rights Agreement the stockholder rights agreement substantially in the form annexed as Exhibit O to the
Plan between Euroco and Continental Stock Transfer & Trust Company, as Euroco Rights
Agent.
Euroco Stockholder Series A Junior Participating Preferred Stock, par value $0.01 per share, of Euroco.
Rights Preferred Stock
Euroco Stockholder the price per one one-hundredth of a share of Euroco Stockholder Rights Preferred Stock that
Rights Purchase Price will be determined prior to the Effective Date.
Excess Restructuring an amount equal to the Restructuring Expenses actually incurred and paid by NTL Inc.
Expenses and NTL Delaware prior to April 10, 2002.
Exchange Act the Securities Exchange Act of 1934, as amended from time to time and any successor
statutes.
Existing Securities collectively, the Equity Securities and the Debt Securities.
Face Amount (a) when used in reference to a Disputed Claim, the full stated amount claimed by the
holder of such Claim in any proof of Claim timely filed with the Bankruptcy Court,
(b) when used in reference to an unliquidated Claim, the amount of the Claim as
estimated by the Bankruptcy Court under section 502(c) of the Bankruptcy Code, and
(c) when used in reference to an Allowed Claim, the Allowed amount of such Claim.
Final Order an order, ruling, or judgment of the Bankruptcy Court or any other court of competent
jurisdiction as to which the time to appeal, petition for certiorari, or move for
reargument or rehearing has expired and as to which no appeal, petition for certiorari,
or other proceedings for reargument or rehearing shall then be pending, or as to which
any right to appeal, petition for certiorari, reargue, or rehear shall have been waived
in writing, in form and substance satisfactory to the Debtors or, on and after the
Effective Date, the Reorganized Debtors or, in the event that an appeal, writ of
certiorari, or reargument or rehearing thereof has been sought, such order of the
Bankruptcy Court or other court of competent jurisdiction shall have been determined
by the highest court to which such order was appealed, or certiorari, reargument or
rehearing shall have been denied and the time to take any further appeal, petition for
certiorari, or move for reargument or rehearing shall have expired; provided, however,
that the possibility that a motion under Rule 59 or Rule 60 of the Federal Rules of
Civil Procedure, or any analogous Bankruptcy Rule or applicable state court rules of
civil procedure, may be filed with respect to such order shall not cause such order not
to be a Final Order.
Financial Projections the projections set forth in Exhibit H annexed hereto.
5% Cumulative collectively, the shares of 5% cumulative participating convertible preferred stock,
Participating Convertible Series A (and dividend shares, Series C through Series K), and 5% cumulative
Preferred Stock participating convertible preferred stock, Series B (and dividend shares, Series B-1
through Series B-6), of NTL Inc. outstanding immediately prior to the Petition Date.
France Telecom collectively, France Telecom, a societe anonyme organized under the laws of France, and
its indirect wholly-owned subsidiary RAPP 26.
France Telecom Payment the payment in cash, in the amount of $25,000,000, to be made on the Effective Date by
France Telecom for the benefit of Euroco.
GE Capital General Electric Capital Corporation.
General Unsecured Claim a prepetition unsecured Claim that is not entitled to priority under section 507 of the
Bankruptcy Code, but excluding a Senior Notes Claim, Subordinated Notes Claim,
Intercompany Claim, or Securities Claim and including, among others, all Claims of the
Diamond Holdings Notes Holders arising under or related to the Diamond Cable Guaranty.
Heads of Terms the memorandum executed on May 2, 2002 on behalf of the UK Bank Steering
Committee, the Cablecom Bank Steering Committee, NTL Inc. acting on behalf of its
subsidiaries party to the Credit Facilities, and the Noteholders' Steering Committee,
to which the Senior Banks representing 91% of the principal amount outstanding
under the Senior Credit Facility and all of the Working Capital Banks have
subsequently agreed, indicating the parties' agreement-in-principle (on a non-legally
binding basis) to the terms of the proposed Restructuring and the terms on which the
UK Credit Facilities should be amended and restated with effect from the Effective
Date and with respect to certain matters relating to the Cablecom Group
sale/investment process.
Impaired when used with reference to a Claim or Interest, a Claim or Interest that is impaired
within the meaning of section 1124 of the Bankruptcy Code.
Indenture(s) individually and collectively, the indentures pursuant to which the Senior Notes and
Subordinated Notes were issued, as such indentures are or have been amended or
supplemented from time to time in accordance with the terms thereof.
Indenture Trustee(s) individually and collectively, the indenture trustees (or their respective successors)
for the Senior Notes and Subordinated Notes.
Initial Waivers the waivers and consents under the Credit Facilities granted by the requisite majority
of the Secured Lenders on March 8, 2002 and March 28, 2002, which permitted the Debtors
to commence and continue negotiations with the Noteholders' Steering Committee (with a
view to rescheduling their debt).
Insolvency Act the Insolvency Act 1986 of the UK.
Intercompany Claim collectively, any Claim held by a Debtor against another Debtor as of the Effective
Date, including, without limitation, (a) any account reflecting intercompany book
entries by a Debtor with respect to another Debtor, (b) any such Claim not reflected
in such book entries that is held by a Debtor against another Debtor, and (c) any
derivative Claim asserted by or on behalf of a Debtor against another Debtor;
provided, however, that the term Intercompany Claim will not include (i) a Claim of
New NTL as the holder of the Diamond Cable Notes after the Effective Date, (ii) a
DIP Facility Claim, (iii) a Claim by or against Cable Funding, (iv) a Claim arising
under or related to the Delaware/NTL (UK) Group Note, or (v) any Debt Securities.
Interest the legal, equitable, contractual, and other rights of any holder of Equity Securities of
a Debtor represented by any issued and outstanding shares of Old Common Stock, Old
Preferred Stock, or other instrument evidencing a current ownership interest in such
Debtor, whether or not transferable, and any option, warrant, or right, contractual or
otherwise, to purchase, sell, subscribe for, or otherwise acquire or receive any such
interest.
IRC the United States Internal Revenue Code of 1986, as amended.
IRS the United States Internal Revenue Service.
ISOs incentive stock options.
J.P. Morgan Chase J.P. Morgan Chase Bank, a New York domestic banking corporation in its capacity
as counterparty to the PTV Swap Agreement.
Junior Stakeholders collectively, the holders of Old Senior Preferred Stock Interests, Old Junior Preferred
Stock Interests, and Old Common Stock Interests.
Kane Reece Kane Reece Associates, Inc., financial consultants to the Debtors.
Lien a charge against or interest in property to secure payment of a debt or performance of
an obligation.
Liquidation Analysis the liquidation analysis prepared by the Debtors with the assistance of Kane Reece,
which is annexed hereto as Exhibit G.
M&A comparable mergers and acquisitions analysis.
Management Incentive collectively, the New NTL Management Incentive Plan and the Euroco Management
Plans Incentive Plan.
Mandatory Cost Rate the additional interest intended to compensate the lenders under the relevant Credit
Facility for the costs of complying with cash deposit requirements imposed by the Bank
of England and the European Central Bank and fees levied by the U.K. Financial Services
Authority.
Master Ballot the ballot provided to a bank, brokerage firm or other Nominee, or any agent or proxy
holder thereof, holding Debt Securities or Equity Securities in its own name on behalf
of a beneficial owner, or any agent thereof.
Measurement Date a date on which an Ownership Change is tested.
Minority Holdings any Person in which NTL holds an interest of 50% or less of the share capital.
New NTL NTL CC, on and after the Effective Date.
New NTL Chapter 11 any holder of an Allowed Claim or Interest or any Person or group of affiliated
Acquiring Person or associated Persons to such holder who, with respect to any determination date, would
beneficially own 15% or more of the outstanding shares of New NTL Common Stock on
account of such Allowed Claim or Interest, assuming that the Plan is consummated on
such determination date.
New NTL Common Stock the 600 million shares of common stock of New NTL, par value $0.01 per share,
authorized under Article IV.C.2.a.i of the Plan and the Amended and Restated
Certificate of Incorporation of NTL CC, including the associated New NTL Stockholder
Rights, to be issued by New NTL under the Plan as of the Effective Date.
New NTL Exit Facility that certain credit facility to be provided to New NTL and/or Cable Funding on the
Effective Date.
New NTL Grandfathered any New NTL Chapter 11 Acquiring Person who, as determined in the sole and absolute
Distributee discretion of the Debtors and the Creditors' Committee, (i) would hold, after giving
effect to the consummation of the Plan, its New NTL Common Stock for investment
purposes only, such that such New NTL Chapter 11 Acquiring Person would qualify to file
a Schedule 13-G pursuant to Section 13 of the Exchange Act, (ii) would not directly or
indirectly, through investments or otherwise, constitute a competitor of any of the
business lines of New NTL, (iii) would not own or operate, in the United States or
elsewhere, a business that operates or holds a license to operate a cable television
system or service, fixed-line telephone or telecommunications system or service, or
broadcasting transmission system or service, and (iv) would not be a strategic investor
in New NTL.
New NTL Management the options to purchase up to 10% of the issued and outstanding New NTL Common Stock,
Incentive Options to be issued by New NTL pursuant to the provisions of the New NTL Management Incentive
Plan.
New NTL Management the management incentive plan pursuant to which the New NTL Management Incentive Options
Incentive Plan will be issued, to be adopted by the compensation committee of the board of directors
of New NTL on or after the Effective Date.
New NTL Registration the registration rights agreement governing the registration of New NTL Common Stock in
Rights Agreement substantially the form annexed as Exhibit K to the Plan, by and among New NTL and
certain holders from time to time of New NTL Common Stock and Series A Warrants who are
or may be deemed to be "affiliates" or "underwriters" of New NTL for purposes of the
Securities Act.
New NTL Rights Agent Continental Stock Transfer &
Trust Company, in its capacity as rights agent
under the New NTL Rights Agreement.
New NTL Rights the stockholder rights agreement substantially in the form annexed as Exhibit N to the Plan
Agreement between New NTL and Continental Stock Transfer & Trust Company, as New NTL Rights
Agent.
New NTL Stockholder Series A Junior Participating Preferred Stock, par value $0.01 per share, of New NTL.
Rights Preferred Stock
New NTL Stockholder the price per one one-hundredth of a share of New NTL Stockholder Rights Preferred Stock that will be
Rights Purchase Price determined prior to the Effective Date.
New Options collectively, the New NTL Management Incentive Options and the Euroco Management
Incentive Options.
New Securities collectively, the New NTL Common Stock, Euroco Common Stock, Euroco Preferred Stock,
Series A Warrants, New Options and, as the context requires, Rights.
NOL net operating loss.
Nominee a bank, brokerage, or other nominee or financial intermediary.
Non-Debtor Subsidiar(ies) individually and collectively, the direct and indirect subsidiaries of NTL Inc. listed on
Exhibit C to the Plan.
Non-United States a holder of Debt Securities that is not a United States Noteholder.
Noteholder
Non-United States a holder of Equity Securities that is not a United States Stockholder.
Stockholder
Noos Suez Lyonnaise Telecom, a societe anonyme organized under the laws of France.
Noos Interest NTL Inc.'s entire interest in the ordinary registered shares of Noos owned by NTL
Inc., as pledged pursuant to Annex 1 of the Share Account Pledge Agreement and as
subject to the Noos Shareholder Agreement.
Noos Junior Preferred collectively, the 6.5% Fixed Coupon Redeemable Preferred Stock and the Variable
Stock Coupon Redeemable Preferred Stock.
Noos Junior Preferred an Interest of a holder of Noos Junior Preferred Stock arising under or as a result of
Stock Interest Noos Junior Preferred Stock.
Noos Note the debt obligation of Noos contained in Sections 2.2.2(a) and (b) of the 1G Sale
Agreement, by and among Noos, Nogenta Holding BV, NTL Delaware, and NTL Inc.
Noos Shareholders the Shareholders' Agreement, dated April 10, 2001, by and among Suez SA, NTL Inc.,
Agreement MSDW Capital Partners IV, LLC and Noos, as amended on October 26, 2001, November 23,
2001, and May 14, 2002, as may be further amended and/or restated from time to time.
Noteholder a holder of Debt Securities.
Noteholder Election the option offered to the NTL CC Subordinated Notes Holders, NTL Delaware
Option Subordinated Notes Holders (other than France Telecom), and NTL Inc. Subordinated Notes
Holders (other than France Telecom) as of the Noteholder Election Option Record Date,
to purchase (a) shares of New NTL Common Stock and (b) shares of New NTL Common Stock
(each accompanied by a Series A Warrant) that were not subscribed for in the Equity
Rights Offering.
Noteholder Election the price per share of New NTL Common Stock purchased in the Noteholder Election Option,
Option Price which shall be equal to (a)(i) $10.5 billion, minus (ii) New NTL's pro forma debt as of
the Effective Date as set forth in the Confirmation Order, plus (iii) New NTL's pro
forma cash (with such pro forma amounts to be determined in accordance with New NTL's
most recent monthly financials available prior to the commencement of the Noteholder
Election Option), divided by (b) 200 million.
Noteholder Election the Noteholder Election Option Procedures annexed as Exhibit G to the Plan.
Option Procedures
Noteholder Election the date for determination of holders of NTL CC Subordinated Notes, NTL Delaware
Option Record Date Subordinated Notes (other than France Telecom), and NTL Inc. Subordinated Notes (other
than France Telecom) eligible to participate in the Noteholder Election Option, which
date will be designated in an order of the Bankruptcy Court.
Noteholders' Steering the steering committee of the unofficial committee of holders of notes which are
Committee obligations of NTL Inc., NTL Delaware, NTL CC, Diamond Cable, Diamond Holdings, and Triangle.
NQSOs non-qualified stock options.
NTL the Debtors and their Non-Debtor Subsidiaries and affiliates.
NTL Business NTL Business Limited, a company registered in England and Wales with company
number 03076222.
NTL Cash Amount 20.9% of the Delaware/Inc. Cash Amount.
NTL CC NTL Communications Corp., a Delaware corporation.
NTL CC Convertible the 6 3/4% Convertible Senior Notes due 2008, issued by NTL CC (and a subordinated
Senior Notes co-obligation of NTL Inc.) under an indenture dated May 15, 2001.
NTL CC Convertible a Claim of an NTL CC Convertible Senior Notes Holder arising under or as a result
Senior Notes Claim of the NTL CC Convertible Senior Notes.
NTL CC Convertible a holder of NTL CC Convertible Senior Notes.
Senior Notes Holder
NTL CC Restructuring an allocable portion of the Restructuring Expenses equal to the amount of the
Expenses estimated value that the aggregate recovery of Class 6, Class 7, and Class 8 bears to
the estimated value of the aggregate recovery of Class 6, Class 7, Class 8, Class 9,
and Class 10.
NTL CC Senior Notes collectively, the (a) 12 3/4% Senior Deferred Coupon Notes due 2005, issued by NTL
CC under an indenture dated April 20, 1995, as amended by a First Supplemental
Indenture dated as of January 22, 1996, and a Second Supplemental Indenture dated
as of October 14, 1998, (b) 11 1/2% Senior Deferred Coupon Notes due 2006, issued
by NTL CC under an indenture dated January 30, 1996, as amended by a First
Supplemental Indenture dated October 14, 1998, (c) 10% Senior Notes due 2007,
issued by NTL CC under an indenture dated February 12, 1997, as amended by a First
Supplemental Indenture dated October 14, 1998, (d) 9 3/4% Senior Deferred Coupon
Notes due 2008, issued by NTL CC under an indenture dated March 13, 1998, (e)
10 3/4% Senior Deferred Coupon Notes due 2008, issued by NTL CC under an
indenture dated March 13, 1998, (f) 9 1/2% Senior Notes due 2008, issued by NTL CC
under an indenture dated March 13, 1998, (g) 11 1/2% Senior Notes due 2008, issued
by NTL CC under an indenture dated November 2, 1998, (h) 123/8% Senior Deferred
Coupon Notes due 2008, issued by NTL CC under an indenture dated November 6,
1998, (i) 9 3/4% Senior Deferred Coupon Notes due 2009, issued by NTL CC under an
indenture dated April 14, 1999, (j) 9 1/4% Senior Notes due 2006, issued by NTL CC
under an indenture dated November 24, 1999, (k) 97/8% Senior Notes due 2009,
issued by NTL CC under an indenture dated November 24, 1999, (l) 11 1/2% Senior
Deferred Coupon Notes due 2009, issued by NTL CC under an indenture dated
November 24, 1999, (m) 117/8% Senior Notes due 2010, issued by NTL CC under an
indenture dated October 2, 2000, (n) 123/8% Senior Notes due 2008, issued by NTL
CC under an indenture dated January 24, 2001, and (o) 6 3/4% Convertible Senior
Notes due 2008, issued by NTL CC (and a subordinated co-obligation of NTL Inc.)
under an indenture dated May 15, 2001.
NTL CC Senior Notes a Claim of an NTL CC Senior Notes Holder arising under or as a result of the NTL CC Senior Notes.
Claims
NTL CC Senior Notes a holder of NTL CC Senior Notes.
Holder
NTL CC Subordinated 7% Convertible Subordinated Notes due 2008, issued by NTL CC (and a subordinated
Notes co-obligation of NTL Delaware and NTL Inc.) under an indenture dated December 16, 1998,
as amended by a First Supplemental Indenture dated March 31, 1999, a Second
Supplemental Indenture dated March 16, 2000, and a Third Supplemental Indenture dated
May 17, 2000.
NTL CC Subordinated a Claim of an NTL CC Subordinated Notes Holder arising under or as a result of the
Notes Claim NTL CC Subordinated Notes.
NTL CC Subordinated a holder of NTL CC Subordinated Notes.
Notes Holder
NTL Delaware NTL (Delaware), Inc., a Delaware corporation.
NTL Delaware collectively, the (a) 5 3/4% Convertible Subordinated Notes due 2009, issued by NTL
Subordinated Notes Delaware (and a subordinated co-obligation of NTL Inc.) under an indenture dated
December 22, 1999, as amended by a First Supplemental Indenture dated May 17, 2000, (b)
5 3/4% Convertible Subordinated Notes due 2011, co-issued on a subordinated basis by
NTL Delaware and NTL Inc. under an indenture dated June 22, 2001, as amended by a First
Supplemental Indenture dated July 27, 2001, and (c) 7% Convertible Subordinated Notes
due 2008, issued by NTL CC (and a subordinated co- obligation of NTL Delaware and NTL
Inc.) under an indenture dated December 16, 1998, as amended by a First Supplemental
Indenture dated March 31, 1999, a Second Supplemental Indenture dated March 16, 2000,
and a Third Supplemental Indenture dated May 17, 2000.
NTL Delaware a Claim of an NTL Delaware Subordinated Notes Holder arising under or as a result of the
Subordinated Notes Claim NTL Delaware Subordinated Notes.
NTL Delaware a holder of NTL Delaware Subordinated Notes.
Subordinated Notes
Holder
NTL Inc. NTL Incorporated, a Delaware corporation.
NTL Inc. Subordinated collectively, the (a) 5 3/4% Convertible Subordinated Notes due 2009, issued by NTL
Notes Delaware (and a subordinated co-obligation of NTL Inc.) under an indenture dated
December 22, 1999, as amended by a First Supplemental Indenture dated May 17, 2000, (b)
5 3/4% Convertible Subordinated Notes due 2011, co-issued on a subordinated basis by
NTL Delaware and NTL Inc. under an indenture dated June 22, 2001, as amended by a First
Supplemental Indenture dated July 27, 2001, (c) 7% Convertible Subordinated Notes due
2008, issued by NTL CC (and a subordinated co- obligation of NTL Delaware and NTL Inc.)
under an indenture dated December 16, 1998, as amended by a First Supplemental
Indenture dated March 31, 1999, a Second Supplemental Indenture dated March 16, 2000,
and a Third Supplemental Indenture dated May 17, 2000, and (d) 6 3/4% Convertible
Senior Notes due 2008, issued by NTL CC (and a subordinated co-obligation of NTL Inc.)
under an indenture dated May 15, 2001.
NTL Inc. Subordinated a Claim of an NTL Inc. Subordinated Notes Holder arising under or as a result of the
Notes Claim NTL Inc. Subordinated Notes.
NTL Inc. Subordinated a holder of NTL Inc. Subordinated Notes.
Notes Holder
NTL UK Group those subsidiaries of NTL (UK) Group, Inc. that are subject to the restrictions imposed
by the UK Credit Facilities which for the avoidance of doubt exclude Diamond Cable and
Triangle and their respective subsidiaries.
NYSE New York Stock Exchange, Inc.
Offerings collectively, the Equity Rights Offering and the Noteholder Election Option.
Old Common Stock NTL Inc.'s common stock, par value $0.01 per share, issued and outstanding immediately
before the Petition Date, or at any time prior to the Effective Date, including the
associated rights under NTL Inc.'s shareholder rights plan extant on the Petition Date,
quoted on the Over The Counter Bulletin Board system under the symbol "NTLD".
Old Common Stock an Interest of a holder of Old Common Stock evidenced by Old Common Stock arising under
Interest or as a result of the Old Common Stock.
Old Junior Preferred collectively, the Noos Junior Preferred Stock and Other Junior Preferred Stock.
Stock
Old Junior Preferred an Interest of a holder of Old Junior Preferred Stock evidenced by Old Junior
Stock Interest Preferred Stock arising under or as a result of the Old Junior Preferred Stock.
Old Options collectively, all issued, outstanding, and unexpired options to purchase (i) Old Common
Stock outstanding as of the Petition Date, and any and all "puts" or similar rights or
claims in any manner relating to such options, including but not limited to, the
options issued to Bruno Claude pursuant to Section 3(c) of his employment agreement
made as of October 16, 2000 or (ii) common stock of NTL CC or NTL Delaware.
Old Preferred Stock collectively, the Old Senior Preferred Stock and Old Junior Preferred Stock.
Old Senior Preferred collectively, the 13% Senior Redeemable Exchangeable Preferred Stock and 13%
Stock Series B Senior Redeemable Exchangeable Preferred Stock.
Old Senior Preferred an Interest of a holder of Old Senior Preferred Stock evidenced by Old Senior
Stock Interest Preferred Stock arising under or as a result of the Old Senior Preferred Stock.
Old Shareholder the Rights Agreement, dated October 13, 1993, as amended, between NTL Inc. and
Rights Plan Continental Stock Transfer & Trust Company.
Old Warrants all issued, outstanding, and unexpired warrants to purchase Old Common Stock
outstanding as of the Petition Date.
1G Franchises the five CATV franchises sold by France Telecom to NTL Inc. pursuant to the 1G Protocol
and Convention Agreement, dated May 6, 1999.
Other Junior Preferred collectively, the (a) 5% Cumulative Participating Convertible Preferred Stock, Series
Stock A (and dividend shares, Series C through Series K), (b) 5% Cumulative Participating
Convertible Preferred Stock, Series B (and dividend shares, Series B-1 through Series
B-6), and (c) Cumulative Convertible Preferred Stock.
Other Junior Preferred an Interest of a holder of Other Junior Preferred Stock evidenced by Other Junior
Stock Interests Preferred Stock arising under or as a result of the Other Junior Preferred Stock.
Other Old Equity Interests all Interests and any and all rights and Claims, including but not limited to, Claims
And Claims of the type described in, and subject to subordination under, section 510(b) of the
Bankruptcy Code, of a holder of Old Warrants or Old Options, arising under, as a result
of, or relating to the Old Warrants or Old Options, as the case may be, and any other
Interest or Claim relating to Old Common Stock, including, without limitation,
conversion rights, principal or other legal or contractual rights to acquire Old Common
Stock.
Other Priority Claim a Claim entitled to priority under section 507(a) of the Bankruptcy Code other than a
Priority Tax Claim or an Administrative Claim.
Other Secured Claims all Secured Claims against the Debtors, or any of them, other than the Secured Claims
included in Classes 2.01 and 2.02 of the Plan.
Ownership Change a more-than-50-percentage-point change in ownership during the shorter of (i) the
three-year period ending on the Measurement Date or (ii) the period beginning on the
day after the corporation's most recent previous Ownership Change and ending on the
Measurement Date.
Person an individual, corporation, partnership, joint venture, association, joint stock
company, limited liability company, limited liability partnership, trust, trustee,
United States Trustee, estate, unincorporated organization, government, governmental
unit (as defined in the Bankruptcy Code), agency, or political subdivision thereof, or
other entity.
Petition Date May 8, 2002, the date on which the Debtors filed their petitions for reorganization
relief commencing the Chapter 11 Cases.
Plan the Debtors' second amended joint plan of reorganization under Chapter 11, dated July
15, 2002, together with all exhibits thereto, as it may be further amended, modified,
or supplemented from time to time in accordance with section 1127 of the Bankruptcy
Code, including any Plan Supplements.
Plan Supplement the compilation of documents or forms of documents specified in the Plan (approved in
all respects by the Creditors' Committee) including any Exhibits to the Plan not
included therewith, that the Debtors will file with the Bankruptcy Court on or before
the date that is fourteen days prior to the Confirmation Hearing.
Preferred Shareholders collectively, (i) France Telecom, the holder of a significant amount of the Old Junior
Preferred Stock, and (ii) Appaloosa Management, L.P., the holder of a significant
amount of the Old Senior Preferred Stock.
Priority Tax Claim a Claim that is entitled to priority under section 507(a)(8) of the Bankruptcy Code.
Pro Rata at any time, the proportion that the Face Amount of an Allowed Claim or
Allowed Interest in a particular Class bears to the aggregate Face Amount of all Claims
or Interests (including Disputed Claims or Disputed Interests, but excluding Disallowed
Claims or Disallowed Interests) in that Class, unless the Plan provides otherwise.
Professional any professional, other than a professional employed or retained by the Noteholders'
Steering Committee solely in such capacity prior to being employed by the Creditors'
Committee nunc pro tunc to June 24, 2002, (a) employed in the Chapter 11 Cases under
sections 327, 328, 329, or 1103 of the Bankruptcy Code or (b) seeking compensation or
reimbursement of expenses in connection with the Chapter 11 Cases under section
503(b)(4) or 1129(a)(4) of the Bankruptcy Code.
Professional Fee Claim a Claim of a Professional, other than a professional employed or retained by the
Noteholders' Steering Committee solely in such capacity prior to being employed by the
Creditors' Committee nunc pro tunc to June 24, 2002, for compensation for services
rendered, and/or reimbursement of costs and expenses incurred, after the Petition Date
and prior to and including the Confirmation Date.
PTV Swap Agreement the ISDA Master Agreement, dated as of March 26, 2001, by and between J.P.
Morgan Chase and NTL Inc., as amended, modified, or supplemented.
PTV Swap Agreement the(pound)23,000,000 pledged by NTL Inc. to J.P. Morgan Chase pursuant to the Credit
Collateral Support Annex to the PTV Swap Agreement, dated as of January 30, 2002, to secure
NTL Inc.'s obligations under the PTV Swap Agreement.
Registration Rights individually and collectively, the New NTL Registration Rights Agreement and the
Agreement(s) Euroco Registration Rights Agreement.
Reinstated or (i) leaving unaltered the legal, equitable, and contractual rights to which a Claim
Reinstatement entitles the holder of such Claim so as to leave such Claim unimpaired in accordance
with section 1124 of the Bankruptcy Code or (ii) notwithstanding any contractual
provision or applicable law that entitles the holder of such Claim to demand or receive
accelerated payment of such Claim after the occurrence of a default (a) curing any such
default that occurred before, on, or after the Petition Date, other than a default of a
kind specified in section 365(b)(2) of the Bankruptcy Code, (b) reinstating the
maturity of such Claim as such maturity existed before such default, (c) compensating
the holder of such Claim for any damages incurred as a result of any reasonable
reliance by such holder on such contractual provision or such applicable law, and (d)
not otherwise altering the legal, equitable, or contractual rights to which such Claim
entitles the holder of such Claim.
Reorganized... the identified entity on and after the Effective Date.
Reorganized Debtor(s) collectively, the Debtors, on and after the Effective Date.
Restructuring a restructuring of the Debtors' capital structure.
Restructuring Expenses the aggregate expenses incurred by NTL and its subsidiaries in connection with the
Restructuring, as more fully described in this Disclosure Statement.
Rights collectively, the Equity Rights and the Noteholder Election Option.
Section 351 Section 351 of the IRC.
Section 382 Section 382 of the IRC.
Secured Claim a Claim, other than a Setoff Claim, that is secured by a Lien that is valid, perfected
and enforceable, and not avoidable, on property in which a Debtor has an interest, or
the proceeds of the sale of such property, to the extent of the value, as of the Effective
Date, of such interest or Lien as determined by a Final Order of the Bankruptcy Court
under section 506 of the Bankruptcy Code or as otherwise agreed upon in writing by
a Debtor or Reorganized Debtor and the holder of such Claim.
Secured Lenders the lenders under the Credit Facilities.
Securities Act the Securities Act of 1933, as amended from time to time and any successor statutes.
Securities Actions collectively, the actions captioned (a) James Haber v. NTL Inc., et al., Civil Action
No. 02-CV-3013, (b) Mike Atassi v. NTL Inc., et al., Civil Action No. 02-CV-3297,
(c) Harry Pariser v. NTL Inc., et al., Civil Action No. 02-CV-3415, and (d) Addy
Krebs v. NTL Inc., et al., Civil Action No. 02-CV-3485, each pending in the United
States District Court for the Southern District of New York.
Securities Claim a Claim of the type described in, and subject to subordination under, section 510(b) of
the Bankruptcy Code, including any Claim arising from the rescission of a purchase or
sale of an Existing Security of a Debtor, for damages arising from the purchase or sale
of such an Existing Security, or for reimbursement, contribution or indemnification
allowed under section 502 of the Bankruptcy Code on account of such Claim, including,
but not limited to, a Claim with respect to any action pending against any Debtor
and/or its current or former officers and directors in which Securities Claims are
asserted, including the Securities Actions.
Securities Claim Bar Date July 24, 2002, the date that was designated by the Bankruptcy Court as the last date
for filing proofs of Securities Claims against the Debtors.
Senior Banks the lending banks under the Senior Credit Facility.
Senior Credit Facility the credit agreement, dated May 30, 2000, by and among NTL Communications Limited, as
parent, NTL Investment Holdings Limited, as post-novation borrower, the guarantors
named therein, NTL CC, J.P. Morgan plc (formerly known as Chase Manhattan plc) and
Morgan Stanley Dean Witter Bank Limited, as arrangers, J.P. Morgan Europe Limited
(formerly known as Chase Manhattan International Limited), as agent and security
trustee, and the other parties thereto, as may be further amended and/or restated from
time to time.
Senior Notes collectively, Diamond Holdings Notes, Diamond Cable Notes, NTL CC Convertible Senior
Notes, and NTL CC Senior Notes.
Senior Notes Claim a Claim of a Senior Notes Holder arising under or as a result of the Senior Notes.
Senior Notes Holder a holder of Senior Notes.
Series A Warrant Agent Continental Stock Transfer & Trust Company, in its capacity as warrant agent under
the Series A Warrant Agreement.
Series A Warrant the warrant agreement, substantially in the form of Exhibit E annexed to the Plan,
Agreement between New NTL and Continental Stock Transfer & Trust Company, as Series A Warrant Agent.
Series A Warrants the warrants to purchase shares of New NTL Common Stock authorized under Article
IV.C.2.a.i of the Plan and the Amended Certificate of Incorporation of NTL CC described
in this Disclosure Statement, to be issued by New NTL under the Plan as of the
Effective Date in accordance with the Series A Warrant Agreement.
Setoff Claim a Claim of a holder that has a valid right of setoff with respect to such Claim, which
right is enforceable under section 553 of the Bankruptcy Code as determined by a Final
Order or as otherwise agreed upon in writing by any Debtor, to the extent of the amount
subject to such right of setoff.
Share Account Pledge the Share Account Pledge Agreement, dated May 18, 2001, by and between NTL Inc.
Agreement and France Telecom, pursuant to which NTL Inc. pledged the Noos Interest to France
Telecom.
6.5% Fixed Coupon the shares of 6.5% Fixed Coupon Redeemable Preferred Stock, Series A, of NTL Inc.
Redeemable Preferred outstanding immediately prior to the Petition Date.
Stock
6.5% Fixed Coupon an Interest of a holder of 6.5% Fixed Coupon Redeemable Preferred Stock arising
Redeemable Preferred under or as a result of the 6.5% Fixed Coupon Redeemable Preferred Stock.
Stock Interest
Solicitation Agent Innisfree M&A Incorporated, in its capacity as information, balloting, and noticing
agent for the Debtors.
Solicitation Package a copy of this Disclosure Statement (including all Exhibits) and related materials, and
where appropriate, Ballots.
Solicitation Procedures the order of the Bankruptcy Court approving the Debtors' proposed procedures to
Order govern their solicitation of votes on the Plan.
Statement a statement of financial affairs required to be prepared and filed by the Debtors under
section 521 of the Bankruptcy Code and Fed. R. Bankr. P. 1007, unless otherwise
ordered by the Bankruptcy Court.
Stockholders collectively, the holders of Old Common Stock, Other Junior Preferred Stock, and Old
Senior Preferred Stock.
Subordinated Notes collectively, the NTL CC Subordinated Notes , NTL Delaware Subordinated Notes,
and NTL Inc. Subordinated Notes.
Subordinated Notes Claim a Claim of a Subordinated Note Holder arising under or as a result of the Subordinated
Notes.
Subordinated Notes a holder of Subordinated Notes.
Holder
Subsidiary Common Stock collectively, the issued and outstanding common stock of each of the Debtor
Interests Subsidiaries.
13% Senior Redeemable the shares of 13% senior redeemable exchangeable preferred stock of NTL Inc.
Exchangeable Preferred outstanding as of the Petition Date.
Stock
13% Series B Senior the shares of 13% senior redeemable exchangeable preferred stock, Series B, of NTL
Redeemable Inc. outstanding as of the Petition Date.
Exchangeable Preferred
Stock
Triangle NTL (Triangle) LLC, a Delaware limited liability company.
Triangle Notes the 11.2% Senior Discount Debentures issued by Triangle under an indenture dated
November 15, 1995, as amended by a First Supplemental Indenture dated November 28,
1998.
UBS Warburg UBS Warburg LLC.
UK United Kingdom of Great Britain and Northern Ireland.
UK Bank Steering the steering committee of the Senior Banks and the Working Capital Banks.
Committee
UK Credit Facilities collectively, the Senior Credit Facility and the Working Capital Facility.
Unimpaired Claim a Claim that is not Impaired under the Plan.
United States Noteholder a holder of Debt Securities that is: (i) a citizen or individual resident of the United
States, (ii) a corporation created or organized in or under the laws of the United
States or any political subdivision thereof, (iii) an estate whose income is includible
in gross income for United States federal income tax purposes regardless of source, or
(iv) a trust if (1) a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States persons
have the authority to control all substantial decisions of the trust, or (2) the trust
was in existence on August 20, 1996 and properly elected to continue to be treated as a
United States person.
United States Stockholder a holder of Equity Securities that is: (i) a citizen or individual resident of the
United States, (ii) a corporation created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate whose income is
includible in gross income for United States federal income tax purposes regardless of
source, or (iv) a trust if (1) a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust, or (2)
the trust was in existence on August 20, 1996 and properly elected to continue to be
treated as a United States person.
Unsecured Claim a Claim against any Debtor, other than an Administrative Claim or a Secured Claim.
Variable Coupon the shares of variable coupon redeemable preferred stock, Series A, of NTL Inc.
Redeemable Preferred outstanding immediately prior to the Petition Date.
Stock
Variable Coupon an Interest of a holder of Variable Coupon Redeemable Preferred Stock arising under
Redeemable Preferred or as a result of the Variable Coupon Redeemable Preferred Stock.
Stock Interest
Voting Deadline the date and time, as fixed by an order of the Bankruptcy Court and set forth in this
Disclosure Statement, by which all Ballots to accept or reject the Plan must be
received by the Solicitation Agent.
Voting Record Date the record date for voting to accept or reject the Plan, as fixed by an
order of the Bankruptcy Court, which shall be one (1) Business Day after the Petition
Date.
Working Capital Banks the lending banks under the Working Capital Facility.
Working Capital Facility the credit agreement, dated May 30, 2000, by and among NTL CC, as
parent, NTL (UK) Group, Inc., as intermediate parent, NTL Communications Limited, as
borrower, and J.P. Morgan plc (formerly known as Chase Manhattan plc) and Morgan
Stanley Dean Witter Bank Limited, as arrangers and joint book managers, J.P. Morgan
Europe Limited (formerly known as Chase Manhattan International Limited), as agent and
security trustee, and the other parties thereto, as may be further amended and/or
restated from time to time.
Working Capital Facility the guaranty by NTL CC of the obligations of NTL Communications Limited as
Guaranty borrower under the Working Capital Facility.
Working Capital Facility means the collateral securing the Working Capital Facility Guaranty.
Guaranty Collateral
EXECUTIVE SUMMARY
NTL Inc. and its Debtor Subsidiaries filed petitions for relief under
Chapter 11 of the Bankruptcy Code on May 8, 2002. On July 15, 2002, the
Debtors also filed the Plan, which amends and supercedes the "Amended Joint
Reorganization Plan Of NTL Incorporated And Certain Subsidiaries," dated
May 24, 2002, and which sets forth the manner in which Claims against and
Interests in the Debtors will be treated following the Debtors' emergence
from Chapter 11. This Disclosure Statement describes certain aspects of the
Plan, the Debtors' current and future business operations, including, but
not limited to, the proposed reorganization of the Debtors and their
Non-Debtor Subsidiaries into New NTL and Euroco upon consummation of the
Plan, significant events occurring in their Chapter 11 Cases and Diamond
Administration Cases, as the case may be, and related matters. This
Executive Summary is intended solely as a summary of the distribution
provisions of the Plan and certain matters related to the Debtors'
businesses. FOR A COMPLETE UNDERSTANDING OF THE PLAN, YOU SHOULD READ THIS
DISCLOSURE STATEMENT, THE PLAN, AND THE EXHIBITS THERETO IN THEIR ENTIRETY.
Capitalized terms used in this Executive Summary and not otherwise defined
herein have the meanings ascribed to them in this Disclosure Statement, the
Plan, or the Bankruptcy Code, as the case may be. Unless otherwise noted
herein, all dollar amounts described in this Disclosure Statement and set
forth in the Plan are denominated in United States currency. All references
to Li. or to Pounds are to amounts denominated in British Pounds Sterling.
All references to (U) are to amounts denominated in Euros. All information
contained in this Disclosure Statement relating to or referencing B2 and/or
iesy and their respective subsidiaries and controlled affiliates has been
provided to NTL by or on behalf of such entity or has been taken from their
respective public filings.
Summary Of The Plan
The Plan is predicated on, among other things, agreement to the terms
of the Debtors' restructuring between and among the Senior Notes Holders
(Classes 6 and 7), the Subordinated Notes Holders (Classes 8, 9, and 10),
and Junior Stakeholders (Classes 12, 13, and 14). The Senior Notes Holders,
along with the Secured Lenders who will remain unimpaired under the Plan,
are entitled under the Bankruptcy Code to a distribution of 100% of the
Debtors' and Reorganized Debtors' enterprise value, other than the
Delaware/Inc. Cash Amount and certain assets owned by NTL Inc. and NTL
Delaware, respectively, which, subject to the discussion below, will be
distributed in part to the Subordinated Notes Holders under the Plan.
Absent the willingness of the Senior Notes Holders in Classes 6 and 7 to
provide the additional value described in Article III.C of the Plan to the
Subordinated Notes Holders in Classes 8, 9, and 10, the Subordinated Notes
Holders would not be entitled to, and would not, receive any distribution
from the Debtors under the Plan on account of their Claims against the
Debtors other than the cash and assets described above. Similarly, absent
the willingness of the Senior Notes Holders in Classes 6 and 7 and the
Subordinated Notes Holders in Classes 8, 9, and 10 to provide the value
described in Article III.D of the Plan to the Junior Stakeholders, the
Junior Stakeholders would not be entitled to, and would not, receive any
distribution from the Debtors under the Plan on account of their Interests
in the Debtors. Nevertheless, to facilitate and avoid delay in consummation
of the Plan and the Debtors' restructuring, among other things, holders of
more than 50% of the aggregate principal amount at maturity of the Senior
Notes have agreed to provide to the Subordinated Notes Holders, and holders
of more than 50% of the aggregate principal amount at maturity of the
Senior Notes and Subordinated Notes together have agreed to provide to the
Junior Stakeholders, in exchange for their acceptance of the Plan and
assent to the transactions contemplated thereby, a portion of the Debtors'
and Reorganized Debtors' enterprise value that the Senior Notes Holders and
Subordinated Notes Holders otherwise would be entitled to receive. For
further details with respect to treatment of Subordinated Notes holders
under the Plan, see "Summary Of The Plan - Certain Matters Regarding
Classification And Treatment Of Claims And Interests - Impaired Classes Of
Claims And Interests." For further details with respect to treatment of
Junior Stakeholders under the Plan, see "Summary Of The Plan - Certain
Matters Regarding Classification And Treatment Of Claims And Interests -
Impaired Classes Of Interests."
Under the Plan, Claims against and Interests in the Debtors are
divided into Classes. Certain unclassified Claims, including Administrative
Claims and Priority Tax Claims, will receive payment in Cash either on the
Effective Date, the Distribution Date, as such Claims are liquidated, or in
installments over time, as permitted by the Bankruptcy Code, or as agreed
upon with the holders of such Claims. All other Claims and all Interests
are classified into 16 Classes and will receive the distributions and
recoveries (if any) described in the table below.
The table below summarizes the classification and treatment of
prepetition Claims and Interests under the Plan. The classification and
treatment for all Classes are described in more detail under the section of
this Disclosure Statement entitled "Summary Of The Plan -- Certain Matters
Regarding Classification And Treatment Of Claims And Interests." Estimated
Claim amounts are based upon the Debtors' books and records as of May 8,
2002. There can be no assurance that the estimated amounts below are
correct, and actual Claim amounts may vary significantly from the
estimates. This summary is qualified in its entirety by reference to the
provisions of the Plan, a copy of which is annexed hereto as Exhibit A.
THE DEBTORS STRONGLY URGE ACCEPTANCE OF THE PLAN. THE DEBTORS HAVE
NEGOTIATED THE TERMS OF THE PLAN WITH (i) THE NOTEHOLDERS' STEERING
COMMITTEE, (ii) FRANCE TELECOM, THE HOLDER OF A SIGNIFICANT AMOUNT OF OLD
COMMON STOCK AND OLD JUNIOR PREFERRED STOCK, AND (iii) A SIGNIFICANT HOLDER
OF THE OLD SENIOR PREFERRED STOCK. THE DEBTORS, THE CREDITORS' COMMITTEE,
AND THE PREFERRED SHAREHOLDERS STRONGLY RECOMMEND THAT ALL CREDITORS AND
INTEREST HOLDERS VOTE TO ACCEPT THE PLAN.
SUMMARY TREATMENT OF CLAIMS AND INTERESTS UNDER
SECOND AMENDED JOINT PLAN OF REORGANIZATION OF NTL
INCORPORATED AND CERTAIN SUBSIDIARIES**
Summary Of Anticipated Distributions Under The Plan (By Class)
Class Description Treatment Under The Plan
Administrative Claims Unclassified - Except as otherwise
Estimated Amount: provided for in the Plan, and subject to
$2,000,000, plus DIP Facility the requirements of Article XV.A.2 of
Claims the Plan, each holder of an Allowed
Administrative Claim will receive in
full satisfaction, settlement, release,
and discharge of and in exchange for
such Allowed Administrative Claim, Cash
equal to the unpaid portion of such
Allowed Administrative Claim; provided,
however, that (i) DIP Facility Claims
against any Debtor will be paid in full
in Cash on the Effective Date and (ii)
obligations incurred in the ordinary
course of business, consistent with past
practice, or assumed by the Debtors
shall be paid in full or
- --------
** Assumptions for Recovery Estimates-If Plan is Accepted
(1) New NTL Common Stock value is based on the midpoint of the
estimated total enterprise value range of New NTL (described in
"Feasibility Of The Plan And The Best Interests Of Creditors Test -
Valuation Of The Reorganized Debtors"), less projected pro forma net
debt as of September 1, 2002 of approximately $5.8 billion.
(2) Euroco Common Stock and Euroco Preferred Stock values are based on
the midpoint of the estimated total enterprise value range of Euroco
(described in "Feasibility Of The Plan And The Best Interests Of
Creditors Test - Valuation Of The Reorganized Debtors").
(3) Projected number of shares of Euroco Preferred Stock estimated to
be 375,000, with a $1,000 liquidation value per share.
(4) The Offerings are assumed to be fully subscribed.
(5) Delaware/Inc. Cash Amount is estimated to be approximately $320
million on the Effective Date, based on NTL's projections.
(6) Series A Warrant values estimated using the Black Scholes Option
Pricing Model based on the mid-point of the estimated New NTL total
enterprise value range (described in "Feasibility Of The Plan And The
Best Interests Of Creditors Test - Valuation Of The Reorganized
Debtors"), stock price volatility of 35%, a risk free rate of 4.8%,
and an eight year maturity.
(7) Series A Warrants assumed to not affect the value of New NTL
Common Stock.
(8) The Debtors believe that their categorization and classification
of the "surrender rights" contained in the employment contract of Mr.
Bruno Claude, an executive officer of NTL Inc., as Class 16 Other Old
Equity Interests And Claims is both legally and factually appropriate.
Mr. Claude has informed the Debtors, however, that he disagrees with
such categorization and classification and contends that his right to
a cash payment in the future, once matured and exercised, renders him
an unsecured creditor of NTL Inc. with a claim of at least $9,000,000.
For additional information, see "General Information - Outstanding
Securities - Old Options."
Assumptions for Recovery Estimates-If Plan is Not Accepted
(1) It is assumed that the estimated recoveries which would be
received by Classes 9 and 10 if the Plan were not accepted are
comprised by three components: (1) cash, (2) the value of the assets
which under the Plan would comprise Euroco, and (3) the present value
of the Noos Note. No value has been assumed for NTL Inc.'s interest in
Noos, which would be retained by Class 10 if the Plan were not
accepted. Finally, it is assumed that the total Claims in Classes 9
and 10 would be higher if the Plan were not accepted than if it were
accepted because under the Plan certain inter-company Claims and
France Telecom's portion of Class 9 Claims are forgiven.
(2) The cash component of the estimated recoveries is estimated in two
parts totaling an estimated $355 million. The first portion, which
totals an estimated $320 million, is the cash which would be
distributed under the Plan. It is assumed that this cash is allocated
to Classes 9 and 10 in the same proportions as under the Plan or 79.1%
to Class 9 and 20.9% to Class 10. The second portion, which totals an
estimated $35 million, is the cash which would be retained at Euroco
under the Plan, less the $25 million which would have been received
under the Plan from France Telecom. It is assumed that this cash is
allocated to Class 9 and Class 10.
(3) If the Plan is not accepted, it is assumed that the assets which
under the Plan would have comprised Euroco have the same value as that
ascribed to Euroco under the Plan. Based on the mid-point of the
valuation range for Euroco under the Plan, it is assumed the value of
those assets to be an estimated $390 million. It is assumed that this
value is attributable to Class 9.
(4) It is assumed the present value of the Noos Note is an estimated
$32 million. It is assumed that this value is attributable to Class
10.
(5) If the Plan is not accepted, it is assumed that Class 9 Claims
total an estimated $1,867 million, which is $270 million higher than
under the Plan. The Claims amount is assumed to be higher because (a)
France Telecom's $237 million Class 9 Claim and (b) the $33 million
inter-company obligation owed by NTL Delaware to NTL Inc. are not
forgiven if the Plan is not accepted.
(6) If the Plan is not accepted, it is assumed that Class 10 Claims
total an estimated $3,171 million, which is $387 million higher than
under the Plan. The Claims amount is assumed to be higher because (a)
France Telecom's $237 million Class 10 Claim and (b) the $150 million
inter-company obligation owed by NTL Inc. to NTL CC are not forgiven
if the Plan is not accepted.
performed by the Debtors or
ReorganizedUDebtorseinlthe ordinary
course of business, consistent with past
practice; provided further, however,
that Allowed Administrative Claims
incurred by the Debtors or Reorganized
Debtors after the Confirmation Date,
including, without limitation,
Professional Fee Claims, will not be
subject to application and may be paid
by the Debtors or Reorganized Debtors,
as the case may be, in the ordinary
course of business and without further
Bankruptcy Court approval.
Estimated Recovery: 100%
Priority Tax Claims Unclassified - Each holder of an Allowed
Estimated Amount: $0.00 Priority Tax Claim will receive, in the
sole discretion of the Debtors, and in
full satisfaction, settlement, release,
and discharge of and in exchange for
such Allowed Priority Tax Claim (a) Cash
equal to the unpaid portion of such
Allowed Priority Tax Claim, (b) Cash
payments made in annual installments
beginning on or before the first
anniversary following the Effective
Date, with the final installment being
payable no later than the sixth (6th)
anniversary of the date of the
assessment of such Allowed Priority Tax
Claim, together with interest on the
unpaid portion thereof at the Case
Interest Rate from the Effective Date
through the date of payment thereof, or
(c) such other treatment as to which the
applicable Debtor and such holder have
agreed on in writing; provided, however,
that the Debtors reserve the right to
pay any Allowed Priority Tax Claim, or
any remaining balance of any Allowed
Priority Tax Claim, in full at any time
on or after the Distribution Date
without premium or penalty; and provided
further, that no holder of an Allowed
Priority Tax Claim will be entitled to
any payments on account of any
pre-Effective Date interest accrued on
or penalty arising after the Petition
Date with respect to or in connection
with such Allowed Priority Tax Claim.
Estimated Recovery: 100%
Class 1: Other Priority Unimpaired - On, or as soon as reasonably
Claims practicable after, the later of (i) the
Estimated Amount: $0.00 Distribution Date and (ii) the date on
which such Other Priority Claim becomes
an Allowed Other Priority Claim, each
holder of an Allowed Other Priority
Claim will receive, in full
satisfaction, settlement, release, and
discharge of and in exchange for such
Allowed Class 1 Other Priority Claim,
(a) Cash in an amount equal to the
unpaid portion of such Allowed Other
Priority Claim or (b) such other
treatment as to the applicable Debtor
and such holder have agreed upon in
writing; provided, however, that Allowed
Other Priority Claims with respect to
liabilities incurred by a Debtor in the
ordinary course of business during the
Chapter 11 Cases will be paid in the
ordinary course of business in
accordance with the terms and conditions
of any agreements relating thereto.
Estimated Recovery: 100%
Class 2: Secured Claims Unimpaired - Each holder of a Class 2
Estimated Amount: Secured Claim will be treated as a separate
$632,493,000 class for all purposes under the Plan,
and each holder of an Allowed Class 2
Secured Claim will receive the treatment
set forth below. To the extent, if any,
that the value of the collateral
securing a Class 2 Secured Claim is less
than the total amount of such Claim, the
difference will be treated as a Class 3
General Unsecured Claim. The legal,
equitable, and contractual rights to
which each of Allowed Class 2 Secured
Claims entitles its holders are
unaltered by the Plan and all such
Allowed Class 2 SecuredaClaimsUwill
beeReinstated on the Effective Date.
Estimated Recovery: 100%
Class 3: General Unsecured Unimpaired - The legal, equitable, and
Claims contractual rights to which each of Allowed
Estimated Amount: Class 3 General Unsecured Claims entitles
$5,000,000 its holders are unaltered by the Plan
and all such Allowed Class 3 General
Unsecured Claims will be Reinstated on
the Effective Date. Allowed Class 3
General Unsecured Claims incurred in the
ordinary course of business will be paid
in full or performed by the Debtors or
the Reorganized Debtors in the ordinary
course of business, consistent with past
practice.
Estimated Recovery: 100%
Class 4: Diamond Holdings Unimpaired - The legal, equitable, and
Notes Claims contractual rights to which each of Allowed
Estimated Amount: Class 4 Diamond Holdings Notes Claims
$316,155,080 entitles its holders are unaltered by the
Plan and all such Allowed Class 4 Diamond
Holdings Notes Claims will be Reinstated on
the Effective Date.
Estimated Recovery: 100%
Class 5: Subsidiary Common Impaired - NTL Delaware (which is deemed to
Stock Interests have accepted the Plan), the holder of
100% of the shares of capital stock of
NTL CC, has agreed that its Subsidiary
Common Stock Interests in NTL CC will be
exchanged with New NTL on the Effective
Date for those portions of the NTL
Delaware Subordinated Notes, NTL Inc.
Subordinated Notes, Old Common Stock,
Old Senior Preferred Stock, and Other
Junior Preferred Stock, and the
respective Claims or Interests
associated therewith contributed to New
NTL by the holders of such notes and
stock pursuant to the Plan, and NTL
Delaware will not be entitled to, and
will not, receive or retain any other
property or interest in property on
account of such Interests; provided,
however, that such exchange will not
occur until after the issuance by New
NTL and Euroco of all of the New
Securities. All other Allowed Class 5
Subsidiary Common Stock Interests will,
at the discretion of NTL Inc., (a)
receive treatment that leaves unaltered
the legal, equitable, and contractual
rights to which such Interest entitles
the holder thereof, (b) be Reinstated,
or (c) receive such other treatment as
NTL Inc. and such holder have agreed
upon in writing.
Estimated Recovery: NTL Delaware - 0%
All Others - 100%
Class 6: Diamond Cable Impaired - Each holder of an Allowed Class
Notes Claims 6 Diamond Cable Notes Claim will receive,
Estimated Amount: in full satisfaction, settlement, release,
$1,275,793,104 and discharge of and in exchange for
such Allowed Class 6 Diamond Cable Notes
Claim, its Pro Rata share of 27,271,736
shares of New NTL Common Stock.
Notwithstanding anything to the contrary
contained in the Plan, (a) on the
Effective Date the Diamond Cable Notes,
all rights and interests related to or
arising from any and all Class 6 Diamond
Cable Notes Claims and all rights and
interests of the relevant Indenture
Trustees relating to the Diamond Cable
Notes Indentures will be delivered,
assigned, conveyed, and transferred by
such Persons to New NTL, which will be
the holder of the Diamond Cable Notes
and all such rights and interests from
and after the Effective Date, (b) on the
Effective Date and without prejudice to
the generality of clause (a) above, each
holder of a Class 6 DiamondaCable Notes
Claimlwho holds any definitive
registered security or securities in
respect of its Diamond Cable Notes will
transfer such security or securities to
New NTL, and (c) in each case, if Class
6 votes as a Class to accept the Plan,
then on and after the Effective Date,
each Person who was a holder of a Class
6 Diamond Cable Notes Claim immediately
prior to the transfers described in
clauses (a) and (b) above and, whether
or not such Person has (i) voted on the
Plan or (ii) voted to reject the Plan,
will insofar as it relates to such
holder, (x) do and sign all such acts,
things, and documents as may be
reasonably necessary or desirable to
effect and complete such transfers and
(y) be deemed to have appointed New NTL
as its agent to undertake such
additional actions as may be necessary
to effectuate such transfers; provided,
however, that notwithstanding the
foregoing clauses (a) through (c), the
right to receive the distributions
contemplated by Article III.C.2 of the
Plan will not be transferred to New NTL
and will remain the property of the
holders of Class 6 Diamond Cable Notes
Claims immediately prior to such
transfers.
Estimated Recovery: 63%
Class 7: NTL CC Impaired - Each holder of an Allowed Class
Senior Notes Claims 7 NTL CC Senior Notes Claim will receive,
Estimated Amount: in full satisfaction, settlement, release,
$7,755,752,661 and discharge of and in exchange for
such Allowed Class 7 NTL CC Senior Notes
Claim, its Pro Rata share of (i)
165,504,192 shares of New NTL Common
Stock, (ii) 3,790 shares of Euroco
Preferred Stock, (iii) 0.725% of the
Delaware Cash Amount, (iv) 5.012% of the
NTL Cash Amount, and (v) the Class 7
Euroco Value.
Estimated Recovery: 63%
Class 8: NTL CC Impaired - Each holder of an Allowed Class 8
Subordinated Notes Claims NTL CC Subordinated Notes Claim will receive,
Estimated Amount: in full satisfaction, settlement, release
$503,399,633 and discharge of and in exchange for
such Allowed Class 8 NTL CC Subordinated
Notes Claim, its Pro Rate share of
(i) 3,292,516 shares of New NTL Common
Stock, (ii) 6,615 shares of Euroco
Common Stock, (iii) 76 shares of Euroco
Preferred Stock, (iv) 0.014% of the
Delaware Cash Amount, (v) 0.100% of the
NTL Cash Amount, and (vi) the Class 8
Noteholder Election Option.
Estimated Recovery: If Class 8 Accepts Plan
- 19%
If Class 8 Rejects Plan
- 0%
Class 9: NTL Delaware Impaired - Each holder of an Allowed Class
Subordinated Notes Claims 9 NTL Delaware Subordinated Notes Claim,
Estimated Amount: other than France Telecom, will receive,
$1,833,955,494 in full satisfaction, settlement,
release, and discharge of and in
exchange for such Allowed Class 9 NTL
Delaware Subordinated Notes Claim, its
Pro Rata share of (i) 2,661,253 shares
of New NTL Common Stock, (ii) 10,692,532
shares of Euroco Common Stock, (iii)
299,391 shares of Euroco Preferred
Stock, (iv) 85.540% of the Delaware Cash
Amount, and (v) the Class 9 Noteholder
Election Option.
Estimated Recovery: If Class 8 Accepts
Plan - 44%
If Class 8 Rejects
Plan - 36%
Class 10: NTL Inc. Impaired - Each holder of an Allowed Class
Subordinated Notes Claims 10 NTL Inc. Subordinated Notes Claim, other
Estimated Amount: than France Telecom, will receive, in full
$3,021,258,619 satisfaction, settlement,release, and
discharge of and in exchange for such
Allowed Class 10 NTL Inc. Subordinated
Notes Claim, its Pro Rata share of (i)
1,270,303 shares of New NTL Common
Stock, (ii) 6,270,159 shares of Euroco
Common Stock, (iii) 71,744 shares of
Euroco Preferred Stock, (iv) 13.720% of
the Delaware Cash Amount, (v) 94.887% of
the NTL Cash Amount, and (vi) the Class
10 Noteholder Election Option.
Estimated Recovery: If Class 8 Accepts
Plan - 10%
If Class 8 Rejects
Plan - 3%
Class 11: Intercompany Impaired - On the Effective Date, all
Claims Class 11 Intercompany Claims owed by a
Debtor, directly or indirectly, to any
of its Debtor Subsidiaries shall be
distributed by such Debtor Subsidiary up
to its corporate parent in exchange for
one share of such Debtor Subsidiary's
common stock and in extinguishment of
such Claim. On the Effective Date, all
Class 11 Intercompany Claims owed,
directly or indirectly, by any Debtor
Subsidiary to any parent Debtor, shall
be contributed by the parent Debtor down
to such Debtor Subsidiary in exchange
for one additional share of common stock
from such Debtor Subsidiary and in
extinguishment of such Claim.
Estimated Recovery: 0%
Class 12: Old Senior Impaired - Each holder of an Allowed Class
Preferred Stock Interests 12 Old Senior Preferred Stock Interest will
Estimated Amount: receive, in full satisfaction, settlement,
195,473,689 release, and discharge of and in exchange
for such Allowed Class 12 Old Senior
Preferred Stock Interest, its Pro Rata
share of (i) 2,996,475 Series A
Warrants, (ii) 1,284,203 Equity Rights,
and (iii) 642,102 shares of Euroco
Common Stock; provided, however, that in
the event that the holders of Class 12
Old Senior Preferred Stock Interests
vote as a class to reject the Plan, then
such holders of Class 12 Old Senior
Preferred Stock Interests will not be
entitled to, and will not, receive or
retain any property or interest in
property on account of such Class 12 Old
Senior Preferred Stock Interests.
Estimated Recovery: If Class 12 Accepts
Plan - 20%
If Class 12 Rejects
Plan - 0%
Class 13: Old Junior Group 13-A: Noos Junior Preferred Stock
Preferred Stock Interests Interests - Impaired (i) 6.5% Fixed Coupon
Estimated Amount: Redeemable Preferred Stock Interests
5,114,952,488 The holder of the Allowed 6.5% Fixed
Coupon Redeemable Preferred Stock
Interests in Group 13-A will receive, in
full satisfaction, settlement, release,
and discharge of and in exchange for
such Allowed 6.5% Fixed Coupon
Redeemable Preferred Stock Interests,
20.553% of the Noos Interest; provided,
however, in the event that the holders
of Class 13 Old Junior Preferred Stock
Interests vote as a class to reject the
Plan, then the holder of the Allowed
6.5% Fixed Coupon Redeemable Preferred
Stock Interests in Group 13-A will not
be entitled to, and will not, receive or
retain any property or interest in
property on account of such Interests.
(ii) Variable Coupon Redeemable
Preferred Stock Interests The holder of
the Allowed Variable Coupon Redeemable
Preferred Stock Interests in Group 13-A
will receive, in full satisfaction,
settlement, release, and discharge of
and in exchange for such Allowed
Variable Coupon Redeemable Preferred
Stock Interests, 79.447% of the Noos
Interest; provided, however, that in the
event that the holders of Class 13 Old
Junior Preferred Stock Interests vote as
a class to reject the Plan, then the
holders of the Allowed Variable Coupon
Redeemable Preferred Stock Interests in
Group 13-A will not be entitled to, and
will not, receive or retain any property
or interest in property on account of
such Interests.
Group 13-B: Other Junior Preferred Stock
Interests - Impaired
Each holder of an Allowed Other Junior
Preferred Stock Interest in Group 13-B
will receive, in full satisfaction,
settlement, release, and discharge of
and in exchange for such Allowed Other
Junior Preferred Stock Interest, its Pro
Rata share of (i) 22,402,468 Series A
Warrants and (ii) 9,601,058 Equity
Rights; provided, however, that in the
event that the holders of Class 13 Old
Junior Preferred Stock Interests vote as
a class to reject the Plan, then the
holder of the Allowed Other Junior
Preferred Stock Interests in Group 13-B
will not be entitled to, and will not,
receive or retain any property or
interest in property on account of such
Interests.
Estimated Recovery: If Class 13 Accepts
Plan - 5%
If Class 13 Rejects
Plan - 0%
Class 14: Old Common Stock Impaired - Each holder of an Allowed Class 14
Interests Old Common Stock Interest will receive,
in full satisfaction, settlement,
release, and discharge of and in
exchange for such Allowed Class 14 Old
Common Stock Interest, its Pro Rata
share of (i) 9,601,058 Series A
Warrants, (ii) 4,114,739 Equity Rights,
and (iii) 2,057,369 shares of Euroco
Common Stock; provided, however, that in
the event that the holders of Class 14
Old Common Stock Interests vote as a
class to reject the Plan, then the
holders of Allowed Class 14 Old Common
Stock Interests will not be entitled to,
and will not, receive or retain any
property or interest in property on
account of such Interests or Claims.
Estimated Recovery: If Class 14 Accepts
Plan - Inestimable
If Class 14 Rejects
Plan - 0%
Class 15: Securities Claims Impaired - The Class 15 Securities
Claims will be extinguished and the
holders of Class 15 Securities Claims
will not be entitled to, and will not,
receive or retain any property or
interest in property on account of such
Securities Claims.
Estimated Recovery: 0%
Class 16: Other Old Equity Impaired - The Class 16 Other Old Equity
Interests And Claims Interests And Claims will be
extinguished and the holders of Class 16
Other Old Equity Interests And Claims
will not be entitled to, and will not,
receive or retain any property or
interest in property on account of such
Other Old Equity Interests And Claims.
Estimated Recovery: 0%
Summary Of Anticipated Distributions Under The Plan (By Debt Security)
Issuer(s)/
Class Obligor(s) Debt Security Treatment Under The Plan
4 Diamond 9.125% Senior Unimpaired
Holdings Notes Estimated Recovery: 100%
due 2008
4 Diamond 10% Senior Unimpaired
Holdings Sterling Notes Estimated Recovery: 100%
due 2008
6 Diamond Cable 10.75% Senior 9,211,517 shares of New NTL Common Stock
Discount Notes Estimated Recovery: 63%
due 2007
6 Diamond Cable 11.75% Senior 11,880,599 shares of New NTL Common Stock
Discount Notes Estimated Recovery: 63%
due 2005
6 Diamond Cable 13.25% Senior 6,179,620 shares of New NTL Common Stock
Discount Notes Estimated Recovery: 63%
due 2004
7 NTL CC 12.75% Senior (i) 6,354,332 shares of New NTL Common Stock, (ii) 146 shares
Deferred Coupon of Euroco Preferred Stock, (iii) 0.028% of Delaware Cash
Notes due 2005 Amount, (iv) 0.192% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 11.5% Senior (i) 14,261,740 shares of New NTL Common Stock, (ii) 327 shares
Notes of Euroco Preferred Stock, (iii) 0.062% of Delaware Cash
due 2008 Amount, (iv) 0.432% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 11.5% Senior (i) 23,100,808 shares of New NTL Common Stock, (ii) 529 shares
Deferred of Euroco Preferred Stock, (iii) 0.101% of Delaware Cash
Coupon Notes Amount, (iv) 0.700% of NTL Cash Amount, and (v) Pro Rata
due 2006 share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 12.375% Senior (i) 8,122,061 shares of New NTL Common Stock, (ii) 186 shares
Deferred of Euroco Preferred Stock, (iii) 0.036% of Delaware Cash
Coupon Notes Amount, (iv) 0.246% of NTL Cash Amount, and (v) Pro Rata
due 2008 share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 9.25% Senior (i) 5,097,291 shares of New NTL Common Stock, (ii) 117 shares
Euro Notes due of Euroco Preferred Stock, (iii) 0.022% of Delaware Cash
2006 Amount, (iv) 0.154% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 9.75% Senior (i) 8,595,796 shares of New NTL Common Stock, (ii) 197 shares
Sterling of Euroco Preferred Stock, (iii) 0.038% of Delaware Cash
Deferred Coupon Amount, (iv) 0.260% of NTL Cash Amount, and (v) Pro Rata
Notes due 2009 share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 10% Senior Notes (i) 8,732,614 shares of New NTL Common Stock, (ii) 200 shares
due 2007 of Euroco Preferred Stock, (iii) 0.038% of Delaware Cash
Amount, (iv) 0.264% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 9.875% Senior (i) 7,156,729 shares of New NTL Common Stock, (ii) 164 shares
Euro Notes due of Euroco Preferred Stock, (iii) 0.031% of Delaware Cash
2009 Amount, (iv) 0.217% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 9.5% Senior (i) 4,138,630 shares of New NTL Common Stock, (ii) 95 shares
Sterling Notes of Euroco Preferred Stock, (iii) 0.018% of Delaware Cash
due 2008 Amount, (iv) 0.125% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 11.5% Senior (i) 3,093,209 shares of New NTL Common Stock, (ii) 71 shares
Euro of Euroco Preferred Stock, (iii) 0.014% of Delaware Cash
Deferred Coupon Amount, (iv) 0.094% of NTL Cash Amount, and (v) Pro Rata
Notes due 2009 share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 10.75% Senior (i) 8,554,237 shares of New NTL Common Stock, (ii) 196 shares
Deferred of Euroco Preferred Stock, (iii) 0.037% of Delaware Cash
Coupon Notes Amount, (iv) 0.259% of NTL Cash Amount, and (v) Pro Rata
due 2008 share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 11.875% Senior (i) 11,433,511 shares of New NTL Common Stock, (ii) 262 shares
Notes due 2010 of Euroco Preferred Stock, (iii) 0.050% of Delaware Cash
Amount, (iv) 0.346% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 9.75% Senior (i) 25,475,035 shares of New NTL Common Stock, (ii) 583 shares
Deferred of Euroco Preferred Stock, (iii) 0.112% of Delaware Cash
Coupon Notes Amount, (iv) 0.772% of NTL Cash Amount, and (v) Pro Rata
due 2008 share of Class 7 Euroco Value.
Estimated Recovery: 63%
7 NTL CC 12.375% Senior (i) 6,051,698 shares of New NTL Common Stock, (ii) 139 shares
Euro Notes due of Euroco Preferred Stock, (iii) 0.027% of Delaware Cash
2008 Amount, (iv) 0.183% of NTL Cash Amount, and (v) Pro Rata
share of Class 7 Euroco Value.
Estimated Recovery: 63%
7; 10 NTL CC 6.75% Class 7 Treatment:
NTL Inc. Convertible (i) 25,336,502 shares of New NTL Common Stock, (ii) 580 shares
Senior Notes due of Euroco Preferred Stock, (iii) 0.111% of Delaware Cash
2008 Amount, (iv) 0.767% of NTL Cash Amount, and (v) Pro Rata share
of Class 7 Euroco Value.
Estimated Recovery: 63%
Class 10 Treatment:
(i) 541,759 shares of New NTL Common Stock, (ii) 2,674,097
shares of Euroco Common Stock, (iii) 30,597 shares of Euroco
Preferred Stock, (iv) 5.852% of Delaware Cash Amount, (v)
40.468% of NTL Cash Amount, and (vi) Pro Rata share of Class 10
Noteholder Election Option.
Estimated Recovery: 10%
Total Recovery from Class 7 and Class 10 Treatment:
(i) 25,878,261 shares of New NTL Common Stock, (ii) 2,674,097
shares of Euroco Common Stock, (iii) Pro Rata share of Class 7
Euroco Value, (iv) 31,177 shares of Euroco Preferred Stock, (v)
5.962% of Delaware Cash Amount, (vi) 41.235% of NTL Cash
Amount, and (vii) Pro Rata share of the Class 10 Noteholder
Election Option.
Total Estimated Recovery: 73%
8; 9; NTL CC 7% Convertible Class 8 Treatment:
10 NTL Delaware Subordinated (i) 3,292,516 shares of New NTL Common Stock, (ii) 6,615
NTL Inc. Notes due 2008 shares of Euroco Common Stock, (iii) 76 shares of Euroco
Preferred Stock, (iv) 0.014% of the Delaware Cash Amount, (v)
0.100% of the NTL Cash Amount, and (vi) Pro Rata share of the
Class 8 Noteholder Election Option.
Estimated Recovery: If Class 8 Accepts Plan - 19%
If Class 8 Rejects Plan - 0%
Class 9 Treatment:
(i) 839,049 shares of New NTL Common Stock, (ii) 3,371,180
shares of Euroco Common Stock, (iii) 94,393 shares of Euroco
Preferred Stock, (iv) 26.969% of the Delaware Cash Amount, and
(v) Pro Rata share of the Class 9 Noteholder Election Option.
Estimated Recovery: If Class 9 Accepts Plan - 44%
If Class 9 Rejects Plan - 36%
Class 10 Treatment:
(i) 229,698 shares of New NTL Common Stock, (ii) 1,133,779
shares of Euroco Common Stock, (iii) 12,973 shares of Euroco
Preferred Stock, (iv) 2.481% of Delaware Cash Amount, (v)
17.158% of NTL Cash Amount, and (vi) Pro Rata share of the
Class 10 Noteholder Election Option.
Estimated Recovery: If Class 10 Accepts Plan - 10%
If Class 10 Rejects Plan - 3%
Total Recovery from Class 8, Class 9 and Class 10 Treatment: (i)
4,361,263 shares of New NTL Common Stock, (ii) 4,511,574 shares
of Euroco Common Stock, (iii) 107,442 shares of Euroco
Preferred Stock, (iv) 29.465% of Delaware Cash Amount, (v)
17.258% of NTL Cash Amount, (vi) Pro Rata share of the Class 9
Noteholder Election Option , and (vii) and Pro Rata share of
the Class 10 Noteholder Election Option.
Total Estimated Recovery: If Classes 8, 9, and 10 Accept
Plan - 74%
If Classes 8, 9, and 10 Reject
Plan - 39%
9; 10 NTL Delaware 5.75% Class 9 Treatment:
NTL Inc. Convertible (i) 1,650,281 shares of New NTL Common Stock, (ii) 6,630,591
Subordinated shares of Euroco Common Stock, (iii) 185,657 shares of Euroco
Notes due 2009 Preferred Stock, (iv) 53.045% of the Delaware Cash Amount, and
(v) Pro Rata share of the Class 9 Noteholder Election Option.
Estimated Recovery: If Class 9 Accepts Plan - 44%
If Class 9 Rejects Plan - 36%
Class 10 Treatment:
(i) 451,781 shares of New NTL Common Stock, (ii) 2,229,969
shares of Euroco Common Stock, (iii) 25,515 shares of Euroco
Preferred Stock,(iv)l4.880% of Delaware Cash Amount, (v)
33.747% of NTL Cash Amount, and (vi) Pro Rata share of the
Class 10 Noteholder Election Option.
Estimated Recovery: If Class 10 Accepts Plan - 10%
If Class 10 Rejects Plan - 3%
Total Recovery from Class 9 and Class 10 Treatment:
(i)2,102,061 shares of New NTL Common Stock, (ii) 8,860,560
shares of Euroco Common Stock, (iii) 211,172 shares of Euroco
Preferred Stock, (iv) 57.924% of Delaware Cash Amount, (v)
33.747% of NTL Cash Amount, (vi) Pro Rata share of the Class 9
Noteholder Election Option , and (vii) Pro Rata share of the
Class 10 Noteholder Election Option.
Total Estimated Recovery: If Classes 9 and 10
Accept Plan - 54%
If Classes 9 and 10
Reject Plan - 39%
9; 10 NTL Delaware 5.75% Class 9 Treatment:
NTL Inc. Convertible (i) 171,923 shares of New NTL Common Stock, (ii) 690,761
Subordinated shares of Euroco Common Stock, (iii) 19,341 shares of Euroco
Notes due 2011 Preferred Stock, (iv)5.526% of the Delaware Cash Amount, and
(v) Pro Rata share of the Class 9 Noteholder Election Option.
Estimated Recovery: If Class 9 Accepts Plan - 44%
If Class 9 Rejects Plan - 36%
Class 10 Treatment:
(i) 47,066 shares of New NTL Common Stock, (ii) 232,313 shares
of Euroco Common Stock, (iii) 2,658 shares of Euroco Preferred
Stock, (iv) 0.508% of Delaware Cash Amount, (v) 3.516% of
NTL Cash Amount, and (vi) Pro Rata share of the Class 10
Noteholder Election Option.
Estimated Recovery: If Class 10 Accepts Plan - 10%
If Class 10 Rejects Plan - 3%
Total Recovery from Class 9 and Class 10 Treatment:
(i) 218,988 shares of New NTL Common Stock, (ii) 923,075 shares
of Euroco Common Stock, (iii) 21,999 shares of Euroco Preferred
Stock, (iv) 6.034% of Delaware Cash Amount, (v) 3.516% of NTL
Cash Amount, (vi) Pro Rata share of the Class 9 Noteholder
Election Option , and (vii) Pro Rata share of the Class 10
Noteholder Election Option.
Total Estimated Recovery: If Classes 9 and 10
Accept Plan - 54%
If Classes 9 and 10
Reject Plan - 39%
Summary Of Anticipated Distributions Under The Plan (Consideration Per Note:
1,000 Face Value)
Set forth below is a chart which indicates the consideration to be
received under the Plan by each series of notes of NTL CC, NTL Delaware,
NTL Inc. and Diamond Cable:
Consideration Per Note (1,000 Face Value(1))
--------------------------------------------------------------------------------------
Delaware/Inc. Cash
-----------------------------
Claim Initial New NTL Max. Rights Maximum
Notes per Note Initial Shares for Del/Inc. Cash
Outstanding (in US$)(2) Shares Value(3) Value(4)(5) Purchase(6) Value(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Inc. / Delaware
5.75% Convertible Sub. Notes(9) 12/15/09 968,000 $1,023 2.1716 $64.34 $174.78 7.4 $220.37
5.75% GE Convertible Sub. Notes 12/15/11 100,000 1,031 2.1899 64.89 176.26 7.5 222.23
NCC
12.75% Sr. Def. Coupon Notes 4/15/05 277,800 1,072 22.8738 677.75 0.72 -- 0.72
11.50% Sr. Def. Coupon Notes 2/1/06 1,050,000 1,031 22.0008 651.88 0.69 -- 0.69
10.00% Senior Notes 2/15/07 400,000 1,023 21.8315 646.86 0.68 -- 0.68
9.75% Sr. Def. Coup. Notes 4/1/08 1,300,000 918 19.5962 580.63 0.61 -- 0.61
10.75% Sr. Def. Coup. Sterling Notes 4/1/08 300,000 1,336 28.5141 844.87 0.89 -- 0.89
9.50% Sr. Sterling Notes 4/1/08 125,000 1,552 33.1090 981.01 1.04 -- 1.04
11.50% Senior Notes 10/1/08 625,000 1,069 22.8188 676.12 0.72 -- 0.72
12.38% Sr. Def. Coup. Notes 10/1/08 450,000 846 18.0490 534.79 0.57 -- 0.57
9.75% Sr. Def. Coup. Sterling Notes 4/15/09 330,000 1,221 26.0479 771.79 0.82 -- 0.82
9.25% Sr. Euro Notes 11/15/06 250,000 955 20.3892 604.13 0.64 -- 0.64
9.88% Sr. Euro Notes 11/15/09 350,000 958 20.4478 605.86 0.64 -- 0.64
11.50% Sr. Def. Coup. Euro Notes 11/15/09 210,000 690 14.7296 436.43 0.46 -- 0.46
11.88% Senior Notes 10/1/10 500,000 1,072 22.8670 677.55 0.72 -- 0.72
12.38% Sr. Euro Notes 2/1/08 300,000 945 20.1723 597.70 0.63 -- 0.63
6.75% Senior Convertible Notes 5/15/08 1,150,000 1,032 22.5028 666.75 37.10 1.5 46.60
7.00% Convertible Sub. Notes 12/15/08 489,781 1,028 8.9045 263.84 175.84 7.5 221.65
Diamond Cable
13.25% Senior Disc. Notes 9/30/04 285,100 1,014 21.6753 642.23 -- -- --
11.75% Senior Disc. Notes 12/15/05 531,000 1,047 22.3740 662.94 -- -- --
10.75% Senior Disc. Notes 2/15/07 420,500 1,025 21.9061 649.07 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Chart Continued
------------------------------------------------------------------
EuroCo Preferred EuroCo Common Total
Recovery %
Shares Value(8) Shares Value(8) Value Recovery
- -------------------------------------------------------------------------------------------------------
Inc. / Delaware
5.75% Convertible Sub. Notes(9) 0.2182 $218.15 9.1535 $48.97 $551.84 54% 534,178,116.3
5.75% GE Convertible Sub. Notes 0.2200 219.99 9.2307 49.38 $556.50 54% 55,649,560.2
NCC
12.75% Sr. Def. Coupon Notes 0.0005 0.52 0.0458 0.24 $679.23 63% 188,690,384.6
11.50% Sr. Def. Coupon Notes 0.0005 0.50 0.0440 0.24 $653.31 63% 685,973,058.7
10.00% Senior Notes 0.0005 0.50 0.0437 0.23 $648.28 63% 259,312,919.6
9.75% Sr. Def. Coup. Notes 0.0004 0.45 0.0392 0.21 $581.90 63% 756,475,534.7
10.75% Sr. Def. Coup. Sterling Notes 0.0007 0.65 0.0571 0.31 $846.72 63% 254,016,057.8
9.50% Sr. Sterling Notes 0.0008 0.76 0.0663 0.35 $983.17 63% 122,895,637.7
11.50% Senior Notes 0.0005 0.52 0.0457 0.24 $677.60 63% 423,499,036.8
12.38% Sr. Def. Coup. Notes 0.0004 0.41 0.0361 0.19 $535.96 63% 241,182,682.6
9.75% Sr. Def. Coup. Sterling Notes 0.0006 0.60 0.0521 0.28 $773.49 63% 255,250,147.4
9.25% Sr. Euro Notes 0.0005 0.47 0.0408 0.22 $605.45 63% 151,362,865.8
9.88% Sr. Euro Notes 0.0005 0.47 0.0409 0.22 $607.19 63% 212,517,384.5
11.50% Sr. Def. Coup. Euro Notes 0.0003 0.34 0.0295 0.16 $437.39 63% 91,852,126.8
11.88% Senior Notes 0.0005 0.52 0.0458 0.24 $679.03 63% 339,515,411.5
12.38% Sr. Euro Notes 0.0005 0.46 0.0404 0.22 $599.01 63% 179,703,763.8
6.75% Senior Convertible Notes 0.0271 27.11 2.3694 12.68 $753.14 73% 866,115,275.8
7.00% Convertible Sub. Notes 0.2194 219.37 9.2114 49.28 $754.14 73% 369,361,625.6
Diamond Cable
13.25% Senior Disc. Notes -- -- -- -- $642.23 63% 183,101,005.9
11.75% Senior Disc. Notes -- -- -- -- $662.94 63% 352,019,970.6
10.75% Senior Disc. Notes -- -- -- -- $649.07 63% 272,935,576.6
- -----------------------------------------------------------------------------------------------------------------------
(1) Notes outstanding based on 1,000 face value in US$, Pounds or Euro,
depending upon the currency in which the specific notes were issued. (2)
Claim includes accrued but unpaid interest through the Petition Date and
based on the following exchange rates: $1.4675 / (pound) and $0.9148 / (U).
(3) Value of initial shares calculated based on the mid-point of the New
NTL estimated enterprise value ($11.9 billion), less projected Net
Debt of $5.8 billion and assumes all Equity Rights and the Noteholder
Election Option are exercised resulting in the issuance of
approximately 28.4 million additional New NTL shares.
(4) Delaware/Inc. Cash estimated at $320 million.
(5) Delaware/Inc. Cash divided 79.1% to NTL Delaware cash and 20.9% as
NTL Inc. cash.
(6) Delaware/Inc. Cash allocated to Class 9 and Class 10 claims may be
used to purchase shares of New NTL in the Noteholder Election Option
priced at a $10.5 billion enterprise value. Analysis assumes all
Rights are exercised (See Footnote 3). Shares of New NTL Common Stock
issued in the Offerings estimated using projected Net Debt of $5.8
billion.
(7) Value of shares purchased in the Equity Rights Offering based on the
mid-point of the New NTL estimated enterprise value ($11.9 billion)
less projected Net Debt of $5.1 billion (change due to cash received
from Equity Rights Offerings) and assumes all Equity Rights and the
Noteholder Election Option are exercised.
(8) Value calculated based on the mid-point of the Euroco estimated
enterprise value ($390 million), plus the present value of the Noos
Note ($32 million), which assumes payment in full and a 10% discount
rate, and projected beginning cash balance of $60 million.
(9) 5.75% Convertible Subordinated Notes due 2009 outstanding balance
excludes $232,000 in principal amount held by France Telecom which are to
be cancelled as part of the Plan.
Certain Information Concerning Valuation Of Alternative Plan And Liquidation
In the context of discussions with GE Capital, GE Capital has
suggested that the Creditors of NTL Inc. and NTL Delaware are receiving
less value on account of their Claims under the consensual Plan than they
are legally entitled to receive or would receive under an alternative plan.
As demonstrated below, however, these assertions by GE Capital are simply
incorrect. In fact, Creditors of NTL Inc. and NTL Delaware are not only
receiving more than they would receive in a liquidation of the Debtors,
they are also receiving more than they would have received pursuant to a
nonconsensual Chapter 11 plan that does not contain the compromises reached
among the members of the Noteholders' Steering Committee.
In connection with these discussions with GE Capital, the Debtors
have indicated that they believe that the holders of Claims in Classes 8,
9, and 10 will receive consideration under the Plan with a value, in the
view of the Debtors, exceeding the value of the consideration such holders
would receive under a plan based on a strict application of contractual and
structural subordination principles (the "Absolute Priority Alternative")
or a liquidation of the Debtors.
Under the Absolute Priority Alternative, it is assumed that:
o holders of Class 8 and Class 9 Claims would receive all
cash held by NTL Delaware (approximately $253 million)
and an interest in all assets owned by NTL Delaware,
including Cablecom, PTV, B2, iesy, ITN News Channel,
The Studio Channel, and certain miscellaneous assets;
o holders of Class 10 Claims would receive all cash held
by NTL Inc. (approximately $67 million) and all
interests in all assets held by NTL Inc., including the
Noos Interest and Two Way TV Limited and certain
miscellaneous assets;
o Class 9 Claims would include an additional $32.6
million payable owed to NTL Inc. by NTL Delaware;
o Class 10 Claims would include a $150 million payable
owed to NTL CC by NTL Inc.; and
o the France Telecom compromise and settlement described
in "Summary Of The Plan -- Summary Of Other Provisions
Of The Plan -- Compromises And Settlements -- France
Telecom Compromise And Settlement" had not occurred,
and thus France Telecom would be entitled to receive
distributions on account of its $237 million in Class 9
and Class 10 Claims.
Under the Plan, the holders of Claims in Classes 9 and 10 are
receiving New NTL Common Stock, rights to purchase New NTL Common Stock,
Euroco Preferred Stock, and Euroco Common Stock. The Junior Stakeholders
are only receiving Euroco Common Stock, which ranks junior to an estimated
$350 million aggregate liquidation preference of Euroco Preferred Stock.
Thus, the recovery of value by the Junior Stakeholders will only
effectively occur in a situation where the holders of Class 9 and Class 10
Claims will have recovered substantial value from Euroco. In addition, the
France Telecom compromise and settlement will result in the release of the
Noos Interest to France Telecom, while adding $25 million in cash to Euroco
and eliminating France Telecom's Claim in Classes 9 and 10. In the Debtors'
view, the net effect of these changes results in a recovery of
approximately 54% under the Plan to Classes 9 and 10 (valuing the NTL
Delaware minority interests at the midpoint of the Euroco valuation plus
the present value of the Noos Note ($32 million) plus $60 million projected
cash). This is significantly higher than the 39% recovery that would be
expected in the Absolute Priority Alternative (valuing the NTL Delaware
minority interest at the midpoint of the Euroco valuation plus $35 million
projected cash and attributing no value to Noos). Both of these
distributions represent a higher recovery than that which could be expected
in a liquidation (i.e., as shown in the Liquidation Analysis, 17.9%).
After careful review of the Debtors' current business operations,
estimated recoveries in a liquidation scenario, and prospects as an ongoing
business, the Debtors have concluded that the recovery to creditors and
interest holders will be maximized by the Reorganized Debtors' continuing
operations as going concerns. The Debtors believe that their businesses and
assets, including the businesses and assets of their Non-Debtor
Subsidiaries, have significant value that would not be realized in the
liquidation of the Debtors, either in whole or in substantial part.
According to the liquidation analysis prepared by the Debtors with their
financial advisors, the Reorganized Debtors are worth considerably more to
the Debtors' creditors and interest holders in general as going concerns.
Conditions
The Plan is subject to certain conditions in relation to the
requisite Confirmation Order and the execution of certain documents,
including certain financing agreements.
Summary Of Post-Confirmation Operations
Annexed hereto as Exhibit H are the Financial Projections which
project the financial performance of the Reorganized Debtors (i.e., New NTL
and Euroco, respectively) through December 31, 2006. The Financial
Projections are based on (1) the current business plans for the Reorganized
Debtors and the assumptions set forth in Exhibit H and (2) information
available as of February 28, 2002, updated in certain respects to May 20,
2002 related principally to the relevant terms of the Plan. While as of the
date of this Disclosure Statement the economic, competitive, and general
business conditions prevailing as of February 28, 2002 have not materially
changed, any future changes in these conditions may materially impact the
ability of New NTL and Euroco to achieve the Financial Projections.
I. INTRODUCTION
NTL Inc. and its Debtor Subsidiaries hereby transmit this Disclosure
Statement pursuant to section 1125 of the Bankruptcy Code for use in the
solicitation of votes on their second amended joint reorganization plan, filed
with the United States Bankruptcy Court for the Southern District of New York,
on May 24, 2002, as it may be further amended, supplemented, or modified from
time to time in accordance with its terms and with 11 U.S.C. ss. 1127. This
Disclosure Statement amends and supercedes the "Disclosure Statement" dated
and filed with the Bankruptcy Court on July 15, 2002. A copy of the Plan is
annexed to this Disclosure Statement as Exhibit A.
This Disclosure Statement sets forth certain information regarding
the Debtors' prepetition history, the nature of their Chapter 11 Cases and
Diamond Administration Cases, as the case may be, and the anticipated
organization and operations of the Reorganized Debtors. This Disclosure
Statement also describes the Plan, including certain alternatives to the
Plan, certain effects of confirmation of the Plan, certain risk factors
associated with the business and operations of New NTL and Euroco and the
New Securities to be issued under the Plan, and the manner in which
distributions will be made under the Plan. In addition, this Disclosure
Statement discusses the confirmation process and the voting procedures that
holders of Claims and Interests in Impaired Classes must follow for their
votes to be counted.
FOR A DESCRIPTION OF THE PLAN AND VARIOUS RISK AND OTHER FACTORS
PERTAINING TO THE PLAN AS IT RELATES TO HOLDERS OF CLAIMS AGAINST AND
INTERESTS IN THE DEBTORS, PLEASE SEE "SUMMARY OF THE PLAN" AND "CERTAIN
ADDITIONAL RISK FACTORS TO BE CONSIDERED."
THIS DISCLOSURE STATEMENT CONTAINS SUMMARIES OF CERTAIN PROVISIONS
OF THE PLAN, CERTAIN STATUTORY PROVISIONS, CERTAIN DOCUMENTS RELATED TO THE
PLAN, CERTAIN EVENTS IN THE CHAPTER 11 CASES AND DIAMOND ADMINISTRATION
CASES, AND CERTAIN FINANCIAL INFORMATION. ALTHOUGH THE DEBTORS BELIEVE THAT
THE PLAN AND RELATED DOCUMENT SUMMARIES ARE FAIR AND ACCURATE IN ALL
MATERIAL RESPECTS, SUCH SUMMARIES ARE QUALIFIED TO THE EXTENT THAT THEY DO
NOT SET FORTH THE ENTIRE TEXT OF SUCH DOCUMENTS OR STATUTORY PROVISIONS.
FACTUAL INFORMATION CONTAINED IN THIS DISCLOSURE STATEMENT HAS BEEN
PROVIDED BY THE DEBTORS' MANAGEMENT, EXCEPT WHERE OTHERWISE SPECIFICALLY
NOTED. WITHOUT PREJUDICE TO THE STATEMENTS MADE IN THE DISCLAIMERS LOCATED
INSIDE THE FRONT COVER OF THIS DOCUMENT WITH RESPECT SOLELY TO THE POS
REGULATIONS, THE DEBTORS ARE UNABLE TO WARRANT OR REPRESENT THAT THE
INFORMATION CONTAINED HEREIN, INCLUDING THE FINANCIAL INFORMATION, IS
WITHOUT ANY INACCURACY OR OMISSION.
IN DETERMINING WHETHER TO VOTE TO ACCEPT THE PLAN, HOLDERS OF
CLAIMS AND INTERESTS ENTITLED TO VOTE THEREON MUST RELY ON THEIR OWN
EXAMINATION OF THE DEBTORS AND THE TERMS OF THE PLAN, INCLUDING THE MERITS
AND RISKS INVOLVED. NOTHING CONTAINED HEREIN WILL CONSTITUTE AN ADMISSION
OF ANY FACT OR LIABILITY BY ANY PARTY, BE ADMISSIBLE IN ANY NON-BANKRUPTCY
PROCEEDING INVOLVING THE DEBTORS OR ANY OTHER PARTY, OR BE DEEMED
CONCLUSIVE ADVICE ON THE TAX OR OTHER LEGAL EFFECTS OF THE REORGANIZATION
AS TO HOLDERS OF ALLOWED CLAIMS OR INTERESTS. YOU SHOULD CONSULT YOUR
COUNSEL OR TAX ADVISOR ON ANY QUESTIONS OR CONCERNS RESPECTING TAX,
SECURITIES, OR OTHER LEGAL CONSEQUENCES OF THE PLAN.
THIS DISCLOSURE STATEMENT CONTAINS PROJECTED FINANCIAL INFORMATION
REGARDING THE REORGANIZED DEBTORS AND CERTAIN OTHER STATEMENTS CONSTITUTING
"FORWARD- LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, ALL OF WHICH ARE BASED ON VARIOUS
ESTIMATES AND ASSUMPTIONS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS THAT MAY CAUSE THE
ACTUAL RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF THE DEBTORS, OR INDUSTRY
RESULTS, TO BE MATERIALLY DIFFERENT FROM THOSE CONTEMPLATED, PROJECTED,
FORECASTED, ESTIMATED, OR BUDGETED, WHETHER EXPRESSED OR IMPLIED, BY SUCH
FORWARD-LOOKING STATEMENTS. SEE "CERTAIN ADDITIONAL RISK FACTORS TO BE
CONSIDERED." WHEN USED IN THIS DISCLOSURE STATEMENT, THE WORDS, "BELIEVE,"
"ANTICIPATE," "SHOULD," "INTEND," "PLAN," "WILL," "EXPECTS," "ESTIMATES,"
"PROJECTS," "POSITIONED," "STRATEGY," AND SIMILAR EXPRESSIONS IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS.
ALTHOUGH THE DEBTORS BELIEVE THAT THEIR PLANS, INTENTIONS, AND
EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE,
THE DEBTORS CANNOT BE SURE THAT THEY WILL BE ACHIEVED. FORWARD-LOOKING
STATEMENTS IN THIS DISCLOSURE STATEMENT INCLUDE THOSE RELATING TO THE
PAYMENTS ON THE DEBTORS' CURRENT AND FUTURE DEBT INSTRUMENTS AND THE
ABILITY TO MAKE DIVIDENDS ON, OR REDEEM, EUROCO PREFERRED STOCK. THESE
FACTORS ARE NOT INTENDED TO REPRESENT A COMPLETE LIST OF THE GENERAL OR
SPECIFIC FACTORS THAT MAY AFFECT THE DEBTORS OR THE REORGANIZED DEBTORS. IT
SHOULD BE RECOGNIZED THAT OTHER FACTORS, INCLUDING GENERAL ECONOMIC FACTORS
AND BUSINESS STRATEGIES, MAY BE SIGNIFICANT, CURRENTLY OR IN THE FUTURE,
AND THE FACTORS SET FORTH IN THIS DISCLOSURE STATEMENT MAY AFFECT THE
DEBTORS OR REORGANIZED DEBTORS TO A GREATER EXTENT THAN INDICATED.
ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE DEBTORS OR
PERSONS ACTING ON THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY
THE CAUTIONARY STATEMENTS SET FORTH IN THIS DISCLOSURE STATEMENT. EXCEPT AS
REQUIRED BY LAW, THE DEBTORS UNDERTAKE NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS, OR OTHERWISE. FORWARD- LOOKING STATEMENTS ARE PROVIDED IN THIS
DISCLOSURE STATEMENT PURSUANT TO THE SAFE HARBOR ESTABLISHED UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND SECTION 1125(e) OF THE
BANKRUPTCY CODE AND SHOULD BE EVALUATED IN THE CONTEXT OF THE ESTIMATES,
ASSUMPTIONS, UNCERTAINTIES, AND RISKS DESCRIBED IN THIS DISCLOSURE
STATEMENT.
THE DEBTORS, THE CREDITORS' COMMITTEE, AND THE PREFERRED
SHAREHOLDERS BELIEVE THAT THE PLAN WILL ENABLE THE DEBTORS TO REORGANIZE
SUCCESSFULLY AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND, ACCORDINGLY,
THAT ACCEPTANCE OF THE PLAN BY ALL HOLDERS OF CLAIMS AND INTERESTS ENTITLED
TO VOTE ON THE PLAN IS IN THE BEST INTERESTS OF THE DEBTORS AND THEIR
CREDITORS AND INTEREST HOLDERS. THE DEBTORS, THE CREDITORS' COMMITTEE, AND
THE PREFERRED SHAREHOLDERS URGE HOLDERS OF CLAIMS AND INTERESTS ENTITLED TO
VOTE ON THE PLAN TO VOTE TO ACCEPT THE PLAN. THE UK BANK STEERING
COMMITTEE, THE CABLECOM BANK STEERING COMMITTEE, NTL INC. ACTING ON BEHALF
OF ITS SUBSIDIARIES PARTY TO THE CREDIT FACILITIES, AND THE NOTEHOLDERS'
STEERING COMMITTEE, THE SENIOR BANKS REPRESENTING 91% OF THE PRINCIPAL
AMOUNT OUTSTANDING UNDER THE SENIOR CREDIT FACILITY, AND ALL OF THE WORKING
CAPITAL BANKS HAVE GIVEN THEIR APPROVAL IN PRINCIPLE TO THE TERMS OF THE
PLAN PURSUANT TO THE HEADS OF TERMS.
II. VOTING INSTRUCTIONS AND PROCEDURES
A. Definitions
Unless otherwise defined elsewhere in this Disclosure Statement,
capitalized terms used but not defined herein have the meanings ascribed to
them in the Plan or the Bankruptcy Code.
B. Notice To Holders Of Claims And Interests
This Disclosure Statement is being transmitted to holders of
Impaired and Unimpaired Claims against and Interests in NTL Inc. and the
other Debtors. The purpose of this Disclosure Statement is to provide
adequate information to enable holders of Claims against or Interests in
the Debtors who are entitled to vote on the Plan to make a reasonably
informed decision with respect to the Plan prior to exercising their right
to vote to accept or reject the Plan. Holders of Claims or Interests in
Classes 6, 7, 8, 9, 10, 11, 12, 13, and 14 are entitled to vote on the
Plan.
On July 12, 2002, the Bankruptcy Court approved this Disclosure
Statement as containing information of a kind and in sufficient detail
adequate to enable the holders of Claims against or Interests in the
Debtors to make an informed judgment with respect to acceptance or
rejection of the Plan and the determination whether or not to exercise the
Rights being issued under the Plan. THE BANKRUPTCY COURT'S APPROVAL OF THIS
DISCLOSURE STATEMENT DOES NOT CONSTITUTE EITHER A GUARANTY OF THE ACCURACY
OR COMPLETENESS OF THE INFORMATION CONTAINED HEREIN OR AN ENDORSEMENT OF
THE PLAN BY THE BANKRUPTCY COURT.
IF CONFIRMED BY THE BANKRUPTCY COURT, THE PLAN WILL BIND ALL
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS, WHETHER OR NOT THEY
ARE ENTITLED TO VOTE OR DID VOTE ON THE PLAN AND WHETHER OR NOT THEY
RECEIVE OR RETAIN ANY DISTRIBUTIONS OR PROPERTY UNDER THE PLAN.
ACCORDINGLY, ALL HOLDERS OF CLAIMS AGAINST OR INTERESTS IN THE DEBTORS ARE
ENCOURAGED TO READ THIS DISCLOSURE STATEMENT AND ITS EXHIBITS CAREFULLY AND
IN THEIR ENTIRETY BEFORE DECIDING TO VOTE EITHER TO ACCEPT OR TO REJECT
THE PLAN. This Disclosure Statement contains important information about
the Plan and considerations pertinent to acceptance or rejection of the
Plan, and developments concerning the Chapter 11 Cases.
THIS DISCLOSURE STATEMENT IS THE ONLY DOCUMENT AUTHORIZED BY THE
BANKRUPTCY COURT TO BE USED IN CONNECTION WITH THE SOLICITATION OF VOTES ON
THE PLAN. No solicitation of votes may be made except after distribution of
this Disclosure Statement, and no Person has been authorized to distribute
any information concerning the Debtors other than the information contained
herein or in the UK Prospectus. Except as set forth in "Solicitation;
Voting Procedures" below and in relation to the UK Prospectus, no Person
has been authorized by the Debtors or any Person acting on behalf of the
Debtors in connection with the Plan or the Solicitation to give any
information or to make any representation other than as contained in this
Disclosure Statement and the Exhibits annexed hereto or incorporated by
reference or referred to herein, and, if given or made, such information or
representation may not be relied upon as having been authorized by the
Debtors. This Disclosure Statement does not constitute an offer to sell or
the solicitation of an offer to buy any securities other than those to
which it relates, or an offer to sell or a solicitation of an offer to buy
any securities in any jurisdiction in which, or to any person to whom, it
is unlawful to make such offer or solicitation.
Except with respect to the Financial Projections and except as
otherwise specifically and expressly stated herein, this Disclosure
Statement does not reflect any events that may occur subsequent to the date
hereof and that may have a material impact on the information contained in
this Disclosure Statement. Neither the Debtors nor the Reorganized Debtors
intend to update the Financial Projections. Accordingly, the Financial
Projections will not reflect the impact of any subsequent events not
already accounted for in the assumptions underlying the Financial
Projections. Further, the Debtors do not anticipate that any amendments or
supplements to this Disclosure Statement will be distributed to reflect
such occurrences. The delivery of this Disclosure Statement will not under
any circumstances imply that the information contained herein, including,
but not limited to, the Financial Projections, is correct or complete as of
any time subsequent to the date hereof, subject to the foregoing
qualifications.
C. Solicitation Package
Accompanying this Disclosure Statement for the purpose of
soliciting votes on the Plan are copies of (i) the Plan, (ii) the notice
of, among other things, the time for submitting Ballots to accept or reject
the Plan, the date, time, and place of the hearing to consider the
confirmation of the Plan and related matters, and the time for filing
objections to the confirmation of the Plan (the "Confirmation Hearing
Notice"), and, as applicable, (iii) a Ballot or Ballots (and return
envelope(s)) that you may use in voting to accept or to reject the Plan, or
a notice of non-voting status and, as applicable. In addition, the
Solicitation Packages will be accompanied by Volume II of the UK Prospectus
described in the Disclaimer to this Disclosure Statement. If you did not
receive a Ballot and believe that you should have, please contact the
Solicitation Agent at the address or telephone number set forth in the next
subsection.
D. Voting Procedures, Ballots, And Voting Deadline
After carefully reviewing the Plan and this Disclosure Statement,
and the exhibits thereto, and the detailed instructions accompanying your
Ballot, please indicate your acceptance or rejection of the Plan by voting
in favor of or against the Plan on the enclosed Ballot. Please complete and
sign your Ballot and return it in the envelope provided so that it is
RECEIVED by the Voting Deadline (as defined below). Please note that if you
are in Class 6, 7, 8, 9, 10, 11, 12, 13, or 14 and hold Existing Securities
evidencing a Claim or Interest through a Nominee, you may be required to
return your Ballot to your Nominee sufficiently in advance of the Voting
Deadline so as to permit your Nominee to fill out and return a Master
Ballot by the Voting Deadline. See "Solicitation; Voting Procedures --
Special Note For Holders Of Debt Securities And Equity Securities."
Each Ballot has been coded to reflect the Class of Claims or
Interests it represents. Accordingly, in voting to accept or reject the
Plan, you must use only the coded Ballot or Ballots sent to you with this
Disclosure Statement.
FOR YOUR VOTE TO BE COUNTED, YOUR BALLOT MUST BE PROPERLY
COMPLETED AS SET FORTH ABOVE AND IN ACCORDANCE WITH THE VOTING INSTRUCTIONS
ON THE BALLOT, AND YOUR BALLOT (OR THE MASTER BALLOT CAST ON YOUR BEHALF)
MUST BE RECEIVED BY THE SOLICITATION AGENT BY THE VOTING DEADLINE.
If you have any questions about the procedure for voting your
Claim or Interest or with respect to the packet of materials that you have
received, please contact the Solicitation Agent:
Innisfree M&A Incorporated
501 Madison Avenue
20th Floor
New York, New York 10022
Telephone: (877) 750-2689
Banks and Brokers: call (212) 750-5833
If you wish to obtain, at your own expense unless otherwise
specifically required by Fed. R. Bank. P. 3017(d), an additional copy of
the Plan, the Plan Supplement, this Disclosure Statement, or any exhibits
to such documents, please contact the Solicitation Agent or log on to the
Bankruptcy Court's website at http://www.nysb.uscourts.gov. A password is
needed to access case files. Details on how to obtain a password are
available on the Bankruptcy Court's website.
Details of the Equity Rights Offering Procedures and Noteholder
Election Option Procedures are set forth in Exhibits F and G to the Plan,
respectively.
E. Confirmation Hearing And Deadline For Objections To Confirmation
Pursuant to section 1128 of the Bankruptcy Code and Fed. R. Bank.
P. 3017(c), the Bankruptcy Court has scheduled a hearing on confirmation of
the Plan (the "Confirmation Hearing") to commence on September 5, 2002 at
10:30 a.m. Eastern Time, or as soon thereafter as counsel may be heard,
before the Honorable Allan L. Gropper, United States Bankruptcy Judge, in
the United States Bankruptcy Court, Southern District of New York, One
Bowling Green, New York, New York 10004. The Bankruptcy Court has directed
that objections, if any, to confirmation of the Plan must be filed with the
clerk of the Bankruptcy Court and served so that they are RECEIVED on or
before August 26, 2002 at 5:00 p.m. Eastern Time, by:
Counsel for the Debtors:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036-6522
Attention: Kayalyn A. Marafioti, Esq.
Jay M. Goffman, Esq.
United States Trustee:
The Office of the United States Trustee
Southern District of New York
33 Whitehall Street
21st Floor
New York, New York 10004
Attention: Richard C. Morrissey, Esq.
Counsel for the Creditors' Committee:
Fried Frank Harris Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
Attention: Brad Eric Scheler, Esq.
Lawrence A. First, Esq.
The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for the announcement of the
adjournment date made at the Confirmation Hearing or at any subsequent
adjourned Confirmation Hearing.
IN THE VIEW OF THE DEBTORS AND THE CREDITORS' COMMITTEE, THE
TREATMENT OF HOLDERS OF CLAIMS AND INTERESTS IN THE IMPAIRED CLASSES
ELIGIBLE TO VOTE CONTEMPLATES A POTENTIAL RECOVERY FOR SUCH HOLDERS THAT IS
NOT LESS THAN THE RECOVERY THAT WOULD BE AVAILABLE IN A LIQUIDATION.
ACCORDINGLY, THE DEBTORS, THE CREDITORS' COMMITTEE, AND THE PREFERRED
SHAREHOLDERS BELIEVE THAT THE PLAN IS IN THE BEST INTERESTS OF HOLDERS OF
CLAIMS AND INTERESTS IN SUCH CLASSES AND RECOMMEND THAT ALL HOLDERS OF
CLAIMS OR INTERESTS IN THE IMPAIRED CLASSES ENTITLED TO DO SO VOTE TO
ACCEPT THE PLAN.
III. GENERAL INFORMATION
A. Purpose And Effect Of The Plan
The primary purposes of the Plan are to effectuate the
Restructuring to align the Debtors' capital structures with their present
and future operating prospects. The funds currently expected to be
generated by the Debtors will not be sufficient to meet their debt service
requirements unless the Restructuring is consummated. Confirmation of the
Plan would significantly reduce the principal amount of the Debtors'
outstanding indebtedness by converting approximately $10.9 billion of that
indebtedness into New NTL Common Stock, Euroco Common Stock, and Euroco
Preferred Stock. By offering the holders of Impaired Claims and Interests a
significant percentage of the equity of the Reorganized Debtors on a
post-restructuring basis, the Debtors intend that these holders will
participate in the long term growth and appreciation of the Debtors'
businesses, which is expected to be enhanced by the significant reduction
of the Debtors' debt service obligations and the business plan described in
more detail in this Disclosure Statement.
If the Plan is confirmed, the Debtors will divide their current
businesses and investments into two new groups, the holding companies for
which will be the corporations currently named NTL CC and NTL Inc. NTL CC
will be renamed "NTL Incorporated" (referred to herein as "New NTL") and
will be the holding company for substantially all of the Debtors'
businesses in the UK and Ireland. NTL Inc. will be renamed "NTL Europe,
Inc." (referred to herein as "Euroco") and will be the holding company for
substantially all of the Debtors' businesses and investments in continental
Europe (excluding France) as well as holding certain other minority
investments.
CERTAIN CREDITORS, INCLUDING TRADE CREDITORS, WILL BE UNAFFECTED
BY THE PLAN AND THE DEBTORS' RESTRUCTURING. SUBJECT TO ANY REQUIRED
BANKRUPTCY COURT APPROVAL, THE DEBTORS EXPECT TO BE ABLE TO CONTINUE TO PAY
ALL TRADE CREDITORS WHO CONTINUE TO PROVIDE NORMAL TRADE CREDIT TERMS IN
THE ORDINARY COURSE OF BUSINESS.
B. The Debtors' Businesses
1. Overview
NTL owns and operates broadband communications networks for
telephone, cable television and Internet services in the UK, Ireland, and
Switzerland, and a transmission network for television and radio
broadcasting in the UK. NTL also has strategic investments in cable
networks in Sweden, France, and Germany.
Based on revenues and identifiable assets, NTL's predominant lines
of business are consumer services, business services, and broadcast
transmission and related services in the UK. Consumer services include
telephony, cable television, Internet access, and interactive services.
Business services include telephony, national and international wholesale
carrier telecommunications, and radio communications services for the
emergency services community. Broadcast transmission and related services
include digital and analog television and radio broadcasting, rental of
antenna space on NTL's owned, leased, and managed towers and sites and
associated services, and satellite and media services.
NTL provides a broad range of services over local, national, and
international networks. Since their inception, NTL and the companies it has
acquired have invested approximately $15.9 billion in NTL's network
infrastructure. This network infrastructure consists of:
o Broadband Communications Networks in the UK that currently
pass approximately 8.4 million homes and can be expanded to
cover more than 11 million homes in its regional UK franchise
areas. These high- capacity two-way local broadband fiber
networks serve entire communities in these regional franchise
areas. NTL's fiber optic cables pass a significant number of
businesses in these areas and are connected to distribution
points, or nodes, which are typically within approximately
500 meters of each of the 500 homes typically served by each
node. Typically, each home is then connected by a cable
allowing NTL to deliver telephone, cable television, and
Internet services over a single integrated network.
Additionally, NTL has broadband cable networks in Switzerland
and the Republic of Ireland that currently pass approximately
2.3 million homes. These primarily analog television networks
are subject to an upgrade program to allow for higher
capacity signals and a suite of new products, such as digital
television, cable modem Internet access, and voice telephony.
o A National/International Synchronous Digital Hierarchy, known
as SDH, Fiber Optic Telecommunications Network in the UK,
which connects all of the major population centers in the UK
to Ireland, continental Europe, and the United States. SDH
allows high speed data transmission and redirects
transmissions in the event of a problem to prevent any
disruption. This backbone network utilizes Asynchronous
Transfer Mode, known as ATM technology, a high speed, high
bandwidth technology, and was built with sufficient duct
capacity to accommodate more than 2,300 fibers on the
majority of the network. NTL designed this network to allow
it to place the active components, such as routing devices,
close to its customers, allowing it to offer a broad range of
voice and data services.
o National Broadcast Transmission and Tower Network
Infrastructure in the UK, which provide national, regional
and local broadcast and wireless communications coverage. NTL
owns, leases, manages, or has access to over 2,300 sites in
the UK. NTL's fixed line and tower networks in the UK are
interconnected at numerous sites. NTL's television and radio
broadcasting business in Australia was sold in April 2002.
NTL, through its wholly-owned subsidiary Premium TV Limited, has
substantial investments in five UK football (soccer) clubs, owns various UK
broadcasting rights for sports content, and has interests in joint ventures
to design, develop, operate and maintain individual websites for the UK
Football League (which represents some 76 clubs in English football
divisions), and for the following UK football clubs: Leicester City,
Newcastle United, Middlesbrough, and Glasgow Rangers.
NTL also has investments in an interactive television service
provider, UK digital television and radio license holders, a European
digital radio company, a virtual ISP, a PPV content provider, a calling
card business and various technology and channel content providers.
2. Significant Corporate Restructurings
NTL Inc. was incorporated in December 1999 to effect a
reorganization into a holding company structure under Section 251(g) of the
Delaware General Corporation Law. This holding company structure, which was
implemented in May 2000 in connection with the acquisition of the
residential assets of CWC, was accomplished through a merger following
which the stockholders of NTL Delaware (then named "NTL Incorporated")
became stockholders of the new holding company, and NTL Delaware became a
subsidiary of the new holding company. The new holding company then took
the name "NTL Incorporated."
Similarly, NTL Delaware was incorporated in February 1999 to
effect a reorganization into a holding company structure under Section
251(g) of the Delaware General Corporation Law. This holding company
structure, which was implemented in April 1999 to pursue opportunities
outside the United Kingdom and Ireland, was accomplished through a merger
following which the stockholders of NTL CC (then named "NTL Incorporated")
became stockholders of the new holding company, and NTL CC became a
subsidiary of the new holding company. The new holding company then took
the name "NTL Incorporated."
On February 21, 2001, NTL Inc. contributed, by a series of
transfers in consideration for the issue of stock in each transferee
intermediate holding company, NTL (CWC Holdings), the holding company of
the residential cable, business cable, indirect residential telephony,
residential internet and digital television development and services
businesses formerly owned by CWC, to NTL Group Limited, an indirectly
wholly-owned subsidiary of NTL CC, and NTL Delaware contributed, by a
series of transfers in consideration for the issue of stock in each
transferee intermediate holding company, NTL Business (formerly Workplace
Technologies plc) to NTL Investment Holdings Limited, an indirectly
wholly-owned subsidiary of NTL CC.
3. Executive Officers
The following is a list of NTL Inc.'s current executive officers
and their positions with NTL Inc. as of the Petition Date:
Name Position(s) With NTL Inc.
- ---- -------------------------
George S. Blumenthal ...................... Chairman of the Board, Treasurer, Director
Barclay Knapp.............................. President, Chief Executive Officer, Director
Stephen A. Carter.......................... Senior Vice President - Chief Operating Officer of UK Operations
Bruno J. Claude............................ Senior Vice President - Chief Operating Officer of NTL Europe
John F. Gregg.............................. Senior Vice President - Chief Financial Officer
Richard J. Lubasch......................... Executive Vice President - General Counsel, Secretary
Gregg N. Gorelick.......................... Vice President - Controller
Steven L. Wagner........................... Vice President - NTL Europe
Bret Richter .............................. Vice President - Corporate Finance and Development
C. Outstanding Securities
1. Old Common Stock
As of the Petition Date, NTL Inc. had issued and outstanding
276,626,476 shares of Old Common Stock and there were 5,695 record holders
of Old Common Stock (which number does not reflect beneficial ownership of
shares held in "street" name through a Nominee). On March 28, 2002, the
NYSE announced that it was suspending the Old Common Stock from trading on
the NYSE and that it intended to apply to the SEC to delist the Old Common
Stock. This determination was based upon, among other things, the selling
price for the Old Common Stock, which closed at $0.20 on March 26, 2002.
The continued listing standards of the NYSE that were applicable to NTL
Inc. required maintenance of a minimum share price of $1 over a 30 trading
day period and average global market capitalization of $100 million over a
30 trading day period. The Old Common Stock fell below both of these
continued listing standards. In addition, on May 9, 2002, Nasdaq Europe
halted trading of the Old Common Stock pending the receipt of information
relating to the Restructuring because of the filing of NTL Inc.'s Chapter
11 Case. NTL Inc. has complied with this information request, although
there can be no assurance that Nasdaq Europe will (1) not make additional
information requests, (2) remove the trading halt on shares of Old Common
Stock, or (3) not delist the shares of Old Common Stock. The Old Common
Stock is currently quoted on the Over The Counter Bulletin Board under the
symbol "NTLD".
Under the Plan, the Old Common Stock will be canceled and, if
Class 14 votes to accept the Plan, each holder of Old Common Stock will
receive the distributions described in Article III.D.3 of the Plan.
2. Old Junior Preferred Stock
NTL Inc. currently has issued and outstanding various series of
Old Junior Preferred Stock, including: (a) 5% Cumulative Participating
Convertible Preferred Stock, Series A (and dividend shares, Series C
through Series K); (b) 5% Cumulative Participating Convertible Preferred
Stock, Series B (and dividend shares, Series B-1 through B-6); (c)
Cumulative Convertible Preferred Stock, Series A; (d) 6.5% Fixed Coupon
Redeemable Preferred Stock, Series A; and (e) Variable Coupon Redeemable
Preferred Stock, Series A. The following table describes the issued and
outstanding shares of Old Junior Preferred Stock as of the Petition Date:
Liquidation
Shares Preference Plan
Security Outstanding (per share) Class
-------- ----------- ------------ -----
5% Cumulative Participating Convertible Preferred Stock, Series A 750,000.00 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series C 5,000.00 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series D 9,437.50 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series E 9,555.47 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series F 9,191.17 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series G 9,300.31 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series H 9,410.75 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series I 9,522.51 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series J 9,635.58 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series K 10,263.17 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, Series B 2,000,000.00 $1,000 Class 13,
Group 13-B
5% Cumulative Participating Convertible Preferred Stock, 8,180.56 $1,000 Class 13,
Series B-1 Group 13-B
5% Cumulative Participating Convertible Preferred Stock, 23,847.13 $1,000 Class 13,
Series B-2 Group 13-B
5% Cumulative Participating Convertible Preferred Stock, 24,130.33 $1,000 Class 13,
Series B-3 Group 13-B
5% Cumulative Participating Convertible Preferred Stock, 24,416.88 $1,000 Class 13,
Series B-4 Group 13-B
5% Cumulative Participating Convertible Preferred Stock, 24,706.83 $1,000 Class 13,
Series B-5 Group 13-B
5% Cumulative Participating Convertible Preferred Stock, 26,316.02 $1,000 Class 13,
Series B-6 Group 13-B
Cumulative Convertible Preferred Stock, Series A 1,850,000.00 $1,075.17 Class 13,
Group 13-B
Variable Coupon Redeemable Preferred Stock, Series A 48,421.31 $10,000 Class 13,
Group 13-A
6.5% Fixed Coupon Redeemable Preferred Stock, Series A 12,194.00 $10,000 Class 13,
Group 13-A
Under the Plan, the Old Junior Preferred Stock will be canceled
and, if Class 13 votes to accept the Plan, each holder of Old Junior
Preferred Stock will receive the distributions described in Article III.D.2
of the Plan.
3. Old Senior Preferred Stock
As of the Petition Date, NTL Inc. had issued and outstanding
8.88884 shares of its 13% Senior Redeemable Exchangeable Preferred Stock
with a liquidation preference of $1,000 per share, and 183,802.6360 shares
of its 13% Series B Senior Redeemable Exchangeable Preferred Stock with a
liquidation preference of $1,000 per share. The Old Senior Preferred Stock
ranks senior to the Old Junior Preferred Stock and the Old Common Stock.
Under the Plan, the Old Senior Preferred Stock will be canceled
and, if Class 12 votes to accept the Plan, each holder of Old Senior
Preferred Stock will receive the distributions described in Article III.D.1
of the Plan.
4. Debt Securities
The Debtors and their Non-Debtor Subsidiaries have issued and
outstanding approximately $10.7 billion in public senior and subordinated
notes and debentures, as follows:
Principal Plus
Accrued Interest Or Estimated
Accreted Amount Aggregate
Outstanding As Of Plan Recovery
Issuer(s) Security 5/8/2002 (in $)6 Class Under Plan7
- --------- -------- ---------------- ----- -----------
Triangle 11.2% Senior Discount 545,142,236 N/A N/A
Debentures due 2007
Diamond 9.125% Senior Notes due 2008 112,704,549 Class 4 100%
Holdings1
Diamond 10% Senior Sterling 203,450,531 Class 4 100%
Holdings1 Notes due 2008
Diamond Cable 10.75% Senior Discount 430,921,976 Class 6 63%
Notes due 2007
Diamond Cable 11.75% Senior Discount 555,783,688 Class 6 63%
Notes due 2005
Diamond Cable 13.25% Senior Discount 289,087,440 Class 6 63%
Notes due 2004
NTL CC 12.75% Senior Deferred 297,772,663 Class 7 63%
Coupon Notes due 2005
NTL CC 11.5% Senior Notes due 2008 668,324,653 Class 7 63%
NTL CC 11.5% Senior Deferred 1,082,535,417 Class 7 63%
Coupon Notes due 2006
NTL CC 12.375% Senior Deferred 380,610,860 Class 7 63%
Coupon Notes due 2008
NTL CC 9.25% Senior Euro 238,866,033 Class 7 63%
Notes due 2006
NTL CC 9.75% Senior Sterling Deferred 402,810,754 Class 7 63%
Coupon Notes due 2009
NTL CC 10% Senior Notes due 2007 409,222,222 Class 7 63%
NTL CC 9.875% Senior Euro 335,374,097 Class 7 63%
Notes due 2009
NTL CC 9.5% Senior Sterling 193,941,845 Class 7 63%
Notes due 2008
NTL CC 11.5% Senior Euro Deferred 144,952,020 Class 7 63%
Coupon Notes due 2009
NTL CC 10.75% Senior Deferred 400,863,234 Class 7 63%
Coupon Notes due 2008
NTL CC 11.875% Senior Notes due 2010 535,789,931 Class 7 63%
NTL CC 9.75% Senior Deferred 1,193,794,948 Class 7 63%
Coupon Notes due 2008
NTL CC 12.375% Senior Euro 283,590,859 Class 7 63%
Notes due 2008
NTL CC2 6.75% Convertible Senior 1,187,303,125 Class 7; 10 73%
Notes due 2008
NTL CC3 7% Convertible Subordinated 503,399,633 Class 8; 9; 74%
Notes due 2008 10
NTL Delaware4 5.75% Convertible Subordinated 1,227,408,333 Class 9; 10 54%
Notes due 2009
NTL Delaware5 5.75% Convertible Subordinated 103,147,528 Class 9; 10 54%
Notes due 2011
- --------------------------
1 Guaranteed by Diamond Cable
2 Co-issued with NTL Inc.
3 Co-obligations of NTL Delaware and NTL Inc.
4 Co-obligation of NTL Inc.
5 Co-issued with NTL Inc.
6 United States dollar values based on exchange rates of 1(U)=$0.9148;
1Li.=$1.4675.
7 Assumes acceptance of Plan by all voting Classes.
Triangle is not a Debtor in the Chapter 11 Cases and, accordingly,
the Triangle Notes are not affected by the Plan. Under the Plan, the Debt
Securities of Diamond Holdings will be Reinstated and the holders of all
other Debt Securities will receive the distributions described in Article
III.C of the Plan. For a further discussion of the Triangle Notes and the
Diamond Holdings Notes and the impact, if any, of the Chapter 11 Cases
thereon, see "Certain Matters Regarding New NTL -- Certain Financing
Matters -- Triangle Notes" and "Certain Matters Regarding New NTL --
Certain Financing Matters -- Diamond Holdings Notes."
5. Old Warrants
NTL Inc. had the following warrants outstanding as of the Petition
Date: (a) warrants to purchase an aggregate of 243,000 shares of Old Common
Stock at $15.22 per share issued in 1996 that expire in 2006 (256,000 were
originally issued), (b) warrants to purchase an aggregate of 997,000 shares
of Old Common Stock at $27.77 per share issued in 1998 that expire in 2008
(1,197,000 were originally issued), and (c) warrants to purchase an
aggregate of 1,875,000 shares of Old Common Stock at $53.76 per share
issued in 1999 that expire in 2004 (1,875,000 were originally issued).
Under the Plan, the Old Warrants will be extinguished and the
holders thereof will not be entitled to, and will not, receive or retain
any property or interest in property on account of such Old Warrants.
6. Old Options
As of the Petition Date, there were 1,787,705 shares of Old Common
Stock reserved for issuance under the NTL share save plans. Under the terms
of these plans, options have been granted at the market value of the
underlying securities shortly prior to the date of grant (subject to
customary adjustment provisions). These options are ordinarily exercisable
in three or five years from the date of grant out of the proceeds of a
savings contract entered into by each option holder. These options
generally expire six months after they become exercisable.
As of the Petition Date there were 3,848,000 shares and 10,396,000
shares of Old Common Stock reserved for issuance under the 1991 Stock
Option Plan and the 1993 Stock Option Plan, respectively. These plans
provide that ISOs be granted at the fair market value of Old Common Stock
on the date of grant, and NQSOs be granted at not less than 85% of the fair
market value of Old 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 NTL. Options expire ten years after the date of the grant.
As of the Petition Date, there were 156,000 shares and 500,000
shares of Old Common Stock reserved for issuance under the 1991 and 1993
Non-Employee Director Stock Option Plans, respectively. Under the terms of
these plans, options have been granted to members of the board of directors
of NTL Inc. who are not employees of NTL Inc. or any of its affiliates.
These plans provide that all options are granted at the fair market value
of Old Common Stock on the date of grant, and options 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 NTL Inc. Options
expire ten years after the date of the grant.
In addition, as of the Petition Date, there were 83,438,000 shares
of Old Common Stock reserved for issuance under the 1998 Non-Qualified
Stock Option Plan, and 19,684,000 shares of Old Common Stock available for
issuance. The exercise price of a NQSO is determined by the Compensation
and Option Committee. Options are generally exercisable ratably over five
to ten years while the optionee remains an employee of NTL. Options expire
ten years after the date of the grant.
No additional options are to be granted under these plans. Under
the Plan, all of the Old Options will be extinguished and the holders
thereof will not be entitled to, and will not, receive or retain any
property or interest in property on account of such Old Options.
The employment agreement made as of October 16, 2000 between NTL
Inc. and Bruno Claude, an executive officer of NTL Inc., provides Mr.
Claude with certain options to purchase Old Common Stock. Pursuant to his
employment agreement, Mr. Claude is entitled to, among other things, up to
375,000 options, provided, however, that at any time between October 2,
2002 and January 2, 2003, Mr. Claude may notify NTL Inc. of his election to
surrender 300,000 of such stock options for a cash payment of $9,000,000.
Under the Plan, these options and any and all claims arising from or
related to these options, including claims of the type described in, and
subject to subordination under, section 510(b) of the Bankruptcy Code, are
classified as Class 16 Other Old Equity Interests And Claims. Accordingly,
under the Plan, the Old Options and Mr. Claude's "surrender rights" will be
canceled and he will neither receive nor retain any property on account of
such Old Options or "surrender rights" under the Plan.
Mr. Claude has notified the Debtors that he disagrees with the
Debtors' inclusion of his "surrender rights" within the definition of Old
Options and with the Debtors' classification of his "surrender rights" as
Class 16 Other Old Equity Interests And Claims, or generally as equity or
Interests, on the grounds that (a) his right to a cash payment in the
future, once matured and exercised, renders him an unsecured creditor of
NTL Inc. with a claim of at least $9,000,000 and (b) his "surrender rights"
are in the nature of debt, not equity, and are fundamentally different from
the Old Options he holds. The Debtors believe that their categorization and
classification of Mr. Claude's "surrender rights" is both legally and
factually appropriate, and intend to dispute any challenge thereto by Mr.
Claude.
7. Old Shareholder Rights Plan
The Old Shareholder Rights Plan provides that 0.48 of a right is
to be issued with each share of Old Common Stock issued on or after October
13, 1993. The rights are exercisable upon the occurrence of certain
potential takeover events and were to expire in October 2003, unless
previously redeemed or canceled by NTL Inc. When exercisable, each right
entitles the owner to purchase from NTL Inc. one one-hundredth of a share
of the rights preferred stock at a purchase price of $100. The holder of
rights preferred stock is entitled to a minimum preferential quarterly
dividend payment of $0.01 per share and an aggregate dividend of 208.33
times the dividend, if any, declared per share of Old Common Stock. On the
event of liquidation, the holders of rights preferred stock are entitled to
a minimum preferential liquidation payment of $1 per share and an aggregate
payment of 208.33 times the payment made per share of Old Common Stock.
Each share of rights preferred stock has 208.33 votes and can vote together
with the Old Common Stock. In the event of any merger, consolidation or
other transaction in which shares of Old Common Stock are changed or
exchanged, each share of rights preferred stock is entitled to receive
208.33 times the amount received per share of Old Common Stock. The rights
are protected by customary anti-dilution provisions. On the Effective Date,
the rights and the Old Shareholder Rights Plan will be canceled.
D. Events Leading To Chapter 11 Cases
1. Background To The Restructuring
Prior to 2001, NTL grew rapidly into one of the leading broadband
communications and broadband services companies in Europe, offering an
array of residential and business services to homes and business customers
throughout the UK, Ireland, Switzerland, France, Germany, and Sweden. More
than 20 million homes are located within the areas served by NTL Inc.'s
subsidiaries and those companies in which NTL has made investments,
covering major European cities including London, Paris, Frankfurt, Zurich,
Stockholm, Geneva, Dublin, Manchester, and Glasgow. NTL and the companies
in which it has invested collectively serve more than 8.7 million
residential customers.
Historically, NTL incurred operating losses and negative operating
cash flow. In addition, NTL has required significant amounts of capital to
finance construction of its networks, connection of customers to the
networks, other capital expenditures and working capital needs, including
debt service requirements. NTL historically met these liquidity
requirements through cash on hand, amounts available under its credit
facilities, vendor financing and issuances of high- yield debt securities
and convertible debt securities in the capital markets and convertible
preferred stock and common stock to strategic investors. Both the equity
and debt capital markets have recently experienced periods of significant
volatility, particularly for securities issued by telecommunications and
technology companies. The ability of telecommunications companies to access
those markets, as well as their ability to obtain financing provided by
bank lenders and equipment suppliers, has become more restricted and
financing costs have increased. During some recent periods, the capital
markets have been largely unavailable to new issues of securities by
telecommunications companies. NTL has been significantly affected by these
market changes, because it has lost access to its historic principal source
of capital.
Toward the end of 2001, while NTL continued to have sufficient
liquidity to meet its near term obligations, it recognized the negative
impact of the collapsing European and United States telecommunications
markets on its ability to service its debt. Accordingly, NTL began to
implement a strategy to preserve and maximize its enterprise value. This
strategy included the implementation of cost-cutting measures and the
commencement of discussions with certain third parties regarding strategic
alternatives for NTL's business. In early 2002, NTL began to consider ways
in which to restructure its outstanding debt and/or raise new funds through
the issuance of equity or additional debt to strengthen its financial
position. On January 31, 2002, NTL announced that it had appointed CSFB,
J.P. Morgan, and Morgan Stanley to advise on strategic and recapitalization
alternatives to strengthen its balance sheet, reduce debt, and put an
appropriate capital structure in place for its business. Since then, NTL
has considered various recapitalization alternatives and met with a number
of potential strategic investors. Discussions with such strategic investors
did not result in a proposal which the NTL Inc. board of directors believed
was comparable or superior to the value provided to the various
constituencies by the Plan.
Liberty Media Corporation ("Liberty"), one of such potential
strategic investors, which is also a significant shareholder in Telewest
plc, another UK cable and telephone company, has discussed various
transactions with NTL from time to time over the past several years. In
March 2002, Liberty and NTL amended a previously existing confidentiality
agreement between them to cover the Restructuring and to include a
"standstill" agreement which prohibited various acquisitions of, or offers
for, NTL debt or equity securities by Liberty and its subsidiaries until
June 30, 2002.
On April 17, 2002, Liberty sent a proposal to the NTL Inc. board
of directors which proposed a cash tender offer for 30% of the outstanding
bonds of NTL CC at a "small premium" to the prevailing market price and an
agreement to vote such acquired bonds in favor of the Plan, as well as a
"participation" with NTL in a cash infusion of up to $500 million into the
Cablecom Group. After consultation with the NTL Inc. board of directors and
the Noteholders' Steering Committee, on April 18, 2002, NTL indicated to
Liberty that it did not consider the Liberty proposal to be in the best
interests of NTL and that the best course of action for NTL to maximize its
enterprise value was to promptly consummate the Plan.
On April 2, 2002, NTL announced that it had completed the
previously announced sale of its Australian broadcast business to Macquarie
Communications Infrastructure Holding Pty Limited for A$850 million (United
States $448 million) in an all cash transaction. At that time, this
business' bank debt outstanding, which was subsequently extinguished,
totaled A$227 million (United States $118 million).
2. Interest Payment And Covenant Defaults; Failure To Pay Dividends
On April 1, 2002, NTL announced that its wholly-owned indirect
subsidiary, NTL CC, would not be making scheduled interest payments in the
aggregate amount of $74.3 million, in respect of NTL CC's 9 1/2% notes due
2008, 11 1/2% notes due 2008, and 117/8% notes due 2010. On April 15, 2002,
NTL CC did not make scheduled interest payments in the aggregate amount of
$20.2 million, in respect of NTL CC's 12 3/4% Senior Deferred Coupon Notes
due 2005, and on April 15, 2002 NTL Inc. and NTL Delaware did not pay cash
interest and related fees in respect of the NTL Inc. Subordinated Notes.
These payments were not made after consideration by NTL of requests by the
Noteholders' Steering Committee not to make such payments.
These non-payments, and the subsequent filing and commencement of
the Chapter 11 Cases constituted events of default under the Senior Notes
and the Subordinated Notes. For information on matters relating to events
of default under the Credit Facilities, see "Certain Matters Regarding New
NTL -- Certain Financing Matters -- Senior Credit Facility," "Certain
Matters Regarding New NTL -- Certain Financing Matters -- Working Capital
Facility," and "Certain Matters Regarding Euroco -- Certain Financing
Matters."
On December 31, 2001, February 15, 2002, and March 31, 2002, NTL
Inc. failed to declare and pay dividends on its Old Junior Preferred Stock
(in the amount of approximately $71.4 million), Old Senior Preferred Stock
(in the amount of approximately $6 million), and Old Junior Preferred Stock
(in the amount of approximately $70.8 million), respectively. Historically,
payment of dividends on NTL preferred stock was made in additional shares
of the class of NTL preferred stock in respect of which such dividend
payment was due. NTL Inc. did not declare and pay these dividends on their
respective dividend payment dates and, thereafter, due to a lack of
available surplus as required to be determined under Delaware law. Under
Delaware law, NTL Inc. cannot pay dividends on or redeem its capital stock,
including its preferred stock, unless it has available surplus to effect
such transaction.
3. Delisting Of Old Common Stock
On March 28, 2002, the NYSE, announced that it was suspending the
Old Common Stock from trading on the NYSE. This determination was based
upon, among other things, the selling price for Old Common Stock, which
closed at $0.20 on March 26, 2002. The continued listing standards of the
NYSE which were applicable to NTL required maintenance of a minimum share
price of $1.00 over a 30 trading day period and average global market
capitalization of $100 million over a 30 trading day period. The Old Common
Stock fell below both of these continued listing standards. In addition, on
May 9, 2002, Nasdaq Europe halted trading of the Old Common Stock pending
receipt of information relating to the Restructuring because of the filing
of NTL Inc.'s Chapter 11 Case. NTL Inc. has complied with this information
request, although there can be no assurance that Nasdaq Europe will (1) not
make additional information requests, (2) remove the trading halt on shares
of Old Common Stock, or (3) not delist the shares of Old Common Stock. The
Old Common Stock is currently quoted on the Over The Counter Bulletin Board
under the symbol "NTLD".
4. Negotiations With The Secured Lenders
In December 2001, while NTL was in discussions and negotiations
with the Secured Lenders and various potential strategic investors, the
Noteholders' Steering Committee was formed, the members of which currently
hold or manage more than 50% of the aggregate principal amount at maturity
of the Debtors' outstanding public notes. Before the Debtors could commence
negotiations with the Noteholders' Steering Committee, however, NTL needed
to obtain waivers from the Secured Lenders to avoid a default arising under
the terms of the Credit Facilities. Effective March 8, 2002, the Secured
Lenders granted the first set of Initial Waivers which, until March 29,
2002 provided that the Debtors' commencement of negotiations with the
Noteholders' Steering Committee with a view to rescheduling of their debt
would not constitute an event of default under the Credit Facilities. Such
Initial Waivers did not permit NTL to make an exchange or similar offer for
the Debt Securities, or to enter into a legally binding agreement with the
Noteholders' Steering Committee, subject to some exceptions.
Effective March 28, 2002, the Secured Lenders agreed to amend the
first set of Initial Waivers. The amendments to the Initial Waivers in
respect of the Senior Credit Facility and the Working Capital Facility
extended the duration of such Initial Waivers to April 29, 2002, unless the
interest payments missed by NTL CC on April 1, 2002 were remedied or a
sufficient number of Noteholders agreed to forbear in respect of such
non-payment, in which case the waivers were to be extended to May 14, 2002.
As a condition to the amendment to the Initial Waivers, the Secured Lenders
under the Senior Credit Facility and the Working Capital Facility required
NTL Delaware to provide the Delaware/NTL (UK) Group Note to the NTL UK
Group. Such loan was actually made (with the approval of the lenders under
the Senior Credit Facility and the Working Capital Facility) to NTL (UK)
Group, Inc., a Non-Debtor Subsidiary, and then on-lent to certain members
of the NTL UK Group. This loan was made following NTL Delaware's receipt of
the proceeds from its sale of the Australian broadcast business. This loan,
which was made on April 5, 2002, is structurally senior to the outstanding
Debt Securities issued by NTL CC and contractually senior to intra-group
debt owed by NTL (UK) Group, Inc. to NTL CC, but contractually subordinated
to the Working Capital Facility. In connection with the DIP Facility, it is
contemplated that the Delaware/NTL (UK) Group Note will be amended to
decrease its interest rate from 23% to 11% and to provide for the
Delaware/NTL (UK) Group Note to be guaranteed by NTL Inc., NTL CC, and
Cable Funding.
The amendment to the Initial Waivers in respect of the Cablecom
Credit Facility extended the relevant waivers to May 14, 2002. The
amendment to the Initial Waivers also contained a condition that the
Debtors should not commence voluntary proceedings, including cases under
Chapter 11 of the Bankruptcy Code, without the consent of the Secured
Lenders.
As of the date of this Disclosure Statement, there are no current
waivers from the Secured Lenders and the relevant members of the NTL group
are therefore in default under the Credit Facilities with the possible
consequences described in "Certain Matters Regarding New NTL -- Certain
Financing Matters" and "Certain Matters Regarding Euroco -- Certain
Financing Matters."
5. Negotiations With The Lenders Under The Cablecom Credit Facility
As of December 31, 2001, there were a number of technical defaults
under the Cablecom Credit Facility. In addition, Cablecom's and various of
its subsidiaries' liabilities exceeded their respective assets. As a
consequence, under Swiss law, those entities were deemed to be
"overindebted," and unless the overindebtedness was rectified those
entities would have been required to commence insolvency proceedings in
Switzerland. This overindebtedness also constituted an event of default
under the Cablecom Credit Facility which entitled the lenders to accelerate
repayment. Such an acceleration would have resulted in an event of default
under NTL Inc.'s and NTL Delaware's 5 3/4% convertible subordinated notes
due 2011 and 5 3/4% convertible subordinated notes due 2009.
On April 30, 2002, Cablecom reached an agreement with the lenders
under the Cablecom Credit Facility which, together with the implementation
of an intra-group transaction, resolved its overindebtedness. As part of
this agreement, the Cablecom Banks required the final maturity date of the
Cablecom Credit Facility to be brought forward to April 30, 2003. They also
required steps to be initiated towards the sale of all, or part of, or an
investment in, the Cablecom Group. For more information on the
sale/investment process, see "Certain Matters Regarding Euroco -- Cablecom
GmbH (Switzerland) -- Cablecom Group Outside Investment And/Or Sale
Process."
6. Negotiations With The Noteholders' Steering Committee And The
Preferred Shareholders
Beginning in January 2002, the Debtors were contacted by the
Noteholders' Steering Committee regarding the commencement of a
comprehensive and consensual restructuring process. On June 12, 2002, the
Noteholders' Steering Committee filed a statement with the Bankruptcy Court
under Rule 2019 of the Bankruptcy Code indicating that the members of the
Noteholders' Steering Committee currently own, in the aggregate, more than
50% of the outstanding principal amount of the Debt Securities. In
connection with the Restructuring process, the Noteholders' Steering
Committee retained advisors to facilitate the negotiations. At the request
of the Noteholders' Steering Committee, the Debtors agreed to reimburse the
Noteholders' Steering Committee for the fees and expenses of Fried, Frank,
Harris, Shriver & Jacobson, Cadwalader, Wickersham & Taft, and UBS Warburg
as advisors to the Noteholders' Steering Committee in connection with the
possible Restructuring. Promptly upon obtaining the requisite waivers from
the Secured Lenders, the Debtors commenced negotiations with the
Noteholders' Steering Committee and its legal and financial advisors. The
negotiations continued during the latter part of March and throughout April
2002, and also included the Preferred Shareholders. By April 16, 2002, the
Debtors had reached an agreement-in-principle with the Noteholders'
Steering Committee, France Telecom, and Appaloosa Management, L.P., the
holder of a significant amount of the Old Senior Preferred Stock, on the
terms of a reorganization of the Debtors, as reflected in the Plan.
7. Execution Of Heads Of Terms As To UK Credit Facilities
On May 2, 2002, the Heads of Terms were executed indicating the
parties' agreement-in-principle (on a non- legally binding basis) to the
terms of the proposed Restructuring and the terms on which the UK Credit
Facilities should be amended and restated with effect from the Effective
Date and with respect to certain matters relating to the Cablecom Group
sale/investment process. As of the date of this Disclosure Statement, the
Heads of Terms had been agreed by the UK Bank Steering Committee, the
Cablecom Bank Steering Committee, NTL Inc. acting on behalf of its
subsidiaries party to the Credit Facilities, the Noteholders' Steering
Committee, Senior Banks representing 91% of the principal amount
outstanding under the Senior Credit Facility, and all of the Working
Capital Banks. The Plan is conditioned upon the UK Credit Facilities being
amended and restated on terms acceptable to the Debtors and the Creditors'
Committee. The current terms of the proposed changes to the Senior Credit
Facility require 100% consent of the lenders under the Senior Credit
Facility under the written documentation governing the facility. Although
the Debtors are not aware of any objectors to the proposed changes other
than GE Capital, an affiliate of GE Capital Structured Finance Group
Limited, one of the lenders under the Senior Credit Facility, to the extent
the 100% approval is not obtained, the Debtors will explore other methods
of implementing the proposed transaction.
8. The Pre-Negotiated Reorganization Plan
The Plan, a consensual arrangement among the Debtors, the
Noteholders' Steering Committee, and the Preferred Shareholders, is
intended to streamline NTL's corporate structure and eliminate a
significant amount of debt from NTL's balance sheet. The Plan contemplates,
among other things, (i) the separation of the current businesses and
investments of the Debtors into two new groups, the holding companies for
which will be New NTL (currently NTL CC) and Euroco (currently NTL Inc.),
(ii) a pro rata distribution of 200,000,000 shares of New NTL Common Stock
(excluding shares issued in the Offerings, shares issuable upon exercise of
the Series A Warrants and shares issuable upon exercise of the New NTL
Management Incentive Options) to the holders of Senior Notes (excluding
Diamond Holdings Notes) and Subordinated Notes, (iii) the distribution of
Series A Warrants to purchase an additional 35,000,000 shares of New NTL
Common Stock (excluding Series A Warrants issued in the Equity Rights
Offering) to holders of Old Preferred Stock and Old Common Stock, (iv) the
distribution of 20,000,000 shares of Euroco Common Stock to the holders of
NTL CC Subordinated Notes, NTL CC Convertible Senior Notes, NTL Inc.
Subordinated Notes, NTL Delaware Subordinated Notes, Old Common Stock, and
Old Preferred Stock (in each case, other than France Telecom), (v) the
release of the Noos Interest to France Telecom pursuant to the Share
Account Pledge Agreement, and (vi) the issuance to holders of NTL Inc.
Subordinated Notes (other than France Telecom), NTL Delaware Subordinated
Notes (other than France Telecom), NTL CC Subordinated Notes and NTL CC
Convertible Senior Notes of the Euroco Preferred Stock (with an aggregate
liquidation preference ($1,000 per share) of $250 million, plus (x) the
Aggregate Investments, plus (y) the Euroco Cash, plus (z) accrued unpaid
dividends on the Euroco Preferred Stock).
In addition, the Plan contemplates the Offerings. Under the Equity
Rights Offering each holder of Equity Rights Eligible Preferred Stock and
Old Common Stock as of the Equity Rights Offering Record Date will receive
its pro rata share of Equity Rights to acquire 15,000,000 shares of New NTL
Common Stock exercisable on an oversubscription basis at the Equity Rights
Offering Price. Each share of New NTL Common Stock purchased in the Equity
Rights Offering will be accompanied by a Series A Warrant (maximum issuance
of warrants representing 15,000,000 shares of New NTL Common Stock) with a
strike price of $77.47 per share (which assumes a 162.5% recovery for NTL
CC Senior Notes, NTL CC Subordinated Notes and Diamond Cable Notes).
The Noteholder Election Option will permit each holder of NTL CC
Subordinated Notes, NTL Delaware Subordinated Notes (other than France
Telecom), and NTL Inc. Subordinated Notes (other than France Telecom) as of
the Noteholder Election Option Record Date to purchase (i) shares of New
NTL Common Stock using up to 100% of the Delaware/Inc. Cash Amount
distributed to holders of NTL Inc. Subordinated Notes (other than France
Telecom), NTL CC Subordinated Notes, and NTL Delaware Subordinated Notes
(other than France Telecom) pursuant to Article III.C of the Plan at the
Noteholder Election Option Price, plus (ii) any shares of New NTL Common
Stock and Series A Warrants not subscribed for in the Equity Rights
Offering on an oversubscription basis at the Noteholder Election Option
Price.
9. Prepetition Solicitation And Acceptance In Principle Of Plan
Following the April 16, 2002 agreement-in-principle and further
negotiations with the Noteholders' Steering Committee and the Preferred
Shareholders with respect to, among other things, the precise terms of the
Plan and the New Securities to be issued thereunder, the Debtors
distributed the Plan and draft of this Disclosure Statement (in
substantially the form hereof) to each of the members of the Noteholders'
Steering Committee and each of the Preferred Shareholders. As of the
Petition Date, the Debtors had received indications of acceptance of the
Plan from (a) all of the members of the Noteholders' Steering Committee,
(b) France Telecom and (c) the holder of a significant amount of Old Senior
Preferred Stock.
IV. CERTAIN MATTERS REGARDING NEW NTL
A. Businesses To Comprise New NTL
1. Overview
Following the Effective Date, New NTL's businesses will include
NTL's broadband communications operations in the UK and the Republic of
Ireland. New NTL will also own the joint ventures and other operations
described in "Certain Matters Regarding New NTL--Businesses To Comprise New
NTL--Other Operations." Unless otherwise stated, all information in this
section is as of December 31, 2001. For an update of certain information
with respect to New NTL's business and operations, see the Quarterly
Reports on Forms 10-Q for the three months ended March 31, 2002 for NTL
Inc. and NTL CC annexed to this Disclosure Statement as Exhibits C and F,
respectively.
2. Operations In The UK
Between 1998 and 2000, NTL expanded its UK operations
significantly, predominantly through acquisitions. Between June 1998 and
July 1999, NTL acquired the UK broadband operations of Comcast UK Cable
Partners, Diamond Cable, and ComTel as well as the Westminster and Milton
Keynes cable franchises of British Telecommunications plc. In December
1998, NTL CC acquired Eastern Group Telecoms Limited, which owned a fiber-
optic network across portions of England and a radio sites service serving
mobile phone operators, and in September 1999, NTL Delaware acquired
Workplace Technologies plc, a data network service integrator in the UK and
Ireland which has since been renamed NTL Business. In May 2000, NTL further
increased its UK operations by completing its acquisition of the
residential broadband and business cable operations of Cable & Wireless
Communications plc, also known as "ConsumerCo."
In the UK, NTL provides a broad range of communication services,
including: (i) ntl: home, delivering broadband services to residential
markets comprising residential telephone, analog and digital cable
television, narrowband and broadband Internet access, and interactive
services; (ii) ntl: business, delivering broadband services to business
markets, comprising business telecommunications, national and international
carrier telecommunications, narrowband and broadband Internet services, and
radio communication services; and (iii) ntl: broadcast, delivering digital
and analog television and radio broadcast transmission services, wireless
network design, buildout, and management, tower site rental, and satellite
and media services.
a. ntl: home
NTL is the largest provider of broadband services in the UK. As of
December 31, 2001, NTL had approximately 2.8 million residential cable
television and telephony customers and over 4.97 million revenue generating
units, referred to as RGUs. On that date, penetration rates were
approximately 35% telephone penetration, 29% cable television penetration,
and 37% customer penetration. Throughout 2001, NTL worked to streamline its
subscriber base, removing a backlog of approximately 45,000 non-paying and
non-profitable customers in the second half of the year. NTL removes
non-paying and non-profitable customers if its standard collections
procedures do not achieve a satisfactory result. The action taken to remove
non-paying customers provides NTL with a stronger customer base. The
average churn rate for the quarter ending December 31, 2001 was 21.3% on an
annualized basis. The average churn rate for the same period excluding
involuntary disconnects would have been 17.7% on an annualized basis.
In the UK, NTL's strategy to maximize revenues and penetration for
its residential offerings is to bundle together telephone, cable television
and Internet services. Product and pricing strategies emphasize choice,
value and quality, and are designed to encourage subscription to multiple
services to maximize customer retention and average revenue per customer.
Including capital expenditures made by the companies and businesses
acquired by NTL, NTL has spent approximately $11.2 billion on its network
infrastructure in the UK.
NTL's core network consists of optical fiber connected to
distribution points, or nodes, each typically serving up to 500 homes, from
which it provides coaxial cable and two-pair copper telephone wires into
each home. This cabling enables the provision of two telephone lines, an
analog or digital television service, and a high speed cable modem service
to each customer's home.
NTL's cable modem service has been engineered to provide high
quality residential high speed Internet access service. The service is
therefore able to support small businesses and people who work from home,
and enables them to link to a company's local area network, or LAN. NTL has
in place the latest network technology using Internet Protocol, or IP, over
optical fiber cable technology in its core backbone network. This
technology, in which data is broken up into discrete packets for
transmission, enables more efficient use of network capacity, meeting
growth at lower unit cost and positioning NTL to provide high-speed
broadband access on a mass scale.
i. Internet Access
In March 2000, NTL announced a plan to offer its residential
customers throughout the UK free, unlimited Internet access via their
personal computers or, where available, televisions. This Internet service
is called "ntlworld" and became available to some of NTL's customers in
April 2000. As of December 31, 2001, NTL had approximately 695,000 dial-up
ntlworld customers and 29,000 customers who use this service via digital TV
access within its local franchises.
Since the launch of ntlworld, as Internet penetration has grown
and Internet usage has increased, the trend in UK Internet pricing has been
towards offering unlimited Internet access for a higher fixed charge. In
January 2002, NTL announced its decision to begin charging its customers
for the ntlworld service and the launch of two new packages: "Pay as you
go," a metered service at 1 penny per minute; and "Unlimited," an unmetered
service at (pound)10 per month. All subscribers to the free ntlworld
service will be transferred to either "Pay as you go" or "Unlimited" during
2002. Existing ntlworld customers will benefit from a (pound)5 per month
price for "Unlimited" for a period of time.
In 1999, NTL was the first communications provider in the UK to
launch a high-speed cable modem Internet service, which links customers of
its local cable franchise networks to the Internet at up to ten times the
speed possible over standard telephone lines. As of December 31, 2001, NTL
had approximately 118,000 cable modem customers. Approximately 80% of NTL's
networks are currently able to provide this service to its customers. NTL's
high-speed Internet service currently operates at a speed of up to 2.0 Mb/s
(megabytes per second, a measure of the speed of data transfer) and is
offered at minimum delivery speeds of 128 Kb/s (kilobytes per second),
512Kb/s or 1Mb/s. The service is an "always on" service, removing
logging-on delays and the need to log off while using the telephone. The
service uses the hybrid fiber coaxial cable portion of NTL's broadband
network, which allows customers who also subscribe to a telephony service
to simultaneously make or receive telephone calls while accessing the
Internet. The 128 Kb/s and 512 Kb/s services are currently offered at flat
rates of (pound)14.99 and (pound)24.99 per month, respectively, including
the rental of a cable modem. This compares with the newly announced prices
for Freeserve and BTOpenworld 512Kb/s ADSL services of (pound)29.99 per
month plus purchase of the modem. In the first quarter of 2002, NTL
launched a 1 Mb/s modem offer at a price of (pound)49.99 per month. NTL is
currently the only provider offering 1 Mb/s service in the UK.
ii. Franchise Customers
NTL first introduced a bundled cable service to its franchise
customers in 1996, when it implemented a promotional pricing and packaging
structure called "Choices." Since then, NTL has continued to refine and
enhance its offering. The packages NTL currently offers to its UK
residential franchise customers, excluding customers in Milton Keynes and
Westminster, where it plans to launch broadband in 2002, and in some former
CWC franchises which only offer cable television, comprise:
o telephone service, including a second telephone line for an
additional charge (99% of potential customers are now offered
the "3-2-1" simplified telephone rate plan);
o narrowband Internet access service, if the customer takes a
telephone service (97% of potential customers can subscribe
for ntlworld flat rate narrowband Internet service);
o broadband Internet access service (two thirds of potential
customers can subscribe for 128 Kb/s or 512 Kb/s broadband
Internet service);
o all of the current terrestrial television channels and access
to multi-channel television, including pay-per- view; and
o interactive television services.
NTL's packaging and pricing are designed to encourage its
customers to use multiple services such as dual telephone and broadband
Internet access, dual telephone and narrowband Internet access, dual
telephone and TV, or triple telephone, TV, and Internet access. Only
telephone, with its low capital expenditures requirements and high margins,
is available widely as a stand-alone single product. Of NTL's competitors,
only Telewest, which does not offer its full range of services in NTL's
franchise areas (just as NTL does not offer its full range of services in
Telewest's franchise areas), is able to offer the full range of services
NTL provides (see table below).
Internet TV Telephone
-------- -- ---------
NTL / / /
BT / / /
BSkyB X X /
Telewest / / /
iii. Cable Television
The selection of analog cable channels that NTL currently offers
to its franchise customers varies based on the particular franchise area.
This variation is a result of the different channel offerings NTL has
inherited as a result of its acquisitions of various cable franchises over
the past several years. Variation between franchise areas will increasingly
be removed as digital cable television is rolled out offering the same
channels, subject to regional programming variations. In addition to
offering many of the popular channels available on BSkyB's satellite
platform, NTL also offers to all of its franchise customers, through its
joint venture with Telewest, a cable-only movie, sport and special events
pay- per-view television service called "Front Row" that NTL began to roll
out to its customers in March 1998. NTL's joint venture with Telewest
represented the first ever alternative in the UK to BSkyB in the provision
of films and sports events through pay television. Front Row has signed
content output contracts with major Hollywood studios, including Warner
Brothers, Sony Pictures Entertainment (Columbia/Tri-Star), the Walt Disney
Company (Walt Disney Studios, Miramax, Hollywood Pictures and Touchstone),
Dreamworks, MGM and Universal.
iv. Interactive Services
NTL has moved rapidly to take advantage of the convergence between
the Internet and television and the advent of digital cable television. NTL
is currently aggregating a broad range of interactive content into a
service that can be deployed as part of its interactive television offering
to its residential customers. NTL's interactive offering comprises a free
television e-mail service, a "walled garden" of partner websites that have
been specially redesigned for television and an online customer service
application that allows select customers to see their NTL bill via the
television.
NTL has established relationships with over 75 content providers
to deliver a wide range of interactive services, including education,
shopping, banking, finance, travel, entertainment, games, news, sports, and
local content. Interactive content is organized into channels, including
news, sports, travel, lifestyle, money, entertainment and shopping. NTL's
partners include Sainsburys, Iceland, QVC, WHSmith, HMV, and Domino's
Pizza. The travel channel includes content partners such as Go Airlines,
Thomas Cook, Travel Select, and Teletext and the money channel features
content partners such as Abbey National, Halifax, and Bloomberg.
NTL also offers additional channels providing up-to-date news and
weather information, games and educational content. Where appropriate, its
contracts with content providers require the payment of tenancy fees as
well as commissions on e-commerce transactions. NTL also derives revenues
from the advertising opportunities that exist across its interactive
service offering.
v. Telephony
In 1999, NTL launched the NTL "3-2-1" call plan for its
residential franchise customers in the UK, under which national and local
calls cost only three pence per minute during the day, evening calls cost
two pence per minute, and weekend calls cost one pence per minute. NTL is
able to offer this plan by using its national telecommunications and local
networks to bypass a portion of the wholesale long distance fees which
would otherwise be charged by BT and other carriers for carrying calls to
and from NTL's local franchise networks. In 2002, NTL began the roll-out of
its "Talk Unlimited" service, whereby customers can make unlimited calls on
evenings and weekends to local and national fixed line numbers for a flat
fee of (pound)8 per month in addition to their standard line rental.
vi. Indirect Access
On November 7, 2001, NTL announced the sale of the right to offer
services to approximately 230,000 indirect access telephone customers to
npower Communications Limited, a subsidiary of Innogy, for approximately
(pound)23 million ($33 million) including the collection of certain future
service revenues and existing receivables.
NTL acquired these indirect access customers as part of the
acquisition of the residential businesses of CWC in May 2000. However, as
these customers were not connected to NTL's national backbone network, they
could not benefit from NTL's simplified calling tariffs, cost base or
dial-up Internet service. Rather than risk the substantial churn associated
with the process of migrating the customers to the NTL network and
services, NTL determined that the sale of the customer base would result in
the highest realizable value of the asset.
As of December 31, 2001, NTL had approximately 118,000 off-net
customers (customers who are not directly connected to NTL's network) of
which approximately 89,000 are also customers of NTL's ntlworld Internet
service. NTL does not incur the unfavorable interconnect costs that were
related to servicing the CWC indirect access telephony customers
transferred to npower Communications Limited because NTL's continuing
off-net indirect access customers are served by NTL's national network.
vii. Customer Management Systems
For most of its franchise areas, NTL uses advanced billing and
customer management systems which enable it to control all aspects of a
customer's account for both telecommunications and television services. NTL
currently operates a number of billing systems inherited from the different
operations it has acquired. NTL is in the process of merging these
different systems onto a single platform, which it expects will reduce
costs and improve customer satisfaction.
b. ntl: business
The primary objective of NTL's business services division in the
UK, "ntl: business," is to provide a comprehensive range of voice, data,
and application based communications services for its business customers
which incorporates both private and public sector organizations including
AOL, Orange, Virgin.net, Vodafone, the Metropolitan Police, TXU and TUI.
Within the private sector NTL focuses on the areas of finance, utilities
and travel. Within the public sector NTL has a substantial share of the
market fulfilling the telecommunications requirements of the emergency
services, local government, and educational establishments.
NTL's business strategy is to exploit fully its superior network
capability and place an increasing emphasis on broadband products and
services. Rather than simply offering customers a lower price for their
existing service, NTL offers a package of services designed to address all
their communications needs at a price that offers good value. For smaller
business customers, NTL provides a range of bundled packages based on its
standard services and standard terms and conditions. For larger customers,
NTL offers services that are tailored for their specific needs.
ntl: business has developed a diverse portfolio of skills and
services through both product development and a number of significant
acquisitions. Beginning in 2000, NTL commenced a program to integrate the
skills and abilities of employees from Workplace Technologies, X-Tant, and
ConsumerCo's small business team with those of the existing business
telecom operations, to create a single integrated portfolio and customer
support organization. Another example of this strategy was the acquisition
in the third quarter of 2001 of the UK assets and contracts of Viatel UK.
Viatel was a provider of managed data and voice services to UK based
corporate companies and also provided voice services to resellers, voice
and Internet services to wholesalers and managed data services to other
European managed service providers. In addition, NTL continues to focus
specific sales and marketing efforts on winning business customers in its
franchise areas and increasing revenue from its existing customers.
Since August 1, 2001, ntl: business has been structured into three
key business units within the overall UK communications market. These
business units are Retail, Managed Network Services (incorporating the
Mobile, Enterprise, Public Safety, and Virtual Internet Service Provision
divisions), and Carrier Services. The segmentation enables NTL to develop a
deeper understanding of its customers' businesses which enables it to craft
specific solutions and trading alliances appropriate for each specific
market. The discussions below reflect the old structure of ntl: business.
NTL's network already passes within 200 meters of more than
570,000 business premises in the UK. However, as a result of the reach of
its national network, NTL can serve a substantial portion of the UK's
approximately 1.2 million business premises through means such as indirect
access. These premises host approximately 1.5 million business customers.
NTL believes that the architecture and reach of its network infrastructure
has positioned ntl: business to play a leading role in the delivery of
broadband services to UK businesses in the future. NTL plans to exploit
demand for broadband services primarily through its broadband cable modem
product which was launched in the second quarter of 2001, and its E-1
Direct Internet Access Service. NTL will continue to market its standard
products and services ranging from telephony and Internet access to data
and e-commerce and managed services. These services will be delivered via
copper wire, coaxial cable, optical fiber and wireless networks.
i. Retail And Enterprise
In its local direct markets (Retail), NTL's approach is to "think
nationally but act locally." In its business markets, NTL's approach is to
enable businesses to become more efficient and effective. NTL's focus is on
small to medium sized businesses.
NTL's business model for dealing with small businesses has changed
over the last eighteen months. In October 2000, NTL opened a new small
business call center which uses telephone account management techniques to
sell and service a range of simple business bundles for smaller businesses
across the UK. Under its new business model, NTL has developed
sophisticated marketing programs for its target customer base. In the
second quarter of 2001, NTL added broadband services to the business
bundle. In December 2001, NTL launched its new web site allowing customers
to select a range of products and view their bills online.
Across these market sectors, NTL plans to utilize its national
capabilities and the expertise of its market focused account management and
technical support teams to target specific business sectors and increase
penetration.
As of December 31, 2001, NTL had approximately 76,000 business
customers with an average of 5.1 lines per customer for a total of
approximately 380,000 retail business telephony lines installed in the UK.
NTL offers the following business products and services to its business
customers:
o Access Services that connect customers to NTL's network for
inbound and outbound voice and data calls, including
additional analog business exchange lines, or BELs, and
digital business exchange lines, or DELs. DEL services
include basic rate access, also known as ISDN2, and primary
rate access, also known as ISDN30. NTL believes these and
other direct and indirect access services are priced
competitively and are often in competition with similar
services provided by a number of other direct and indirect
suppliers. In the second quarter of 2001, NTL launched a
business cable modem service that enhances the delivery of
broadband services to NTL's business customers.
o Managed Voice Services/Virtual Private Networks that are best
illustrated by NTL's central exchange "Centrex" service.
Through this service NTL provides its customers with business
exchange lines configured as a "virtual PABX," where it
provides the services normally associated with a traditional
PABX (a device which routes calls through the internal lines
at a customer's premises) located at a customer's premises.
These services are provided on a rental basis which allows
its customers to avoid the expense associated with an
outright capital purchase and maintenance costs.
o Managed Data Services that include point to point private
circuits at speeds of multiples of 64 Kb/s and individually
tailored 100 Mb/s and 155 Mb/s services. Other services
include the provision of inter-site data services with
particular transmission protocols, such as Internet Protocol
also known as TCP/IP, Frame Relay, and ATM.
o Managed Local Area Networks (LANs), to support the developing
needs of its business market, through significant
capabilities that enable NTL to fully manage LANs or to
design, project manage and integrate new LAN platforms for
its customers.
o 08xx Services that include free local and national call
services together with a range of other routing features
based on NTL's network. These services enable customers to
manage inbound calls and establish varying tariffs for their
customers to contact them.
o Internet Services, to provide its customers with the tools
they require to build their e-business services including
dedicated, high-speed Internet access services, web hosting
services, and individually tailored applications securing and
protecting their e-businesses. The range of services NTL
provides also includes the provision of simple, inexpensive
software to enable its customers to begin doing business over
the Internet.
NTL has a variety of alternative methods to carry its national
telecommunications network over the "last mile" to the premises of those
customers which are located outside of NTL's franchise area:
Obtaining permits to construct telecommunications networks, and
building out NTL's network to reach its customers. Although this is often
the most costly means of reaching a customer, the expense can be justified
in the case of larger customers or where a significant level of traffic is
obtained from a customer. For example, NTL has extended its fiber optic
network within London to reach and support CNN's facilities.
Leasing circuits on the local networks of other service providers
to connect to NTL's customer's premises. Although this may reduce the
operating margin on a particular account, it requires significantly less
capital expenditures than a direct connection, can often be put in place
relatively quickly and can be replaced at a later date if traffic volumes
justify it.
Connecting customers to its national telecommunications network by
implementing microwave radio links which utilize NTL's significant tower
infrastructure to connect its network to its customers, using digital point
to point microwave radio links. Alternatively, NTL believes its license to
operate radio fixed access services on a national basis throughout the UK
at the 10 Ghz frequency, could enable it to use "wireless local loop"
technology to connect its network to its customers, although NTL is not
currently utilizing this approach. Either of these two methods requires the
installation of a mini-tower site on the roof of the customer's premises to
receive and broadcast data. "Wireless local loop" connectivity would enable
a radial transmission to a number of sites surrounding the mini-tower
whereas point to point connectivity enables transmission between two points
only.
ii. Public Safety
In addition to meeting the traditional voice and data requirements
of businesses throughout the UK, NTL offers a full range of communications
services, including the design and operation of radio networks and the
provision of support, maintenance, and facility management services to
customers who provide public safety services to the community. NTL's
customers include primary providers such as police, fire, and ambulance and
secondary providers such as H.M. Prison Service, H.M. Coast Guard, and the
Royal National Lifeboat Association. NTL has been servicing a significant
portion of the radio installation and maintenance market for public safety
in the UK for a number of years and its public safety customers provide it
with a relatively steady source of revenue.
NTL intends to position itself to increase its activities in the
public safety sector from facilities and maintenance activities into
complete outsourcing arrangements. NTL believes that the majority of the
British public safety services will move from their current service
arrangements into outsourcing and the provision of fully managed services.
NTL believes it has already established a strong position in outsourcing
services and facility management for these mission critical customers, and
plans to continue to build on its existing relationships with current
customers. An example is London's Metropolitan Police Authority (New
Scotland Yard), for which NTL manages communications services for over
25,000 police officers.
iii. Wholesale (Carrier Services, Mobile, And VISP)
NTL's wholesale markets group's main focus is the supply of UK
infrastructure and bandwidth to national and international
telecommunications operators. NTL's national and local networks are used to
interconnect these carriers to cities in the UK and Ireland. NTL wholesale
has seen continued growth over the last five years, and has successfully
positioned itself as a major supplier of wholesale services. NTL expects to
continue to serve the wholesale marketplace through its strategy of
providing high quality and competitively priced services that can be
customized where necessary.
Customers include fixed line and mobile telecommunications
operators, such as Colt, Internet service providers, or ISPs, such as AOL,
other cable operators, and various information technology and facilities
management companies. NTL has developed a successful business supplying
core interswitch network capacity. A dedicated team addresses the needs of
the UK mobile operators, with NTL having commercial relationships with the
four incumbent mobile operators, including being a major supplier to
Vodafone and Orange.
NTL has assisted in developing a new commercial and technical
model for the supply of networks to the mobile operators. These
developments culminated in its being awarded, in April 2000, a five-year
(pound)150 million contract by Orange. A key element of the contract, by
which Orange outsources the maintenance and provisioning of that network,
is the extension of NTL's existing core network. All five third generation
mobile operators in the UK will need to put in place network and services
to support 3G services, and NTL intends to work to define and co-ordinate
its strategy for supporting 3G services.
A growing area of NTL's wholesale business is selling voice
termination services to a wider mix of operators, and using these
relationships to reduce the cost-base for its telephony traffic by: (i)
creating a self-sustaining revenue stream; (ii) establishing commercial
relationships with wholesale customers thus enabling it to cross-sell and
up-sell other products; and (iii) generating revenue and cost reduction
opportunities for other parts of NTL.
The growth in the number of international operators building and
operating submarine cable systems in recent years has been substantial,
with many of the cables crossing the UK. NTL has considerably increased its
physical connectivity to UK international cable landing stations and
developed products to address the needs of the international cable
operators for carrier services between the cable landing sites and the
major UK international nodes such as Telehouse, London.
Utilizing NTL's ATM national network, NTL has developed Frame
Relay and ATM wholesale products to meet demand for high-speed data
connectivity. Additionally, NTL's core data network, local loop
infrastructure, and connectivity to the main international nodes, will
allow it to address the needs of international operators for the
termination of UK-bound and origination of UK-generated data traffic.
In addition to wholesale telecommunications and data services, NTL
also offers wholesale Internet access solutions including network services,
call center operations, and customer provisioning and billing to UK ISPs
and other corporate customers which would like to expand their Internet
presence. This service was launched in 1995.
c. ntl: broadcast
NTL owns and operates wireless communication and broadcast
transmission infrastructure in the UK. NTL provides its customers with
enhanced products and services through its broadcast network, modern
equipment, and innovative facilities management expertise. Its customer
base includes over 1,000 companies, including all of the leading UK mobile
wireless operators and all major commercial television and radio
broadcasters.
Through its subsidiary National Transcommunications Limited, NTL
has a proven history of developing new products and services to meet the
needs of its customers and drive the growth of our business. These
developments include the implementation of Teletext, a text based data
service transmitted with the analog television signal, the implementation
of NICAM in the 1980s enabling the transmission of digital stereo and Dolby
audio over analog television transmissions, and most recently the design
and implementation of the world's first digital terrestrial television and
digital audio broadcasting networks and services for its UK broadcast
customers.
NTL provides products and services to three distinct market areas:
o Site Leasing And Services. NTL operates the second largest
independent portfolio of wireless towers and sites available
for lease in the UK. In total, NTL operates approximately
2,370 sites in the UK as of December 31, 2001, up from
approximately 600 sites in May 1996. As of December 31, 2001,
NTL leased space on its towers to more than 4,200 site
customers, and also offers specialized services such as "In-
Building," a wireless connectivity that can enhance wireless
coverage in high-traffic areas such as shopping malls, office
buildings and conference centers.
o Broadcast Transmission And Services. NTL owns and operates
one of the two television broadcasting infrastructure
networks in the UK. Additionally, NTL has national, regional,
and local radio broadcast infrastructure networks in the UK.
NTL developed the first commercial digital terrestrial
television service in 1998 and the first commercial digital
radio station in 1999. Because, unlike broadcasters in the
United States, NTL owns and operates not only the towers but
also the broadcast transmission infrastructure, its broadcast
customers rely on NTL's network and package of integrated
turn-key services to distribute and broadcast their content.
o Satellite And Media Services. NTL provides satellite and
media services in the UK and value-added services such as
playout, fixed and mobile satellite up-linking, and a wide
range of occasional and outside broadcast services to
generate incremental revenue. NTL's ability to offer a full
range of services from content gathering, distribution and
transmission is unique in the UK market.
NTL's broadcast and wireless customers generally hold long term
licenses and enter into service agreements with it that typically last 10
to 15 years.
i. Site Leasing And Services
NTL operates a UK wireless infrastructure network of approximately
2,370 multi-user sites as of December 31, 2001. NTL owns, leases, or
manages approximately 1,570 UK sites and has access to approximately 800
undeveloped sites. NTL's primary business is the leasing of antenna space
on NTL's sites to a diverse range of wireless service providers, including
providers of mobile telephony, paging, specialized mobile radio, or SMR,
and wireless local loop services. NTL has also developed a range of
complementary services that utilizes NTL's tower expertise, including
infrastructure services, site selection and acquisition, design and
construction, antenna installation, network planning and management, and
tower maintenance.
NTL's network in the UK is national in scope and includes most of
the major population centers and highways. NTL's wireless customers
currently include all of the UK mobile telephony operators, including
Vodafone, 02 (formerly known as BT Cellnet UK), Orange, T-Mobile (formerly
One2One) and Hutchison 3G, all the major paging companies, and many of the
UK's largest wireless telephony carriers, including BT, Cable & Wireless,
and Thus.
Second generation wireless services have been the major driver of
NTL's growth to date, but the advent of third generation wireless services
is expected to drive further revenue growth. During 2000, the UK government
awarded five national Universal Mobile Telecommunications System, or 3G,
licenses each for a duration of 20 years, commencing January 2002. These
licenses have been awarded to four existing operators, all of whom are
existing wireless customers of NTL, and to one new entrant. Under the terms
of these licenses, each operator will provide services to at least 80% of
the UK population by December 2007. Construction of these networks has
commenced in 2001 and is expected to generate significant further demand
for suitable existing and new sites over the next few years. The increased
demand for suitable sites is driven by the greater bandwidth and different
range characteristics of 3G technology, inherently requiring a greater
number of sites than 2G technology.
The dramatic growth of wireless communications necessitates good
cellular coverage in all commercial areas, leading to a requirement for
reliable wireless communications infrastructure inside buildings. NTL
believes this creates a new type of radio site which, unlike towers, will
exist within commercial buildings, transport hubs, shopping malls and other
large buildings. NTL's analysis shows that there are approximately 2,000 of
these types of commercial properties in the UK. As of December 31, 2001,
NTL had built shared coverage systems in 26 large buildings including
Bluewater, Britain's largest shopping complex, and part of London's Canary
Wharf complex.
Building on the technology NTL developed for In-Building services,
NTL is exploring with UK mobile operators ways of using its fiber network
to solve the distance, coverage and power problems associated with 3G
rollout in urban areas. Although in an early stage of development, NTL
believes that a solution utilizing small low-profile antennas, positioned
on buildings and other street level infrastructure and connected via NTL's
fiber network to remote base stations, could improve coverage and service
quality compared to more traditional rooftop sites for 3G technology.
ii. Broadcast Transmission And Services
NTL has been involved in broadcast television since the 1950s when
it designed and built the television transmission system for the UK's first
independent commercial television network. Through its national
infrastructure of owned and shared transmission sites and its owned network
of transmitters in the UK, NTL provides broadcast signals for the three
commercial national television channels in the UK (ITV1, Channel 4, Channel
5), a number of more recently established commercial channels through the
UK Digital Broadcast multiplexes, and many of the UK's independent local,
regional and national radio broadcasters.
An attractive feature of NTL's broadcast contracts is its
ownership of both towers and transmission equipment responsible for
generating the broadcast signal. As a result, the contracts increasingly
have become end to end solutions including all technical and service
aspects of providing the transmission for the broadcaster. In essence, TV
and radio station owners are programmers and NTL is the broadcaster. NTL
has used this as an opportunity to develop strong relationships with its
customers, which in turn has helped it to better understand their needs and
customize new services for them.
Television broadcasting. NTL provides digital and analog broadcast
transmission services for national and regional television broadcasters.
The analog network provides coverage to 99.8% of the UK population, with
approximately 3,500 broadcast transmitters. NTL's extensive television
broadcast customer base includes all of the UK commercial terrestrial
television broadcast companies consisting of the ITV national network of 15
affiliated stations, the national services of Channel 4 and Channel 5, as
well as the regional service S4C in the UK.
NTL provides digital terrestrial broadcast transmission for two of
the three commercial national digital television services in the UK. These
services carry up to 12 separate channels, including the ITV network,
Channel 4, Channel 5 and a range of new digital channels and services such
as pay-per-view. As of December 2001, NTL was operating 80 digital
terrestrial television transmitting stations reaching approximately 88% of
the UK population.
Digital broadcast systems require a more complex engineering
design than their analog predecessors. NTL has exploited this by extending
its range of services to include tower leasing and transmission services
(as with analog) plus "end-to-end" system integration and service ranging
from studio playout centers to terrestrial transmission. This has the twin
benefits of enlarging the total market available from broadcasting and
further differentiating NTL as a unique provider able to offer towers,
transmission and system integration services for digital television.
Radio broadcasting. NTL is one of two major companies providing
transmission sites and services to the radio industry in the UK. NTL offers
a range of services to radio broadcasters including target service area
planning, site location, installation and commissioning, and equipment
selection, procurement, operation, monitoring and maintenance. NTL believes
that it is a supplier of transmission services to a substantial portion of
the addressable market. NTL's radio broadcast customer base includes two of
the three national commercial stations, Classic FM and Talk Radio, more
than 200 metropolitan, regional and local stations, and the first all
digital radio station, Digital One, of which NTL is a founding equity
partner with a 37% equity interest. As a result of the Chapter 11 Cases,
the other shareholder of Digital One has certain rights to compulsorily
acquire NTL's interest at a third-party appraisal valuation. NTL has a
contract for the transmission of Digital One with a lifetime value of
approximately Li.60 million; this contract is independent of NTL's
shareholding in Digital One. The UK government has embarked on a program of
licensing a number of new regional and local digital radio multiplexes. As
of December 31, 2001, NTL had secured contracts to build transmission and
supporting network for 24 of the 27 licenses awarded so far.
iii. Satellite And Media Services
NTL owns and operates satellite up-linking facilities consisting
of over 30 fixed satellite up-link dishes able to access more than 50
satellites with global coverage, a network of mobile and transportable
up-links, management and control systems, and all associated operations and
maintenance. NTL provides its satellite customers with program and content
distribution services for more than 160 full-time channels via satellite
and fiber. In addition, NTL has facilities for playout services, remote
satellite news gathering, and full outside broadcast. Through an alliance
with Williams Vyvx, a Williams Co. company, NTL's customers also have
access to 48 cities in the United States.
NTL has expanded its service offerings over time to meet the
growing needs of its customer base as new technologies create new broadcast
markets. As a way to add incremental revenue, NTL has begun to integrate
backwards with its existing customers by offering value added services.
Such service developments include:
o establishment of playout services, which enable it to take
ownership of the customer's transmission needs from the point
that such customer delivers the program or content and needs
a channel to be created. NTL is then responsible for all the
operational issues related to the broadcast of that content.
NTL has a state-of- the-art playout facility outside of
London designed to meet the rising demand from broadcasters
across Europe; and
o offering a range of occasional use broadcast services that
allow media content providers to outsource their off-site
broadcasting needs, whether it be for breaking news, sports
events or music concerts, and still deliver the desired
content to their customers via NTL's mobile equipment.
NTL's Satellite and Media customers include programmers who own
and operate packages of content or channels, news agencies, sports
broadcasters and production companies. NTL's customer list includes such
market leaders as AOL/Time Warner (CNN, Turner, Cartoon Network), BBC,
Discovery Channel, QVC, Reuters, the Associated Press and BSkyB.
3. Operations In The Republic Of Ireland
In July 1999, NTL acquired Cablelink Limited, now known as NTL
Communications (Ireland) Limited ("NTL Communications Ireland"), in the
Republic of Ireland, which then had more than 400,000 franchise homes in
Dublin, Galway and Waterford.
NTL Communications Ireland provides cable television services in
Dublin, Galway and Waterford to more than 370,000 subscribers. As of
December 31, 2001, NTL Communications Ireland had an 83.4% penetration rate
over its broadband cable network, which passes over 440,000 homes. NTL
Communications Ireland holds licenses to provide analog and digital
television services in its franchises for the next 12 years. NTL
Communications Ireland also has a full service license allowing it to
provide public telephony, Internet, and other value-added services
throughout the Republic of Ireland. Business services provided in the
Republic of Ireland include business telecommunications and Internet
services. Based on the 12 months ending December 31, 2001, NTL's revenue
breakdown in the Republic of Ireland is approximately 85% residential and
15% business.
NTL's strategy for 2002 in the Republic of Ireland is to maximize
penetration of its digital television service, while also trialing its
broadband Internet service. As in the UK, product and pricing strategies
emphasize choice, value and quality and are designed to encourage
subscription to multiple services and to maximize customer retention and
average revenue per customer.
a. Cable Television
In the Republic of Ireland, NTL currently offers both an analog
and digital television service within its three network service areas. The
analog service has a basic pack of 15 television channels and is considered
very competitive with the emphasis on the quality of the service offered.
It carries every Irish and UK terrestrial channel and a selection of
quality satellite channels. Analog subscribers have the option to upgrade
their analog service to include premium sports and movie packs.
NTL's digital television service in the Republic of Ireland was
launched in September 2001 in all network service areas and is currently
available to 90% of NTL's customer base. The digital service packaging and
pricing strategy encourages NTL's analog subscribers to upgrade to the
digital service while retaining the basic analog entry pack. NTL provides a
single digital television pack offering a wide selection of digital
channels with a low entry price point. If subscribers upgrade to digital
further revenue can be generated by encouraging uptake of additional
services such as premium sports and movie services, special interest
channels, and a movies-on-demand service - "Front Row." NTL currently has
18,000 digital subscribers.
b. Telephony
NTL provides an indirect Carrier Pre Select (CPS) telephony
product to approximately 2,200 customers. This service is available to both
residential and business customers. NTL plans to upgrade these customers to
direct telephony as its network is upgraded. Currently NTL also offers
direct telephony to a limited number of customers.
In addition, NTL offers business customers a primary rate ISDN
service. This is delivered via a 2Mb/s circuit over fiber directly into the
customers' premises. It is suitable for larger customers requiring a
minimum of 30 lines.
c. Internet
NTL provides a dial-up Internet service to 2,993 existing
telephony customers (both direct and indirect). NTL is currently conducting
trials for a broadband Internet service in West Dublin, offering a 128Kb/s
and a 512Kb/s service. Customers have the option to rent the cable modem
for (U)5 a month and the monthly charge for the service range is (U)25 or
(U)35 depending on the option chosen. To date, NTL has achieved a 20%
penetration level within the specific trial area.
NTL provides dedicated lines to business customers in its Dublin
franchise for Internet access with speeds ranging from 64Kb/s to 34Mb/s.
NTL also sells leased lines in Dublin to customers requiring connectivity.
One of NTL's business objectives is to achieve higher penetration within
large corporate businesses based in the Dublin region.
d. NTL's Network In The Republic Of Ireland
The network which NTL acquired in the Republic of Ireland upon the
acquisition of Cablelink Limited consisted of coaxial copper cable. During
2000, several fiber optic rings were added to the network in Dublin which
will enable approximately 10% of residential homes on the network to
receive NTL's broadband Internet service.
4. Other Operations
In addition to NTL's communications operations in the UK and the
Republic of Ireland, New NTL will have investments in a virtual ISP,
VirginNet, a pay-per-view content provider, Front Row, joint ventures with
UK digital television and radio licenseholders and a calling card business.
But see "Certain Matters Regarding New NTL -- Risk Factors Relating To New
NTL -- Uncertainty Regarding New NTL's Interests In Joint Ventures."
5. Competition
NTL faces significant competition from established and new
competitors in the areas of residential telephony, business
telecommunications services, Internet, and cable television.
a. Competition In The UK
i. Consumer Services
NTL competes primarily with BT in providing telephone services to
residential customers in the UK. BT occupies an established market position
and manages fully built networks and has resources substantially greater
than NTL's. According to the Office of Telecommunications, or OFTEL, in
September 2001, BT serviced 81.29% of UK residential telephone exchange
line customers. NTL's growth in telecommunications services, therefore,
depends upon its ability to convince BT's customers to switch to its
telecommunications services. NTL believes that value for money is currently
one of the most important factors influencing the decision of UK customers
to switch from BT to a competing telecommunications service. BT has,
however, introduced price reductions in some categories of calls and, due
to regulatory price controls, BT will be making further reductions in its
telecommunications prices. Accordingly, although NTL intends to remain
competitive, in the future it may be unable to offer residential telephone
services at rates lower than those offered by BT. In this case, NTL may not
achieve desired penetration rates and may experience a decline in total
revenues. There can be no assurance that any such decline in revenues or
penetration rates will not adversely affect NTL. In addition to BT, other
telecommunications competitors could prevent NTL from increasing its share
of the residential telecommunications market. In particular, carrier
pre-selection for all calls (except for some special categories) was
launched in 2001 which may increase the appeal of indirect access
operators, whose discounted call charges may undercut NTL.
NTL also competes with mobile networks. This technology may grow
to become a competitive threat to NTL's networks, particularly if call
charges are reduced further on the mobile networks. NTL's tower services
group may enable it to benefit from the growth in this technology. There
can be no assurance, however, that NTL will be able to compete successfully
with such telecommunications operators.
NTL believes that it has a competitive advantage in the
residential market because it offers integrated telephone, cable
television, telecommunications services (including Internet, interactive
and on-line services) and multi-product packages designed to encourage
customers to subscribe to multiple services. However, there can be no
assurance that this competitive advantage will continue. Indeed, BT and all
other operators have been permitted to provide and convey cable television
services throughout the UK from January 1, 2001, and exclusive franchises
will no longer be awarded.
British Sky Broadcasting Limited, or BSkyB, currently markets
telecommunications services on an indirect access basis, which requires the
customer to dial additional digits before entering the primary telephone
number, thus diverting calls onto another operator's network.
NTL's cable television systems compete with direct reception
over-the-air terrestrial broadcast television, direct- to-home satellite
services (i.e., BSkyB), and satellite master antenna systems. In addition,
pay television and pay-per- view services offered by NTL compete to varying
degrees with other communications and entertainment media, including home
video, cinema exhibition of feature films, live theater, and newly emerging
multimedia services such as video-on- demand services. On May 1, 2002, the
digital terrestrial broadcaster ITV Digital, which is in administration in
the UK, ceased to provide pay television services. The spectrum previously
licensed to ITV Digital is in the process of being relicensed to a
consortium comprised of the BBC, BSkyB and Crown Castle International Corp.
which plans to offer "free-to-air" services.
ii. Business Telecommunications
BT and Cable & Wireless are NTL's principal competitors in
providing business telecommunications services. In the future, NTL may
compete with additional entrants to the business telecommunications market.
Competition is based on price, range, and quality of services, and NTL
expects price competition to intensify if existing and other new market
entrants compete aggressively. Most of these competitors have substantial
resources and there can be no assurance that these or other competitors
will not expand their businesses in NTL's existing markets or that NTL will
be able to continue to compete successfully with such competitors in the
business telecommunications market.
iii. Broadcast Transmission And Tower Services
Crown Castle UK Ltd, a subsidiary of Crown Castle International
Corp., is NTL's primary competition in the terrestrial broadcast
transmission market in the UK. Crown provides analog transmission services
to the BBC and digital transmission services to both the BBC and
ITVDigital. Crown has diversified from its core television broadcasting
business using its transmission infrastructure to enter into the radio
transmission and telecommunications sectors.
Although Crown is NTL's direct competitor, NTL and Crown each have
reciprocal rights to use each other's sites for broadcast transmission
usage to enable each of them to achieve the necessary country-wide
coverage. This relationship was formalized by an analog site-sharing
agreement entered into in 1991 when those towers were privatized. Further
arrangements have been put into place to cover site sharing for the purpose
of broadcasting digital television.
Crown also offers site rental on a significant number of its sites
(some of which are managed on behalf of third parties). Like NTL, Crown
offers a full range of site-related services to its customers, including
installation and maintenance. In November 2000, Crown entered into an
agreement with BT to deliver roof space and grounds at an initial 4,000 BT
exchange sites around the UK. NTL believes its towers to be at least as
well situated as Crown's and that it will be able to continue expanding its
own third-party site-sharing penetration.
All four UK mobile operators own site infrastructure and lease
space to other users. Their openness to sharing with direct competitors
varies by operator. BT Cellnet (now called 02) and Vodafone have agreed to
cut site costs by jointly developing and acquiring sites in the Scottish
Highlands. BT and Cable & Wireless are both major site-sharing customers
but also compete by leasing their own sites to third parties. BT's position
in the market is even larger when considered in combination with its
interest in 02.
Several other companies compete in the market for site rental.
These include Transco, Racal Network Systems, Aerial Sites Plc, Relcom
Aerial Services, and the Royal Automobile Club. Some companies own sites
initially developed for their own networks, while others are developing
sites specifically to exploit this market.
b. Competition In The Republic Of Ireland
Since 1998, Sky Digital has had a presence in the Irish pay-TV
market. In the past 12 months Sky Digital has been aggressively marketing
its digital television service to Irish consumers and it is estimated that
it is the second largest pay-television operator in the Irish market after
NTL with 230,000 customers. At present Sky Digital is not regulated in
Ireland and NTL, which is subject to regulation, may be at a competitive
disadvantage in the Irish television market.
The principal competitors to NTL's business operations in the
Republic of Ireland are Worldcom, Eircom and ESAT Telecom. For residential
telephony, the incumbent fixed line operator, Eircom which provides direct
telephony and Carrier Pre Select services and ESAT Telecom are NTL's main
competitors.
6. Regulation
a. Regulation In The UK
Telecommunications service industries in the UK are governed by
legislation under the Telecommunications Act 1984, the Broadcasting Act
1990, and the Broadcasting Act 1996. The operator of a full-service
telecommunications system in the UK requires the following two principal
non-exclusive licenses:
o a telecommunications license, granted under the
Telecommunications Act by the Secretary of State and
supervised by the Department of Trade and Industry, or DTI,
and OFTEL, which authorizes the installation and operation of
the telecommunications network used to provide cable
television and cable telephone services; and
o a cable television license, granted under the Broadcasting
Act and supervised by the Secretary of State and the ITC,
which authorizes the provision of broadcasting services.
Each type of license described above contains various conditions,
and in the event of the breach of such conditions, the Director General of
Telecommunications (the head of OFTEL) or the ITC, as appropriate, could
issue an enforcement order and ultimately commence proceedings to require
compliance or to revoke such licenses.
i. Price Regulation
BT is currently subject to controls over the prices it may charge
customers. In particular, BT may not increase charges for certain services
by more than the amount of the percentage change in the retail price index.
In Autumn 1999, OFTEL began the process of examining what price controls,
if any, should apply to BT after 2001. In February 2001, OFTEL announced
that current retail price controls would be extended until July 2002 with a
roll over provision for a further year. In January 2002, OFTEL issued a new
consultation setting out proposals for the progressive removal of price
controls along with certain new measures to stimulate further retail
competition.
NTL is not currently subject to the same scrutiny and control by
OFTEL of its retail telephone prices as BT, given its non-dominant status
in the market. NTL is, however, subject to prohibitions on undue preference
and undue discrimination in its cable television pricing. NTL is also
required to publish its standard prices, terms, and conditions for cable
television services.
ii. Number Portability
The European Union agreed in 1998 to a revision to the
Interconnection Directive that made it a requirement for Member States to
mandate number portability. Implementing regulations came into force on
January 19, 2000 requiring that number portability should be provided on
request to all customers switching between different operators and
providers of fixed telecommunications services. NTL has a process in place
to comply with its existing obligations and it is now in the process of
negotiating more service establishment arrangements with other operators.
iii. Local Loop Unbundling (LLU)
In November 1999, an OFTEL policy statement mandated the
unbundling of BT's local loop to rival providers, enabling them to offer a
range of higher bandwidth services using Digital Subscriber Line (DSL)
technology. On August 8, 2000, conditions in BT's license were brought into
force, setting out the requirements under which BT must provide services
necessary for local loop unbundling. OFTEL published the wholesale prices
for BT's unbundled local loops in December 2000, and published prices for
shared access in 2001, although discussions continue as to the appropriate
wholesale charges. In addition, BT is currently rolling out ADSL over its
own network. ADSL will allow consumers access to high speed information
services. In practice, few companies have taken up the LLU option.
In February 2002, BT announced reductions in its wholesale charges
to ISPs (including its own tied ISP) for wholesale ADSL services. These
reductions will lead to commensurate reductions in retail rates.
iv. Interconnection
NTL Group Limited and National Transcommunications Limited, which
will be subsidiaries of New NTL, have "Annex II" status, which gives them
rights of interconnection at wholesale rates to other operators with
similar status.
v. Open Access To Cable Infrastructure
In April 2000, OFTEL issued a public consultation document on
regulated access to cable infrastructure ("open access"). The preliminary
conclusion reached by OFTEL was that no case existed for mandating open
access to cable infrastructure at that time.
vi. BSkyB
In December 2000, the Office of Fair Trading (OFT) announced that
it was commencing an investigation under the UK Competition Act into
BSkyB's activities, in particular the wholesale prices offered to rival
distributors of pay television services. This investigation is ongoing. In
December 2001, the OFT announced its preliminary finding that BSkyB had
been abusing its market power through its pricing practices. The OFT also
said that it was aiming to complete the investigation into BSkyB's pricing
by summer 2002.
In addition, in February 2002, the OFT announced that it had
decided not to make a decision on whether an agreement entered into by NTL
with BSkyB for the carriage of programming at discounted rates, notice of
which was given to the OFT in October 2000, was anti-competitive (as a
result of which, this agreement lapsed). The OFT's investigation into
BSkyB's behavior continues.
vii. UK Competition Act 1998
The Competition Act, which came into force in March 2000,
introduced a prohibition on the abuse of a dominant position and
anti-competitive agreements and introduced third party rights, stronger
investigative powers, interim measures, and effective enforcement powers
(including fines of up to 10% of UK turnover). The Competition Act enables
third parties to bring enforcement actions directly against
telecommunications operators who are in breach of the prohibitions and seek
damages, rather than have to wait for the Director General of
Telecommunications to make an enforcement order.
In February 2000, OFTEL issued specific guidance on the
application of the Competition Act in the telecommunications sector. This
guidance states that OFTEL would follow closely the general principles of
competition law in its application of the new prohibitions. In addition,
the regulators must not reach decisions which are inconsistent with EU law.
viii. Mobile Phone Termination Charges
On December 12, 2001, OFTEL announced that it had referred to the
Competition Commission its proposal to impose a cap on the amount mobile
phone operators can charge for receiving calls on their networks. OFTEL's
conclusion was that mobile termination rates were substantially in excess
of cost and that there was little incentive for operators to reduce the
charges. Accordingly, OFTEL has proposed a charge cap on future termination
rates of RPI (12)% over four years.
The Competition Commission has six months to reach a decision,
which can be extended for a further six months.
ix. Broadcast Services
A portion of NTL's total revenue is attributable to the provision
of television and radio transmission and distribution services. In the UK,
the provision of such services is governed by the Telecommunications Act
1984 and the Wireless Telegraphy Act 1949.
x. Telecommunications Act And Broadcasting Act Licenses
NTL's licenses contain conditions and provisions which, among
other things:
o require NTL 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;
o impose on NTL an obligation to share its transmission sites
with other transmission operators;
o restrict the prices which NTL is allowed to charge for the
provision of some services;
o prohibit NTL from cross-subsidizing the unregulated side of
its business; and
o impose a requirement for separate accounts to be produced in
relation to both the regulated and unregulated parts of NTL's
business. However, NTL is not obliged to do anything "not
reasonably practicable."
xi. Price Cap Review
NTL's regulated business may be divided into two categories: Price
Regulated Business and Applicable Rate Business. Price Regulated Business
comprises those telecommunication services which NTL is obliged to provide
pursuant to NTL's Transmission License and in respect of which price
controls are imposed. NTL's Applicable Rate Business comprises those
telecommunications services which NTL is obliged to provide but which do
not fall within the definition of Price Regulated Business. Charges for
Applicable Rate Business are agreed between NTL and the relevant customer.
If despite all reasonable efforts an agreement cannot be reached between
NTL and a significant proportion of NTL's customers in respect of any
particular telecommunications service, the charge will be determined by the
Director General.
In respect of any services provided by NTL which are not Price
Regulated Business or Applicable Rate Business, NTL's prices 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 persons in respect of telecommunications services.
NTL's unregulated income would include, for example, charges for site
rentals to personal communications networks' operators.
NTL's Price Regulated Business consists of the television
transmission service provided to the ITV companies, Channel 4 and 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. NTL's Applicable Rate Business consists of its site leasing
business, where NTL leases antenna space on NTL's sites to wireless service
providers.
On December 24, 1996, the Director General of Telecommunications
issued a formal modification to NTL's Telecommunications Act Licenses to
effect the price controls which are to apply to NTL for the period from
January 1, 1997 to December 31, 2002. The Price Cap Review had two
purposes:, (1) to establish a new "P0" (allowable revenues for the first
year of the next control period, 1997, in respect of NTL'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
assumptions at the time (1996), the new P0 was (pound)53.4 million and the
new X was 4.0%.
xii. Communications Bill
A White Paper issued in December 2000-A New Future for
Communications-proposed the creation of a new body "OFCOM" to regulate the
communications industry. This will merge the functions of, among others,
OFTEL, the Radiocommunications Agency and ITC and it is intended that it
will provide a more flexible framework for regulating a converging
industry.
b. Regulation In The Republic Of Ireland
i. Legislation And Licensing
NTL Communications (Ireland) Limited has a General
Telecommunications License granted under the Telecommunications Act 1983
and separate cable television and Multi-channel Multi-point Distribution
System (MMDS) licenses for each of its cable franchises of Dublin, Galway
and Waterford, granted under the Wireless Telegraphy Acts 1926 to 1988. In
addition the cable television industry in the Republic of Ireland is
governed by the Wireless Telegraphy (Programme Service Distribution)
Regulations 1999. The Office of the Director of Telecommunications
Regulation (ODTR) regulates the telecommunications and cable industries in
the Republic of Ireland.
The ODTR granted NTL's licenses in 1999. The telecommunications
license enables NTL to provide voice, data and Internet services throughout
the Republic of Ireland by interconnecting with other operators. To date
NTL has concluded an interconnection agreement with the incumbent operator,
Eircom. The cable and MMDS licenses require NTL to provide television
services in a digital format to all customers by 2004 in return for
platform exclusivity in its franchise areas until 2004. To date, NTL has
met its digital roll out obligations for cable.
The 1999 Regulations require cable/MMDS operators to obtain prior
consent of the ODTR for price increases. As a condition of being granted a
34% price increase by the ODTR in October 2001, NTL agreed to surrender
exclusivity in its franchise areas with effect from March 1, 2002 and is
accordingly not subject to the requirement to obtain prior consent from
ODTR for price increases. However, ODTR advised NTL that it would review
the retail price control regime in mid-2002. NTL understands that the ODTR
has now determined that retail price control should still apply to
cable/MMDS operators who have surrendered platform exclusivity in their
franchise areas, and that the ODTR has submitted revised regulations to the
Irish government to this effect. These regulations, however, have not yet
been signed by the Minister responsible. Until the new regulations are
signed, NTL does not have platform exclusivity and is not subject to retail
price control.
The ODTR also retains a post-hoc price control power under Section
15(4) of the 1999 Regulations which empowers it to investigate retail
prices and direct that such prices be altered. The regulations also require
cable operators to pay a levy of 3.5% of annual gross revenue.
Section 4 of the cable/MMDS licenses obliges NTL to seek the
consent of the ODTR to any changes in its basic analog television line up.
Section 8 of the 1999 license obliges cable/MMDS operators to maintain
separate accounts in respect of distribution of licensed program services.
Under the new EU Authorisations Directive published in the
Official Journal of the EU, the current Irish licensing regime will be
replaced by a system of non-prescriptive authorizations by May 2003.
ii. MMDS Business
NTL's MMDS business in the Republic of Ireland provides analog
television to over 21,000 customers in its franchises of Dublin, Galway and
Waterford. NTL was obliged under its MMDS licenses to provide MMDS services
in a digital format by January 1, 2001, with a period of grace until June
30, 2001. Failure to meet these milestones could have resulted and could
still result in revocation of NTL's MMDS licenses.
In December 2000, NTL informed the ODTR that it did not intend to
provide television services in a digital format on its MMDS networks and
accordingly undertook to transfer the licenses and the customer base to a
third party. NTL has been active in attempting to sell the MMDS business
since December 2000. In February 2002 an investment consortium made an
offer for the business which has led to due diligence which is now
underway. This process is anticipated to be completed by the end of the
third quarter of 2002.
c. European Union Legislation
NTL's UK and Republic of Ireland operations are further regulated
by the EU under various European Commission Directives. In February 2002,
the European Union Commission adopted a package of legislative measures
which established a new framework for electronic communication and ensures
that the legislation is more technology neutral. The proposed new framework
consists of five harmonization Directives, including a framework Directive
and four specific Directives on authorization, access, and interconnection,
universal service, and users' rights, data protection in telecommunications
services, a regulation on unbundling the local loop, a draft liberalization
Directive, and a decision on European Union radio spectrum policy.
7. Research And Development
NTL's research and development activities in the UK and the
Republic of Ireland involve the analysis of technological developments
affecting NTL's cable television, telephone, and telecommunications
business, the evaluation of existing services and sales and marketing
techniques, and the development of new services and techniques.
8. Patents, Trademarks, Copyrights, And Licenses
NTL does not have any material patents or copyrights nor does it
believe that patents play a material role in its businesses in the UK and
the Republic of Ireland. New NTL will own and have the right to use
registered trademarks which are, or may be, of material import to its
business including the "ntl:" logo. NTL is substantially dependent on the
licenses and franchises granted by the legislative agencies that regulate
NTL's respective businesses. The loss of any one or more of NTL's licenses
or franchises could have a material adverse effect on New NTL's business
and financial condition.
9. Customers
Except for NTL's broadcast services business and ntl: business, no
material part of NTL's business is dependent upon a single customer or a
few customers, the loss of any one or more of which would have a materially
adverse effect on NTL. The broadcast services business is substantially
dependent on the revenues it receives pursuant to its contracts with the
ITV companies (not including ITV Digital), Channel 4/S4C and Channel 5 in
the UK, the loss of one or more of which may have a material adverse effect
on the broadcast business. AOL, Orange, Virgin.net, Vodafone, the
Metropolitan Police, TXU, and TUI are all customers of ntl: business who
provide long term revenues to NTL and the loss of a number of them may have
a material adverse effect on ntl: business.
10. Employees
At December 31, 2001, the entities that will comprise New NTL and
its subsidiaries had approximately 17,000 employees. Of these, 14,300
permanent employees and 2,260 temporary or contract employees were in the
UK, 484 employees were in Ireland and 44 employees were in New York.
11. Properties
a. UK And The Republic of Ireland
In the UK and the Republic of Ireland, NTL owns, leases, or
occupies under license 126 business units and regional offices, including
call centers, NTL's corporate head offices in each of Hook and Dublin, and
9 retail shops. In addition, NTL owns or leases approximately 655 switching
centers/head-ends and operational hub-sites together with warehouses and
other non-operational properties, as well as various cable television,
telephone, and telecommunications equipment housed on public and private
sites.
In addition, in the UK, for the purposes of NTL's site leasing and
broadcast transmission businesses, NTL owns, leases, contracts to lease, or
occupies under license approximately 1,370 properties. For these
businesses, NTL also is the licensee of approximately 680 transmitter sites
which are owned by the Crown Castle International Corp. group and shared
between the two organizations pursuant to site sharing agreements.
NTL maintains offices under lease for NTL's corporate staff in New
York City.
12. Statistics On Businesses To Comprise New NTL
UK and Ireland Customer Statistics as of December 31, 2001
NTL NTL
(UK) (Ireland) Total
(subscriber totals in thousands)
RESIDENTIAL
Ownership Interest...................... 100% 100%
Homes in Franchise...................... 11,411.2 443.8 11,855.0
Homes Passed............................ 8,404.1 443.8 8,847.9
Homes Marketed (Telco).................. 7,506.4 20.0 7,526.4
Homes Marketed (CATV) 7,729.8 443.2 8,173.0
Customers............................... 2,840.0 369.8 3,209.8
Dual/Triple RGU....................... 2,038.2 5.3 2,043.5
Single RGU............................ 801.8 364.5 1,166.3
Cable Television (CATV) 2,261.9 369.8 2,631.7
Digital............................. 1,253.5 7.7 1,261.2
Analog.............................. 1,008.4 340.6 1,349.0
Antenna............................. -- 21.5 21.5
Telephone............................... 2,589.3 5.3 2,594.6
Internet (INT).......................... 845.0 1.5 846.5
Dial-Up (ntlworld and
other).............................. 698.4 1.4 699.8
Digital TV Access..................... 28.5 -- 28.5
Broadband (BB)........................ 118.1 0.1 118.2
RGUs (CATV, Telco, BB).................. 4,969.3 375.2 5,344.5
Service Units (CATV, Telco, Int)........ 5,696.2 376.6 6,072.8
RGUs/Customer........................... 1.75x 1.01x 1.67x
Service Units/Customer.................. 2.01x 1.02x 1.89x
Penetration:
CATV.................................. 29.3% 83.4% 32.2%
Telephone............................. 34.5% 26.5% 34.5%
Customer.............................. 36.7% 83.4% 39.3%
RGU................................... 64.3% 84.7% 65.4%
Service Unit.......................... 73.7% 85.0% 74.3%
Dual / Triple......................... 71.8% 1.4% 63.7%
Quarterly Growth:
Customers............................. (41.8) (4.8) (46.6)
RGUs.................................. (51.5) (5.8) (57.3)
Off-Net Telephony....................... 118.3 2.8 121.1
Telephone............................. 29.1 -- 29.1
Telephone and Internet 89.2 2.8 92.0
BUSINESS DIVISION
Business Customers...................... 76.2 0.2 76.4
Business Lines.......................... 389.7 1.9 391.6
Wholesale Internet
Subscribers........................... 1,210.7 0.2 1,210.9
TOTAL CUSTOMERS.................... 4,245.2 373.0 4,618.2
TOTAL SERVICE UNITS............... 7,504.1 384.3 7,888.4
13. Current Trading And Prospects
In relation to NTL's UK and Republic of Ireland managed
businesses, 2001 was a year of substantially improved operating performance
against a backdrop of significant organizational change. The process of
integrating previous acquisitions was formalized through a full operating
review in the first half of the year; implementation of the review's
findings began on August 1, 2001. The review was pivotal in determining new
structures for all three retail operating businesses, which reflect a
decentralized approach designed to empower NTL's associates who are closest
to the customer and to reduce central operating costs.
NTL's current business plan anticipates a potential reduction in
the number of new customers and an increase in revenue from existing
customers. Cash constraints to date, however, have presented many
challenges to the successful execution of the business plan. NTL has been
conserving cash through a reduction in capital expenditures including
expenditures to connect new customers to its network. In order to maintain
revenues and cash from operations while reducing the number of new
customers, NTL has stated its aim to reduce and limit customer churn
through improvement in customer service and increase in service offerings
to existing customers. NTL anticipates that a successful conclusion of the
Restructuring will alleviate concerns arising out of media and other
speculation as to NTL's financial condition (for further details of these
concerns, see NTL Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2001 annexed as Exhibit B to this Disclosure Statement) and
allow the Reorganized Debtors to emerge with stronger balance sheets and
committed funding which will assist them in seeking to implement their
business plans.
New NTL's ability to meet its near term funding requirements upon
consummation of the Plan is dependent upon a number of factors, including
the revenue generated by its operating subsidiaries, its existing cash
balances, the continued availability of the UK Credit Facilities, and its
ability to draw upon the New NTL Exit Facility or any alternative
financing. See "Certain Matters Regarding New NTL -- Risk Factors Relating
To New NTL" and "Certain Additional Risk Factors To Be Considered."
For more information on New NTL, see NTL Inc.'s Quarterly Report
on Form 10-Q for the three months ended March 31, 2002 annexed to this
Disclosure Statement as Exhibit C and NTL CC's Quarterly Report on Form
10-Q for the three months ended March 31, 2002 annexed to this Disclosure
Statement as Exhibit F.
B. Management Of New NTL
1. Board Of Directors
Pursuant to the Plan, the term of the current board of directors
of NTL CC will expire on the Effective Date and the operations of New NTL
will become the general responsibility of the board of directors of New
NTL. Pursuant to the Plan, the initial board of directors of New NTL after
the Effective Date will be comprised of nine members selected by the
Creditors' Committee, one of whom will be designated as Chairman and one of
whom will be designated as Chief Executive Officer of New NTL. The Debtors
will identify the individuals proposed to serve as directors and senior
management of New NTL in the Plan Supplement. The board of directors of New
NTL will have the responsibility for the management, control, and operation
of New NTL on and after the Effective Date. The existing officers and
directors of the Debtor Subsidiaries of NTL CC will initially be permitted
to serve in their respective capacities as officers and directors of the
Reorganized Debtor Subsidiaries of New NTL, unless otherwise provided in
the Plan Supplement.
2. Executive Officers
On June 28, 2002, NTL announced that with the support of the
Creditors' Committee, Barclay Knapp would continue to serve as Chief
Executive Officer of New NTL following emergence of the Debtors from the
Chapter 11 Cases. John Gregg will serve as Chief Financial Officer of New
NTL until a new Chief Financial Officer of New NTL is identified. On the
Effective Date, New NTL will enter into employment agreements with its key
executives substantially in the form annexed as Exhibit M to the Plan.
3. Management Incentive Plan
The New NTL Management Incentive Plan is intended to provide
incentives to certain employees of New NTL and its subsidiaries to
incentivize their efforts in fostering and promoting the long term growth
and performance of New NTL and to better align such employees' interests
with the stockholders of New NTL. To achieve this purpose, the Plan
provides that on or after the Effective Date, the compensation committee of
the board of directors of New NTL is authorized to, and will, adopt the New
NTL Management Incentive Plan under which options to purchase up to 10% of
the issued and outstanding shares of New NTL Common Stock as of the
Effective Date may be granted from time to time to certain employees of New
NTL and its subsidiaries. Accordingly, on the Effective Date pursuant to
the Plan, New NTL will reserve up to 20 million shares of New NTL Common
Stock for issuance under the New NTL Management Incentive Plan. The form of
the New NTL Management Incentive Plan is annexed as Exhibit Q to the Plan.
C. Securities To Be Issued By New NTL
On the Effective Date, New NTL will issue for distribution, in
accordance with the provisions of the Plan, the New Securities required for
distribution by New NTL under the provisions of Articles III and IV of the
Plan. All such New Securities will be issued, and will be deemed for all
purposes to have been issued on the Effective Date, regardless of the date
on which they are actually distributed to holders of Allowed Claims and
Interests.
The following discussion summarizes the material provisions of the
New Securities to be issued by New NTL. This summary does not purport to be
complete and is qualified in its entirety by reference to the full text of
the Series A Warrant Agreement, the Equity Rights Offering Procedures, the
Noteholder Election Option Procedures, the New NTL Rights Agreement and the
Amended And Restated Certificate of Incorporation and By-laws of NTL CC.
1. New NTL Common Stock
The principal terms of the New NTL Common Stock to be issued by
New NTL under the Plan will be as follows:
Authorization: 600 million shares
Initial Issuance: 200 million fully-paid and non-assessable shares (excluding shares
issued in the Offerings and upon exercise of the Series A Warrants and
the New NTL Management Incentive Options)
Par Value: $0.01 per share
Voting Rights: One vote per share held of record on all matters submitted to a vote of
holders of New NTL Common Stock
Dividends: Holders entitled to receive proportionately such dividends as may from
time to time be declared by the board of directors of New NTL in
respect of shares of New NTL Common Stock out of funds legally
available for the payment of dividends
Results On In the event of liquidation, dissolution or winding-up, holders
Liquidation, of shares of New NTL Common Stock would be entitled to share
Dissolution proportionately in all of New NTL's assets available for
or Winding-Up: distribution after payment of liabilities and liquidation
preference on any outstanding preferred stock of New NTL
Preemption Rights None
And Redemption:
2. Series A Warrants
The principal terms of the Series A Warrants to be issued by New
NTL under the Plan will be as follows:
Issuer: New NTL
Recipients: Series A Warrants (2,996,475) representing
1.13% of fully diluted shares (exclusive of New
NTL Management Incentive Options granted under
the New NTL Management Incentive Plan) issuable
to holders of Old Senior Preferred Stock
Interests
Series A Warrants (22,402,468) representing
8.45% of fully diluted shares (exclusive of New
NTL Management Incentive Options granted under
the New NTL Management Incentive Plan) issuable
to holders of Old Junior Preferred Stock
Interests
Series A Warrants (9,601,058) representing
3.62% of fully diluted shares (exclusive of New
NTL Management Incentive Options granted under
the New NTL Management Incentive Plan) issuable
to holders of Old Common Stock Interests
Series A Warrants (15,000,000) representing
5.66% of fully diluted shares (exclusive of New
NTL Management Incentive Options granted under
the New NTL Management Incentive Plan)
potentially issuable pursuant to the Offerings
Exercise Price: $77.47 per share of New NTL Common Stock (which assumes 162.5%
recovery by the holders of the NTL CC Senior Notes, NTL CC
Subordinated Notes, and Diamond Cable Notes)
Expiration Date: Eight years from the date of issuance
Adjustments: The number of shares to be received upon
exercise of Series A Warrants will be subject
to customary adjustment for stock splits, stock
dividends, reverse stock splits, stock
recapitalizations, and distributions of
property (other than cash) to holders of New
NTL Common Stock
Change Of Control: Cash Acquisition: In event of the acquisition of New NTL in a
transaction where the consideration payable by the acquiror is all cash,
the following will apply:
(x)(i) If the transaction is announced within
one year of the Effective Date and the recovery
of NTL CC Senior Notes, NTL CC Subordinated
Notes, and Diamond Cable Notes exceeds 70%; or
(ii) If the transaction is announced within two
years of the Effective Date and the recovery of
NTL CC Senior Notes, NTL CC Subordinated Notes,
and Diamond Cable Notes exceeds 85%; or
(iii) If the transaction is announced within
three years of the Effective Date and the
recovery of NTL CC Senior Notes, NTL CC
Subordinated Notes, and Diamond Cable Notes
exceeds 100%; and
(y) the acquiring entity (including any direct
or indirect shareholder that would constitute
an "affiliate" (under applicable securities
law) of such acquiring entity, the "Acquiror")
is a publicly traded entity, the Series A
Warrants would become warrants ("Acquiror
Warrants") of the Acquiror.
Acquiror Warrants will (a) have an expiration
date identical to the expiration date of the
Series A Warrant, (b) have an exercise price
equal to the adjustment multiple multiplied by
the fair market value of the Acquiror's stock
(based on a 25 trading day average), and (c) be
exercisable for a number of shares of the
Acquiror's stock equal to the exercise price of
the Series A Warrant divided by the exercise
price of the Acquiror Warrant. "Adjustment
multiple" will equal the ratio of the exercise
price of the Series A Warrant to the cash
consideration received by the holders of New
NTL Common Stock in the acquisition.
If the foregoing criteria are not met and a
cash acquisition is announced within the first
three years after the Effective Date, subject
to consummation of such cash acquisition, the
exercise price of the Series A Warrant will be
adjusted so as to become equal to 90% of the
per share value offered in the acquisition to
holders of New NTL Common Stock and the
acquisition will not be consummated until
warrant holders have had at least 20 business
days to exercise subsequent to such adjustment.
Stock Acquisition: In the event of an
acquisition of New NTL for all stock, the
Series A Warrants would remain outstanding
(until the expiration date) and would be
exercisable into stock of the acquiror at the
exchange ratio in the transaction.
Mixed Consideration: The parties will negotiate in good faith to develop an appropriate
methodology for adjustment in these circumstances
Restrictions On Transfers: only in compliance with applicable securities laws
Governing Law: New York
3. Equity Rights
In accordance with the terms of the Equity Rights Offering
Procedures annexed as Exhibit F to the Plan, the Equity Rights Offering
will permit the holders of Old Senior Preferred Stock Interests, Other
Junior Preferred Stock Interests and Old Common Stock Interests (on a split
of 8.561% to the Old Senior Preferred Stock, 64.007% to the Other Junior
Preferred Stock, and 27.432% to the Old Common Stock, respectively) as of
the Equity Rights Offering Record Date to receive rights to subscribe to
purchase 15,000,000 shares of New NTL Common Stock exercisable on an
oversubscription basis at the Equity Rights Offering Price. Each share of
New NTL Common Stock purchased in the Equity Rights Offering will be
accompanied by a Series A Warrant (maximum issuance of warrants
representing 15,000,000 shares of New NTL Common Stock) with a strike price
of $77.47 per share (which assumes 162.5% recovery for the NTL CC Senior
Notes, NTL CC Subordinated Notes, and Diamond Cable Notes).
The Equity Rights, which will be exercisable for a period of 20
Business Days following the entry of the Confirmation Order, as such period
may be extended, will be offered pro rata, but will be exercisable on an
oversubscription basis, such that holders of Equity Rights can subscribe
for shares of New NTL Common Stock (each accompanied by a Series A Warrant)
underlying unexercised Equity Rights, if any. Subject to any requirement of
applicable securities laws, the Equity Rights will be transferable in
accordance with the provisions set forth in the Equity Rights Offering
Procedures.
4. Noteholder Election Option
In accordance with the terms contained in the Noteholder Election
Option Procedures annexed as Exhibit G to the Plan, the Noteholder Election
Option will permit the holders of NTL CC Subordinated Notes, NTL Delaware
Subordinated Notes (other than France Telecom), and NTL Inc. Subordinated
Notes (other than France Telecom) as of the Noteholder Election Option
Record Date to purchase (i) shares of New NTL Common Stock using up to 100%
of the Delaware/Inc. Cash Amount distributed to holders of NTL CC
Subordinated Notes, NTL Delaware Subordinated Notes (other than France
Telecom), and NTL Inc. Subordinated Notes (other than France Telecom)
pursuant to Article III.C of the Plan at the Noteholder Election Option
Price, plus (ii) any shares of New NTL Common Stock and Series A Warrants
not subscribed for in the Equity Rights Offering on an oversubscription
basis at the Noteholder Election Option Price.
The Noteholder Election Option, which will be exercisable for a
period of 20 Business Days following the entry of the Confirmation Order,
as such period may be extended, will be offered pro rata, but will be
exercisable on an over- subscription basis. Subject to any requirement of
applicable securities laws, the Noteholder Election Option will be
transferable in accordance with the provisions set forth in the Noteholder
Election Option Procedures.
5. Resale Of Securities
a. Exemption From Registration
In connection with consummation of the Plan, the Debtors will rely
on section 1145 of the Bankruptcy Code to the extent it is applicable, to
exempt the issuance of (i) the New NTL Common Stock, (ii) the Series A
Warrants, (iii) the Rights, (iv) the shares of New NTL Common Stock
purchasable upon subscription of the Rights and (v) the shares of New NTL
Common Stock issuable upon exercise of the Series A Warrants, from the
registration requirements of the Securities Act and of any state securities
or "blue sky" laws. Section 1145 of the Bankruptcy Code exempts from
registration the sale of a debtor's securities under a Chapter 11 plan if
such securities are offered or sold in exchange, or primarily in exchange,
for a claim against, or equity interest in, or a claim for an
administrative expense in a case concerning, such debtor. In reliance upon
this exemption, the New NTL Common Stock, the Series A Warrants, the Equity
Rights and the Noteholder Election Option generally should be exempt from
the registration requirements of the Securities Act.
Accordingly, recipients will be able to resell the New NTL Common
Stock, the Series A Warrants, the Equity Rights, and the Noteholder
Election Option without registration under the Securities Act and state
securities or "blue sky" laws, unless the recipient is an "underwriter"
with respect to such securities, within the meaning of section 1145(b) of
the Bankruptcy Code. Section 1145(b) of the Bankruptcy Code defines
"underwriter" as one who (a) purchases a claim or interest with a view to
distribution of any security to be received in exchange for the claim or
interest, or (b) offers to sell securities issued under a plan for the
holders of such securities, or (c) offers to buy securities issued under a
plan from persons receiving such securities, if the offer to buy is made
with a view to distribution, or (d) is an "issuer" of the relevant
security, as such term is used in Section 2(11) of the Securities Act.
Notwithstanding the foregoing, statutory underwriters may be able
to sell securities without registration pursuant to the resale limitations
of Rule 144 under the Securities Act which, in effect, permits the resale
of securities received by statutory underwriters pursuant to a Chapter 11
plan, subject to applicable volume limitations, notice and manner of sale
requirements, and certain other conditions. Holders that believe they may
be statutory underwriters as defined in section 1145 of the Bankruptcy Code
are advised to consult with their own counsel as to the availability of the
exemption provided by Rule 144 under the Securities Act.
BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF
WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER, NONE OF THE DEBTORS OR
THE REORGANIZED DEBTORS OR THE CREDITORS' COMMITTEE MAKE ANY REPRESENTATION
CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THESE SECURITIES TO BE
DISTRIBUTED UNDER THE PLAN OR THE RIGHTS OFFERING OR UPON ANY SUBSEQUENT
EXERCISE THEREOF.
b. Listing And Registration Rights
On the Effective Date, New NTL will (i) be a reporting company
under the Exchange Act, (ii) cause the shares of New NTL Common Stock to be
listed on the NYSE or such other exchange as agreed with the Creditors'
Committee, or, if New NTL is unable to have the New NTL Common Stock listed
on the NYSE, on another national securities exchange or quoted in the
national market system or small cap system of the National Association of
Securities Dealers' Automated Quotation System, (iii) in accordance with
the New NTL Registration Rights Agreement, file a shelf registration
statement under the Securities Act for resale of shares of New NTL Common
Stock (the "New NTL Shelf Registration Statement"), (iv) keep the New NTL
Shelf Registration Statement effective for a three-year period and (v)
supplement or make amendments to the New NTL Shelf Registration Statement,
if required under the Securities Act or by the rules and regulations
promulgated thereunder, or in accordance with the terms of the New NTL
Registration Rights Agreement, and have such amendments declared effective
as soon as practicable after filing with the SEC. New NTL will enter into
the New NTL Registration Rights Agreement governing the registration of
shares of New NTL Common Stock which will be annexed as Exhibit K to the
Plan. It is expected that the Series A Warrants will be listed or quoted on
the same securities exchange or inter-dealer quotation system as the shares
of New NTL Common Stock.
D. Risk Factors Relating To New NTL
HOLDERS OF CLAIMS AND INTERESTS SHOULD READ AND CONSIDER CAREFULLY
THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION REGARDING NEW
NTL SET FORTH IN THIS DISCLOSURE STATEMENT AND THE EXHIBITS HERETO (AND ALL
DOCUMENTS DELIVERED HEREWITH AND/OR INCORPORATED HEREIN BY REFERENCE),
PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD
NOT, HOWEVER, BE REGARDED AS THE ONLY RISKS ASSOCIATED WITH THE PLAN AND
ITS IMPLEMENTATION. SEE "CERTAIN MATTERS REGARDING EUROCO -- RISK FACTORS
RELATING TO EUROCO" AND "CERTAIN MATTERS REGARDING NEW NTL -- SECURITIES TO
BE ISSUED -- RESALE OF SECURITIES" AND "CERTAIN ADDITIONAL RISK FACTORS TO
BE CONSIDERED."
For a discussion of certain other possible risk factors see
"Management's Discussion And Analysis Of Financial Conditions And Results
Of Operations -- Liquidity And Capital Resources" and "Risk Factors" in NTL
CC's Form 10-K for the fiscal year ended December 31, 2001 annexed hereto
as Exhibit E and in NTL CC's Form 10-Q for the three months ended March 31,
2002 annexed hereto as Exhibit F.
1. Historical Losses And Negative Cash Flows; No Assurance Of
Future Profitability
Construction and operating expenditures and interest costs have
historically resulted in negative cash flow for the Debtors. Although
interest expenses will be significantly reduced upon consummation of the
Plan, it is possible that New NTL may continue to incur losses and may not
achieve or sustain profitability in the future. New NTL expects to continue
to make significant investments by way of capital expenditure in the
maintenance, upgrade, expansion, and development of its networks and IT
systems. New NTL's inability to generate or raise sufficient funds could
require New NTL to delay or abandon some of its expansion plans or
expenditures, which could harm its various businesses and their competitive
positions.
New NTL's ability to meet its near term funding requirements upon
consummation of the Plan is dependent upon a number of factors, including
the revenue generated by its operating subsidiaries, its existing cash
balances, the continued availability of the UK Credit Facilities, and its
ability to draw upon the New NTL Exit Facility or any alternative
financing. There can be no assurance that these sources of financing will
be or will remain available. New NTL will require substantial funds for
general corporate and other expenses and may require additional funds for
working capital fluctuations. Failure to achieve profitability could in the
future diminish New NTL's ability to sustain operations, obtain additional
required funds, and make required payments on any indebtedness it has
incurred or may incur. The Debtors can provide no assurance that New NTL
will be successful in raising additional financing if required, or if
successful, that the terms of such financing will be favorable to New NTL.
The Senior Credit Facility and the Working Capital Facility and
the Indentures governing the Diamond Holdings Notes and Triangle Notes
place restrictions on NTL's ability to make capital expenditures, engage in
acquisitions, and incur additional indebtedness. The Debtors expect that
the New NTL Exit Facility or any alternative financing will contain similar
restrictions. There can be no assurance that the lenders under these
facilities will waive these restrictions if New NTL needs additional
financing beyond that permitted. If the lenders do not waive the
restrictions, New NTL may not be able to expand its markets, operations,
facilities, network, and services as it currently intends.
2. Uncertainty With Respect To New NTL's Financial Condition
Adverse publicity or news coverage relating to the Debtors'
Chapter 11 Cases and the Diamond Administration Cases, could have an
adverse effect on parts of the business of New NTL. Similarly, negative
press about the financial condition of other cable and pay television
operators and alternative telecom carriers in general may affect New NTL's
reputation. For example, one of NTL's key strategies has been to increase
its penetration of higher value small to medium size enterprises ("SMEs")
and to provide increased retail services of bundled voice, data, and
Internet services for SMEs. Due to the negative publicity surrounding the
Debtors' financial condition and the potential effect of that publicity on
its brand name, however, New NTL may find it difficult to convince SMEs to
continue with or take up its services. Even if the Plan were confirmed and
consummated, there can be no assurance that the negative publicity will not
adversely affect results of operations or have a long-term effect on the
NTL brand.
In addition, this uncertainty may adversely affect New NTL's
relationships with its suppliers. If suppliers become increasingly
concerned about New NTL's financial condition they may demand quicker
payment terms or not extend normal trade credit, both of which could
further adversely affect New NTL's working capital position. New NTL may
not be successful in obtaining alternative suppliers if the need arises and
this would adversely affect New NTL's results of operations and its ability
to conduct its business.
3. Holding Company Structure
NTL CC, Cable Funding, Diamond Holdings, and NTL Triangle are
holding companies with no independent operations or significant assets
other than investments in and advances to their respective subsidiaries and
affiliated joint ventures. In order for these companies to meet their debt
obligations after the Effective Date, they will depend upon the receipt of
sufficient funds from their subsidiaries or their respective parent
companies to meet their obligations. The terms of existing and future
indebtedness of their subsidiaries and the laws of the jurisdictions under
which those subsidiaries are organized generally limit the payment of
dividends, loan repayments, and other distributions to these companies,
subject in some cases to exceptions that allow them to service indebtedness
in the absence of specified defaults.
4. Inability To Cause New NTL Common Stock And Series A Warrants
To Be Or Remain Listed
Although it is the intention that the New NTL Common Stock and
Series A Warrants be listed on a securities exchange or inter-dealer
quotation system, the New NTL Common Stock and Series A Warrants are not
currently publicly listed and there can be no assurance that these
securities will be so listed in the future. Certain factors, such as market
forces and listing requirements of the applicable securities exchange or
inter-dealer quotation system, which are not within the control of New NTL,
may limit the ability of New NTL to publicly list the New NTL Common Stock
and Series A Warrants. Consequently, there may not be a liquid market for
the New NTL Common Stock and/or Series A Warrants. As a result, the New NTL
Common Stock could be a "penny stock" as that term is defined in the
Exchange Act. Brokers effecting transactions in a "penny stock" are subject
to additional customer disclosure and record keeping obligations including
disclosure of the risks associated with low price stocks, stock quote
information, and broker compensation. In addition, brokers effecting
transactions in a "penny stock" are also subject to additional sales
practice requirements under Rule 15g-9 of the Exchange Act including making
inquiries into the suitability of "penny stock" investments for each
customer or obtaining a prior written agreement for the specific "penny
stock" purchase. Because of these additional obligations, some brokers will
not effect transactions in "penny stocks," which could have an adverse
effect on the liquidity of New NTL Common Stock and make buying or selling
it more difficult.
5. Lack Of Established Market For New NTL Common Stock And
Series A Warrants
There may be certain restrictions on the ability of holders of the
securities to be issued by New NTL to sell, transfer, or otherwise freely
dispose of such securities received under the Plan. Moreover, the
securities will be issued pursuant to the Plan to holders of Claims and
Interests, some of whom may prefer to liquidate their investment rather
than hold such securities on a long-term basis. Accordingly, the market, if
any, for the securities to be issued by New NTL may be volatile, at least
for an initial period after the Distribution Date, and indeed may be
depressed for a period of time immediately following the Effective Date
until the market has had time to absorb these sales and to observe the
post-Effective Date performance of New NTL. Other factors, such as the
statutory restrictions on transferability and the likelihood that New NTL
will not declare dividends on the New NTL Common Stock for the foreseeable
future, may further depress the market for such securities. In addition,
although the Plan and the Financial Projections were prepared based upon an
assumed reorganization value range, such valuation was not an estimate of
the price at which the securities to be issued by New NTL may trade in the
market, if at all, and the Debtors have not attempted to make any such
estimate in connection with the development of the Plan. No assurance can
be given as to the market price of the New NTL Common Stock and Series A
Warrants, if any, that will prevail following the Distribution Date.
6. Dilution Of New NTL Common Stock
The issuance of additional shares of New NTL Common Stock in
connection with the Equity Rights Offering and the Noteholder Election
Option and the issuance of shares of New NTL Common Stock upon exercise of
the Series A Warrants will dilute the holders of New NTL Common Stock
issued pursuant to the Plan. In addition, issuance of shares of New NTL
Common Stock to management and employees of New NTL and its subsidiaries
pursuant to the New NTL Management Incentive Option Plan will result in
further dilution to holders of the New NTL Common Stock.
7. Prevention Of Transactions Involving A Change Of Control Of
New NTL
Certain provisions of the agreements governing the indebtedness of
New NTL's subsidiaries, which either require such indebtedness to be repaid
or give the holder the option to require repayment, could have the effect
of delaying or preventing transactions involving a change of control of New
NTL and its subsidiaries, including transactions in which stockholders
might otherwise receive a substantial premium for their shares over then
current market prices, and may limit the ability of stockholders of New NTL
to approve transactions that they may deem to be in their best interest.
The Amended and Restated Certificate of Incorporation of NTL CC
will contain provisions which may have the effect, alone or in combination
with each other or with the existence of authorized but unissued common
stock and preferred stock, of preventing or making more difficult
transactions involving a change of control of New NTL.
The New NTL Rights Agreement may have a significant anti-takeover
effect. The New NTL Rights Agreement has the potential to significantly
dilute the ownership interests of an acquiror of shares of New NTL Common
Stock, and therefore may have the effect of delaying, deterring, or
preventing a change in control of New NTL.
8. Uncertainty Regarding New NTL's Interests In Joint Ventures
As a result of the Restructuring, the joint venture partners in
certain of the joint ventures in which NTL's Non- Debtor Subsidiaries
participate may have rights entitling them to compulsorily acquire such
Non-Debtor Subsidiary's interest in the relevant joint venture at a third
party appraisal valuation. NTL believes it has various defenses and
protections under the Bankruptcy Code against certain of such actions and
intends to enforce vigorously its available rights and protections.
Nevertheless, NTL has commenced or intends to commence negotiations with
these joint venture partners to seek appropriate waivers (if necessary) of
their compulsory acquisition rights and secure their ongoing support
throughout the Restructuring process and beyond. There can be no guaranty
that these negotiations will be successful and that New NTL will be able to
retain each Non-Debtor Subsidiary's current interest in these joint venture
companies.
New NTL may retain funding obligations with respect to joint
venture interests notwithstanding that the joint venture parties may have
exercised a right to acquire New NTL's equity interest in such joint
ventures following confirmation of the Plan. Although New NTL will endeavor
to reach agreement with joint venture parties on these obligations, there
can be no assurance that payment obligations will be extinguished.
9. Failure To Successfully Market Broadband
A significant component of NTL's strategy to increase its average
revenue per unit has been to market broadband products to its existing
residential client base. Broadband usage by residential customers is in its
infancy in the UK and the Republic of Ireland and New NTL likely will face
significant competition in these markets from digital satellite and digital
terrestrial television, as well as alternative Internet access media, such
as DSL, offered by BT. Some of New NTL's potential competitors have
substantially greater financial and technical resources than will New NTL
and if New NTL is unable to charge the prices for broadband services
anticipated in its business plan in response to competition, or if the
competition delivers a better product to its customers, average revenue per
unit and results of operations will be adversely affected.
10. Lack Of Insurance For Underground Portion Of Cable Network
NTL obtains insurance of the type and in the amounts that it
believes are customary for similar companies. Consistent with this
practice, NTL does not insure the underground portion of its cable network,
which comprises substantially all of its cable network. Any catastrophe
that affects NTL's underground cable network could result in substantial
uninsured losses to New NTL.
11. Currency Risk
New NTL and its subsidiaries will be exposed to currency exchange
rate risks because they generate revenues and incur construction and
operating expenses in other currencies, primarily in Pounds, while they pay
interest and principal obligations with respect to a significant part of
their existing indebtedness in United States dollars. There can be no
assurance that the hedging transactions the Debtors have entered into or
any other hedging transactions that New NTL might enter into will be
successful or that shifts in currency exchange rates will not have a
material adverse effect on New NTL's business. Any appreciation or
depreciation in the Pound relative to the Dollar could have a material
adverse effect on the ability of New NTL to make payments on its
obligations.
12. Technological Changes In Industry
The industry in which NTL operates is subject to rapid and
significant changes in technology and the effect of such technological
changes on New NTL's businesses or operations cannot be predicted. New
NTL's core offerings may become outdated due to technological breakthroughs
rendering its products out of date. In addition, the new business plan for
New NTL contemplates the introduction of certain services utilizing new
technologies. Further investments in other new services and products, such
as those related to the 3G mobile network, may prove premature and New NTL
may not realize anticipated returns on these new services and products.
In addition, the cost of implementation for emerging and future
technologies could be significant, and the ability to fund such
implementation may depend on the ability to obtain additional financing.
There can be no certainty that New NTL would be successful in obtaining any
additional financing required, or if successful, that the terms of such
financing will be favorable to New NTL.
13. Defense Of The Putative Class Action Suits Against NTL Inc.
And Certain Of Its Officers And Directors
The putative class action lawsuits against NTL Inc. and certain of
its officers and directors which were commenced by seven of its purported
security holders, on behalf of certain purchasers of NTL Inc.'s securities,
may have a negative impact on operations. Three of the claims arising out
of the suits against NTL Inc. have been voluntarily dismissed, and the
remaining claims asserted against NTL Inc. will be discharged under Section
1141(d) of the Bankruptcy Code if the Plan is confirmed, except for any
rights to the proceeds of NTL Inc.'s applicable insurance, including, but
not limited to, director and officer liability insurance, and except to the
extent, if any, that a challenge to the Debtors' separate classification of
Securities Claims from Old Common Stock Interests is upheld. The claims
arising out of the suits against the individual officers and directors,
however, will not be discharged under Section 1141(d) of the Bankruptcy
Code if the Plan is confirmed, but will be released pursuant to Article
XIII.E of the Plan. For additional information about Article XIII.E of the
Plan, see "Summary Of The Plan -- Effects Of Confirmation -- Releases." If,
for any reason, the claims against these officers and directors are not
released under the Plan and these officers and directors continue to be
officers and directors of New NTL, defense of the suits may divert these
officers' and directors' time and resources from managing the operations of
New NTL's business. If these officers and directors of New NTL spend
significant amounts of time defending these lawsuits, there may be a
negative impact on operations.
E. New NTL Stockholder Rights Agreement
HOLDERS OF ALLOWED CLAIMS OR INTERESTS ARE HEREBY PUT ON NOTICE
THAT IF ANY SUCH PERSON IS A NEW NTL CHAPTER 11 ACQUIRING PERSON DURING THE
PERIOD FROM THE FIRST BUSINESS DAY AFTER THE PETITION DATE THROUGH THE
EFFECTIVE DATE, THEN SUCH HOLDER WILL BE SUBJECT TO THE SPECIAL
DISTRIBUTION PROCEDURES SET FORTH IN "SUMMARY OF THE PLAN -- SUMMARY OF
OTHER PROVISIONS OF THE PLAN -- PROVISIONS GOVERNING DISTRIBUTIONS --
SPECIAL DISTRIBUTION PROCEDURES FOR CERTAIN PERSONS -- NEW NTL CHAPTER 11
ACQUIRING PERSONS."
Upon issuance, each share of New NTL Common Stock (whether
originally issued or from New NTL's treasury) will be accompanied by a
right (the "New NTL Stockholder Right"). Each New NTL Stockholder Right
will entitle the registered holder to purchase from New NTL one
one-hundredth of a share of New NTL Stockholder Rights Preferred Stock at
the New NTL Stockholder Rights Purchase Price, subject to adjustment
pursuant to the terms of the New NTL Rights Agreement.
The New NTL Rights Agreement is intended to encourage a potential
acquiror to negotiate directly with the board of directors of New NTL and
to deter coercive takeover tactics, but may have anti-takeover effects. The
New NTL Rights Agreement has the potential to significantly dilute the
ownership interests of an acquiror of shares of New NTL Common Stock, and
therefore, may have the effect of delaying, deterring, or preventing a
change in control of New NTL.
Initially, the New NTL Stockholder Rights will be annexed to all
New NTL Common Stock certificates representing shares then outstanding, and
no separate New NTL Stockholder Rights certificates evidencing the New NTL
Stockholder Rights will be distributed. Subject to certain exceptions
specified in the New NTL Rights Agreement, the New NTL Stockholder Rights
will separate from the New NTL Common Stock, be represented by separate
certificates, and a New NTL Stockholder Rights Distribution Date (as
defined below) will occur upon the earlier of:
o 10 business days following a public announcement that a
person or group of affiliated or associated persons other
than a New NTL Grandfathered Distributee (a "New NTL
Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding shares of New NTL Common
Stock (or beneficial ownership of securities which upon
confirmation of the Plan, will become shares of New NTL
Common Stock) (the "New NTL Stock Acquisition Date"),
other than as a result of repurchases of stock by New NTL
or certain inadvertent actions by institutional or
certain other stockholders; or
o 10 business days (or such later date as the board of
directors of New NTL shall determine prior to any Person
becoming a New NTL Acquiring Person) following the
commencement of a tender offer or exchange offer that
would result in a Person or group becoming a New NTL
Acquiring Person.
The New NTL Stock Acquisition Date could occur as early as the Effective
Date. The earlier to occur of these events in the two preceding bullet
points to occur is referred to as the "New NTL Stockholder Rights
Distribution Date," although in any event the separation of the New NTL
Stockholder Rights from the New NTL Common Stock shall not occur prior to
the Effective Date.
Until the New NTL Stockholder Rights Distribution Date, (1) the
New NTL Stockholder Rights will be evidenced by the New NTL Common Stock
certificates and will be transferred with and only with such New NTL Common
Stock certificates, (2) New NTL Common Stock certificates will contain a
notation incorporating the New NTL Rights Agreement by reference and (3)
the surrender for transfer of any certificates for New NTL Common Stock
outstanding will also constitute the transfer of the New NTL Stockholder
Rights associated with the New NTL Common Stock represented by such
certificate. Pursuant to the New NTL Rights Agreement, New NTL reserves the
right to require prior to the occurrence of a New NTL Stockholder Rights
Triggering Event (as defined below) that, upon any exercise of New NTL
Stockholder Rights, a number of New NTL Stockholder Rights be exercised so
that only whole shares of New NTL Stockholder Rights Preferred Stock will
be issued.
The New NTL Stockholder Rights are not exercisable until the New
NTL Stockholder Rights Distribution Date and will expire at 5:00 p.m., New
York City time, on the date that is ten years after the Effective Date
unless such date is extended or the New NTL Stockholder Rights are earlier
redeemed or exchanged by New NTL as described below.
As soon as practicable after the New NTL Stockholder Rights
Distribution Date, New NTL Stockholder Rights certificates will be mailed
to holders of record of the New NTL Common Stock as of the close of
business on the New NTL Stockholder Rights Distribution Date and,
thereafter, the separate New NTL Stockholder Rights certificates alone will
represent the New NTL Stockholder Rights. Except as otherwise determined by
the board of directors of New NTL, only shares of New NTL Common Stock
issued prior to the New NTL Stockholder Rights Distribution Date will be
issued with New NTL Stockholder Rights.
In the event that a person becomes a New NTL Acquiring Person or
the board of directors of New NTL declares any person to be an adverse
person upon a determination that a person has become the beneficial owner
of a substantial amount of New NTL Common Stock, which shall in no event be
less than 10% of the outstanding New NTL Common Stock, except pursuant to a
tender offer or an exchange offer for all outstanding shares of New NTL
Common Stock at a price and on terms determined by a majority of the
members of the board of directors of New NTL (or a properly constituted
committee), none of whom are New NTL's officers and who are not
representatives, nominees, affiliates or associates of a New NTL Acquiring
Person, to be fair to New NTL's stockholders (a "New NTL Qualifying
Offer"), each holder of a New NTL Stockholder Right will thereafter have
the right to receive, upon exercise, New NTL Common Stock (or, in certain
circumstances, cash, property or other securities of New NTL) having a
value equal to two times the exercise price of the New NTL Stockholder
Right. Notwithstanding any of the foregoing, following the occurrence of
the event set forth in this paragraph, all New NTL Stockholder Rights that
are, or (under certain circumstances specified in the New NTL Rights
Agreement) were, beneficially owned by any New NTL Acquiring Person will be
null and void. However, New NTL Stockholder Rights are not exercisable
following the occurrence of the event set forth above until such time as
the New NTL Stockholder Rights are no longer redeemable by New NTL as set
forth below.
For illustrative purposes only, at an exercise price of $60 per
New NTL Stockholder Right, each New NTL Stockholder Right not owned by a
New NTL Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase
$120 worth of New NTL Common Stock (or other consideration, as noted above)
for $60. Assuming for illustrative purposes only that the New NTL Common
Stock had a per share value of $20 at such time, the holder of each valid
New NTL Stockholder Right would be entitled to purchase 12 shares of New
NTL Common Stock for $120. The foregoing example is for illustrative
purposes only and is not a representation of the future trading value of
New NTL Common Stock or the circumstances under which New NTL Stockholder
Rights may be validly exercised.
In the event that, on or at any time after a New NTL Stock
Acquisition Date, New NTL (1) engages in a merger or other business
combination transaction in which New NTL is not the surviving corporation
other than in a New NTL Qualifying Offer, (2) New NTL engages in a merger
or other business combination transaction in which New NTL is the surviving
corporation and any shares of New NTL Common Stock are changed into or
exchanged for other securities or assets other than in a New NTL Qualifying
Offer or (3) 50% or more of the assets, cash flow or earning power of New
NTL and its subsidiaries (taken as a whole) are sold or transferred so that
each holder of a New NTL Stockholder Right (except as noted below) will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the New NTL Stockholder Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value (determined as provided in the New
NTL Rights Agreement) of two times the exercise price of the New NTL
Stockholder Right. The events set forth in this paragraph and in the second
preceding paragraph are referred to as the "New NTL Stockholder Rights
Triggering Events."
At any time until the tenth business day after a New NTL Stock
Acquisition Date, New NTL may redeem the New NTL Stockholder Rights in
whole, but not in part, at a price of $0.01 per New NTL Stockholder Right
(the "New NTL Stockholder Rights Redemption Price"), payable in cash, New
NTL Common Stock or other consideration deemed appropriate by the board of
directors of New NTL. Immediately upon the action of the board of directors
of New NTL electing to redeem the New NTL Stockholder Rights, the New NTL
Stockholder Rights will terminate and the only right of the holders of New
NTL Stockholder Rights will be to receive the New NTL Stockholder Rights
Redemption Price.
At any time after a person becomes a New NTL Acquiring Person and
prior to the acquisition by such person or group of fifty percent (50%) or
more of the outstanding shares of New NTL Common Stock, the board of
directors of New NTL may exchange the New NTL Stockholder Rights (other
than New NTL Stockholder Rights owned by such person or group which have
become void), in whole or in part, for New NTL Common Stock at an exchange
ratio of one share of New NTL Common Stock, or one one-hundredth of a share
of New NTL Stockholder Rights Preferred Stock (or of a share of a class or
series of New NTL preferred stock having equivalent rights, preferences and
privileges), per New NTL Stockholder Right subject to adjustment.
Until a New NTL Stockholder Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of New NTL,
including, without limitation, the right to vote or to receive dividends.
While the distribution of the New NTL Stockholder Rights will not be
taxable to holders of New NTL Common Stock or to New NTL, New NTL
stockholders may, depending upon the circumstances, recognize taxable
income in the event that the New NTL Stockholder Rights become exercisable
for New NTL Common Stock or other consideration of New NTL or for common
stock of the acquiring company or in the event of the redemption of the New
NTL Stockholder Rights as discussed above.
Any of the provisions of the New NTL Rights Agreement may be
amended by the board of directors of New NTL prior to the New NTL
Stockholder Rights Distribution Date. After the New NTL Stockholder Rights
Distribution Date, the provisions of the New NTL Rights Agreement may be
amended by the board of directors of New NTL in order to cure any
ambiguity, to make changes which do not adversely affect the interests of
holders of New NTL Stockholder Rights, or to shorten or lengthen any time
period under the New NTL Rights Agreement. The foregoing notwithstanding,
no amendment may be made at such time as the New NTL Stockholder Rights are
not redeemable.
This summary of the New NTL Rights Agreement is subject in its
entirety to the terms and conditions of the New NTL Rights Agreement.
F. Certain Financing Matters
Set out below is a description of the expected principal
indebtedness of New NTL and its subsidiaries immediately following the
Effective Date.
The descriptions of the Senior Credit Facility and Working Capital
Credit Facility with respect to New NTL have been prepared assuming that
the existing facilities are amended and restated to accord with the Heads
of Terms agreed among the UK Bank Steering Committee, the Cablecom Bank
Steering Committee, NTL Inc. acting on behalf of its subsidiaries party to
the Credit Facilities, the Noteholders' Steering Committee, Senior Banks
representing 91% of the principal amount outstanding under the Senior
Credit Facility, and all of the Working Capital Banks and are subject to
satisfactory documentation and the conditions contained therein. It is a
condition to the occurrence of the Effective Date that the UK Credit
Facilities have been amended and restated on terms acceptable to the
Debtors and the Creditors' Committee. The appropriate consents will be
sought in connection with the amendment and restatement of these
facilities. See "General Information -- Events Leading To Chapter 11
Cases--Execution Of Heads Of Terms As To UK Credit Facilities."
1. Senior Credit Facility
Pursuant to the Senior Credit Facility, the Senior Banks have made
available to NTL Investment Holdings Limited a revolving facility in the
maximum aggregate principal amount of (pound)2,585,000,000 and a term
facility in the maximum principal amount of (pound)200,000,000. The Senior
Credit Facility is fully drawn.
The liabilities under the Senior Credit Facility are principally
supported by guaranties and security from certain of the subsidiaries of
New NTL (approximately 185 in number), other than Diamond Cable, Triangle,
and their respective subsidiaries.
Amounts outstanding under the revolving facility bear interest at
LIBOR plus a margin of 3.5% for six months from the date of the restatement
of the Senior Credit Facility contemplated by the Heads of Terms referred
to above and which thereafter varies from 4.00% to 2.5% per annum (under a
margin ratchet arrangement dependent upon financial performance) plus the
Mandatory Cost Rate.
Subject to the agreement of the term loan lender, the term loan
facility will bear interest at the same rate as the revolving facility and
will have a final repayment date of September 30, 2006.
The availability of the revolving facility reduces from June 30,
2004 until its final repayment on September 30, 2005. These repayment
provisions are subject to voluntary and mandatory repayment and
cancellation provisions in the Senior Credit Facility. There are detailed
provisions in the Senior Credit Facility which require amounts outstanding
under the term loan facility and revolving facility to be repaid and the
commitment thereunder to be permanently reduced from excess cash flow,
insurance proceeds, asset disposals, and the net cash proceeds of equity
issues or financial indebtedness raised by NTL CC or any of its
subsidiaries which are holding companies of NTL Communications Limited,
subject to certain agreed exceptions.
The Senior Credit Facility contains comprehensive undertakings
relating to the provision of information and other affirmative and negative
covenants applying principally to most of New NTL's subsidiaries and (to a
limited extent) New NTL.
The occurrence of certain specified events of default entitle the
agent (or oblige the agent on the instructions of an instructing group of
the Senior Banks) to cancel any undrawn portion of the facilities and/or to
require the immediate payment of all amounts outstanding under the Senior
Credit Facility and/or to declare all such amounts due and payable on
demand and/or to enforce or direct the enforcement of the security. Such
events of default include: (i) failure to pay; (ii) breaches of
representations; (iii) breaches of obligations and undertakings under the
Senior Credit Facility and related finance documents; (iv) cross defaults;
(v) the occurrence of certain insolvency contingencies affecting certain
members of the NTL group; (vi) displacement of management, compulsory
acquisition or seizure of revenues or assets by government authority; (vii)
repudiation of finance documents; (viii) illegality; and (ix) the
occurrence of any event or circumstance which would have a material adverse
effect.
The Senior Credit Facility provides for the payment of agency fees
and the payment of commitment commission on the daily available and undrawn
amounts under the revolving facility at a rate (depending upon the amounts
so available and undrawn) of 0.5% or 0.75% per annum payable quarterly in
arrears. The Senior Credit Facility also provides for the payment of a
restructuring fee to each lender on the Effective Date calculated at 1.375%
of such lender's commitment as of May 2, 2002.
NTL IS CURRENTLY IN DEFAULT UNDER THE SENIOR CREDIT FACILITY. IN
CONNECTION WITH THE PLAN IT IS INTENDED THAT THE EXISTING EVENTS OF DEFAULT
UNDER THE SENIOR CREDIT FACILITY WILL BE CURED BY AMENDMENT OF THE SENIOR
CREDIT FACILITY WITH EFFECT FROM THE EFFECTIVE DATE.
2. Working Capital Facility
Pursuant to the Working Capital Facility, the working capital
banks made available to NTL Communications Limited a multiple draw loan
facility of (pound)1,300,000,000. The Working Capital Facility is fully
drawn but for approximately (pound)9,000,000, the availability of which is
currently blocked and the principal amount outstanding thereunder is
approximately (pound)408,000,000 (the remainder having been canceled).
Amounts outstanding under the Working Capital Facility bear
interest at LIBOR plus the Mandatory Cost Rate plus a margin which ratchets
up by 0.5% per annum per quarter from its initial rate of 4.5% per annum.
As of the date of this Disclosure Statement it has yet to be agreed whether
the interest rate will be capped at 16% per annum as per the terms of the
Working Capital Facility prior to its amendment pursuant to the Heads of
Terms.
The liabilities under the Working Capital Facility were originally
supported principally by guaranties granted by NTL (UK) Group, Inc. and NTL
CC; a pledge by NTL CC over its 100% shareholding in NTL (UK) Group, Inc.;
a charge by NTL (UK) Group, Inc. over 65% of its 100% shareholding in NTL
Communications Limited; and by an assignment by NTL CC of the benefit of
its intercompany loans to NTL (UK) Group, Inc.
Pursuant to an agreement in principle concluded between the
Debtors and the Working Capital Banks at the beginning of 2002, it was
agreed that guaranties of the liabilities of NTL Communications Limited as
borrower under the Working Capital Facility would also be granted by those
members of the NTL group which had granted guaranties with respect to the
Senior Credit Facility. It has subsequently been agreed that not all of the
members of the NTL group which guaranteed the Senior Credit Facility should
guarantee the Working Capital Facility, but as of the date of this
Disclosure Statement (due to unresolved issues relating to the
consideration being granted for such guaranties), such guaranties have not
been granted.
If such guaranties are granted by the time the Working Capital
Facility is restated pursuant to the Heads of Terms, the provisions for
payment of interest will be amended so that no more than 2.5% above the
applicable margin for the revolving credit facility under the Senior Credit
Facility plus LIBOR plus the Mandatory Cost Rate will be payable in cash on
the relevant interest payment dates and the balance of the interest amounts
accruing will continue to accrue and be paid on the final repayment date of
the Working Capital Facility. As of the date of this Disclosure Statement,
it has not been agreed whether such "rolled-up" interest will itself accrue
interest. If such guaranties are granted, those guaranties will be subject
to a subordination agreement pursuant to which the liabilities and
obligations assumed by the relevant NTL group members under those
guaranties will be subordinated to the liabilities and obligations assumed
by such members under, or pursuant to, or otherwise in connection with, the
Senior Credit Facility and the documents related thereto.
The Working Capital Facility provides that amounts outstanding
under the Working Capital Facility will be repaid and the commitment
thereunder will be permanently reduced from excess cash flow, asset
disposals, insurance proceeds and a certain percentage of the net cash
proceeds of equity issued or financial indebtedness raised by New NTL and
certain of its subsidiaries (subject to certain exceptions). The Heads of
Terms provides that proceeds raised from the Offerings (or any equity
offerings done in lieu of the Offerings of equal or lesser amounts within
12 months following the Effective Date), the DIP Facility, the New NTL Exit
Facility, or any alternative financing completed in lieu of the New NTL
Exit Facility and any refinancing of the New NTL Exit Facility completed
within 12 months following the Effective Date, are not required to be used
to repay the Working Capital Facility and permanently reduce the commitment
thereunder.
The Working Capital Facility contains comprehensive undertakings
relating to the provision of information and other affirmative and negative
covenants.
The occurrence of certain specified events of default entitle the
agent (or oblige the agent on the instructions of an instructing group of
Working Capital Banks) to cancel any undrawn portion of the facilities
and/or to require the immediate payment of all amounts outstanding under
the Working Capital Facility and/or to declare all such amounts due and
payable on demand and/or to enforce or direct the enforcement of the
security. Such events of default include: (i) failure to pay; (ii) breaches
of representations; (iii) breaches of obligations and undertakings under
the Working Capital Facility and related finance documents; (iv) cross
defaults; (v) the occurrence of certain insolvency contingencies affecting
certain members of the NTL group; (vi) a displacement of management,
compulsory acquisition or seizure of revenues or assets by government
authority; (vii) repudiation of finance documents; (viii) illegality; and
(ix) the occurrence of any event or circumstance which would have a
material adverse effect.
The Working Capital Facility provides for the payment of agency
fees and also provides for the payment of a restructuring fee to each
lender on the Effective Date calculated at 1.375% of such lender's
commitment as of May 2, 2002.
NTL IS CURRENTLY IN DEFAULT UNDER THE WORKING CAPITAL FACILITY. IN
CONNECTION WITH THE PLAN IT IS INTENDED THAT THE EXISTING EVENTS OF DEFAULT
UNDER THE WORKING CAPITAL FACILITY WILL BE CURED BY AMENDMENT OF THE
WORKING CAPITAL FACILITY WITH EFFECT FROM THE EFFECTIVE DATE.
3. Triangle Notes
Under the terms of the Indenture governing the Triangle Notes,
Triangle issued $517,321,000 in principal amount of Triangle Notes at a
price of 57.991% of the aggregate principal amount at maturity, or
$299,999,621.11. The Triangle Notes accrue interest from November 15, 2000
at 11.20% per annum, payable semi-annually in arrears on May 15 and
November 15, commencing on May 15, 2001, and may be redeemed at Triangle's
option, in whole or in part, at any time on or after November 15, 2000, at
a redemption price of 104.20% of the principal amount thereof, declining
ratably to par on or after November 15, 2003, plus accrued and unpaid
interest, if any, to the date of redemption.
Solely with respect to the Triangle Notes, NTL Inc., NTL Delaware,
NTL CC, and Cable Funding have determined that the change of control
provisions contained in the Indenture governing the Triangle Notes will not
be triggered by the consummation of the transactions set forth in the Plan.
4. Diamond Holdings Notes
Under the terms of the Indenture governing the Diamond Holdings
Notes, Diamond Holdings issued (pound)135,000,000 in 10% Senior Notes due
February 1, 2008, and $110,000,000 in 91/8% Senior Notes due February 1,
2008. The Diamond Holdings Notes, which are guaranteed by Diamond Cable,
the parent of Diamond Holdings, accrue interest at 10% and 91/8% per annum,
respectively, from February 6, 1998, payable semi-annually in arrears on
February 1 and August 1, commencing on August 1, 1998, and may be redeemed
at the option of Diamond Holdings, in whole or in part, at any time on or
after February 1, 2003, at a redemption price (expressed as a percentage of
the principal amount) determined in accordance with Section 204 of the
Diamond Holdings Notes Indenture.
Solely with respect to the Diamond Holdings Notes, the Debtors
have determined that the change of control provisions contained in the
Indentures governing the Diamond Holdings Notes will not be triggered by
the consummation of the transactions set forth in the Plan.
5. The New NTL Exit Facility
The Debtors expect that on the Effective Date, New NTL and/or
Cable Funding will enter into a new exit financing facility, which may be
the New NTL Exit Facility. The New NTL Exit Facility or any alternative
financing would refinance (at least in part) the DIP Facility and may be
used as consideration for the refinancing of the Delaware/NTL (UK) Group
Note from NTL Delaware to New NTL. The New NTL Exit Facility likely would
be evidenced by senior secured notes of Cable Funding having a maturity
date seven years from the Effective Date. The senior secured notes likely
would bear interest at a rate equal to the greater of (a) 13% or (b) 350
bps over the yield-to- worst of the basket of high yield United States
cable securities that are a component of an agreed upon high yield index
produced by an internationally recognized investment banking firm and would
be payable semi-annually in arrears.
The Debtors further expect that the New NTL Exit Facility would be
secured by various assets of New NTL, including those which secure the DIP
Facility, would rank senior to all current and future subordinated debt of
New NTL, and would be non-callable for four years from the date of
issuance, and thereafter, callable at a premium, decreasing ratably to par.
The Debtors also expect that the New NTL Exit Facility would
impose operating and financial restrictions on New NTL and its
subsidiaries. These restrictions would affect, and in certain cases
significantly limit or prohibit, among other things, New NTL's ability and
the ability of its subsidiaries to incur additional indebtedness, pay
dividends, or make distributions in respect of capital stock, make other
restricted payments, enter into sale and leaseback transactions, create
liens upon assets, enter into transactions with affiliates or related
persons, sell assets, or consolidate, merge, or sell all or substantially
all of their assets. The New NTL Exit Facility also likely would require
New NTL to satisfy certain financial covenants on an ongoing basis. The
Debtors cannot determine at this time whether these financial covenants
would have a material impact on New NTL's ability to finance future
operations or capital needs or to engage in other business activities.
The terms, covenants, and conditions of the New NTL Exit Facility
have not been finalized and remain subject to negotiation and final
documentation.
G. Transitional Arrangements With Euroco
Following the Effective Date, New NTL will provide certain head
office, technical and administrative services to Euroco which will be
charged to Euroco at cost on a transitional basis. In addition, New NTL
will provide certain management, personnel, technical, and administrative
assistance and services to Euroco with respect to the joint venture
interests of Euroco which are located in the UK, the Far East operations of
ntl: broadcast and NTL Lanbase, SL (the company for the Spanish operations
of ntl: business), all of which will be charged to Euroco at an agreed upon
price schedule on a transitional basis.
Following confirmation of the Plan, New NTL will continue to
operate under and rely on the contractual arrangements currently in place
with respect to the provision of eTelevision Services and carriage of
certain content by joint venture interests of Euroco.
Arrangements will also be made as appropriate for the use by
Euroco of the "ntl:" logo and the NTL name on a transitional basis. In
addition, customary provisions will be made for shared access to the
historic taxation records and corporate records of NTL.
H. Legal Proceedings
NTL is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of business, including claims
involving employment claims, contractual disputes and claims for damages to
property and personal injury resulting from the construction of NTL's
networks and the maintenance and servicing of NTL's transmission masts,
none of which are expected to have a material adverse effect on New NTL's
financial position or results of operations or cash flows.
In April and May 2002, seven of NTL Inc.'s purported security
holders commenced putative class action lawsuits against NTL Inc. and
certain of its officers and directors, on behalf of all purchasers of NTL
Inc.'s securities between August 9, 2000 and November 29, 2001 (the "Class
Period") in the United States District Court for the Southern District of
New York. The complaints allege that the defendants violated Section 10(b)
of the Exchange Act and Rule 10b-5 promulgated thereunder, purportedly by
not disclosing during the Class Period that: (a) NTL Inc. allegedly was
unable to integrate its acquisitions and therefore experienced difficulties
in operating its business; (b) NTL Inc. allegedly was not fully funded
until 2003, as it had publicly disclosed, and would have to restructure its
debt prior to that time; (c) NTL Inc. allegedly was under-reporting "churn
rates" by failing to report customer terminations and continuing to bill
customers for accounts which they had terminated; and (d) NTL Inc.
allegedly was delaying the writedown of billions of dollars of impaired
assets, thereby misstating NTL Inc.'s results of operations. The complaints
seek unspecified damages. Three of these lawsuits have been voluntarily
dismissed with respect to NTL Inc. (though not its officers and directors)
because they were filed subsequent to the commencement of NTL Inc.'s
Chapter 11 case. Pursuant to the Plan, the claims arising out of the
remaining suits against NTL Inc. (though not against its officers and
directors) will be discharged in the Chapter 11 Cases if the Plan is
confirmed. For further information regarding the treatment of these claims,
see "Certain Matters Regarding New NTL - Risk Factors Relating To New NTL -
Defense Of The Putative Class Action Suits Against NTL Inc. And Certain Of
Its Officers And Directors."
V. CERTAIN MATTERS REGARDING EUROCO
A. Businesses To Comprise Euroco
1. Overview
Following the Effective Date, Euroco will hold Cablecom, NTL's
cable business in Switzerland, and will retain NTL's investments in cable
networks in Sweden and Germany.
Also, Euroco will retain NTL's equity investments in Premium TV
Limited (NTL's sports TV content and internet business), Two Way TV Limited
(an interactive television service provider), Global Radio Participations
SA (a European digital radio license holder), Into Networks and Diva
Systems (respectively, streaming and video-on demand technology companies),
Radioscape Limited (a digital radio technology company), NTL Lanbase, SL
(the company for the Spanish operations of ntl: business), the Far East
operations of ntl: broadcast, and the cable channel content providers of
the ITN News Channel and The Studio Channel. The Debtors understand,
however, that Into Networks is pursuing a disposition of substantially all
of its assets, and the proceeds of this disposition are not expected to be
sufficient to result in any distribution to Into Networks' equity security
holders. Similarly, Diva recently has commenced its own Chapter 11 case and
the Debtors do not expect to receive or retain any property or other
distribution on account of NTL's equity interest in Diva.
Pursuant to the terms of the Plan and subject to the occurrence of
the Effective Date, the Noos Interest will be released to France Telecom
pursuant to the Share Account Pledge Agreement. See "Summary Of The Plan --
Summary Of Other Provisions Of The Plan -- Compromises And Settlements --
France Telecom Compromise And Settlement."
The principal assets that will comprise Euroco, namely the
operations in Switzerland, Germany, and Sweden, were all acquired in 2000.
In March 2000, NTL completed the purchase of the cable assets of the
Cablecom Group, Switzerland's largest cable company. As described below,
Euroco is required to attempt to sell, or procure an outside investor in,
the Cablecom Group. Also in March 2000, NTL acquired a 25% interest in B2
in Sweden, a company which is deploying fiber directly to the home
throughout Scandinavia. (In September 2001, NTL increased its minority
interest in B2 to 34%.) In August 2000, NTL acquired a 50% interest in
eKabel L.P., which owns 65% of iesy Holdings GmbH, formerly known as eKabel
Holdings GmbH, the cable network in the Hessen province of Germany.
The Debtors and the Noteholders' Steering Committee and since its
formation, the Creditors' Committee have discussed the possible transfer to
NTL CC or one of its subsidiaries of one or more of the joint venture
interests and/or certain of the non-core assets currently held indirectly
by NTL Inc. or NTL Delaware, as the case may be. If any such transfer were
to occur, such joint venture interest and/or assets would form a part of
New NTL and would not be a part of Euroco. The terms and conditions of any
such transfer, including the form and mechanics (including compliance with
existing contractual obligations), the consideration payable, transfer of
associated funding obligations, transitional arrangements, and the timing
thereof have not been agreed. It is not currently contemplated that any
such transfer will occur prior to the Effective Date, and any transfer
after the Effective Date may be subject to approvals of the boards of
directors of New NTL and Euroco. Any such transfer would be subject to
approval of the Bankruptcy Court if effected prior to the Effective Date.
For further information, see "Certain Matters Regarding Euroco - Risk
Factors Relating To Euroco."
Unless otherwise stated, all information in this section is as of
December 31, 2001. For an update of certain information with respect to the
businesses to comprise Euroco, see the Quarterly Report on Form 10-Q for
the three months ended March 31, 2002 for NTL Inc. annexed as Exhibit C to
this Disclosure Statement.
2. Cablecom GmbH (Switzerland)
a. Cablecom Group Outside Investment And/Or Sale Process
The Cablecom Group has outstanding aggregate borrowings, as of the
date of this Disclosure Statement of CHF 3,755,000,000 under the Cablecom
Credit Facility. Cablecom GmbH, an indirect wholly owned subsidiary of NTL
Delaware, is the principal borrower under the Cablecom Credit Facility.
It has been agreed pursuant to the most recent amendment of the
Cablecom Credit Facility that the Cablecom Banks have the following rights:
o if the Cablecom Banks are not satisfied with the progress
made towards a sale of, or investment in, the Cablecom
Group by August 31, 2002, Cablecom GmbH shall appoint a
reputable investment bank approved by the Cablecom Bank
Steering Committee to advise it in connection with the
sale of all or part of, or an investment in, the Cablecom
Group;
o to require Cablecom GmbH to prepare, in consultation with
such investment bank(s), a mutually agreed timeline in
relation to a possible outside investment in, or sale of
all or a part of, the Cablecom Group;
o to require the prompt notification to the agent acting on
behalf of the Cablecom Banks of any material developments
which occur after the engagement of such investment
bank(s) in connection with the proposed outside
investment in, or sale of all or a part of, the Cablecom
Group, including the receipt of any investment or sale
proposal relating to the Cablecom Group; and
o to direct NTL Cablecom Holding GmbH and/or Cablecom GmbH
and/or NTL Delaware to approve any proposed outside
investment in, or sale of all or a part of, the Cablecom
Group, which is acceptable to the Cablecom Banks and to
require NTL Cablecom Holding GmbH and/or Cablecom GmbH
and/or NTL Delaware to obtain the consent or approval of
any person holding an interest in the Cablecom Group that
would be required to approve an outside investment in, or
sale of all or a part of, the Cablecom Group.
Under a subsequent conditional agreement made between J.P. Morgan
Chase, Morgan Stanley Senior Funding Inc., and The Royal Bank of Scotland
plc as the co-ordinators for the Cablecom Banks on the one hand and NTL
Cablecom Holding GmbH, Cablecom GmbH, NTL Delaware, and Cable Connect
Switzerland 1 CV on the other hand, it has been conditionally agreed that
UBS Warburg be appointed to advise Cablecom in connection with the sale of
or investment in the Cablecom Group and that the Cablecom Banks shall have
the following rights:
o to review the scope and terms of the UBS Warburg engagement;
o to be notified when UBS Warburg is appointed;
o to request the engagement of a second investment banking
firm to work with UBS Warburg to jointly seek an outside
investment in, or sale of all or a part of, the Cablecom
Group, such second investment banking firm to be
acceptable to the Cablecom Banks;
o to direct Cable Connect Switzerland 1 CV to approve any
proposed outside investment in, or sale of all or a part
of, the Cablecom Group which is acceptable to the
Cablecom Banks and to require it to obtain the consent or
approval of any person holding an interest in the
Cablecom Group that would be required to approve an
outside investment in, or sale of all or a part of, the
Cablecom Group in addition to the other members of the
NTL group referred to above; and
o if a sale of all or a part of the Cablecom Group is
completed at any time on or prior to August 31, 2003
where the consideration received by Euroco (after
deduction of all costs, expenses, liabilities, taxes,
and/or duties incurred and/or payable in connection with
the sale) exceeds the amounts outstanding under the
Cablecom Credit Facility and related finance documents at
such time, the Cablecom Banks are entitled to receive
additional interest on the loan equal to 20% of any such
excess consideration that, in the absence of such
arrangement, Euroco (or one of its subsidiaries, as the
case may be) would have actually received and been
entitled to retain for its own account, net of all taxes
and levies arising from such payment to the Cablecom
Banks; if the consideration is received in installments,
the Cablecom Banks' entitlement will be paid in the like
installments and if the consideration is non-cash, the
Cablecom Banks' entitlement will be in like kind.
The conditions to that agreement are set out in "Certain Matters
Regarding Euroco -- Risk Factors Relating to Euroco -- Sale Of Or Outside
Investment In The Cablecom Group."
Under the conditional agreement discussed above, the requirement
of Cable Connect Switzerland 1 CV and/or NTL Cablecom Holding GmbH and/or
Cablecom GmbH and/or NTL Delaware to obtain the consent to, or approval of,
any person whose consent or approval is required in connection with an
outside investment in, or sale of all or a part of, the Cablecom Group does
not extend to the obtaining of any consent or approval from any Cablecom
Bank or any applicable governmental or regulatory authority. The parties
agreed to mutually cooperate to complete any investment or sale in the most
tax-efficient manner for Euroco. See "Certain Matters Regarding Euroco --
Risk Factors Relating To Euroco -- Sale Of Or Outside Investment In The
Cablecom Group."
b. Cablecom Business
Cablecom is Switzerland's largest cable operator with
approximately 53% of the Swiss cable television market as of December 31,
2001. As of December 31, 2001, Cablecom delivered products and services to
1.4 million subscribers in 100% ownership service areas, reflecting a
penetration rate of approximately 91%. Cablecom also delivers signals via
its national fiber backbone to other cable operators who serve another
490,000 subscribers, including third party wholesale and partial ownership
of signal. Over 90% of television broadcasting in Switzerland is delivered
over cable networks. As of December 31, 2001, Cablecom also had over 67,000
broadband Internet and 48,000 digital television customers.
Cablecom also owns SwissOnline, one of the largest Internet
service providers in Switzerland with approximately 161,000 dial-up
customers as of December 31, 2001. Cablecom already has a
telecommunications license to provide voice, data and other value added
services in Switzerland, and expects to commercially launch its Voice over
Internet Protocol, or VoIP, telephony product in 2002.
Cablecom is the largest alternative fiber link telecommunications
operator in the Swiss telecommunications market.
Cablecom's business extends beyond basic television services.
Cablecom's objective is to become the premier provider of communications
services for Switzerland's residential and business markets.
During the third and fourth quarter of 2001, NTL's European
management team took an active role in managing the business in
Switzerland. NTL reorganized Cablecom's management and organizational
structure to a customer focused organization marketing the product for the
consumer and realizing Cablecom's unique business to business opportunity.
In 2001, Cablecom integrated several business units and legal entities,
reducing the number of departments from 13 to 7, thereby reducing multiple
interfaces to the customer.
As part of the reorganization, in October 2001, Rudolf Fischer
joined the European management team as the new Chief Operating Officer of
Cablecom. NTL has also hired Cablecom's first Chief Marketing Officer, and
through internal candidates, Cablecom's Chief Financial Officer and Head of
Consumer Services. As part of the effort to streamline Cablecom and reduce
costs, NTL also implemented a redundancy plan in 2001, reducing headcount
by 260 out of 1,960 full-time equivalent employees.
Core elements of the strategy for Cablecom include:
o introducing value added services, including high speed
Internet, digital television, pay-TV, video- and
audio-on-demand, and telephony,
o installing superior customer care operations in order to
support growth in the number of direct customer
relationships and the rollout of new products and
services, and
o increasing capacity in major cities and suburban areas
and increase bi-directionality beyond the current one
million homes.
Cablecom currently operates in the following five business areas:
o Fully Owned Cable Networks. Residential cable television
is Cablecom's largest business and comprises 28 different
cable networks, of which six are wholly-owned by
Cablecom. This accounts for approximately 90% of total
managed subscribers. As of December 31, 2001, Cablecom
had a 53% market share in Switzerland. Approximately
48,000 digital television customers and 67,000 broadband
Internet subscribers were connected at year-end.
o SwissOnline. SwissOnline, a wholly owned Cablecom
subsidiary, is one of Switzerland's largest Internet
service providers and one of the leading portals in the
country. As of December 31, 2001, SwissOnline had
approximately 161,000 subscribers. As part of the
Cablecom reorganization in 2001, SwissOnline was
integrated with Cablecom's high speed Internet product
management and customer operations.
o Cablecom Business. Cablecom Business provides voice and
data services to the small, medium, and multi-site
national segments. Current products include leased lines,
virtual private networks, connectivity, and carriers'
carrier services.
o Rediffusion. Rediffusion, Cablecom's consumer electronics
retail chain, sells consumer electronics products and
accessories. It also has rental, maintenance, and service
and repair operations. Historically, Rediffusion has been
run independently of Cablecom's cable operations.
Cablecom is currently evaluating strategic opportunities
for Rediffusion, including joint ventures and possibly a
share sale or asset sale, which would continue to
leverage the retail chain as a distribution for
Cablecom's consumer communications products.
o Engineering. Cablecom Engineering AG, a wholly owned
subsidiary of Cablecom, provides cable television
engineering services to Cablecom and third parties.
Cablecom Engineering AG is the leader in Swiss cable
television engineering with a market share of 75%.
Services include third-party cable television systems and
network infrastructure planning and design, project
management, and network measurement and maintenance. As
part of the company's reorganization, Cablecom
Engineering was integrated into the Cablecom network
division in 2001.
Network Upgrade. Cablecom is currently upgrading its nationwide
network, which consists of three interconnected segments:
o Fiber optic backbone
o Hybrid-fiber coaxial or "HFC" network
o In-house installations
Through Cablecom's network upgrade program, over 82% of homes
passed were upgraded at the end of 2001. Moreover, as HFC networks in each
area are upgraded, Cablecom upgrades in-house installations at the request
of subscribers wishing to subscribe to new services, including digital
cable television, high-speed Internet and in 2002 telephony services.
Cable Television Services. In November 1999, Cablecom launched
digital services under the SwissFun brand name in German-speaking regions.
Using a purchased or leased set-top-box, Cablecom subscribers can access an
additional 30 digital channels for free, as part of their basic television
subscription offering. The subscribers can then subscribe to over 20
additional channels in pay packages. Cablecom continued the roll-out of its
SwissFun digital television offering during 2001, concurrent with the
upgrade of its regional networks.
In addition to increasing the number of channels that can be
broadcast, the introduction of digital broadcasting allows Cablecom to
address each set-top-box individually, providing Cablecom with the
necessary flexibility to bundle expanded basic and pay channels into more
attractive pay packages. This customization of content and the potential to
differentiate substantially from the basic television offering is expected
to make pay television much more attractive than its current form. In 2002,
Cablecom plans to offer additional pay packages and pay-per-view services
over its network.
Internet Services. Cablecom intends to continue to roll out
high-speed Internet access services throughout its service areas as its
networks are upgraded to bi-directionality through 2004. To maximize the
return on capital expenditures, Cablecom is first upgrading subscriber
areas where demand is the highest. As of December 31, 2001, Cablecom
provided cable modem services to 67,000 subscribers.
In its franchise areas, Cablecom offers both residential customers
and businesses Internet access services connecting users to SwissOnline's
portal via Cablecom's network, and thus retain all usage related revenues
for dial-up services and all access revenues for all types of
subscription-based Internet services such as pay dial-up and high-speed
Internet services.
Telecommunication Services. Apart from Swisscom, Cablecom is the
only company with a nationwide footprint and a local loop infrastructure.
Cablecom expects to be able to provide broadband local loop infrastructure
access to nearly 50% of Swiss households following completion of its
network upgrade program. Cablecom's local loop networks cover all major
Swiss cities, except Lausanne and Geneva, where Cablecom has a 12.2% stake
in 022 Telegeneve, a company which provides such coverage.
In December 2001, lab testing and field trials of the Cablecom
VoIP telephony product proved successful. Cablecom plans the commercial
launch of its telephony product in 2002.
3. iesy Hessen GmbH (Germany)
In August 2000, NTL Delaware completed a 50% investment in eKabel
L.P., which in turn owns 65% of iesy Holdings GmbH (formerly eKabel
Holdings GmbH), the Hessen cable network in Germany. The other shareholders
of eKabel L.P. are Frankfurt Texas Partners, Waterview Advisors, Klesh
Kabel Partners I and certain other investors. Deutsche Telekom AG, through
a wholly-owned subsidiary, owns the remaining 35% interest in iesy Holdings
GmbH. Under this ownership structure, NTL Delaware owns a 32.5% indirect
ownership interest in iesy Hessen GmbH, a wholly owned subsidiary of iesy
Holdings GmbH (referred to herein as "iesy").
iesy owns and operates the largest cable television network in the
German province of Hessen, which includes Frankfurt, the second largest
financial center in Europe. iesy currently broadcasts up to 33 analog
channels, 13 digital channels and 36 radio channels.
There are approximately 2.8 million homes in Hessen, of which 64%
or 1.8 million homes were passed by iesy's network as of December 31, 2001.
Of the 1.8 million homes passed, 72%, or 1.3 million homes, are connected
to iesy's network. For the year ended December 31, 2001, iesy Hessen GmbH
generated total revenue of (U)118.2 million. iesy has a historical annual
churn rate of less than 6%, which compares favorably to other European and
United States cable providers. This loyalty of its customer base provides a
solid platform on which to offer iesy branded products, such as "iesynet"
and "iesyphone."
iesy has stated its intention to upgrade its network to offer the
following products and services:
o Television. In addition to basic cable, iesy plans to
offer additional channels and enhanced products and
services such as premium channels, pay-per-view, near
video-on-demand and video-on-demand.
o Telephony. iesy plans to offer telephony services
including, but not limited to, value added products, and
services such as three-way calling, call waiting, call
diversion and call banning to both residential and small
and medium sized business, or SME, customers.
o Internet. iesy plans to offer high-speed Internet access
to both residential and SME customers with an "always on"
service capable of providing streaming audio and video,
multi-media applications, advertising, e-commerce and
multi-player games.
In October 2001, iesy successfully completed network upgrade
technology trials. iesy initiated an upgrade program at the start of 2002
which is currently suspended pending progress of the potential
restructuring of iesy's capital structure. See "Certain Matters Regarding
Euroco -- Risk Factors Relating To Euroco -- Restructuring Of iesy
Financings." The network upgrade plan will focus first on areas which offer
attractive demographics for return on iesy's investment. This upgraded
network will allow iesy to offer a wider array of broadband products and
services, including the "triple-play" of digital cable television,
high-speed Internet and telephony services.
iesy's high speed Internet product, iesynet, has seen high demand
in a pilot program in Frankfurt. A limited commercial launch of iesynet is
targeted for 2002. Also in 2001, iesy was granted a class 4 voice telephony
telecommunications license, and is considering offering VoIP telephony over
its network from 2004.
iesy had a net loss for 2001 of approximately (U)411.7 million,
including approximately (U)88.8 million in depreciation and amortization
and approximately (U)89.2 million in interest expense. On April 17, 2002,
Standard and Poors downgraded its long term corporate credit ratings on
iesy to triple C from single B and placed the credit ratings on CreditWatch
with negative implications, citing increasing near term liquidity risk and
noting that the headroom under iesy's bank covenants continues to be very
tight, particularly in the first quarter of 2003. On May 7, 2002, Moody's
downgraded its senior implied rating and senior unsecured issuer rating on
iesy to Caa2 from B2 and to Ca from Caa1, respectively, citing increased
concerns regarding iesy's ability to grow into its capital structure and
Moody's opinion that iesy may be unable to resolve the anticipated bank
covenant issues that are likely to result (although potentially not until
early 2003) from iesy's reduced growth prospects over the next several
years.
In May 2002, iesy announced that it had appointed an advisor to
advise on a probable restructuring of iesy's capital structure. See
"Certain Matters Regarding Euroco -- Risk Factors Relating To Euroco --
Restructuring Of iesy Financings."
As described above, iesy Hessen, through subsidiaries, owns and
operates the largest cable television network in the German State of Hessen
(which includes Frankfurt). This network was acquired in August 2000 from
Kabel Deutschland GmbH ("KDG"), a wholly owned subsidiary of Deutsche
Telekom AG.
In August 2000, NTL, through Brigadoon Ventures, Inc., an indirect
wholly-owned subsidiary, purchased a 50% interest in eKabel L.P.
("eKabel"). eKabel owns 65% of iesy Holdings GmbH ("iesy Holdings"). KDG
owns the remaining 35% interest in iesy Holdings. iesy Holdings, in turn,
owns 99.98% of iesy Hessen (with each of eKabel and KDG owning .01%). iesy
Hessen owns 99.2% of iesy Hessen Finanz-Management GmbH ("Managementco"),
which is the corporate general partner of iesy Hessen Finanz GmbH & Co. KG
("FinanzCo"). eKabel and KDG each own a 0.4% interest in Managementco. iesy
Hessen owns 99.98% of FinanzCo, and the minority partners in FinanzCo are
eKabel and KDG. The network is operated by iesy Hessen GmbH & Co. KG
("OpCo"), which is 99.98% owned by FinanzCo and of which iesy Hessen
Verwaltungs-GmbH, a 99.2% subsidiary of FinanzCo, is the general partner.
Commencing on June 15, 2001 and expiring on July 16, 2001, iesy
Hessen offered to exchange (the "Exchange Offer") all of its $175 million
aggregate principal amount of 14 1/2% Senior Notes due 2010 and (U) 385
million aggregate principal amount of 14 1/2% Senior Notes due 2010
(collectively, the "Old Notes") which were issued in August 2000 and
February 2001 for substantially identical registered securities (the "New
Notes"). The Exchange Offer was consummated pursuant to a registration
statement and prospectus on Form F-4 filed with the SEC under the
Securities Act on June 14, 2001 (the "Registration Statement"). Unlike the
Old Notes, the New Notes are not restricted and can and do trade freely in
the secondary securities markets of the United States. Apollo Management
Fund V L.P. ("Apollo") claims that it currently holds approximately 30% of
the outstanding principal amount of the New Notes and various funds managed
by Pequot Capital Management, Inc. ("Pequot") claim that they currently
hold approximately 8% of the outstanding principal amount of the New Notes.
Commencing in early May 2002, Apollo/Pequot communicated to NTL
and others involved with iesy Hessen a proposal to make a sizeable
investment in iesy Hessen to facilitate a recapitalization of iesy Hessen
in which existing holders of New Notes would receive 95% of the outstanding
equity of the reorganized company and all existing common and preferred
equity of iesy Holdings would be cancelled.
More recently, Apollo/Pequot advised NTL that they intend to file
a complaint against iesy Hessen, certain of its directors, and certain
other persons, alleging violations of Section 11 of the Securities Act and
Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder
premised on iesy Hessen's failure to disclose certain allegedly material
facts in the Registration Statement or in a timely manner in other of its
public disclosure documents.
Apollo/Pequot have also stated that they intend to file a proof of
claim against NTL alleging securities laws violations premised on, among
other things, NTL's alleged role as a controlling person of iesy Hessen.
Finally, Apollo/Pequot have stated that they "believe that certain
of the [iesy Hessen] directors against whom it intends to bring claims
would seek indemnification from NTL, at whose behest they were appointed to
sit on the [iesy Hessen] board," for personal liability and potential
criminal liability, and would seek to be treated as general unsecured
creditors for any damages and legal fees which they are required to pay as
a result of these matters, and "that such indemnification claims could
substantially impact the recovery of all creditors in these cases."
NTL disagrees with Apollo/Pequot's assertions and intends to
defend vigorously against them. NTL believes that iesy Hessen has not
violated the U.S. federal securities laws and that in any event NTL was not
a "control person" of iesy Hessen during the relevant time periods.
Moreover, NTL has no reason to believe that any NTL employee entitled to
indemnification has violated or will violate any fiduciary or contractual
duty to iesy Hessen or will be subject to any liability with respect
thereto. Finally, NTL believes that even if such claims for indemnification
were made, recovery to other creditors will not be affected.
4. B2 (Sweden)
As a result of a series of transactions from March 2000 through
September 2001, NTL has acquired a 34% interest in B2. The other principal
investors in B2 are the Investor Group, Continuum Group Limited, Access
Industries, and the Carlyle Group. B2 is a rapidly growing broadband
communications company providing 10 Mb/s network access and broadband
services to residential and small-to-medium business customers. In 2001, B2
concentrated its efforts on rapidly growing the business in Sweden by
stopping its expansion efforts in Norway and Denmark. During 2001, B2
reduced the number of its permanent and temporary employees from
approximately 600 to 210 people, and grew its subscriber base from 18,700
to over 69,700 customers. In September 2001, B2 raised SEK 2.4 Billion
($224 million) in a private placement.
B2 provides "always on," low-cost access to a high-capacity
broadband network that provides transmission both to and from the customer
at the same speed and at the same time. B2's 10 Mb/s network access speed
is substantially faster than typical connections offered by existing cable
television and telecommunications operators and is upgradeable to 100 Mb/s
without significant expense. In addition to broadband access, B2 intends to
provide telephony and video access to its customers through a personalized,
interactive interface. Similar to Cablecom and iesy, B2 has already
successfully tested its VoIP telephony product.
On April 15, 2002, a funding request for $20 million was received
by NTL under the terms of the investment agreement relating to NTL's
investment in B2. NTL has informed B2 and the other principal investors
that it is not in a position to comply with this request at this time. The
B2 investment agreement provides that if NTL fails to do so, it may be sued
for non-payment and arguably could lose certain rights under the B2
shareholder agreement. If this occurs, pursuant to the terms of the
investment agreement, the majority remaining shareholders of B2 may elect
to terminate the B2 shareholder agreement with respect to NTL and exercise
a contractual right to acquire on a pro rata basis NTL's interest in B2 at
25% of fair market value. If the remaining shareholders were able and
elected to exercise these rights, Euroco could be forced to sell its stake
in B2 at a loss, substantially diminishing the value of Euroco. On June 25,
2002, B2 and its remaining shareholders filed a motion in the Bankruptcy
Court requesting relief from the automatic stay provisions of section 362
of the Bankruptcy Code to exercise their rights under the relevant
documents. Notwithstanding the arguments raised in the motion, NTL believes
that the Bankruptcy Code provides various defenses and protections of and
for NTL's rights under the B2 investment agreement and in respect of its
equity interest in B2 and intends to enforce vigorously its rights and
protections.
5. Other Operations
Premium TV Limited, which will remain, after the Effective Date, a
wholly owned subsidiary of Euroco, has a joint venture with Eurosport, the
pan-European basic tier sports channel, to develop British Eurosport, a
version of Eurosport tailored to appeal to UK viewers. This channel is now
available to all of NTL's UK pay television homes.
Premium TV Limited has also entered into long-term joint ventures
with a number of UK football (soccer) teams including Rangers, Leicester,
Middlesbrough, and Newcastle, as well as the Football League, which
represents 76 teams, and has entered into a five-year operating agreement
with Aston Villa. These joint ventures are intended to develop the football
teams' Internet and broadband rights which may include audio-visual footage
of matches on a delayed basis and live audio coverage of matches. Premium
TV Limited is currently in discussions with certain of these joint venture
partners with a view to restructuring the relevant joint ventures. In the
event that these discussions do not reach a resolution acceptable to
Premium TV Limited, Premium TV Limited may seek to discontinue these joint
ventures and terminate their activities, which may also result in a
cessation of substantially all of Premium TV Limited's activities.
As a result of the Restructuring process, the joint venture
partners may assert that they can compulsorily acquire Premium TV Limited's
interests in certain of these joint ventures at a third party appraisal
valuation. NTL believes it has various defenses and protections under the
Bankruptcy Code against such actions, and will enforce vigorously these
rights and protections. Notwithstanding the foregoing, NTL has commenced or
intends to commence negotiations with these joint venture partners to
address these issues and to seek their support throughout the Restructuring
process and beyond.
In addition, Premium TV Limited is considering developing a
Classic Sports television channel, and has a contractual arrangement with
the BBC permitting Premium TV Limited to show historical sporting events,
including football (soccer) matches, from the BBC's library. Premium TV
Limited is reviewing whether to develop this channel in conjunction with
one or more partners, or on its own.
Following the Effective Date, Euroco will also retain investments
in Two Way TV Limited (an interactive television service provider), Global
Radio Participations SA (a European digital radio license holder), Into
Networks and Diva (respectively, streaming and video-on demand technology
companies), Radioscape Limited (a digital radio technology company), NTL
Lanbase, SL (the company for the Spanish operations of ntl: business), the
Far East operations of ntl: broadcast, and the cable channel content
providers of the ITN News Channel and The Studio Channel. See "Certain
Matters Regarding Euroco -- Risk Factors Relating To Euroco." See also
"Certain Matters Regarding Euroco -- Businesses To Comprise Euroco -
Overview."
6. Competition
a. Competition For Cablecom In Switzerland
o Cable Television. Cablecom is Switzerland's largest cable
operator with approximately 53% of the Swiss cable
television market as of December 31, 2001. Despite
consolidation in the industry, which was led by Cablecom,
the cable services industry remains highly fragmented.
Cablecom intends to offer value added services, including
digital television, pay-television,
interactive-television, video- and audio-on-demand, high
speed Internet, and voice-over-Internet
Protocol-telephony. These services, if offered, will
compete with third parties such as Teleclub (partly owned
by the Kirch group), Canal+/ABSat, and Telpiu/Tele+,
which currently provide pay-television by paying a
transmission fee per subscriber to the cable operators.
o Internet. In the provision of Internet services, Cablecom
primarily competes with blu win (formerly Blue Window)
which is owned by Swisscom, and the Internet services
offered by Sunrise (TDC Switzerland AG).
o Fixed Line Telephony. The principal competitor in both
residential and business telephony is Swisscom, the
incumbent provider of telephony services in Switzerland.
A number of alternative carriers are building a network
backbone infrastructure, including sunrise, which is
majority owned by TDC A/S (Tele Danmark), d holding
(Swiss utilities), UBS AG, and the Swiss Railways.
b. Competition For iesy In Germany
iesy faces, and anticipates facing, significant competition from
established and new competitors, especially in the areas of residential
telephony, business telephony, and Internet and data services in Hessen.
iesy believes that competition will intensify in each of these businesses.
iesy also faces competition in the area of pay television, which is
expected to increase due to the marketing efforts of satellite providers
and the launch of digital terrestrial television. iesy faces competition in
the provision of basic cable services from a variety of sources, including
direct-to-home satellite television services and satellite to master
antenna television systems. The principal competitor in both residential
and business telephony in Germany is Deutsche Telekom, formerly the
monopoly provider of telephony services in Germany.
c. Competition For B2 In Sweden
The established communications providers in Sweden include Telia,
UPC, and NetCom. Telia is the incumbent telecommunications provider in
Sweden and has a significant customer base. Although Telia is currently
mainly focusing on digital subscriber line solutions over fiber or the
public switched telephone network, it is also offering cable television and
Ethernet solutions. NetCom is the second largest telecommunications
provider in Sweden and has a significant existing customer base in regular
voice telephony and modem access Internet subscribers.
New entrants providing communications services include Song
Networks, Utfors, Enitel, and Thalamus Networks. Song Networks provides
broadband communication services primarily to business customers, Internet
service providers, resellers, and other communications carriers. Utfors is
a telephony operator and a broadband access and service provider primarily
to business customers, and it is building a nationwide broadband backbone
network. Enitel acquired all of the assets of Telia Norge AS, Norway's
second largest fixed-line telecommunications operator, and is expected to
combine Enitel's broadband network with Telia Norge's products and existing
customer base. Thalamus networks is a Swedish broadband service provider
that leases network capacity in both the backbone and suburban and local
area networks.
7. Regulation
a. European Union Regulation
Euroco's operations in the UK and continental Europe (other than
Switzerland) are further regulated by the EU under various European
Commission Directives. In February 2002, the European Union Commission
adopted a package of legislative measures which established a new framework
for electronic communication and ensures that the legislation is more
technology neutral. The proposed new framework consists of five
harmonization Directives, including a framework Directive and four specific
Directives on authorization, access, and interconnection, universal
service, and users' rights, data protection in telecommunications services,
a regulation on unbundling the local loop, a draft liberalization
Directive, and a decision on European Union radio spectrum policy.
b. Swiss Regulation
A comprehensive new regulatory framework governing
telecommunications services in Switzerland was established with the entry
into effect on January 1, 1998 of the Telecommunications Act and a
concurrent restatement of the Radio and Television Act. The new regulatory
regime opened both the telecommunications and cable television markets to
enhanced competition.
i. Telecommunications Act
The Telecommunications Act sets forth the general framework for
the transmission of voice and data information through telecommunications
devices. The provisions of the Telecommunications Act apply by default to
the transmission and retransmission of radio and television signals, unless
the Radio and Television Act stipulates different rules.
According to the Telecommunications Act, any operator which
provides telecommunications services and independently operates a
significant portion of a network must obtain a license. If certain
technical and organizational criteria are met, the operator is entitled to
obtain such license. Special rules apply to the use of the radio frequency
spectrum and the provision of universal service. Fixed line carriers and
cable television operators have a legal right to lay cables on public
property in order to build their networks.
Under the Telecommunications Act, responsibility for regulation of
the telecommunications sector and the promotion of fair and open
competition has been allocated among several regulatory bodies, including
the independent Commission for Communication (ComCom), the administrative
Office for Communication (OfCom), and the Federal Department of
Environment, Transport, Energy and Communication (UVEK/DETEC) as well as
the Competition Commission. Whereas ComCom is acting as the exclusive
licensing authority, OfCom is responsible for the day-to-day oversight of
the telecommunications sector.
The Telecommunications Act requires that a telecommunications
service provider that has a dominant position in a relevant market must
provide interconnection to other providers on a non-discriminatory basis
and in accordance with a transparent and cost-oriented pricing policy,
stating the conditions and prices separately for each interconnection
service. The Telecommunications Act authorized the Swiss federal government
to produce secondary legislation governing interconnection known as the
Telecommunications Ordinance. Under the Ordinance, non-dominant operators
providing universal service are also subject to certain interconnection
duties. Market dominance is determined on the grounds of the Swiss
Competition Act.
The Ordinance specifies that a market-dominant provider must grant
access to the necessary equipment, services, and information on a
transparent and non-discriminatory basis, in no worse a manner than the
market-dominant provider does so internally to its divisions, subsidiaries,
and partners. The Ordinance requires that prices charged for
interconnection services be cost-oriented (LRIC standard). To date only
Swisscom, the former telecom PTT, has been designated as market dominant.
In fall 2001, the Swiss Supreme Court ruled that, despite its
market power, there are no legal grounds to require Swisscom to grant
interconnection for rented lines and "transmission media," thereby partly
reversing a prior decision by ComCom. The Swiss Supreme Court further ruled
that the current law provides no basis for the "unbundling." No explanation
was given as to whether this term was meant to include the full unbundling
of the local loop, the shared use of the copper wire, or the provision of
fast bitstream access by the incumbent at non-discriminatory terms.
Following this ruling, the Federal Council on April 24, 2002 in principle
decided to amend the Telecommunications Ordinance and thereby force the
unbundling of the local loop as well as including rented lines in the
interconnection regime. Swisscom has announced that it will challenge any
such amendments in court. Both the recent move by the Federal Council and
the attitude of Swisscom are likely to increase pressure on market dominant
cable television operators to grant interconnection and eventually
unbundled access to their local loop in one way or another.
ii. Radio And Television Act
The Radio and Television Act regulates the operation,
transmission, retransmission, and receipt of radio and television programs,
including related information. It distinguishes between the provision of
content ("programs" in the terminology of the Act) on the one hand and
retransmission on the other hand. A cable television operator must obtain a
blanket retransmission license before it can transmit content. The "must
carry" rules of the Act require any licensee to retransmit uncoded
television programs which are broadcast by terrestrial signals as well as
the channels of the Swiss Broadcasting Corporation (SRG).
The Act furthermore states that a licensee may neither force nor
refuse to provide the access of customers to its network. Landlords of
properties must also grant access if a lessee so requests and if it covers
any related costs. If access is granted, a licensee may still be barred
from collecting subscribers' fees if the lessees are unwilling to use the
cable facilities or if a customer no longer wishes to avail itself of the
services of the licensee. In this event, however, the licensee may seal the
unused facilities. The Radio and Television Act is currently undergoing a
comprehensive restatement.
iii. Competition/Price Regulation
Cablecom is also subject to the regulations of the Swiss
Competition Act and the Swiss Price Regulation Act. Parties found to hold
and abuse a dominant market position in a given market may be subject to
remedies under the provision of these Acts; such remedies may include the
regulation of prices by the Price Regulator. At present Cablecom is
involved in proceedings before the Swiss Competition Commission where an
order is being sought forcing Cablecom to distribute Teleclub's programs
over a set-top box of Teleclub's own choosing and before the Swiss Price
Regulator who is attempting to regulate the prices charged for basic
television service provided by Cablecom.
c. German Regulation
i. Overview
iesy requires a license under the Germany Telecommunications Act
of July 25, 1996, called the TKG, for the operation of television signals.
Regulatory functions under the TKG are carried out by the Regulatory
Authority for Telecommunications and Posts ("RegTP"). iesy has a license
under the TKG for the provision of voice telephony services, which RegTP
granted on March 6, 2001, which regulates the business terms and conditions
with respect to iesy's activities. More detailed aspects of iesy's customer
relationship, price computation and network access are regulated in the
Telecommunications Customer Protection Ordinance, which contains provisions
regarding network access, non-discrimination, unbundling, call price
computation, suspension of service, liability and other customer-related
issues.
ii. Frequencies
iesy needs to use certain frequencies to provide cable television
and radio services. If frequencies are scarce, the number of licenses or
frequency packages are allocated either by auction or by a beauty contest
procedure. In the future, iesy may possibly need further frequency
allocations, in particular in connection with the upgrade of its network.
Since frequencies are scarce, such frequencies may not be available or only
with substantial further consideration. With respect to frequency
allocations formerly held by iesy's predecessor it is unclear if such
frequency allocations can be transferred.
iii. Competition
Providers of telecommunications services are subject to specific
regulations under the TKG where they have a dominant market position in
providing telecommunications services or where they are affiliated with a
market dominant company within the meaning of German law. Because of
Deutsche Telekom's ownership of equity in iesy's parent, iesy may be
considered market dominant under German Telecommunications Law with respect
to any services provided by Deutsche Telekom (or its affiliates). If iesy
is considered market dominant, its prices will be regulated under German
law. Where iesy has a dominant market position, German and EU competition
law requires it to refrain from abusing such dominant position or
distorting competition, in particular through vertical or horizontal
agreements or concerted practices, including price fixing, excessive or
predatory pricing, tie-ins or the application of discriminatory prices or
business terms.
iv. Network Access
Where iesy is considered to have a dominant market position, it is
required under the TKG to grant access to its network or unbundled parts
thereof, including frequency splitting, to third parties including
competitors. Irrespective of its market position, every operator of a
public telecommunications network is obliged, upon request, to make an
offer to other operators for interconnection to its network upon agreed
terms or terms determined by the TKG.
v. Lack Of Direct Billing Relationships
A large number of homes connected to iesy's network are connected
via private network operators. iesy does not maintain direct billing
relationships with 69% of the total homes connected to its cable network
which may hinder its ability to provide its planned products and services
to some homes connected. Therefore, because many of iesy's customers do not
maintain direct billing relationships with iesy, this may impede iesy's
ability to enter into direct contracts with these customers and may also
lower average revenue per home connected. Because customers are generally
contractually bound to their private network operator for a long period, it
may be difficult to enter into new direct contracts with these customers.
d. Swedish Regulation
i. Regulatory Framework
The provision of telephone services (including VOIP under certain
circumstances) is governed by the Swedish Telecommunications Act of 1993.
The provision of Internet services (other than VOIP under certain
circumstances) is not governed by any general Swedish legislation. B2
currently offers its clients free video streaming services with 3 channels
and is testing VOIP technology; these services may be subject to regulation
when B2 begins to offer them.
ii. Authorization
Within a public telecommunications network, telephone services to
a fixed termination point may only be provided following notification to
the Swedish National Post and Telecom Agency. Such a notification has been
made by B2. In addition, a license by the National Post and Telecom Agency
is required in order to be entitled to provide such services within a
public telecommunications network if the activity is of an extent which is
considerable with regard to the area covered, the number of users or other
comparable circumstances. The Internet/data services currently provided by
B2 do not include the provision of telephone services as defined in the
Telecommunications Act. To the extent intended services to be launched by
B2 may require licenses it is believed that such can be obtained without
difficulty.
iii. Internet/Data Services
Under the Swedish Telecommunications Act, the provision of network
capacity for services offered by third party Internet operators requires
notification to the National Post and Telecom Agency. Such a notification
has been made by B2. Further, if such activity is conducted to a
considerable extent, a license from the National Post and Telecom Agency is
required. The Internet/data services currently provided by B2 do not
include the provision of network capacity and therefore are neither subject
to a notification nor a license requirement.
8. Research And Development
NTL's research and development activities in continental Europe
involve the analysis of technological developments affecting cable
television and communications business and the development of new services
such as voice-over-Internet Protocol and near-video-on-demand for
identified markets.
9. Patents, Trademarks, Copyrights, And Licenses
Euroco does not have any material patents or copyrights nor does
NTL believe that patents will play a material role in Euroco's businesses
in continental Europe. Euroco's interests are substantially dependent on
licenses and/or franchises granted by the legislative agencies that
regulate the respective businesses. The loss of any one or more of such
licenses or franchises could have a material adverse effect on Euroco's
business and financial condition.
10. Employees
As of December 31, 2001, NTL had 1,756 employees in Switzerland
and 27 in its European head office; B2 had 176 employees; iesy had 292
employees; and Premium TV Limited had 189 employees.
11. Properties
In Switzerland, NTL owns or leases 51 offices, NTL's corporate
head-offices in Zurich, and 43 retail shops. In addition in Switzerland,
NTL owns or leases approximately 450 network sites together with warehouses
and other non- operational properties, as well as various cable television,
telephone, and telecommunications equipment housed on public and private
sites. In other continental European countries, NTL's significant interests
operate from premises owned or leased by the relevant joint venture
companies. NTL also maintains offices for NTL's ntl: broadcast staff based
in Asia and a site for Premium TV Limited in the UK.
12. Statistics On Principal Businesses To Comprise Euroco
Western Europe Customer Statistics as of December 31, 2001
Cablecom iesy B2
(Swiss) (Germany) (Sweden) Equity Gross
------- --------- -------- ------ -----
(subscriber totals in thousands)
RESIDENTIAL
Ownership Interest 100%(1) 32.5% 34.0%
Homes In Franchise 1902.7 2800.0 299.0 2,727.7 5,001.7
Homes Passed 1902.7 1828.0 217.0 2,383.9 3,947.7
Homes Marketed
(Telco) - - - - -
Homes Marketed
(CATV) 1734.8 1828.0 205.1 2,237.2 3,767.9
Customers 1583.0 1299.7 69.7 1,876.0 2,952.4
Dual/Triple RGU 67.3 - - 66.7 67.3
Single RGU 1515.7 1299.7 69.7 1,809.3 2,885.1
Cable Television
(CATV) 1583.0 1299.7 - 1,852.4 2,882.7
Digital 48.4 - - 45.9 48.4
Analog 1534.6 1299.7 - 1,806.5 2,834.3
Antenna - - - - -
Telephone - - - - -
Internet (INT) 228.3 - 69.7 251.4 298.0
Dial-Up (ntlworld
and other) 161.0 - - 161.0 161.0
Digital TV Access - - - - -
Broadband (BB) 67.3 - 69.7 90.4 137.0
RGUs (CATV, Telco,
BB) 1650.3 1299.7 69.7 1,942.8 3,019.7
Service Units (CATV,
Telco, Int) 1811.3 1299.7 69.7 2,103.8 3,180.7
RGUs/Customer 1.04x 1.00x 1.00x 1.04x 1.02x
Service
Units/Customer 1.14x 1.00x 1.00x 1.12x 1.08x
Penetration:
CATV 91.2% 71.1% 0.0% 82.8% 76.5%
Telephone - - - - -
Customer 91.2% 71.1% 34.0% 83.9% 78.4%
RGU 95.1% 71.1% 34.0% 86.8% 80.1%
Service Unit 104.4% 71.1% 34.0% 94.0% 84.4%
Dual / Triple 4.3% 0.0% 0.0% 3.6% 2.3%
Quarterly Growth:
Customers 2.9 5.7 19.2 10.1 27.8
RGUs 15.4 5.7 19.2 22.9 40.3
Off-Net Telephony - - - - -
Telephone - - - - -
Telephone and
Internet - - - - -
BUSINESS
DIVISION
Business Customers 4.3 - - 4.3 4.3
Business Lines - - 0 - -
Wholesale Internet
Subscribers - - - - -
TOTAL
CUSTOMERS 1587.3 1299.7 69.7 1,880.3 2,956.7
TOTAL SERVICE 2,103.8 3,180.7
UNITS 1811.3 1299.7 69.7
- ----------
(1) Cablecom has equity interests in 28 cable systems in Switzerland.
The following statistics reflect the proportional operating data
in which Cablecom does not maintain an equity interest: 186,700
homes passed, 161,400 homes marketed, 153,100 subscribers, 600
broadband Internet subscribers, and 153,600 RGUs.
B. Management Of Euroco
1. Board Of Directors Of Euroco
Pursuant to the Plan, the term of the current board of directors
of NTL Inc. will expire on the Effective Date and the operations of Euroco
will become the general responsibility of the board of directors of Euroco.
Pursuant to the Plan, the initial board of directors of Euroco after the
Effective Date will be comprised of nine members selected by the Creditors'
Committee, one of whom will be designated as Chairman and one of whom will
be designated as Chief Executive Officer of Euroco. The Debtors will
identify the individuals proposed to serve as directors and senior
management of Euroco in the Plan Supplement. The board of directors of
Euroco will have the responsibility for the management, control, and
operation of Euroco on and after the Effective Date. The existing officers
and directors of the Debtor Subsidiaries of NTL Inc. (excluding NTL CC and
its subsidiaries) will initially be permitted to serve in their respective
capacities as officers and directors of the Reorganized Debtor Subsidiaries
of Euroco, unless otherwise provided in the Plan Supplement.
2. Executive Officers Of Euroco
On June 28, 2002, NTL announced that with the support of the
Creditors' Committee, Barclay Knapp would continue to serve as Chief
Executive Officer of Euroco following emergence of the Debtors from the
Chapter 11 Cases. In addition, it was announced that John Gregg would serve
as Chief Financial Officer and Co-Managing Director of Euroco following the
emergence of the Debtors from the Chapter 11 Cases. On the Effective Date,
Euroco will enter into employment agreements with its key executives
substantially in the form annexed as Exhibit M to the Plan.
3. Management Incentive Plan
The Euroco Management Incentive Plan is intended to provide
incentives to certain employees of Euroco and its subsidiaries to
incentivize their efforts in fostering and promoting the long term growth
and performance of Euroco and to better align such employees' interests
with the stockholders of Euroco. To achieve this purpose, the Plan provides
that on or after the Effective Date, the compensation committee of the
board of directors of Euroco is authorized to, and will, adopt the Euroco
Management Incentive Plan under which options to purchase up to 10% of the
issued and outstanding shares of Euroco Common Stock as of the Effective
Date may be granted from time to time to certain employees of Euroco and
its subsidiaries. Accordingly, on the Effective Date pursuant to the Plan,
Euroco will reserve up to 2 million shares of Euroco Common Stock for
issuance under the Euroco Management Incentive Plan. The form of the Euroco
Management Incentive Plan is annexed as Exhibit R to the Plan.
C. Securities To Be Issued By Euroco
On the Effective Date, Euroco will issue for distribution, in
accordance with the provisions of the Plan, the New Securities required for
distribution by Euroco under the provisions of Articles III and IV of the
Plan. All such New Securities will be issued, and will be deemed for all
purposes to have been issued, on the Effective Date, regardless of the date
on which they are actually distributed to holders of Allowed Claims and
Interests.
Summarized below are the material provisions of the New Securities
to be issued by Euroco. This summary does not purport to be complete and is
qualified in its entirety by reference to the full text of the Amended And
Restated Certificate of Incorporation and By-laws of NTL Inc. and the
Euroco Rights Agreement.
1. Euroco Common Stock
The principal terms of the Euroco Common Stock to be issued by
Euroco under the Plan will be as follows:
Authorization: 60 million shares
Initial Issuance: 20 million fully-paid and non-assessable shares (excluding shares issued upon
exercise of the Euroco Management Incentive Options)
Par Value: $0.01 per share
Voting Rights: One vote per share held of record on all matters submitted to a vote of holders of
Euroco Common Stock
Dividends: Holders entitled to receive proportionately such dividends as may from time to time
be declared by the board of directors of Euroco in respect of Euroco Common Stock
out of funds legally available for the payment of dividends
Results On Liquidation, In the event of liquidation, dissolution or winding-up, holders of shares of Euroco
Dissolution, Or Common Stock would be entitled to share proportionately in all of Euroco's assets
Winding-Up: available for distribution after payment of liabilities and liquidation preference on
any outstanding preferred stock of Euroco
Preemption Rights None
And Redemption:
2. Euroco Preferred Stock
The principal terms of the Euroco Preferred Stock to be issued by
Euroco under the Plan will be as follows:
Par Value: $0.01 per share
Aggregate Liquidation $250 million plus (i) Aggregate Investments, (ii) Euroco Cash, and (iii) accrued
Preference: and unpaid dividends
Liquidation Preference $1,000, plus accrued and unpaid dividends
Per Share:
Dividend Rate: 10% per annum, payable when, as, and if, declared by the board of
directors of Euroco out of funds legally available for the payment of such
dividends and to the extent not declared and paid on a semiannual dividend payment
date, shall accrue on a semiannual basis and be payable on a redemption date out
of funds legally available for the payment of dividends
Ranking: Senior to the Euroco Common Stock in respect of dividends and amounts
distributable upon liquidation, dissolution and winding up
Optional Redemption Rights: At liquidation preference, at any time
Mandatory Redemption Twenty years and one week. Subject to earlier redemption, at liquidation preference,
Rights: in whole or part, out of net proceeds from any sale, transfer or monetization of assets
of Euroco, subject to funds legally available for the payment of such redemption
Immediately after the Effective Date, the board of directors of Euroco will elect
to redeem at least $25 million of Euroco Preferred Stock, subject to funds legally
available for the payment of such redemption
Conversion Rights: None
Preemption Rights: None
3. Resale Of Securities
a. Exemption From Registration
In connection with consummation of the Plan, the Debtors will rely
on section 1145 of the Bankruptcy Code to the extent it is applicable, to
exempt the issuance of (i) the Euroco Common Stock and (ii) the Euroco
Preferred Stock, from the registration requirements of the Securities Act
and of any state securities or "blue sky" laws. Section 1145 of the
Bankruptcy Code exempts from registration the sale of a debtor's securities
under a Chapter 11 plan if such securities are offered or sold in exchange,
or primarily in exchange, for a claim against, or equity interest in, or a
claim for an administrative expense in a case concerning, such debtor. In
reliance upon this exemption, the Euroco Common Stock and Euroco Preferred
Stock generally should be exempt from the registration requirements of the
Securities Act. Accordingly, recipients will be able to resell the Euroco
Common Stock and Euroco Preferred Stock without registration under the
Securities Act and state securities or "blue sky" laws, unless the
recipient is an "underwriter" with respect to such securities, within the
meaning of section 1145(b) of the Bankruptcy Code. Section 1145(b) of the
Bankruptcy Code defines "underwriter" as one who (a) purchases a claim or
interest with a view to distribution of any security to be received in
exchange for the claim or interest, or (b) offers to sell securities issued
under a plan for the holders of such securities, or (c) offers to buy
securities issued under a plan from persons receiving such securities, if
the offer to buy is made with a view to distribution, or (d) is an "issuer"
of the relevant security, as such term is used in Section 2(11) of the
Securities Act.
Notwithstanding the foregoing, statutory underwriters may be able
to sell securities without registration pursuant to the resale limitations
of Rule 144 under the Securities Act which, in effect, permits the resale
of securities received by statutory underwriters pursuant to a Chapter 11
plan, subject to applicable volume limitations, notice and manner of sale
requirements, and certain other conditions. Holders that believe they may
be statutory underwriters as defined in section 1145 of the Bankruptcy Code
are advised to consult with their own counsel as to the availability of the
exemption provided by Rule 144 under the Securities Act.
BECAUSE OF THE COMPLEX, SUBJECTIVE NATURE OF THE QUESTION OF
WHETHER A PARTICULAR HOLDER MAY BE AN UNDERWRITER, NONE OF THE DEBTORS OR
THE REORGANIZED DEBTORS OR THE CREDITORS' COMMITTEE MAKE ANY REPRESENTATION
CONCERNING THE ABILITY OF ANY PERSON TO DISPOSE OF THESE SECURITIES TO BE
DISTRIBUTED UNDER THE PLAN.
b. Listing And Registration Rights
On the Effective Date, Euroco will (i) be a reporting company
under the Exchange Act, (ii) cause the shares of Euroco Common Stock to be
quoted in the national market system or small cap system of the National
Association of Securities Dealers' Automated Quotation System or, if Euroco
is unable to have the Euroco Common Stock so quoted, listed or quoted on a
securities exchange or quotation system agreed between NTL Inc. and the
Creditors' Committee or any other arrangement agreed between NTL Inc. and
the Creditors' Committee, (iii) in accordance with the Euroco Registration
Rights Agreement, file a shelf registration statement under the Securities
Act for resale of shares of Euroco Common Stock and Euroco Preferred Stock
(the "Euroco Shelf Registration Statement"), (iv) keep the Euroco Shelf
Registration Statement effective for a three-year period, and (v)
supplement or make amendments to the Euroco Shelf Registration Statement,
if required under the Securities Act or by the rules and regulations
promulgated thereunder, or in accordance with the terms of the Euroco
Registration Rights Agreement, and have such amendments declared effective
as soon as practicable after filing with the SEC. Euroco will enter into
the Euroco Registration Rights Agreement governing the registration of
shares of Euroco Common Stock and Euroco Preferred Stock which will be
annexed as Exhibit L to the Plan.
D. Risk Factors Relating To Euroco
HOLDERS OF CLAIMS AND INTERESTS SHOULD READ AND CONSIDER CAREFULLY
THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION ABOUT EUROCO
SET FORTH IN THIS DISCLOSURE STATEMENT AND THE EXHIBITS HERETO (AND ALL
DOCUMENTS DELIVERED HEREWITH AND/OR INCORPORATED HEREIN BY REFERENCE),
PRIOR TO VOTING TO ACCEPT OR REJECT THE PLAN. THESE RISK FACTORS SHOULD
NOT, HOWEVER, BE REGARDED AS THE ONLY RISKS ASSOCIATED WITH THE PLAN AND
ITS IMPLEMENTATION. SEE "CERTAIN MATTERS REGARDING NEW NTL -- RISK FACTORS
RELATING TO NEW NTL" AND "CERTAIN MATTERS REGARDING EUROCO -- SECURITIES TO
BE ISSUED -- RESALE OF SECURITIES" AND "CERTAIN ADDITIONAL RISK FACTORS TO
BE CONSIDERED."
For a discussion of certain other possible risk factors see
"Management's Discussion And Analysis Of Financial Conditions And Results
Of Operations -- Liquidity And Capital Resources" and "Risk Factors" in NTL
Inc.'s Form 10-K for the fiscal year ended December 31, 2001, annexed
hereto as Exhibit B and in NTL Inc.'s Form 10-Q for the three months ended
March 31, 2002 annexed hereto as Exhibit C.
1. Sale Of Or Outside Investment In The Cablecom Group
Cablecom GmbH has agreed to engage a reputable investment bank
(which it has been conditionally agreed will be UBS Warburg) by August 31,
2002 to advise in connection with a sale of all or a part of, or an
investment in, the Cablecom Group. As part of this process, NTL Cablecom
Holding GmbH and/or Cablecom GmbH and/or NTL Delaware have agreed to
approve any outside investment in, or sale of all or a part of, the
Cablecom Group, which is acceptable to the Cablecom Banks.
Under an agreement made between J.P. Morgan Chase, Morgan Stanley
Senior Funding Inc., and The Royal Bank of Scotland plc as the
co-ordinators for the Cablecom Banks on the one hand and NTL Cablecom
Holding GmbH, Cablecom GmbH, NTL Delaware, and Cable Connect Switzerland 1
CV on the other hand, it has been conditionally agreed that if a sale of
all or a part of the Cablecom Group is consummated on or before August 31,
2003, the Cablecom Banks will be entitled to receive additional interest
equal to 20% of the net proceeds of such a sale after repayment of the
amounts outstanding under the Cablecom Credit Facility and related finance
documents and other expenses and taxes of the sale. That agreement is
conditional upon (i) the proposal for restructuring the capital structure
of NTL Inc. and its subsidiaries and the amendment and restatement of the
Senior Facility and Working Capital Facility contemplated by the Heads of
Terms being agreed and carried into effect and (ii) an instructing group of
the Cablecom Banks (i.e., banks to whom two-thirds by value of the Cablecom
Credit Facility is owed) confirming its consent to the terms of that
agreement. Such consent will be sought prior to the Effective Date. There
can be no assurance that any outside investment in, or sale of all or a
part of, the Cablecom Group pursuant to the Cablecom Credit Facility will
be on terms that are favorable to Euroco and such investment or sale could
have a material adverse effect on Euroco's finances and business. In
particular, in the current environment, there may be little or no value to
Euroco's shareholding in the Cablecom Group, which may result in Euroco
receiving little or no consideration for its equity interest in the
Cablecom Group.
Further, if a third party makes an investment in the Cablecom
Group there can be no assurance that Euroco will be able to maintain its
power to direct the management of the Cablecom Group.
If Cablecom is sold, Euroco will become a holding company whose
principal assets are Premium TV Limited and its minority holdings in
companies in Germany, Sweden, Luxembourg, the UK, and the United States.
Euroco does not have the ability to direct the management of the minority
holdings and there can be no assurance that Euroco will be able to maintain
its current shareholdings in those companies.
2. Repayment Of Cablecom Credit Facility; No Assurance Of
Future Funding
Under the terms of the Cablecom Credit Facility no further funding
is available to Cablecom without the consent of the Cablecom Banks. The
Cablecom Banks may demand repayment of the facility in full on April 30,
2003. Without substantial investment from a third party or further
borrowing, Cablecom would be unable to meet such a demand, and this would
have a material adverse effect on its business and that of Euroco.
As a consequence of the commencement of the Chapter 11 Cases there
are subsisting events of default under the Cablecom Credit Facility which
would, if not waived, entitle the Cablecom Banks to accelerate repayment
and take control over the assets over which they hold security. The Plan is
not conditional on these defaults being waived (although the intention is
to seek appropriate waivers prior to the Effective Date).
Euroco's ability to meet its near term funding requirements upon
consummation of the Plan is dependent upon a number of factors, including
the revenue generated by its operating subsidiaries and companies in which
it has investments, its existing cash balances, the continued availability
of the Cablecom Credit Facility and disposals of non- core assets. There
can be no assurance that these sources of financing will be available, that
Euroco will be successful in raising additional financing if required, or
if successful, that the terms of such financing will be favorable to
Euroco. Euroco will require substantial funds to meet certain obligations
to the joint ventures which will form part of Euroco.
3. Restructuring Of iesy Financings
While debt is outstanding under its credit facility, iesy is
required to meet certain financial tests and ratios on an ongoing basis.
There are also certain financial tests and ratios that iesy must satisfy
before it is entitled to make draw downs under its credit facility. iesy's
notes also prohibit it from incurring additional debt, other than debt
under its credit facility and pursuant to certain other specified
exemptions, unless it can meet certain financial tests. Due to the delay in
its network upgrade and the lower projected total revenues and operating
cash flow, iesy's revised business plan anticipates that, beginning in
2003, iesy will likely not be able to meet some or all of these financial
tests. Failure to meet these financial tests would prohibit iesy from
making further draw downs under its credit facility to finance its network
upgrade. Depending on which financial tests are not met, there could be a
default under its credit facility, following which the banks would have the
ability to declare all outstanding amounts immediately due and payable.
Additionally, iesy's notes contain cross default provisions, which would be
triggered, causing the notes to also become immediately due and payable.
Unless iesy is able to renegotiate the terms of its credit facility,
refinance or otherwise restructure its indebtedness or obtain alternative
means of financing on acceptable terms, iesy may not have sufficient funds
for the operation of the business or for payment of interest and principal
on its indebtedness as it becomes due, and iesy may become insolvent.
iesy has engaged an advisor to assist it in the restructuring of
its capital structure. There can be no assurance that its restructuring
efforts will be successful. iesy will evaluate on a continuing basis its
strategic alternatives and the most efficient use of iesy's capital,
including, without limitation and depending on market conditions, debt
and/or equity financing and purchasing, restructuring, recapitalizing,
refinancing or by other means reducing its debt, in each case subject to
the restrictions contained in the indenture governing iesy's notes and its
credit facility. Unless iesy is able to restructure or otherwise refinance
its indebtedness, renegotiate its credit facility, and/or obtain
alternative means of financing on acceptable terms, iesy may not have
sufficient funds for the operation of the business or for payment of
interest and principal on its indebtedness as it becomes due, and iesy may
become insolvent.
4. The iesy Banking Syndicate Has Placed Conditions On Future
Drawdowns
In April and May 2002, iesy drew down an additional (U)50 million
in aggregate under its credit facility. In conjunction with these draw
downs iesy concluded a waiver and amendment agreement with the banking
syndicate in which the banks waived certain alleged technical breaches and
defaults. In return, iesy agreed to (1) limit its future draw downs to up
to (U)40 million between August 1, 2002 and December 23, 2002, subject to,
among other conditions, the appointment by iesy of an advisor to assist it
in restructuring iesy, its subsidiaries and its notes and the appointment
by the banking syndicate of an independent consultant to review its
business plan and (2) in respect of drawdowns after December 23, 2002, to
limit its drawdowns to up to (U)47 million between December 23, 2002 and
March 31, 2003, subject to certain conditions, and in respect of drawdowns
requested before the date when the financial statements for the period
ending March 31, 2003 are delivered to the facility agent, if the advisor
referred to in (1) above has recommended a restructuring for it and its
subsidiaries, then the banking syndicate must be satisfied that progress
has been made towards a sustainable business plan for 2003 and beyond and
the implementation of the restructuring. These further drawdowns may not be
utilized for acquisitions, to repay indebtedness, or to pay interest on its
notes. There can be no assurance that isey will be able to meet these
conditions in the opinion of the banking syndicate and therefore iesy may
not be allowed to make drawdowns under its credit facility which would have
a material adverse effect on its results of operations and its ability to
operate its business.
5. Significant Debt Of iesy
iesy has substantial debt and debt service requirements. As of
December 31, 2001, iesy had approximately (U)682 million of outstanding
indebtedness. These figures do not take into account any additional
indebtedness iesy and its subsidiaries may incur, including up to (U)700
million in additional borrowings under its credit facility. In addition,
iesy and its subsidiaries may incur substantial debt in the future. iesy's
high level of debt could have significant adverse consequences for its
future results of operations, financial positions, and cash flows,
including, among other things:
o cash from operations may be insufficient to meet the
principal and interest on its indebtedness as it becomes
due;
o payments of principal and interest on borrowings may
leave iesy with insufficient cash resources for its
operations;
o restrictive debt covenants may impair iesy's ability to
obtain additional financing;
o iesy's ability to compete with other telecommunications
service providers in Germany that have less leverage may
be impaired; and
o iesy may be more vulnerable to economic downturns and
adverse developments in its business.
6. iesy May Become "Overindebted" Under German Law In The Future
iesy has performed a valuation analysis to determine whether it is
"overindebted" under German law and concluded that iesy, as a legal entity,
was not overindebted at the end of May 2002 and is not anticipated to be
overindebted prior to December 31, 2002. The valuation considered the value
of comparable businesses, comparable merger and acquisition values, as well
as future cash flows from the rapid expansion of the business to offer
Internet, telephony, and digital television services. The assumptions
underlying these cash flow projections include (1) that a restructuring of
iesy's capital structure and a renegotiation of its bank facilities can be
achieved and (2) a timely network upgrade, new product introduction, and
new product acceptance in the market thereafter. The assumptions underlying
these cash flow projections are not fully under the control of iesy. If
delays occur in the iesy restructuring process or network upgrade or
product introduction or if market acceptance of new products and services
is not as high as expected, future cash flows could be negatively impacted
and iesy has not given any assurances that it would not then become
insolvent due to "overindebtedness" or illiquidity in the future. Under
German law, if a company is determined to be "overindebted" or illiquid it
must file insolvency proceedings within three weeks. In the event iesy is
subject to insolvency or similar proceedings, it would be excluded from the
iesy Hessen Finanz GmbH & Co. KG ("iesy Finanz") partnership at the time
when the order that opens insolvency proceedings becomes legally
enforceable. If iesy Finanz then decides to liquidate, iesy's insolvency
estate would receive the liquidation proceeds. If iesy Finanz decides to
continue, iesy's insolvency estate would be entitled to receive cash
compensation based on the market value of the 99.98% interest it has in
iesy Finanz valued on the day the insolvency order became legally
enforceable.
In addition, if the subordination contained in the preference
interest issued by iesy's parent, iesy Holdings GmbH, to Kabel Deutschland
GmbH were insufficient to avoid that the preference interest has to be
characterized as debt for purposes of an overindebtedness valuation of iesy
Holdings GmbH, management of iesy Holdings GmbH would have to file for the
opening of insolvency proceedings. iesy has stated in its SEC filings that
a subordination of debt can avoid the treatment of an obligation as debt
for an overindebtedness valuation and that the specific subordination
provisions are sufficient for these purposes in the case of iesy Holdings
GmbH. An insolvency of iesy Holdings GmbH could result in a change in
control of iesy which would cause a cross default under iesy's credit
facility and obligate iesy to make an offer to repurchase its notes.
7. Inability To Cause Euroco Common Stock To Be Or Remain Listed
Although it is the intention that the Euroco Common Stock be
listed on a securities exchange or inter-dealer quotation system, the
Euroco Common Stock is not currently publicly listed and there can be no
assurance that it will be in the future. Certain factors, such as market
forces and listing requirements of the applicable securities exchange or
inter-dealer quotation system, which are not within the control of Euroco,
may limit the ability of Euroco to publicly list the Euroco Common Stock.
Consequently, there may not be a liquid market for the Euroco Common Stock.
As a result, the Euroco Common Stock could be a "penny stock" as that term
is defined in the Exchange Act. Brokers effecting transactions in a "penny
stock" are subject to additional customer disclosure and record keeping
obligations, including disclosure of the risks associated with low price
stocks, stock quote information, and broker compensation. In addition,
brokers effecting transactions in a "penny stock" are also subject to
additional sales practice requirements under Rule 15g-9 of the Exchange Act
including making inquiries into the suitability of "penny stock"
investments for each customer or obtaining a prior written agreement for
the specific "penny stock" purchase. Because of these additional
obligations, some brokers will not effect transactions in "penny stocks,"
which could have an adverse effect on the liquidity of the Euroco Common
Stock and make buying or selling it more difficult.
8. Lack Of Established Market For Euroco Common Stock And Euroco
Preferred Stock
There may be certain restrictions on the ability of holders of the
securities to be issued by Euroco to sell, transfer, or otherwise freely
dispose of such securities received under the Plan. Moreover, the
securities will be issued pursuant to the Plan to holders of Claims and
Interests, some of whom may prefer to liquidate their investment rather
than hold such securities on a long-term basis. Accordingly, the market, if
any, for the securities to be issued by Euroco may be volatile, at least
for an initial period after the Distribution Date, and indeed may be
depressed for a period of time immediately following the Effective Date
until the market has had time to absorb these sales and to observe the
post-Effective Date performance of Euroco. Other factors, such as the
statutory restrictions on transferability and the likelihood that Euroco
will not declare dividends on the Euroco Common Stock for the foreseeable
future, may further depress the market for such securities. In addition,
although the Plan and the Financial Projections were prepared based upon an
assumed reorganization value range, such valuation was not an estimate of
the price at which the securities to be issued by Euroco may trade in the
market, if at all, and the Debtors have not attempted to make any such
estimate in connection with the development of the Plan. No assurance can
be given as to the market price of the Euroco Common Stock and Euroco
Preferred Stock, if any, that will prevail following the Distribution Date.
9. Potential Lack Of Surplus Available To Pay Dividends On Or
Redeem Euroco Preferred Stock
Under Delaware law, unless a corporation has available surplus it
cannot pay dividends on or redeem its capital stock, including its
preferred stock. Following the Effective Date, Euroco may not have
available surplus as determined under Delaware law and may be unable to pay
dividends on or redeem any of its capital stock, including the Euroco
Preferred Stock, unless and until such time as Euroco has available
surplus.
10. Prevention Of Transactions Involving A Change Of Control Of
Euroco
Certain provisions of the agreements governing the indebtedness of
Euroco's subsidiaries, which either require such indebtedness to be repaid
or give the holder the option to require repayment, could have the effect
of delaying or preventing transactions involving a change of control of
Euroco and its subsidiaries, including transactions in which stockholders
might otherwise receive a substantial premium for their shares over then
current market prices, and may limit the ability of stockholders of Euroco
to approve transactions that they may deem to be in their best interest.
The Amended and Restated Certificate of Incorporation of NTL Inc.
will contain provisions which may have the effect, alone or in combination
with each other or with the existence of authorized but unissued common
stock and preferred stock, of preventing or making more difficult
transactions involving a change of control of Euroco.
The Euroco Rights Agreement may have a significant anti-takeover
effect. The Euroco Rights Agreement has the potential to significantly
dilute the ownership interests of an acquiror of shares of Euroco Common
Stock, and therefore may have the effect of delaying, deterring, or
preventing a change in control of Euroco.
11. Implications Of Funding Requirements In Respect Of Joint
Ventures
On April 15, 2002, a funding request for $20 million was received
by NTL under the terms of the investment agreement relating to NTL's
investment in B2. The B2 investment agreement provides that if NTL fails to
provide such funding it may be sued for non-payment and arguably could lose
certain rights under the B2 shareholder agreement. If this occurs, pursuant
to the terms of the investment agreement, the majority remaining
shareholders of B2 may elect to terminate the B2 shareholder agreement with
respect to NTL and exercise a contractual right to acquire on a pro rata
basis Euroco's interest in B2 at 25% of fair market value. If the remaining
majority shareholders elected to exercise these rights, Euroco could be
forced to sell its stake in B2 at a loss, substantially diminishing the
value of Euroco. On June 25, 2002, B2 and its remaining shareholders filed
a motion in the Bankruptcy Court requesting relief from the automatic stay
provisions of section 362 of the Bankruptcy Code to exercise their rights
under the relevant documents. Notwithstanding the arguments raised in the
motion, NTL believes that the Bankruptcy Code provides various defenses and
protections of and for NTL's rights under the B2 investment agreement and
in respect of its equity interest in B2 and intends to enforce vigorously
its rights and protections.
Premium TV Limited is obliged to provide funding of up to
approximately (pound)73.1 million (as of March 31, 2002) to fund certain of
its joint venture interests. Of this amount, the payment of approximately
(pound)53.5 million (as of March 31, 2002) has been guaranteed by NTL
Delaware. If Premium TV Limited fails to provide its committed funding
under the relevant shareholder arrangements relating to these joint
ventures, Premium TV Limited and, in respect of the guaranteed amounts, NTL
Delaware may be sued for non-payment. Premium TV Limited is currently in
discussions with certain of these joint venture partners with a view to
restructuring the relevant joint ventures. In the event that these
discussions do not reach a resolution acceptable to Premium TV Limited,
Premium TV Limited may seek to discontinue these joint ventures and
terminate their activities, which may also result in a cessation of
substantially all of Premium TV Limited's activities. As a result of the
Restructuring process, the relevant joint venture partners may assert that
they can compulsorily acquire Premium TV Limited's interest in the relevant
joint venture at a third party appraisal valuation. NTL believes, however,
that it has various defenses and protections under the Bankruptcy Code
against such actions and intends to enforce vigorously its rights and
protections.
NTL Inc. has also guaranteed the obligations of one of its
subsidiaries to provide funding of up to approximately (pound)9.2 million
(as of March 31, 2002) to two Euroco joint ventures whose businesses are
the provision of programming content. If the relevant subsidiary fails to
provide such funding, under the shareholder arrangements relating to these
joint ventures, such subsidiary and Euroco may be sued for damages. In
addition under the shareholder arrangements relating to one of those joint
ventures, the relevant joint venture partner may have the option to
compulsorily acquire Euroco's indirect interest in the relevant joint
venture at 70% of fair market value, resulting in Euroco selling its
indirect interest at a potential loss. NTL believes it has various defenses
and protections under the Bankruptcy Code against such actions and intends
to enforce vigorously its rights and protections.
Nevertheless, NTL has commenced or intends to commence
negotiations with these joint venture partners to address these issues.
There can be no guaranty that these negotiations will be successful and
that Euroco will be able to retain NTL's current interest in these joint
venture companies.
12. Detrimental Effects Of Sales Of Interests Or Restructurings
If prior to or after the Effective Date, NTL or Euroco, as the
case may be, is forced to sell its interest in the Cablecom Group and/or
B2, Euroco would only hold Premium TV Limited (but see "Certain Matters
Regarding Euroco -- Risk Factors Relating To Euroco -- Uncertainty
Regarding Euroco's Interests In Premium TV Limited And Other Joint
Ventures"; and " -- Implications Of Funding Requirements In Respect Of
Joint Ventures"), a minority interest in iesy, and investments in a few
joint ventures. If this were to occur, Euroco would be unlikely to secure
and/or maintain a listing on a securities exchange or inter-dealer
quotation system, could face United States regulatory issues under the
Investment Company Act of 1940, as amended, associated with holding
minority interests in operating companies (instead of controlling the
operations of the minority interests), and the board of directors and
senior management of Euroco would most likely examine the strategic options
available to Euroco, including among others, seeking a merger with an
operating company and liquidation of the remaining assets of Euroco. There
can be no assurance that any of these strategic alternatives would be
available to Euroco or, if available, what the terms or timing of such
transactions or their impact on the business and operations of Euroco and
its creditors and stockholders would be. Furthermore, a restructuring of
iesy's finances, including its notes, may have a material adverse effect on
its business and that of Euroco. In addition, if iesy were to issue
additional equity in connection with such a restructuring or otherwise, the
position of iesy's current shareholders, including NTL Delaware, could be
substantially diluted. See "Certain Matters Regarding Euroco -- Risk
Factors Relating to Euroco -- Restructuring of iesy Financings."
13. Uncertainty Regarding Euroco's Interests In Premium TV
Limited And Other Joint Ventures
As a result of the Restructuring process, the joint venture
partners in certain of the joint ventures in which NTL has an interest,
including the Premium TV Limited joint ventures, may assert that they can
compulsorily acquire Euroco's interest in the relevant joint venture at a
third party appraisal valuation. NTL believes that it has various defenses
and protections under the Bankruptcy Code against such actions and intends
to enforce vigorously its rights and protections. Nevertheless, NTL has
commenced or will be commencing negotiations with certain of its joint
venture partners to address these issues. In this regard, Premium TV
Limited is currently in discussions with certain of its joint venture
partners with a view to restructuring the relevant joint ventures. There
can be no guaranty that the Premium TV Limited joint venture or any other
negotiations will be successful and that Euroco will be able to retain
NTL's current interest in these joint venture companies.
In the case of one of its joint ventures, Euroco may retain
funding obligations notwithstanding that the other joint venture party may
have exercised a right to acquire Euroco's equity interest in such joint
venture following confirmation of the Plan. Although Euroco will endeavor
to reach agreement with such joint venture party on these funding
obligations, there can be no assurance that the funding obligations will be
extinguished.
14. Prejudice To Euroco's Interests In Content Joint Ventures
Following the Effective Date, Euroco will continue to own
interests in joint ventures whose continuance is dependent on the provision
of content or service to New NTL's cable business in the UK or the
provision of certain services on specified terms by New NTL and its
subsidiaries to the relevant joint ventures. If New NTL breaches its
carriage or service agreements with those joint ventures, there can be no
assurance that Euroco will be able to retain the indirect interest that NTL
Delaware currently has in such joint venture companies. Subsidiaries of New
NTL are major customers of those ventures and termination of the carriage
agreements may adversely affect the performance of those ventures.
15. Additional Financing Requirements For iesy And B2
Following consummation of the Plan, Euroco will have minority
investments in broadband cable operations in Germany (iesy) and Sweden
(B2). For further details, see "Certain Matters Regarding Euroco -- Risk
Factors Relating To Euroco -- Implications Of Funding Requirements In
Respect Of Joint Ventures." iesy and B2 may require substantial amounts of
additional capital to complete their network rollouts and upgrades, and
their ability to obtain that financing will depend, in part, on their
ability to access the capital markets, which will be subject not only to
the performance of their business and prospects, but to conditions in the
capital markets generally. If iesy and B2 cannot complete their planned
expansions and upgrades for any reason, the value of Euroco's investments
in those companies could decrease. Further, if iesy or B2 were to issue
additional equity securities, it is likely that Euroco will not be able to
participate in such issuance, which could lead to substantial dilution of
the value of its investments. In addition, there can be no assurance that
iesy will meet the conditions precedent to access additional funds under
its credit facility or that it will be in compliance with the covenants
under its debt agreements. The failure of iesy to obtain required funding
or a default entitling the lenders to accelerate repayment of iesy's
borrowings would adversely affect the value of Euroco's investment in iesy.
See "Certain Matters Regarding Euroco - Risk Factors Relating to Euroco -
Restructuring of iesy Financings."
16. Funding Obligations With Respect To New NTL Liabilities
Following the Effective Date, subject to agreement being reached
to the contrary, Euroco and NTL Delaware will continue to guarantee the
obligations of certain companies in the New NTL group relating to ordinary
course contracts and leasehold property. Euroco can give no assurance that
those companies will meet their obligations under relevant contracts and
leases. If those companies fail to meet their obligations, Euroco may be
liable to pay sums to cover the liability of those companies within the New
NTL group.
17. Failure Of Cablecom And iesy To Maintain Direct Billing
Relationships With Customers
iesy does not maintain direct billing relationships with, and does
not control access to, approximately 896,000 of the approximately 1.3
million homes connected to its cable network. Similarly, Cablecom does not
maintain direct billing relationships with, and does not control access to,
approximately 866,500 of the approximately 1.5 million homes connected to
its cable network. In each case, these homes maintain billing relationship
with, and are connected to, local housing associations and private network
operators. Because customers generally are contractually bound to their
private network operators for a long period, it may be difficult to enter
into new direct contracts with these customers, particularly because their
contracts with private network operators generally prohibit entry into
direct contracts with iesy or Cablecom, as the case may be, for a specified
time.
In order for iesy and Cablecom to market certain services and
products to subscribers under contract with private network operators or
housing associations, these operators and housing associations will have to
upgrade their networks. In addition, housing associations and private
network operators have direct access to a large part of the homes
connected to iesy's and Cablecom's networks which may hinder their ability
to provide their planned products and services. Moreover, iesy and/or
Cablecom may need to pay fees to private network operators for feeding
digital signals through their networks. In cases where no contractual
relationship exists for the transfer of digital signals, private network
operators may require that iesy and/or Cablecom pay an additional fee for
the transfer of digital signals or, in the alternative, cut off access to
their networks. This may have an adverse effect on their business strategy
and, accordingly, Euroco's results of operations.
18. Limited Operating History Of iesy
iesy has only operated as a stand-alone entity since August 15,
2000. iesy's formation as a stand-alone company has led to a number of
transitional issues similar to those faced by other start up companies,
such as the collection of accurate data regarding, among other things,
subscriber rolls and billing relationships. These issues could lead to a
decrease in revenues, an increase in expenses, or a delay in iesy's planned
network upgrade.
19. Limited Operating History Of B2
B2 is a recently formed company which has only been in operation
since May 1999. Since its inception, B2 has focused its energies on
developing its broadband network and its product and service offerings. B2
began providing its initial products and services to subscribers in
December 1999 and the growth potential of its business model is unproven.
For example, it is difficult to predict whether the deployment of fiber
directly to each apartment building where B2's customers are located will
be cost effective, whether the pricing models for its broadband services
will prove to be viable, whether demand for its broadband services will
materialize at the prices B2 intends to charge, and whether current or
future pricing levels will be sustainable. If such pricing levels are not
achieved or sustained, or if B2's services do not achieve or sustain broad
market acceptance, B2 may not achieve profitability. B2's prospects must be
considered in light of the risks, expenses, and difficulties often
encountered by early-stage companies using new and unproven business models
in new and rapidly evolving markets. B2 has suffered losses since inception
and expects significant future losses for the foreseeable future.
20. Relationship With New NTL
Although Euroco expects to obtain certain corporate and
administrative services from New NTL, there can be no assurance that New
NTL will provide these transitional services to Euroco at similar price and
service levels as were provided prior to the Effective Date. Upon the
cessation of these services, there can be no assurance that Euroco will be
able to replicate the services previously provided or find an alternative
provider on acceptable terms.
21. Technological Changes In Industry
Cablecom and the operations in which Euroco will have an interest
in Germany and Sweden intend to introduce VoIP voice telephony services
across their networks. Customer demand for this service is uncertain as
customers may not readily switch from their current telephony service,
especially if the quality of the service is not or is perceived not to be
comparable to other telephony services. Similarly, investments in other new
services such as those related to the 3G mobile network may prove premature
and it may not realize anticipated returns on these new products.
22. Defense Of The Putative Class Action Suits Against NTL Inc.
And Certain Of Its Officers And Directors
The putative class action lawsuits against NTL Inc. and certain of
its officers and directors which were commenced by seven of its purported
security holders, on behalf of certain purchasers of NTL Inc.'s securities,
may have a negative impact on operations. Three of the claims arising out
of the suits against NTL Inc. have been voluntarily dismissed, and the
remaining claims asserted against NTL Inc. will be discharged under Section
1141(d) of the Bankruptcy Code if the Plan is confirmed, except for any
rights to the proceeds of NTL Inc.'s applicable insurance, including, but
not limited to, director and officer liability insurance, and except to the
extent, if any, that a challenge to the Debtors' separate classification of
Securities Claims from Old Common Stock Interests is upheld. The claims
arising out of the suits against the individual officers and directors,
however, will not be discharged under Section 1141(d) of the Bankruptcy
Code if the Plan is confirmed, but will be released pursuant to Article
XIII.E of the Plan. For additional information about Article XIII.E of the
Plan, see "Summary Of The Plan - Effects Of Confirmation - Releases." If,
for any reason, the claims against these officers and directors are not
released under the Plan and these officers and directors continue to be
officers and directors of Euroco, defense of the suits may divert these
officers' and directors' time and resources from managing the operations of
Euroco's business. If these officers and directors of Euroco spend
significant amounts of time defending these lawsuits, there may be a
negative impact on operations.
E. Euroco Stockholder Rights Agreement
HOLDERS OF ALLOWED CLAIMS OR INTERESTS ARE HEREBY PUT ON NOTICE
THAT IF ANY SUCH PERSON IS A EUROCO CHAPTER 11 ACQUIRING PERSON DURING THE
PERIOD FROM THE FIRST BUSINESS DAY AFTER THE PETITION DATE THROUGH THE
EFFECTIVE DATE, THEN SUCH HOLDER WILL BE SUBJECT TO THE SPECIAL
DISTRIBUTION PROCEDURES SET FORTH IN "SUMMARY OF THE PLAN -- SUMMARY OF
OTHER PROVISIONS OF THE PLAN -- PROVISIONS GOVERNING DISTRIBUTIONS --
SPECIAL DISTRIBUTION PROCEDURES FOR CERTAIN PERSONS -- EUROCO CHAPTER 11
ACQUIRING PERSONS."
Upon issuance, each share of Euroco Common Stock (whether
originally issued or from Euroco's treasury) will be accompanied by a right
(the "Euroco Stockholder Right"). Each Euroco Stockholder Right will
entitle the registered holder to purchase from Euroco one one-hundredth of
a share of Euroco Stockholder Rights Preferred Stock at the Euroco
Stockholder Rights Purchase Price, subject to adjustment pursuant to the
terms of the Euroco Rights Agreement.
The Euroco Rights Agreement is intended to encourage a potential
acquiror to negotiate directly with the board of directors of Euroco and to
deter coercive takeover tactics but may have anti-takeover effects. The
Euroco Rights Agreement has the potential to significantly dilute the
ownership interests of an acquiror of shares of Euroco Common Stock, and
therefore, may have the effect of delaying, deterring or preventing a
change in control of Euroco.
Initially, the Euroco Stockholder Rights will be attached to all
Euroco Common Stock certificates representing shares then outstanding, and
no separate Euroco Stockholder Rights certificates evidencing the Euroco
Stockholder Rights will be distributed. Subject to certain exceptions
specified in the Euroco Rights Agreement, the Euroco Stockholder Rights
will separate from the Euroco Common Stock, be represented by separate
certificates and a Euroco Stockholder Rights Distribution Date (as defined
below) will occur upon the earlier of:
o 10 business days following a public announcement that a
person or group of affiliated or associated persons other
than a Euroco Grandfathered Distributee (a "Euroco
Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding shares of Euroco Common
Stock (or beneficial ownership of securities which upon
confirmation of the Plan, will become shares of Euroco
Common Stock) (the "Euroco Stock Acquisition Date"),
other than as a result of repurchases of stock by Euroco
or certain inadvertent actions by institutional or
certain other stockholders; or
o 10 business days (or such later date as the board of
directors of Euroco shall determine prior to any Person
becoming a Euroco Acquiring Person) following the
commencement of a tender offer or exchange offer that
would result in a Person or group becoming a Euroco
Acquiring Person.
The Euroco Stock Acquisition Date could occur as early as the Effective
Date. The earlier of these events in the two preceding bullet points to
occur is referred to as the "Euroco Stockholder Rights Distribution Date,"
although in any event the separation of the Euroco Stockholder Rights from
the Euroco Common Stock shall not occur prior to the Effective Date.
Until the Euroco Stockholder Rights Distribution Date, (1) the
Euroco Stockholder Rights will be evidenced by the Euroco Common Stock
certificates and will be transferred with and only with such Euroco Common
Stock certificates, (2) Euroco Common Stock certificates will contain a
notation incorporating the Euroco Rights Agreement by reference and (3) the
surrender for transfer of any certificates for Euroco Common Stock
outstanding will also constitute the transfer of the Euroco Stockholder
Rights associated with the Euroco Common Stock represented by such
certificate. Pursuant to the Euroco Rights Agreement, Euroco reserves the
right to require prior to the occurrence of a Euroco Stockholder Rights
Triggering Event (as defined below) that, upon any exercise of Euroco
Stockholder Rights, a number of Euroco Stockholder Rights be exercised so
that only whole shares of Euroco Stockholder Rights Preferred Stock will be
issued.
The Euroco Stockholder Rights are not exercisable until the Euroco
Stockholder Rights Distribution Date and will expire at 5:00 p.m., New York
City time, on the date that is ten years after the Effective Date unless
such date is extended or the Euroco Stockholder Rights are earlier redeemed
or exchanged by Euroco as described below.
As soon as practicable after the Euroco Stockholder Rights
Distribution Date, Euroco Stockholder Rights certificates will be mailed to
holders of record of the Euroco Common Stock as of the close of business on
the Euroco Stockholder Rights Distribution Date and, thereafter, the
separate Euroco Stockholder Rights certificates alone will represent the
Euroco Stockholder Rights. Except as otherwise determined by the board of
directors of Euroco, only shares of Euroco Common Stock issued prior to the
Euroco Stockholder Rights Distribution Date will be issued with Euroco
Stockholder Rights.
In the event that a person becomes a Euroco Acquiring Person or
the board of directors of Euroco declares any person to be an adverse
person upon a determination that a person has become the beneficial owner
of a substantial amount of Euroco Common Stock, which shall in no event be
less than 10% of the outstanding Euroco Common Stock, except pursuant to a
tender offer or an exchange offer for all outstanding shares of Euroco
Common Stock at a price and on terms determined by a majority of the
members of the board of directors of Euroco (or a properly constituted
committee), none of whom are Euroco's officers and who are not
representatives, nominees, affiliates or associates of a Euroco Acquiring
Person, to be fair to Euroco's stockholders (a "Euroco Qualifying Offer"),
each holder of a Euroco Stockholder Right will thereafter have the right to
receive, upon exercise, Euroco Common Stock (or, in certain circumstances,
cash, property or other securities of Euroco) having a value equal to two
times the exercise price of the Euroco Stockholder Right. Notwithstanding
any of the foregoing, following the occurrence of the event set forth in
this paragraph, all Euroco Stockholder Rights that are, or (under certain
circumstances specified in the Euroco Rights Agreement) were, beneficially
owned by any Euroco Acquiring Person will be null and void. However, Euroco
Stockholder Rights are not exercisable following the occurrence of the
event set forth above until such time as the Euroco Stockholder Rights are
no longer redeemable by Euroco as set forth below.
For illustrative purposes only, at an exercise price of $60 per
Euroco Stockholder Right, each Euroco Stockholder Right not owned by a
Euroco Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase
$120 worth of Euroco Common Stock (or other consideration, as noted above)
for $60. Assuming for illustrative purposes only that the Euroco Common
Stock had a per share value of $20 at such time, the holder of each valid
Euroco Stockholder Right would be entitled to purchase 12 shares of Euroco
Common Stock for $120. The foregoing example is for illustrative purposes
only and is not a representation of the future trading value of Euroco
Common Stock or the circumstances under which Euroco Stockholder Rights may
be validly exercised.
In the event that, on or at any time after a Euroco Stock
Acquisition Date, Euroco (1) engages in a merger or other business
combination transaction in which Euroco is not the surviving corporation
other than in a Euroco Qualifying Offer, (2) Euroco engages in a merger or
other business combination transaction in which Euroco is the surviving
corporation and any shares of Euroco Common Stock are changed into or
exchanged for other securities or assets other than in a Euroco Qualifying
Offer or (3) 50% or more of the assets, cash flow or earning power of
Euroco and its subsidiaries (taken as a whole) are sold or transferred so
that each holder of a Euroco Stockholder Right (except as noted below) will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Euroco Stockholder Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction would have a market value (determined as provided in the Euroco
Rights Agreement) of two times the exercise price of the Euroco Stockholder
Right. The events set forth in this paragraph and in the second preceding
paragraph are referred to as the "Euroco Stockholder Rights Triggering
Events."
At any time until the tenth business day after a Euroco Stock
Acquisition Date, Euroco may redeem the Euroco Stockholder Rights in whole,
but not in part, at a price of $0.01 per Euroco Stockholder Right (the
"Euroco Stockholder Rights Redemption Price"), payable in cash, Euroco
Common Stock or other consideration deemed appropriate by the board of
directors of Euroco. Immediately upon the action of the board of directors
of Euroco electing to redeem the Euroco Stockholder Rights, the Euroco
Stockholder Rights will terminate and the only right of the holders of
Euroco Stockholder Rights will be to receive the Euroco Stockholder Rights
Redemption Price.
At any time after a person becomes a Euroco Acquiring Person and
prior to the acquisition by such person or group of fifty percent (50%) or
more of the outstanding shares of Euroco Common Stock, the board of
directors of Euroco may exchange the Euroco Stockholder Rights (other than
Euroco Stockholder Rights owned by such person or group which have become
void), in whole or in part, for Euroco Common Stock at an exchange ratio of
one share of Euroco Common Stock, or one one-hundredth of a share of Euroco
Stockholder Rights Preferred Stock (or of a share of a class or series of
Euroco preferred stock having equivalent rights, preferences and
privileges), per Euroco Stockholder Right subject to adjustment.
Until a Euroco Stockholder Right is exercised, the holder thereof,
as such, will have no rights as a stockholder of Euroco, including, without
limitation, the right to vote or to receive dividends. While the
distribution of the Euroco Stockholder Rights will not be taxable to
holders of Euroco Common Stock or to Euroco, Euroco stockholders may,
depending upon the circumstances, recognize taxable income in the event
that the Euroco Stockholder Rights become exercisable for Euroco Common
Stock or other consideration of Euroco or for common stock of the acquiring
company or in the event of the redemption of the Euroco Stockholder Rights
as discussed above.
Any of the provisions of the Euroco Rights Agreement may be
amended by the board of directors of Euroco prior to the Euroco Stockholder
Rights Distribution Date. After the Euroco Stockholder Rights Distribution
Date, the provisions of the Euroco Rights Agreement may be amended by the
board of directors of Euroco in order to cure any ambiguity, to make
changes which do not adversely affect the interests of holders of Euroco
Stockholder Rights, or to shorten or lengthen any time period under the
Euroco Rights Agreement. The foregoing notwithstanding, no amendment may be
made at such time as the Euroco Stockholder Rights are not redeemable.
This summary of the Euroco Rights Agreement is subject in its
entirety to the terms and conditions of the Euroco Rights Agreement.
F. Certain Financing Matters
At the Effective Date, the principal debt of Euroco and its
subsidiaries is expected to be the amount outstanding under the Cablecom
Credit Facility described below. The debt outstanding under the Cablecom
Credit Facility is an obligation solely of the Cablecom Group and will be
non-recourse to Euroco and New NTL. If no further investment is made into
Cablecom it will be unable to meet a demand for repayment of the facility
described below. In addition, iesy and B2 have substantial amounts of debt
outstanding and certain subsidiaries of Euroco have committed to make
funding available to Euroco's joint ventures, some of which commitments to
joint ventures have been guaranteed by NTL Inc. or NTL Delaware. See
"Certain Matters Regarding Euroco -- Risk Factors Relating To Euroco --
Repayment Of Cablecom Credit Facility; -- Implications Of Funding
Requirements In Respect Of Joint Ventures; -- Additional Financing
Requirements For iesy And B2; and -- Significant Debt Of iesy."
Under the Cablecom Credit Facility, the Cablecom Banks have made
available to Cablecom GmbH and certain members of the Cablecom group a term
facility of CHF 2,700,000,000 and a revolving facility in an aggregate
amount of CHF 1,400,000,000.
The term facility is fully drawn. The revolving facility has been
capped at its utilized amount of CHF 1,055,000,000 although the
availability may be increased with the consent of the requisite majority of
the Cablecom Banks. The revolving facility is intended to finance operating
expenses, working capital and general corporate requirements.
The liabilities under the Cablecom Credit Facility are supported
by: (i) guaranties from NTL Cablecom Holding GmbH, the immediate parent of
Cablecom GmbH and certain other members of the Cablecom Group; (ii)
security over the shares of Cablecom GmbH and certain other members of, and
investments held by, the Cablecom Group; (iii) security over receivables of
certain members of the Cablecom Group; and (iv) security over certain
intra-group loans.
Amounts outstanding under the Cablecom Credit Facility bear
interest at LIBOR plus the Mandatory Cost Rate plus a margin which
ratchets, depending upon the fulfilment of specified financial ratios,
between 2.50% per annum and 0.75% per annum.
The Cablecom Credit Facility is repayable on April 30, 2003, with
the maturity date extendable at the option of an instructing group of
Cablecom Banks to December 31, 2003.
The Cablecom Credit Facility contains comprehensive information
undertakings and affirmative and negative covenants. The affirmative
covenants include financial covenants stipulating minimum EBITDA,
high-speed internet subscribers and liquidity headroom plus a total cash
interest cover ratio and maximum capital expenditures. The affirmative
covenants also include an undertaking to appoint an investment bank to
advise in connection with an outside investment in or sale of the Cablecom
Group as discussed above. See "Certain Matters Regarding Euroco --
Businesses To Comprise Euroco -- Cablecom GmbH (Switzerland) -- Cablecom
Group Outside Investment And/Or Sale Process."
The occurrence of a number of events of default entitle the agent
(or oblige the agent on the instructions of an instructing group of
Cablecom Banks) to cancel any undrawn portion of the revolving facility
and/or require the immediate repayment of all amounts outstanding under the
Cablecom Credit Facility and/or to declare all such amounts due and payable
on demand and/or to enforce or direct the enforcement of the security. Such
events of default include: (i) failure to pay; (ii) breaches of
representations; (iii) breaches of obligations and undertakings under the
Cablecom Credit Facility and related finance documents; (iv)
cross-defaults; (v) the occurrence of certain insolvency contingencies
affecting NTL Delaware, NTL Cablecom Holding GmbH or members of the
Cablecom Group; (vi) displacement of management, compulsory acquisition or
seizure of revenues or assets by government authority; (vii) repudiation of
finance documents; (viii) illegality; and (ix) the occurrence of any event
or circumstance which would have a material adverse effect.
The Cablecom Credit Facility provides for the payment of agency
and arrangements fees and the payment of commitment commission on the daily
undrawn amount under the revolving facility at a rate (depending upon the
amounts undrawn) of 0.50% or 0.75% per annum payable quarterly in arrears.
This commitment commission is payable on the full undrawn amount of the
revolving facility notwithstanding that its availability is capped at a
level below the nominally available amount. There is a back-end fee payable
on the full amount of the Cablecom Credit Facility (again notwithstanding
the cap) upon repayment and cancellation of the Cablecom Credit Facility.
The fee ratchets upwards from a level of 0.75%, if repayment/cancellation
occurs before October 1, 2002, to 1.00% if repayment occurs between that
date and December 31, 2002 up to 1.25% if repayment/cancellation occurs
from January 1, 2003 onwards.
SOLELY AS A CONSEQUENCE OF THE COMMENCEMENT OF THE CHAPTER 11
CASES, CABLECOM IS CURRENTLY IN DEFAULT UNDER THE CABLECOM CREDIT FACILITY.
ALTHOUGH WAIVER OF SUCH DEFAULTS IS NOT A CONDITION OF THE PLAN, NTL WILL
SEEK, AND EXPECTS TO RECEIVE, ALL APPROPRIATE WAIVERS PRIOR TO THE
EFFECTIVE DATE.
G. Transitional Arrangements With New NTL
See "Certain Matters Regarding New NTL -- Transitional
Arrangements With Euroco." There can be no assurance that New NTL will
provide these transitional services to Euroco at similar price and service
levels as were provided prior to the Effective Date. Upon the cessation of
these services, there can be no assurance that Euroco will be able to
replicate the services previously provided or find an alternative provider
on acceptable terms. See "Certain Matters Regarding Euroco - Risk Factors
Relating to Euroco - Relationship with New NTL."
H. Legal Proceedings
NTL is involved in, or has been involved in, certain disputes and
litigation arising in the ordinary course of business, including claims
involving employment claims, contractual disputes and other claims, none of
which are expected to have a material adverse effect on Euroco's financial
position or results of operations or cash flows.
In April and May 2002, seven of NTL Inc.'s purported security
holders commenced putative class action lawsuits against NTL Inc. and
certain of its officers and directors, on behalf of all purchasers of NTL
Inc.'s securities during the Class Period in the United States District
Court for the Southern District of New York. The complaints allege that the
defendants violated Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, purportedly by not disclosing during the Class
Period that: (a) NTL Inc. allegedly was unable to integrate its
acquisitions and therefore experienced difficulties in operating its
business; (b) NTL Inc. allegedly was not fully funded until 2003, as it had
publicly disclosed, and would have to restructure its debt prior to that
time; (c) NTL Inc. allegedly was under-reporting "churn rates" by failing
to report customer terminations and continuing to bill customers for
accounts which they had terminated; and (d) NTL Inc. allegedly was delaying
the writedown of billions of dollars of impaired assets, thereby misstating
NTL Inc.'s results of operations. The complaints seek unspecified damages.
Three of these lawsuits have been voluntarily dismissed with respect to NTL
Inc. (though not its officers and directors) because they were filed
subsequent to the commencement of NTL Inc.'s Chapter 11 case. Pursuant to
the Plan, the claims arising out of the remaining suits against NTL Inc.
(though not against its officers and directors) will be discharged in the
Chapter 11 Cases if the Plan is confirmed. For further information
regarding the treatment of these claims, see "Certain Matters Regarding
Euroco - Risk Factors Relating To Euroco - Defense Of The Putative Class
Action Suits Against NTL Inc. And Certain Of Its Officers And Directors."
In addition, see "Certain Matters Regarding Euroco -- Businesses
To Comprise Euroco -- Regulation -- Swiss Regulation -- Competition/Price
Regulation."
VI. EVENTS DURING THE CHAPTER 11 CASES
A. Commencement Of The Chapter 11 Cases
On the Petition Date, the Debtors filed their petitions for
reorganization relief under Chapter 11 of the Bankruptcy Code, thereby
commencing these Chapter 11 Cases. On the Petition Date, the Debtors also
filed several motions seeking authorization to conduct their business
affairs in a manner not specifically authorized under the Bankruptcy Code
or to undertake activities as to which the Bankruptcy Code requires prior
approval by the Bankruptcy Court. The Debtors intend to seek all necessary
and appropriate relief from the Bankruptcy Court to facilitate their prompt
emergence from Chapter 11, including the matters described below.
B. Court Orders - Chapter 11
On May 9, 2002, the Bankruptcy Court entered a final order
authorizing joint administration of the Debtors' Chapter 11 Cases. On May
10, 2002, the Bankruptcy Court entered a final order authorizing payment of
employees' accrued prepetition wages and employee benefit claims and
interim orders (i) extending the time for the Debtors to file their
schedules of assets and liabilities and statements of financial affairs
until June 24, 2002, pending a hearing on the Debtors' motion for a
permanent waiver of this requirement, (ii) authorizing maintenance of the
Debtors' bank accounts and operation of their cash management system
substantially as it existed prior to the Petition Date (as modified by
agreement with the Noteholders' Steering Committee with respect to the DIP
Facility), and (iii) waiving the investment and deposit requirements of
section 345 of the Bankruptcy Code.
On May 23, 2002, the Bankruptcy Court entered orders establishing
procedures to ensure continuation of utility services during the pendency
of the Chapter 11 Cases and regarding case management and noticing.
On May 30, 2002 and May 31, 2002, respectively, the Bankruptcy
Court entered orders scheduling the hearing to consider approval of this
Disclosure Statement and establishing July 24, 2002 as the Securities
Claims Bar Date.
On June 14, 2002, the Bankruptcy Court entered final orders (1)
permanently waiving the requirement that the Debtors file their schedules
of assets and liabilities and statements of financial affairs, (2)
authorizing maintenance of the Debtors' bank accounts and operation of
their cash management system, (3) waiving the investment and deposit
requirements of section 345 of the Bankruptcy Code, and (4) an
administrative order establishing procedures for interim monthly
compensation and reimbursement of expenses of Professionals.
On July 3, 2002, the Bankruptcy Court entered an order over the
objections of GE Capital, an affiliate of GE Capital Structured Finance
Group Limited, one of the lenders under the Senior Credit Facility, and
Wilmington Trust Company, the trustee under the Indentures governing
certain of the NTL Inc. Subordinated Notes, approving the Debtors' entry
into the DIP Facility. The closing of the DIP Facility is expected to occur
on or about July 15, 2002. For a further discussion of the DIP Facility see
"Financing During the Chapter 11 Cases." On July 12, 2002, the Bankruptcy
Court entered an order approving this Disclosure Statement and the Debtors'
proposed solicitation procedures, and scheduling the hearing to consider
confirmation of the Plan.
C. Appointment Of Creditors' Committee
On June 21, 2002, the United States Trustee appointed the
Creditors' Committee. The Creditors' Committee is comprised of the three
indenture trustees for the Debt Securities and the ten members of the
Noteholders' Steering Committee. The members of the Creditors' Committee
are: The Bank of New York; Wilmington Trust Company; Wells Fargo Bank
Minnesota, National Association; Angelo Gordon & Co. LP; Capital Research &
Management Company; Franklin Mutual Advisers, LLC; Oaktree Capital
Management LLC; Salomon Brothers Asset Management; Appaloosa Management,
LP; Fidelity Management & Research Co.; MacKay Shields LLC; SAB Capital
Management, L.P.; and W.R. Huff Asset Management Co., LLC.
D. Retention Of Professionals
On the Petition Date, the Debtors also requested that the
Bankruptcy Court enter, among others, the following:
o An order authorizing the retention of Skadden, Arps,
Slate, Meagher & Flom LLP as attorneys for the Debtors;
o An order authorizing the retention of Travers Smith
Braithwaite as special UK counsel for the Debtors;
o An order authorizing the retention of Kane Reece
Associates, Inc. as financial consultants for the
Debtors;
o An order authorizing the retention of Innisfree M&A
Incorporated as Solicitation Agent for the Debtors.
On May 10, 2002, the Bankruptcy Court entered orders authorizing
the foregoing retentions on an interim basis, pending notice and a hearing
on the Debtors' applications to retain such professionals. These interim
retention orders became final orders of their own accord on June 12, 2002.
The Debtors may also request that the Bankruptcy Court enter an order
authorizing the retention of Ernst & Young LLP as tax advisors and auditors
for the Debtors.
On July 2, 2002, the Creditors' Committee requested that the
Bankruptcy Court enter an order authorizing the retention and employment of
Fried, Frank, Harris, Shriver & Jacobson as co-counsel to the Creditors'
Committee. The Creditors' Committee has advised the Debtors that it has
selected Cadwalader, Wickersham & Taft to serve as its co- counsel and UBS
Warburg to serve as its financial advisors, and that it will be filing
applications with the Bankruptcy Court for approval of the retention and
employment of such firms.
Since February 2002, and continuing after the Petition Date until
the Creditors' Committee was formed on June 21, 2002, both Fried, Frank,
Harris, Shriver & Jacobson and Cadwalader, Wickersham & Taft acted as
attorneys for the Noteholders' Steering Committee, and UBS Warburg acted as
financial advisors to the Noteholders' Steering Committee.
E. Commencement Of The Diamond Administration Cases
Shortly after the filing of the Debtors' Chapter 11 Cases, the
directors of Diamond Cable and Diamond Holdings applied to the High Court
of Justice in England and Wales for the making of the Diamond
Administration Orders and for the appointment of the Diamond
Administrators. The principal purpose of the Diamond Administration Orders
is the survival of Diamond Cable and Diamond Holdings and the whole or any
part of their undertakings as going concerns. The effect of the Diamond
Administration Orders is to provide moratorium protections similar to the
effect of the automatic stay of section 362 of the Bankruptcy Code with
respect to any creditor action in the UK pending confirmation and
consummation of the Debtors' Chapter 11 Plan. Under English law, once an
administration order is made, a company may not be placed into liquidation,
nor may any steps be taken to enforce any security over the company's
property or to repossess goods subject to a hire purchase agreement without
the leave of the court or the consent of the administrators. Further, no
other proceedings and no execution or other legal process may be commenced
or continued, and no distress may be levied, against the company or its
property except with the consent of the administrator or leave of the
court.
F. Orders - Diamond Administration Cases
On May 8, 2002, the Diamond Administrators obtained orders to
authorize the following relief: (1) orders entitling the Diamond
Administrators to consent to the continued exercise by Diamond Cable or
Diamond Holdings and their directors of all powers and functions whatsoever
and without limitation, subject to the supervision and specific consent of
the Diamond Administrators and to the extent that the Diamond
Administrators may from time to time consider it fit and proper and (2)
orders entitling the Diamond Administrators to agree the value of and pay
postpetition liabilities of Diamond Cable and Diamond Holdings in certain
circumstances.
G. Future Developments In The Diamond Administration Cases
If the Plan is confirmed and consummated in the Chapter 11 Cases,
the Diamond Administrators anticipate applying to the High Court in England
for the Diamond Administration Orders to be discharged at such time.
VII. SUMMARY OF THE PLAN
A. Introduction
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself and its creditors and shareholders. In
addition to permitting rehabilitation of the debtor, Chapter 11 promotes
equality of treatment of creditors and equity security holders who hold
substantially similar claims against or interests in the debtor and its
assets. In furtherance of these two goals, upon the filing of a petition
for relief under Chapter 11, section 362 of the Bankruptcy Code provides
for an automatic stay of substantially all acts and proceedings against the
debtor and its property, including all attempts to collect claims or
enforce liens that arose prior to the commencement of the Chapter 11 Case.
The consummation of a plan of reorganization is the principal
objective of a Chapter 11 case. A plan of reorganization sets forth the
means for satisfying claims against and interests in a debtor. Confirmation
of a plan of reorganization by the Bankruptcy Court makes the plan binding
upon the debtor, any issuer of securities under the plan, any person or
entity acquiring property under the plan, and any creditor of or equity
security holder in the debtor, whether or not such creditor or equity
security holder (i) is impaired under or has accepted the plan or (ii)
receives or retains any property under the plan. Subject to certain limited
exceptions and other than as provided in the plan itself or the
confirmation order, the confirmation order discharges the debtor from any
debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan,
and may terminate all rights and interests of equity security holders.
THE REMAINDER OF THIS SECTION PROVIDES A SUMMARY OF THE STRUCTURE
AND MEANS FOR IMPLEMENTATION OF THE PLAN AND THE CLASSIFICATION AND
TREATMENT OF CLAIMS AND INTERESTS UNDER THE PLAN, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE PLAN (AS WELL AS THE EXHIBITS THERETO AND
DEFINITIONS THEREIN), WHICH IS ANNEXED TO THIS DISCLOSURE STATEMENT AS
EXHIBIT A.
THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT INCLUDE
SUMMARIES OF THE PROVISIONS CONTAINED IN THE PLAN AND IN DOCUMENTS REFERRED
TO THEREIN. THE STATEMENTS CONTAINED IN THIS DISCLOSURE STATEMENT DO NOT
PURPORT TO BE PRECISE OR COMPLETE STATEMENTS OF ALL THE TERMS AND
PROVISIONS OF THE PLAN OR DOCUMENTS REFERRED TO THEREIN, AND REFERENCE IS
MADE TO THE PLAN AND TO SUCH DOCUMENTS FOR THE FULL AND COMPLETE STATEMENTS
OF SUCH TERMS AND PROVISIONS.
THE PLAN ITSELF AND THE DOCUMENTS REFERRED TO THEREIN CONTROL THE
ACTUAL TREATMENT OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS UNDER THE
PLAN AND WILL, UPON OCCURRENCE OF THE EFFECTIVE DATE, BE BINDING UPON ALL
HOLDERS OF CLAIMS AGAINST AND INTERESTS IN THE DEBTORS, THE DEBTORS'
ESTATES, THE REORGANIZED DEBTORS, ALL PARTIES RECEIVING PROPERTY UNDER THE
PLAN, AND OTHER PARTIES-IN-INTEREST. IN THE EVENT OF ANY CONFLICT BETWEEN
THIS DISCLOSURE STATEMENT, ON THE ONE HAND, AND THE PLAN OR ANY OTHER
OPERATIVE DOCUMENT, ON THE OTHER HAND, THE TERMS OF THE PLAN AND/OR SUCH
OTHER OPERATIVE DOCUMENT WILL CONTROL.
B. Certain Matters Regarding Classification And Treatment Of Claims
And Interests
Section 1123 of the Bankruptcy Code provides that a plan of
reorganization must classify the claims and interests of a debtor's
creditors and equity interest holders. In accordance with section 1123, the
Plan divides Claims and Interests into Classes and sets forth the treatment
for each Class (other than Administrative Claims and Priority Tax Claims
which, pursuant to section 1123(a)(1), need not be and have not been
classified). The Debtors also are required, under section 1122 of the
Bankruptcy Code, to classify Claims against and Interests in the Debtors
into Classes that contain Claims and Interests that are substantially
similar to the other Claims and Interests in such Class. The Debtors
believe that the Plan has classified all Claims and Interests in compliance
with the provisions of section 1122.
The classification of Claims and Interests and the nature of
distributions to members of each Class are summarized below. The Debtors
believe that the consideration, if any, provided under the Plan to holders
of Claims and Interests reflects an appropriate resolution of their Claims
and Interests, taking into account the differing nature and priority
(including applicable contractual subordination) of such Claims and
Interests. The Bankruptcy Court must find, however, that a number of
statutory tests are met before it may confirm the Plan. See "Summary Of The
Plan -- Confirmation Of The Plan." Many of these tests are designed to
protect the interests of holders of Claims or Interests who are not
entitled to vote on the Plan, or do not vote to accept the Plan, but who
will be bound by the provisions of the Plan if it is confirmed by the
Bankruptcy Court.
1. Unclassified Claims
a. Administrative Claims
The Plan provides that Administrative Claims are Unimpaired.
Administrative Claims consist of the actual and necessary costs and
expenses of the Chapter 11 Cases that are allowed under sections 503(b) and
507(a)(1) of the Bankruptcy Code. They include, among other things, DIP
Facility Claims and the cost of operating the Debtors' businesses following
the Petition Date (e.g., the postpetition salaries and other benefits for
employees, postpetition rent, amounts owed for goods and services received
during the Chapter 11 Cases, tax obligations incurred after the Petition
Date, and certain statutory fees and charges assessed under 28 U.S.C. ss.
1930) and the actual, reasonable fees and expenses of the Professionals
retained by the Debtors and the Creditors' Committee in the Chapter 11
Cases. All payments to professionals in connection with the Chapter 11
Cases for compensation and reimbursement of expenses incurred through the
Confirmation Date and all payments to reimburse expenses of members of the
Creditors' Committee would be made in accordance with the procedures
established by the Bankruptcy Code and the Bankruptcy Rules and would be
subject to approval of the Bankruptcy Court as being reasonable.
Except as otherwise provided for in the Plan, and subject to the
requirements of Article XV.A.2 of the Plan, on, or as soon as reasonably
practicable after the latest of (a) the Effective Date, (b) the date that
is five (5) Business Days after the date such Administrative Claim becomes
an Allowed Administrative Claim, or (c) the date that is five (5) Business
Days after the date such Administrative Claim becomes payable pursuant to
any agreement between a Debtor and the holder of such Administrative Claim,
each holder of an Allowed Administrative Claim will receive in full
satisfaction, settlement, release, and discharge of and in exchange for
such Allowed Administrative Claim, Cash equal to the unpaid portion of such
Allowed Administrative Claim; provided, however, that (i) DIP Facility
Claims will be paid in full in Cash on the Effective Date and (ii)
obligations incurred in the ordinary course of business, consistent with
past practice, or assumed by the Debtors will be paid in full or performed
by the Debtors or Reorganized Debtors in the ordinary course of business,
consistent with past practice.
b. Priority Tax Claims
Priority Tax Claims are unsecured Claims asserted by federal and
state governmental authorities for taxes specified in section 507(a)(8) of
the Bankruptcy Code, such as certain income taxes, property taxes, excise
taxes, and employment and withholding taxes. These unsecured Claims are
given a statutory priority in right of payment. The Plan provides that
Priority Tax Claims, if any, are Unimpaired.
Under the Plan, except to the extent that a holder of an Allowed
Priority Tax Claim has agreed in writing to a different treatment, in the
sole discretion of the Debtors, each holder of an Allowed Priority Tax
Claim will receive (a) Cash equal to the unpaid portion of such Allowed
Priority Tax Claim or (b) Cash payments made in annual installments
beginning on or before the first anniversary following the Effective Date,
with the final installment being payable no later than the sixth (6th)
anniversary of the date of the assessment of such Allowed Priority Tax
Claim, together with interest on the unpaid portion thereof calculated at
the Case Interest Rate from the Effective Date through the date of payment
thereof, or (c) such other treatment as the applicable Debtor and such
holder will have agreed upon in writing. The Debtors reserve the right to
pay any Allowed Priority Tax Claim, or any remaining balance of any Allowed
Priority Tax Claim, in full at any time on or after the Distribution Date
without premium or penalty.
2. Unimpaired Classes Of Claims
a. Class 1 - Other Priority Claims (All Debtors)
Class 1 Other Priority Claims include Claims, other than
Administrative Claims and Priority Tax Claims, that are entitled to
priority under section 507(a) of the Bankruptcy Code, such as unsecured
Claims for accrued employee compensation, including vacation, severance,
and sick-leave pay, earned within 90 days before the Petition Date, to the
extent of $4,650 per employee, and contributions to employee benefit plans
arising from services rendered within the 180-day period preceding the
Petition Date, but only for such plans to the extent of the number of
employees covered by such plans multiplied by $4,650, less the aggregate
amount paid to such employees for accrued employee compensation. Under the
Plan, each holder of an Allowed Other Priority Claim will receive, in full
satisfaction, settlement, release, and discharge of and in exchange for
such Allowed Class 1 Other Priority Claim, (a) Cash in an amount equal to
the unpaid portion of such Allowed Other Priority Claim or (b) such other
treatment as the applicable Debtor and such holder will have agreed upon in
writing. Allowed Other Priority Claims with respect to liabilities incurred
by any Debtor in the ordinary course of business during the Chapter 11
Cases will be paid in the ordinary course of business in accordance with
the terms and conditions of any agreements relating thereto.
b. Class 2 - Secured Claims (All Debtors)
Each holder of a Class 2 Secured Claim is treated as a separate
class for all purposes under the Plan, and each holder of an Allowed Class
2 Secured Claim will receive the treatment set forth below. To the extent,
if any, that the value of the collateral securing a Class 2 Secured Claim
is less than the total amount of such Claim, the difference will be treated
as a Class 3 General Unsecured Claim. The Debtors specifically reserve all
rights to challenge the validity, nature, and perfection of, and to avoid
pursuant to the provisions of the Bankruptcy Code and other applicable law,
any purported liens and security interests.
i. Class 2.01: Working Capital Facility
Guaranty Secured Claims
Class 2.01 consists of all Claims against NTL CC, secured by and
to the extent of the value (as of the Petition Date), of the Working
Capital Facility Guaranty Collateral, directly or indirectly arising from
or under, or in any way relating to, the Working Capital Facility Guaranty.
Under the Plan, the legal, equitable, and contractual rights to which each
Allowed Class 2.01 Working Capital Facility Guaranty Secured Claim entitles
its holder are unaltered, and all such Allowed Class 2.01 Working Capital
Facility Guaranty Secured Claims will be Reinstated on the Effective Date.
ii. Class 2.02: PTV Swap Secured Claims
Class 2.02 consists of all Claims against NTL Inc., secured by and
to the extent of the value (as of the Petition Date), if any, of the PTV
Swap Agreement Collateral, directly or indirectly arising from or under, or
in any way relating to, the PTV Swap Agreement. Under the Plan, the legal,
equitable, and contractual rights to which each Allowed Class 2.02 PTV Swap
Secured Claim entitles its holder are unaltered, and all such Allowed Class
2.02 PTV Swap Secured Claims will be Reinstated on the Effective Date.
iii. Class 2.03: Other Secured Claims
Class 2.03 consists of all Other Secured Claims against all
Debtors. Under the Plan, the legal, equitable and contractual rights to
which each Allowed Class 2.03 Other Secured Claim entitles its holders are
unaltered and all such Allowed Class 2.03 Other Secured Claims will be
Reinstated on the Effective Date.
c. Class 3 - General Unsecured Claims (All Debtors)
Class 3 consists of all General Unsecured Claims against all
Debtors. General Unsecured Claims are prepetition unsecured Claims, other
than Senior Notes Claims, Subordinated Notes Claims, Intercompany Claims
and Securities Claims, that are not entitled to priority under section 507
of the Bankruptcy Code, including, but not limited to, all Claims of the
Diamond Holdings Notes Holders arising under or related to the Diamond
Cable Guaranty entitles its holders. Under the Plan, the legal, equitable,
and contractual rights to which each Allowed Class 3 General Unsecured
Claims are unaltered and all such Allowed Class 3 General Unsecured Claims
will be Reinstated on the Effective Date. Allowed Class 3 General Unsecured
Claims incurred in the ordinary course of business will be paid in full or
performed by the Debtors or the Reorganized Debtors in the ordinary course
of business, consistent with past practice.
d. Class 4 - Diamond Holdings Notes Claims
Class 4 consists of all Claims of a Diamond Holdings Notes Claims
against Diamond Holdings arising under or as a result of the Diamond
Holdings Notes. Under the Plan, the legal, equitable and contractual rights
to which each Allowed Class 4 Diamond Holdings Notes Claim entitles its
holder are unaltered and all such Allowed Class 4 Diamond Holdings Notes
Claims will be Reinstated on the Effective Date.
3. Impaired Classes Of Claims And Interests
The Plan is predicated on, among other things, agreement
to the terms of the Debtors' restructuring between and among the Senior
Notes Holders (Classes 6 and 7) and the Subordinated Notes Holders (Classes
8, 9, and 10). The Senior Notes Holders, along with the Secured Lenders who
will remain unimpaired under the Plan, are entitled under the Bankruptcy
Code to a distribution of 100% of the Debtors' and Reorganized Debtors'
enterprise value, other than the Delaware/Inc. Cash Amount and certain
assets owned by NTL Inc. and NTL Delaware, respectively, which, subject to
Article III.D of the Plan, will be distributed in part to the Subordinated
Notes Holders under the Plan. Absent the willingness of the Senior Notes
Holders in Classes 6 and 7 to provide the additional value described below
to the Subordinated Notes Holders in Classes 8, 9, and 10, the Subordinated
Notes Holders would not be entitled to, and would not, receive any
distribution from the Debtors under the Plan on account of their Claims
against the Debtors other than the cash and assets described above.
Nevertheless, to facilitate and avoid delay in consummation of the Plan and
the Debtors' restructuring, among other things, the Senior Notes Holders
have agreed to provide to the Subordinated Notes Holders, in exchange for
their acceptance of the Plan and assent to the transactions contemplated
thereby, a portion of the Debtors' and Reorganized Debtors' enterprise
value that the Senior Notes Holders otherwise would be entitled to receive.
Accordingly, if and to the extent that a Class of Subordinated Notes
Holders entitled to vote on this Plan fails to accept the Plan, then no
member of such rejecting Class of Subordinated Notes Holders will be
entitled to, or will receive, the additional value being provided by the
Senior Notes Holders, which additional value will be retained by the Senior
Notes Holders or treated as otherwise set forth in the Confirmation Order.
a. Class 5 - Subsidiary Common Stock Interests
Class 5 consists of all Subsidiary Common Stock Interests. NTL
Delaware (which is deemed to have accepted the Plan), the holder of 100% of
the shares of capital stock of NTL CC, has agreed that its Subsidiary
Common Stock Interests in NTL CC will be exchanged with New NTL on the
Effective Date for those portions of the NTL Delaware Subordinated Notes,
NTL Inc. Subordinated Notes, Old Common Stock, Old Senior Preferred Stock,
and Other Junior Preferred Stock, and the respective Claims or Interests
associated therewith contributed to New NTL by the holders of such notes
and stock pursuant to the Plan, and NTL Delaware will not be entitled to,
and will not, receive or retain any other property or interest in property
on account of such Interests; provided, however, that such exchange will
not occur until after the issuance by New NTL and Euroco of all of the New
Securities. All other Allowed Class 5 Subsidiary Common Stock Interests
will, at the discretion of NTL Inc. (a) receive treatment that leaves
unaltered the legal, equitable, and contractual rights to which such
Interest entitles the holder thereof, (b) be Reinstated, or (c) receive
such other treatment as NTL Inc. and such holder have agreed upon in
writing.
b. Class 6 - Diamond Cable Notes Claims
Class 6 consists of Diamond Cable Notes Claims against Diamond
Cable. Notwithstanding anything to the contrary contained in the Plan, and
as described in greater detail in Article II.D of the Plan, the Diamond
Cable Notes Claims will be deemed Allowed Class 6 Claims for all purposes
under the Plan or the Confirmation Order without the need to file Proofs of
Claims in the aggregate amount of $1,275,793,104, as follows: (a) Claims
with respect to the 13 1/4% Senior Discount Notes due 2004 shall be deemed
Allowed Class 6 Claims in the amount of $289,087,440, (b) Claims with
respect to the 11 3/4% Senior Discount Notes due 2005 shall be deemed
Allowed Class 6 Claims in the amount of $555,783,688, and (c) Claims with
respect to the 10 3/4% Senior Discount Notes due 2007 shall be deemed
Allowed Class 6 Claims in the amount of $430,921,976. Under the Plan, each
holder of an Allowed Class 6 Diamond Cable Notes Claim will receive, in
full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Class 6 Diamond Cable Notes Claim, its Pro Rata share of
27,271,736 shares of New NTL Common Stock. In addition, (i) on the
Effective Date, the Diamond Cable Notes, all rights and interests related
to or arising from any and all Class 6 Diamond Cable Notes Claims, and all
rights and interests of the relevant Indenture Trustees relating to the
Diamond Cable Notes Indentures, will be delivered, assigned, conveyed, and
transferred by such Persons to New NTL, which will be the holder of the
Diamond Cable Notes and all such rights and interests from and after the
Effective Date, (ii) on the Effective Date, and without prejudice to the
generality of clause (i) above, each holder of a Class 6 Diamond Cable
Notes Claim that holds any definitive registered security or securities in
respect of its Diamond Cable Notes, if any, will transfer such security or
securities to New NTL, and (iii) in each case, if Class 6 votes as a Class
to accept the Plan, then on and after the Effective Date, each Person who
was a holder of a Class 6 Diamond Cable Notes Claim immediately prior to
the transfers described in clauses (i) and (ii) above and, whether or not
such Person has (a) voted on the Plan or (b) voted to reject the Plan,
will, to the extent it relates to such holder, (x) do all such acts and
things, and execute such documents as may be reasonably necessary or
desirable to effect and complete such transfers and (y) be deemed to have
appointed New NTL as its agent to undertake such additional actions as may
be necessary to effectuate such transfers; provided, however, that
notwithstanding the foregoing clauses (i) through (iii), the right to
receive the distributions contemplated by Article III.C.2 of the Plan will
not be transferred to New NTL and will remain the property of the holders
of Class 6 Diamond Cable Notes Claims immediately prior to such transfers.
A vote to accept the Plan by a holder of an Allowed Class 6
Diamond Cable Notes Claim will constitute an irrevocable direction by such
holder to the relevant Person, Indenture Trustee, securities intermediary,
or Nominee through, or in relation to which, the holder holds its Class 6
Diamond Cable Notes Claim, to direct its relevant Indenture Trustee,
securities intermediary, or Nominee, or other trustee for the global bearer
notes evidencing the Diamond Cable Notes, to deliver, transfer, convey, and
assign the global bearer notes evidencing the Diamond Cable Notes to New
NTL. In the event that Class 6 votes to accept the Plan, then upon entry of
the Confirmation Order, all holders of Allowed Class 6 Diamond Cable Notes
Claims who did not vote on the Plan or who voted to reject the Plan will be
deemed to have made such an irrevocable direction.
In consideration of the foregoing, on the Effective Date or, if
later and unless waived by New NTL, immediately following completion of the
transfers described in clauses (i) and (ii) above and the delivery,
transfer, conveyance, and assignment of the global bearer notes evidencing
the Diamond Cable Notes to New NTL, to the fullest extent permitted by law,
all holders of Class 6 Diamond Cable Notes Claims will be deemed to
release, and will be permanently enjoined from bringing any action against,
the Debtors, New NTL, Euroco, the Indenture Trustees, and their respective
members, officers, directors, agents, financial advisors, attorneys,
employees, equity holders, partners, affiliates, and representatives and
their respective property, on account of any claims, obligations, rights,
causes of action, or liabilities related to or arising from any and all
Class 6 Diamond Cable Notes Claims.
c. Class 7 - NTL CC Senior Notes Claims
Class 7 consists of all NTL CC Senior Notes Claims against NTL CC.
Notwithstanding anything to the contrary contained in the Plan, the NTL CC
Senior Notes Claims will be deemed Allowed Class 7 Claims for all purposes
under the Plan or the Confirmation Order, without the need to file proofs
of Claims in the aggregate amount of in the aggregate amount of
$7,755,752,661 as follows: (a) Claims with respect to the 12 3/4% Senior
Deferred Coupon Notes due 2005 will be deemed Allowed Class 7 Claims in the
amount of $297,772,663, (b) Claims with respect to the 11 1/2 Senior
Deferred Coupon Notes due 2006 will be deemed Allowed Class 7 Claims in the
amount of $1,082,535,417, (c) Claims with respect to the 10% Senior Notes
due 2007 will be deemed Allowed Class 7 Claims in the amount of
$409,222,222, (d) Claims with respect to the 9 3/4% Senior Deferred Coupon
Notes due 2008 will be deemed Allowed Class 7 Claims in the amount of
$1,193,794,948, (e) Claims with respect to the 10 3/4% Senior Deferred
Coupon Notes due 2008 will be deemed Allowed Class 7 Claims in the amount
of $400,863,234, (f) Claims with respect to the 9 1/2% Senior Notes due
2008 will be deemed Allowed Class 7 Claims in the amount of $193,941,845,
(g) Claims with respect to the 11 1/2% Senior Notes due 2008 will be deemed
Allowed Class 7 Claims in the amount of $668,324,653, (h) Claims with
respect to the 123/8% Senior Deferred Coupon Notes due 2008 will be deemed
Allowed Class 7 Claims in the amount of $380,610,860, (i) Claims with
respect to the 9 3/4% Senior Deferred Coupon Notes due 2009 will be deemed
Allowed Class 7 Claims in the amount of $402,810,754, (j) Claims with
respect to the 9 1/4% Senior Notes due 2006 will be deemed Allowed Class 7
Claims in the amount of $238,866,033, (k) Claims with respect to the 97/8%
Senior Notes due 2009 will be deemed Allowed Class 7 Claims in the amount
of $335,374,097, (l) Claims with respect to the 11 1/2% Senior Deferred
Coupon Notes due 2009 will be deemed Allowed Class 7 Claims in the amount
of $144,952,020, (m) Claims with respect to the 117/8% Senior Notes due
2010 will be deemed Allowed Class 7 Claims in the amount of $535,789,931,
(n) Claims with respect to the 123/8% Senior Notes due 2008 will be deemed
Allowed Class 7 Claims in the amount of $283,590,859, and (o) Claims with
respect to the 6 3/4% Convertible Senior Notes due 2008 will be deemed
Allowed Class 7 Claims in the amount of $1,187,303,125. Under the Plan,
each holder of an Allowed Class 7 NTL CC Senior Notes Claim will receive,
in full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Class 7 NTL CC Senior Notes Claim, its Pro Rata share of
(i) 165,504,192 shares of New NTL Common Stock, (ii) 3,790 shares of Euroco
Preferred Stock, (iii) 0.725% of the Delaware Cash Amount, (iv) 5.012% of
the NTL Cash Amount, and (v) the Class 7 Euroco Value.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 7 NTL CC Senior Notes Claims will be deemed to
release, and will be permanently enjoined from bringing any action against,
the Debtors, New NTL, Euroco, and their respective members, officers,
directors, agents, financial advisors, attorneys, employees, equity
holders, partners, affiliates, and representatives and their respective
property, on account of any claims, obligations, rights, causes of action,
or liabilities related to or arising from any and all Class 7 NTL CC Senior
Notes Claims.
d. Class 8 - NTL CC Subordinated Notes Claims
Class 8 consists of all NTL CC Subordinated Notes Claims.
Notwithstanding anything to the contrary contained in the Plan, the NTL CC
Subordinated Notes Claims will be deemed Allowed Class 8 Claims for all
purposes under the Plan or the Confirmation Order, without the need to file
proofs of Claim in the aggregate amount of $503,399,633. Under the Plan,
each holder of an Allowed Class 8 NTL CC Subordinated Notes Claim will
receive, in full satisfaction, settlement, release, and discharge of and in
exchange for such Allowed Class 8 NTL CC Subordinated Notes Claim, its Pro
Rata share of (i) 3,292,516 shares of New NTL Common Stock, (ii) 6,615
shares of Euroco Common Stock, (iii) 76 shares of Euroco Preferred Stock,
(iv) 0.014% of the Delaware Cash Amount, (v) 0.100% of the NTL Cash Amount,
and (vi) the Class 8 Noteholder Election.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 8 NTL CC Subordinated Notes Claims will be deemed
to release, and will be permanently enjoined from bringing any action
against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 8
NTL CC Subordinated Notes Claims.
e. Class 9 - NTL Delaware Subordinated Notes Claims
Class 9 consists of all NTL Delaware Subordinated Notes Claims;
provided, however, that as of the Effective Date, France Telecom will be
deemed to have waived its NTL Delaware Subordinated Notes Claims in the
aggregate amount of $232,000,000 plus accrued interest through the Petition
Date, and will not be entitled to, and will not, receive or retain any
property or interest in property on account of such NTL Delaware
Subordinated Notes Claims. Notwithstanding the foregoing waiver, all
distributions that France Telecom would have been entitled to receive on
account of its NTL Delaware Subordinated Notes Claims, but for such waiver,
are available for Pro Rata distribution to the holders of Allowed Class 10
NTL Delaware Subordinated Notes Claims.
Notwithstanding anything to the contrary contained in the Plan,
the NTL Delaware Subordinated Notes Claims will be deemed Allowed Class 9
Claims for all purposes under the Plan or the Confirmation Order, without
the need to file proofs of Claim, in the aggregate amount of
$1,833,955,494, as follows: (a) Claims with respect to the 5 3/4%
Convertible Subordinated Notes due 2009 will be deemed Allowed Class 9
Claims in the amount of $1,227,408,333, (b) Claims with respect to the 5
3/4% Convertible Subordinated Notes due 2011 will be deemed Allowed Class 9
Claims in the amount of $103,147,528, and (c) Claims with respect to the 7%
Convertible Subordinated Notes due 2008 will be deemed Allowed Class 9
Claims in the amount of $503,399,633 Under the Plan, each holder of an
Allowed Class 9 NTL Delaware Subordinated Notes Claim, other than France
Telecom, will receive, in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Class 9 NTL Delaware
Subordinated Notes Claim, its Pro Rata share of (i) 2,661,253 shares of New
NTL Common Stock, (ii) 10,692,532 shares of Euroco Common Stock, (iii)
299,391 shares of Euroco Preferred Stock, (iv) 85.540% of the Delaware Cash
Amount, and (v) the Class 9 Noteholder Election Option.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 9 NTL Delaware Subordinated Notes Claims will be
deemed to release, and will be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 9
NTL Delaware Subordinated Notes Claims.
f. Class 10 - NTL Inc. Subordinated Notes Claims
Class 10 consists of all NTL Inc. Subordinated Notes Claims;
provided, however, that as of the Effective Date, France Telecom shall be
deemed to have waived its NTL Inc. Subordinated Notes Claims in the
aggregate amount of $232,000,000 plus accrued interest through the Petition
Date, and shall not be entitled to, and shall not, receive or retain any
property or interest in property on account of such NTL Inc. Subordinated
Notes Claims. Notwithstanding the foregoing waiver, all distributions that
France Telecom would have been entitled to receive on account of its NTL
Inc. Subordinated Notes Claims, but for such waiver, are available for Pro
Rata distribution to the other holders of Allowed Class 10 NTL Inc.
Subordinated Notes Claims.
Notwithstanding anything to the contrary contained in the Plan,
the NTL Inc. Subordinated Notes Claims will be deemed Allowed Class 10
Claims for all purposes under the Plan or the Confirmation Order, without
the need to file proofs of Claim in the aggregate amount of $3,021,258,619,
as follows: (a) Claims with respect to the 5 3/4% Convertible Subordinated
Notes due 2009 will be deemed Allowed Class 10 Claims in the amount of
$1,227,408,333, (b) Claims with respect to the 5 3/4% Convertible
Subordinated Notes due 2011 will be deemed Allowed Class 10 Claims in the
amount of $103,147,528, (c) Claims with respect to the 7% Convertible
Subordinated Notes due 2008 will be deemed Allowed Class 10 Claims in the
amount of $503,399,633, and (d) Claims with respect to the 6 3/4%
Convertible Senior Notes due 2008 will be deemed Allowed Class 10 Claims in
the amount of $1,187,303,125. Under the Plan, each holder of an Allowed
Class 10 NTL Inc. Subordinated Notes Claim, other than France Telecom, will
receive, in full satisfaction, settlement, release, and discharge of and in
exchange for such Allowed Class 10 NTL Inc. Subordinated Notes Claim, its
Pro Rata share of (i) 1,270,303 shares of New NTL Common Stock, (ii)
6,270,159 shares of Euroco Common Stock, (iii) 71,744 shares of Euroco
Preferred Stock, (iv) 13.720% of the Delaware Cash Amount, (v) 94.887% of
the NTL Cash Amount, and (vi) the Class 10 Noteholder Election Option.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 10 NTL Inc. Subordinated Notes Claims will be
deemed to release, and will be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 10
NTL Inc. Subordinated Notes Claims.
g. Additional Distributions With Respect To Classes
6, 7, 8, 9, And 10
With respect to the treatment of Allowed Claims in Classes 6, 7,
8, 9, and 10, in addition to the distributions described in paragraphs (b)
through (f) above, the professionals of the Noteholders' Steering Committee
will be paid their unpaid fees and expenses incurred in accordance with
their engagement arrangements. Thus, on the Effective Date, the Reorganized
Debtors will pay, in Cash, the unpaid fees and expenses incurred on and
after the Petition Date through June 24, 2002 (solely in their capacity as
professionals of the Noteholders' Steering Committee) by Fried, Frank,
Harris, Shriver & Jacobson and Cadwalader, Wickersham & Taft, and UBS
Warburg shall be paid in full all of its unpaid fees and expenses owing and
due, as provided in the UBS Warburg Engagement Letter (as defined below).
Such amounts will be deemed to be incremental distributions on behalf of
Allowed Claims in Classes 6, 7, 8, 9, and 10, and accordingly, are not to
be treated as Administrative Claims. As part of the process of confirming
and consummating the Plan, if the Bankruptcy Court, the United States
Trustee, or any other party in interest wishes to review the fees and
expenses of any of the Noteholders' Steering Committee's professionals with
regard to the reasonableness of postpetition fees and expenses pursuant to
the applicable standards under section 1129(a)(4) of the Bankruptcy Code,
such professionals are prepared to provide statements with respect to their
fees and reimbursement of expenses and to submit such statements to the
review of the Bankruptcy Court.
UBS Warburg is the exclusive financial advisor to the Noteholders'
Steering Committee with respect to the Restructuring. UBS Warburg was
retained pursuant to an engagement letter dated as of February 12, 2002
(the "UBS Warburg Engagement Letter") among UBS Warburg, the Noteholders'
Steering Committee, and NTL Inc. on behalf of the Debtors and various
Non-Debtor Subsidiaries.
The UBS Warburg Engagement Letter provided, among other things,
that UBS Warburg will receive the following fees as compensation for its
services: (i) a monthly cash fee of $500,000 for the first eight months and
$350,000 for every month after the eighth month and (ii) a restructuring
fee (the "UBS Warburg Restructuring Fee") payable by the Debtors (excluding
Diamond Holdings) in kind based on the aggregate fair market value on the
date prior to the consummation of the Plan of the Cash, securities,
property, or other consideration received by the holders of the Debt
Securities, excluding any consideration received by the Diamond Holdings
Notes Holders (the "Recovery Value").
In the event the Restructuring transaction is consummated, the UBS
Warburg Restructuring Fee is equal to the sum of the following:
(a) 0.6875% of the incremental amount of the Recovery
Value greater than 25% of the aggregate accreted principal amount of the
Debt Securities (excluding the Diamond Holdings Notes) as of February 12,
2002 (the "Accreted Value"), but less than or equal to 55% of the Accreted
Value; plus
(b) 1.00% of the incremental amount of the Recovery Value
greater than 55% of the Accreted Value but less than or equal to 75% of the
Accreted Value; plus
(c) 1.50% of the incremental amount of the Recovery Value
greater than 75% of the Accreted Value.
If the Recovery Value is 25% or less of the Accreted Value, no UBS
Warburg Restructuring Fee will be paid. Fifty percent of the monthly fees
paid shall be credited against the portion of the UBS Warburg Restructuring
Fee related to a Recovery Value in excess of 55% of the Accreted Value. In
addition, the UBS Warburg Engagement Letter obligates the Debtors to
reimburse UBS Warburg for out-of-pocket expenses (including fees and
expenses of counsel) incurred by UBS Warburg in connection with its
representation of the Noteholders' Steering Committee.
In connection with a pre-negotiated or pre-arranged Chapter 11
plan, such as the Plan, the UBS Warburg Engagement Letter provides that the
UBS Warburg Restructuring Fee is earned and payable prior to the filing of
the Plan, and will be paid upon consummation of the Plan.
One hundred percent of the UBS Warburg Restructuring Fee will be
paid in the same form of consideration received by the Noteholders
(excluding Diamond Holdings Notes Holders) and proportion as the Recovery
Value. As mentioned above, the Plan provides that UBS Warburg's
compensation which is payable-in-kind will be paid by the Debtors as part
of the treatment afforded claims in Classes 6, 7, 8, 9, and 10. Thus, the
cash portion of the UBS Warburg Restructuring Fee will be paid on the
Effective Date. With respect to the New NTL Common Stock, Euroco Preferred
Stock, and any other securities to be distributed to the holders of Debt
Securities, the Recovery Value for such securities is calculated based on
the average closing price of such securities during the 60 trading days
immediately following the consummation of the Plan. Therefore, although the
entire UBS Warburg Restructuring Fee was earned by UBS Warburg prior to the
Petition Date as provided in the UBS Warburg Engagement Letter, the exact
amount of the non-cash portion of the UBS Warburg Restructuring Fee cannot
be determined (and the non-cash portion of the UBS Warburg Restructuring
Fee cannot be paid in full) until 60 days after consummation of the Plan.
h. Class 11 - Intercompany Claims
Class 11 consists of all Intercompany Claims. On the Effective
Date, all Class 11 Intercompany Claims owed by a Debtor, directly or
indirectly, to any of its Debtor Subsidiaries will be distributed by such
Debtor Subsidiary up to its corporate parent in exchange for one share of
such Debtor Subsidiary's common stock and in extinguishment of such Claim.
On the Effective Date, all Class 11 Intercompany Claims owed, directly or
indirectly, by any Debtor Subsidiary to any parent Debtor, will be
contributed by the parent Debtor down to such Debtor Subsidiary in exchange
for one additional share of common stock from such Debtor Subsidiary and in
extinguishment of such Claim. The Debtors do not believe there will be any
Intercompany Claims owed to Diamond Cable or Diamond Holdings as of the
Effective Date.
4. Impaired Classes Of Interests
The Plan is predicated on, among other things, agreement to the
terms of the Debtors' restructuring between and among the Junior
Stakeholders (Classes 12, 13, and 14), on the one hand, and the holders of
Debt Securities (Classes 6, 7, 8, 9, and 10), on the other. The Debt
Securities holders, along with the Secured Lenders who will remain
unimpaired under the Plan, are entitled under the Bankruptcy Code to a
distribution of 100% of the Debtors' and Reorganized Debtors' enterprise
value. Absent the willingness of the Debt Securities holders in Classes 6,
7, 8, 9, and 10 to provide the value described in Article III.D of the Plan
to the Junior Stakeholders in Classes 12, 13, and 14, the Junior
Stakeholders would not be entitled to, and would not, receive any
distribution from the Debtors under the Plan on account of their Interests
in the Debtors. Nevertheless, to facilitate and avoid delay in consummation
of the Plan and the Debtors' restructuring, among other things, Debt
Securities holders in Classes 6, 7, 8, 9, and 10 holding, in the aggregate,
a majority in face amount of the Debt Securities in such Classes, have
agreed to provide to the Junior Stakeholders in Classes 12, 13, and 14, in
exchange for their acceptance of the Plan and assent to the transactions
contemplated thereby, a portion of the Debtors' and Reorganized Debtors'
enterprise value that such Debt Securities holders otherwise would be
entitled to receive. Accordingly, if and to the extent that a Class of
Junior Stakeholders entitled to vote on the Plan fails to accept the Plan,
then no member of such rejecting Class of Junior Stakeholders will be
entitled to, or will receive, any distribution under the Plan on account of
its Interests in the Debtors and the consideration otherwise available to
the members of such rejecting Class will be retained by the Debt Securities
holders or treated as otherwise set forth in the Confirmation Order.
a. Class 12 - Old Senior Preferred Stock Interests
Class 12 consists of all Old Senior Preferred Stock Interests.
Notwithstanding anything to the contrary contained in the Plan, the Old
Senior Preferred Stock Interests will be deemed Allowed Class 12 Interests
for all purposes under the Plan. Under the Plan, each holder of an Allowed
Class 12 Old Senior Preferred Stock Interest will receive, in full
satisfaction, settlement, release, and discharge of and in exchange for
such Allowed Class 12 Old Senior Preferred Stock Interest, its Pro Rata
share of (i) 2,996,475 Series A Warrants, (ii) 1,284,203 Equity Rights, and
(iii) 642,102 shares of Euroco Common Stock; provided, however, that in the
event that the holders of Class 12 Old Senior Preferred Stock Interests
vote as a class to reject the Plan, then such holders of Class 12 Old
Senior Preferred Stock Interests will not be entitled to, and will not,
receive or retain any property or interest in property on account of such
Class 12 Old Senior Preferred Stock Interests.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 12 Old Senior Preferred Stock Interests will be
deemed to release, and will be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 12
Old Senior Preferred Stock Interests.
b. Class 13 - Old Junior Preferred Stock Interests
Class 13 consists of all Old Junior Preferred Stock Interests.
Notwithstanding any provision to the contrary contained in The Plan, the
Old Junior Preferred Stock Interests will be deemed Allowed Class 13
Interests for all purposes under The Plan or the Confirmation Order. The
Class 13 Old Junior Preferred Stock Interests have been divided into
separate groups in the Plan for descriptive purposes only. Together, all of
the groups of Interests included in Class 13 make up a single Class of
Interests for all purposes under the Plan and the Bankruptcy Code,
including, without limitation, voting on and receiving distributions under,
the Plan. Notwithstanding anything to the contrary contained in the Plan,
the Old Junior Preferred Stock Interests will be deemed Allowed Class 13
Interests for all purposes under the Plan.
i. Group 13-A: Noos Junior Preferred Stock
Interests
Group 13-A consists of all Noos Junior Preferred Stock Interests.
Under the Plan, (a) the holder of the Allowed 6.5% Fixed Coupon Redeemable
Preferred Stock Interests in Group 13-A will receive, in full satisfaction,
settlement, release, and discharge of and in exchange for such Allowed
6.5%Fixed Coupon Redeemable Preferred Stock Interests, 20.553% of the Noos
Interest, and (b) the holder of the Allowed Variable Coupon Redeemable
Preferred Stock Interests in Group 13-A will receive, in full satisfaction,
settlement, release, and discharge of and in exchange for such Allowed
Variable Coupon Redeemable Preferred Stock Interests, 79.447% of the Noos
Interest; provided, however, that in the event that the holders of Class 13
Old Junior Preferred Stock Interests vote as a class to reject the Plan,
then the holder of the Allowed Noos Junior Preferred Stock Interests in
Group 13-A will not be entitled to, and will not, receive or retain any
property or interest in property on account of such Interests.
ii. Group 13-B: Other Junior Preferred Stock
Interests
Group 13-B consists of all Other Junior Preferred Stock Interests.
Under the Plan, each holder of an Allowed Other Junior Preferred Stock
Interest in Group 13-B will receive, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Old Junior
Preferred Stock Interest, its Pro Rata share of (i) 22,402,468 Series A
Warrants and (ii) 9,601,058 Equity Rights; provided, however, that in the
event that the holders of Class 13 Old Junior Preferred Stock Interests
vote as a class to reject the Plan, then the holders of the Allowed Other
Junior Preferred Stock Interests in Group 13-B will not be entitled to, and
will not, receive or retain any property or interest in property on account
of such Interests.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 13 Old Junior Preferred Stock Interests will be
deemed to release, and will be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 13
Old Junior Preferred Stock Interests.
5. Additional Impaired Classes
a. Class 14 - Old Common Stock Interests
Class 14 consists of all Old Common Stock Interests in NTL Inc.
Notwithstanding anything to the contrary contained in the Plan, the Old
Common Stock Interests will be deemed Allowed Class 14 Interests for all
purposes under the Plan. Each holder of an Allowed Class 14 Old Common
Stock Interest will receive, in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Class 14 Old Common Stock
Interest, its Pro Rata share of (i) 9,601,058 Series A Warrants, (ii)
4,114,739 Equity Rights, and (iii) 2,057,369 shares of Euroco Common Stock;
provided, however, that in the event that the holders of Class 14 Old
Common Stock Interests vote as a class to reject the Plan, then the holders
of Allowed Class 14 Old Common Stock Interests will not be entitled to, and
will not, receive or retain any property or interest in property on account
of such Interests or Claims.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 14 Old Common Stock Interests will be deemed to
release, and will be permanently enjoined from bringing any action against,
the Debtors, New NTL, Euroco, and their respective members, officers,
directors, agents, financial advisors, attorneys, employees, equity
holders, partners, affiliates, and representatives and their respective
property, on account of any claims, obligations, rights, causes of action,
or liabilities relating to or arising from any and all Class 14 Old Common
Stock Interests.
Certain putative class representatives and holders of Class 14 Old
Common Stock Interests in NTL Inc. have informed the Debtors that they
dispute the propriety of the foregoing release provisions. The Debtors
believe that these provisions are both legally and factually appropriate
under the Bankruptcy Code and prevailing Second Circuit authority, and
intend to vigorously dispute any challenge thereto by these holders.
b. Class 15 - Securities Claims
i. Class 15.01 consists of all Debt Securities
Claims against a Debtor. On the Effective Date, the Class 15.01 Debt
Securities Claims will be extinguished and the holders thereof will not be
entitled to, and will not, receive or retain any property or interest in
property on account of such Debt Securities Claims.
ii. Class 15.02 consists of all Equity
Securities Claims against NTL Inc. On the Effective Date, the Class 15.02
Equity Securities Claims will be extinguished and the holders thereof will
not be entitled to, and will not, receive or retain any property or
interest in property on account of such Equity Securities Claims.
Notwithstanding the foregoing, on the Effective Date, but
effective as of the Confirmation Date, all holders of Class 15 Securities
Claims will be deemed to be bound by the provisions of Article XIII of the
Plan.
Certain putative class representatives and holders of
Class 15.02 Equity Securities Claims against NTL Inc. have informed the
Debtors that they (i) disagree with the classification and treatment of
their claims under the Plan, asserting that their Equity Securities Claims,
if allowed, should receive the same priority and treatment as Class 14 Old
Common Stock Interests and (ii) dispute the propriety of the foregoing
release provisions. The Debtors believe that the proposed classification
and treatment of the Equity Securities Claims under the Plan is both
legally and factually appropriate, and intend to vigorously dispute any
challenge thereto by these holders. If, however, the holders were to
prevail in such a challenge, the recovery to holders of Class 14 Old Common
Stock Interests could be subject to dilution to the extent that any Equity
Securities Claims are ultimately allowed. The Debtors further believe that
the foregoing release provisions are both legally and factually appropriate
under the Bankruptcy Code and prevailing Second Circuit authority, and
intend to vigorously dispute any challenge thereto by these holders.
c. Class 16 - Other Old Equity Interests And Claims
Class 16 consists of all Other Old Equity Interests And Claims in
and/or against the Debtors. Under the Plan, the Class 16 Other Old Equity
Interests And Claims will be extinguished and the holders thereof will not
be entitled to, and will not, receive or retain any property or interest in
property on account of such Other Old Equity Interests And Claims.
Notwithstanding the foregoing, on the Effective Date, but
effective as of the Confirmation Date, all holders of Class 16 Other Old
Equity Interests And Claims will be deemed to be bound by the provisions of
Article XIII of the Plan.
C. Summary Of Other Provisions Of The Plan
1. Means For Implementation Of The Plan
a. Continued Corporate Existence
Subject to the provisions of Article IV.C.1 of the Plan, each of
the Reorganized Debtors will continue to exist after the Effective Date as
a separate corporate entity in accordance with the applicable law in the
jurisdiction in which it is incorporated, under its respective certificate
of incorporation and by-laws or other organizational documents in effect
before the Effective Date, except as its certificate of incorporation and
by-laws or other organizational documents are amended by the Plan.
b. Amended And Restated Certificates Of Incorporation And
By-Laws; Change Of Name
The certificate of incorporation and by-laws of NTL Inc. and NTL
CC will be amended as necessary to satisfy the provisions of the Plan and
the Bankruptcy Code. The Amended and Restated Certificate of Incorporation
of NTL CC will include, among other things, provisions authorizing (i) a
change in the name of the corporation from "NTL CC" to "NTL Incorporated"
and (ii) 600 million shares of New NTL Common Stock and 5 million shares of
"blank check" preferred stock. The Amended and Restated Certificate of
Incorporation of NTL Inc. will include, among other things, provisions
authorizing (i) a change in the name of the corporation from "NTL Inc." to
"NTL Europe, Inc." and (ii) 60 million shares of Euroco Common Stock and
one million shares of "blank check" preferred stock, including the shares
of Euroco Preferred Stock.
c. Reorganization Of The NTL Group Into New NTL And Euroco
On the Effective Date, the Debtors will divide their current
businesses and investments into two new groups, New NTL and Euroco. For a
description of the businesses and assets that will comprise each of New NTL
and Euroco, see "Certain Matters Regarding New NTL -- Businesses To
Comprise New NTL" and "Certain Matters Regarding Euroco -- Businesses To
Comprise Euroco." NTL will cause New NTL and Euroco to apply to have the
New NTL Common Stock and Euroco Common Stock, respectively, listed on the
NYSE, the national market system or small cap system of the National
Association of Securities Dealers' Automated Quotation System, as
applicable, subject to the initial and continued listing requirements of
the applicable exchange or quotation system. See "Certain Matters Regarding
New NTL -- Securities To Be Issued -- Resale Of Securities -- Listing And
Registration Rights" and "Certain Matters Regarding Euroco -- Securities To
Be Issued -- Resale Of Securities -- Listing And Registration Rights."
i. New NTL
On the Effective Date, NTL CC will (1) amend and restate its
certificate of incorporation and by-laws to provide for, among other
things, a change in the name of the corporation from NTL CC to "NTL
Incorporated" and (2) consummate the Effectuating Transactions described in
Exhibit P to the Plan. Upon, and as a result of, consummation of the
Effectuating Transactions, New NTL and its subsidiaries shall be separated
from Euroco and those of its subsidiaries that are not also subsidiaries of
New NTL.
ii. Euroco
On the Effective Date, NTL Inc. will (1) amend and restate its
certificate of incorporation and by-laws to provide for, among other
things, a change in the name of the corporation from NTL Inc. to "NTL
Europe, Inc." and (2) consummate the Effectuating Transactions described in
Exhibit P to the Plan. Upon consummation of the Effectuating Transactions,
New NTL and its subsidiaries will be separated from Euroco and those of its
subsidiaries that are not also subsidiaries of New NTL.
d. Cancellation Of Existing Securities And Agreements
On the Effective Date, except as otherwise provided for in the
Plan, (i) the Existing Securities and any other note, bond, Indenture, or
other instrument or document evidencing or creating any indebtedness or
obligation of a Debtor, except the Diamond Cable Notes or any other
instrument or document evidencing such indebtedness under the Diamond Cable
Notes and such notes or other instruments evidencing indebtedness or
obligations of a Debtor as are Reinstated under the Plan, will be canceled,
and (ii) the obligations of the Debtors under any agreements, Indentures,
or certificates of designations governing the Existing Securities and any
other note, bond, Indenture, or other instrument or document evidencing or
creating any indebtedness or obligation of a Debtor, except the Diamond
Cable Notes or any other instrument or document evidencing such
indebtedness under the Diamond Cable Notes and such notes or other
instruments evidencing indebtedness or obligations of a Debtor as are
Reinstated under the Plan, as the case may be, will be discharged;
provided, however, that each Indenture or other agreement that governs the
rights of a holder of a Claim and that is administered by an Indenture
Trustee will continue in effect for the purposes of allowing the Indenture
Trustee to make any distributions on account of such Claims pursuant to the
Plan and to perform such other necessary administrative functions with
respect thereto. Notwithstanding any provision to the contrary contained in
the Plan, distributions on account of the Debt Securities will not be
reduced by the amount of the reasonable fees and documented out-of-pocket
expenses incurred by the Indenture Trustees or any undisputed claim for
payment by the Indenture Trustees (which includes the reasonable fees and
documented out-of-pocket expenses of any professionals retained by the
Indenture Trustees). Upon approval by the Bankruptcy Court of an
application by an Indenture Trustee, the reasonable fees and documented
out-of-pocket expenses incurred by the Indenture Trustee or any other claim
for payment by the Indenture Trustees (which includes the reasonable fees
and documented out-of-pocket expenses of any professionals retained by the
Indenture Trustee) through the Effective Date will be paid in full in Cash
as soon as practicable after the Effective Date. In addition, upon the
occurrence of the Effective Date, the asserted charging liens of the
Indenture Trustees will be released and their sole claims will be for their
reasonable fees and documented out-of-pocket expenses pursuant to
application to the Bankruptcy Court.
Any actions taken by an Indenture Trustee, an agent, or a servicer
that are not for the purposes authorized in Article IV.B.2 of the Plan will
not be binding upon the Debtors or Reorganized Debtors. Notwithstanding the
foregoing, any Debtor may terminate any Indenture or other governing
agreement and the authority of any Indenture Trustee, agent, or servicer to
act thereunder at any time, with or without cause, by giving five (5) days'
written notice of termination to the Indenture Trustee, agent, or servicer.
If distributions under the Plan have not been completed at the time of
termination of the Indenture or other governing agreement, the applicable
Debtor will designate a Disbursing Agent to act in place of the Indenture
Trustee, agent, or servicer, and the provisions of Article IV.B.2 of the
Plan will be deemed to apply to the new Disbursing Agent.
e. Cancellation Of Certain Obligations
NTL TWTV Holdings Limited, a Non-Debtor Subsidiary of NTL Inc.,
has an outstanding demand obligation in the amount of approximately
(pound)51 million to CWC, an indirect Non-Debtor Subsidiary of NTL CC,
related to NTL TWTV Holdings Limited's acquisition of the company holding a
minority interest in Two Way TV Limited. On or immediately prior to the
Effective Date, NTL Inc. will assume NTL TWTV Holdings Limited's obligation
and, substantially contemporaneously, CWC will transfer its account
receivable to NTL CC through various intermediate transactions in
satisfaction of certain intercompany obligations. On the Effective Date,
the resultant Intercompany Claim of NTL CC against NTL Inc. will be
canceled pursuant to the provisions of Article III.C.7 of the Plan.
f. Restructuring Expense Adjustment
As of the Effective Date, if NTL Inc. and NTL Delaware have
incurred Restructuring Expenses in excess of the Delaware/Inc.
Restructuring Expenses, then New NTL will transfer the amount of such
excess to Euroco. If the Delaware/Inc. Restructuring Expenses exceed the
Restructuring Expenses actually incurred by NTL Inc. and NTL Delaware, then
Euroco will transfer the amount of such excess to New NTL.
g. Revesting Of Assets
Except as otherwise provided in Article III of the Plan, the
property of each Debtor's Estate, together with any property of each Debtor
that is not property of its Estate and that is not specifically disposed of
pursuant to the Plan, will revest in the applicable Reorganized Debtor on
the Effective Date. Following the Effective Date, the Reorganized Debtors
may operate their businesses and may use, acquire, and dispose of property
free of any restrictions of the Bankruptcy Code, the Bankruptcy Rules, and
the Bankruptcy Court. As of the Effective Date, all property of the
Reorganized Debtors will be free and clear of all Claims, encumbrances,
Interests, charges, and Liens except as specifically provided in the Plan,
the Confirmation Order, or as contemplated by the New NTL Exit Facility.
Without limiting the generality of the foregoing, the Reorganized Debtors
may, without application to or approval by the Bankruptcy Court, pay
Professional Fees and expenses incurred after the Confirmation Date.
h. Preservation Of Rights Of Action; Settlement Of Causes
Of Action
Except as otherwise provided in the Plan or the Confirmation
Order, or in any contract, instrument, release, Indenture, or other
agreement entered into in connection with the Plan, in accordance with
section 1123(b) of the Bankruptcy Code, the Reorganized Debtors will retain
and have the exclusive right, in their sole discretion, to enforce, sue on,
settle, or compromise (or decline to do any of the foregoing) all claims,
rights or Causes of Action, suits, and proceedings, whether in law or in
equity, whether known or unknown, that the Debtors or their Estates may
hold against any Person or entity. The Reorganized Debtors or their
successor(s) may pursue such retained claims, rights or Causes of Action,
suits, or proceedings as appropriate, in accordance with the best interests
of the Reorganized Debtors or their successor(s) who hold such rights.
i. Employment Agreements
On the Effective Date, New NTL and Euroco will enter into
employment agreements with their respective key executives substantially in
the form annexed as Exhibit M to the Plan.
j. Exemption From Certain Transfer Taxes
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer, or exchange of a security, or the making or delivery of an
instrument of transfer from a Debtor to a Reorganized Debtor or any other
Person or entity pursuant to the Plan, including, without limitation, the
granting or recording of any Lien or mortgage on any property under the New
NTL Exit Facility, will not be subject to any document recording tax, stamp
tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act,
real estate transfer tax, mortgage recording tax, or other similar tax or
governmental assessment, and the Confirmation Order will direct the
appropriate state or local governmental officials or agents to forego the
collection of any such tax or governmental assessment and to accept for
filing and recordation any of the foregoing instruments or other documents
without the payment of any such tax or governmental assessment.
2. Provisions Governing Distributions
a. Distributions For Claims And Interests Allowed As Of
The Effective Date
Except as otherwise provided in the Plan or as ordered by the
Bankruptcy Court, distributions to be made on account of Claims or
Interests that are Allowed Claims or Interests as of the Effective Date
will be made on the Distribution Date, or as soon thereafter as is
reasonably practicable. Any Cash distributions will be made by the
Disbursing Agent from available Cash of the Reorganized Debtors. Any
distribution under the Plan of property other than Cash will be made by the
Disbursing Agent or the appropriate Indenture Trustee, agent, or servicer,
in accordance with the terms of the Plan.
The Disbursing Agent will make all distributions required under
the Plan (subject to the provisions of Articles III, VII, and IX of the
Plan), except with respect to a holder of a Claim or Interest whose
distribution is governed by an Indenture or other agreement and is
administered by an Indenture Trustee, agent, or servicer, which
distributions will be deposited with the appropriate Indenture Trustee,
agent, or servicer, who will deliver such distributions to the holders of
Claims or Interests in accordance with the provisions of the Plan and the
terms of the relevant Indenture or other governing agreement.
If the Disbursing Agent is an independent third party designated
by the Reorganized Debtors to serve in such capacity, or an Indenture
Trustee, agent, or servicer that administers an Indenture or other
agreement that governs distributions, such Disbursing Agent, Indenture
Trustee, agent, or servicer will receive, without further Bankruptcy Court
approval, reasonable compensation for distribution services rendered
pursuant to the Plan and reimbursement of reasonable out-of-pocket expenses
incurred in connection with such services from the Reorganized Debtors on
terms acceptable to the Reorganized Debtors. No Disbursing Agent will be
required to give any bond or surety or other security for the performance
of its duties unless otherwise ordered by the Bankruptcy Court. If
otherwise so ordered, all costs and expenses of procuring any such bond
will be paid by the Reorganized Debtors.
Any distributions on account of Allowed Claims arising under Debt
Securities or otherwise administered by an Indenture Trustee will be made
to the appropriate Indenture Trustee, which, in each case, will serve as
the Reorganized Debtors' designee for purposes of making distributions to
holders of such Allowed Claims under the Plan. The Reorganized Debtors will
be responsible for payment to each Indenture Trustee of such Indenture
Trustee's reasonable fees and documented out-of-pocket expenses incurred in
connection with the making of distributions under the Plan to holders of
Allowed Claims governed by its Indenture.
b. Special Distribution Procedures For Certain Persons
i. New NTL Chapter 11 Acquiring Persons
If any holder of Allowed Claims or Interests entitled to receive a
distribution under the Plan becomes a New NTL Chapter 11 Acquiring Person
during the period from the first Business Day after the Petition Date
through the Effective Date, then (a) such holder will only be entitled to
receive aggregate distributions on account of its Allowed Claims or
Interests in an amount not to exceed 15% of the outstanding shares of New
NTL Common Stock (including, without limitation, any shares of New NTL
Common Stock purchased or that may be acquired after giving effect to the
Offerings and assuming exercise of the Series A Warrants) so that, as of
the Effective Date, such holder would not be a New NTL Acquiring Person
under the New NTL Rights Agreement (without regard to whether such Person
is a New NTL Grandfathered Distributee), and (b) any shares of New NTL
Common Stock that such holder otherwise would have been entitled to receive
but for the provisions of Article VII.B.1 of the Plan will be withheld and
retained by New NTL in accordance with the provisions of subparagraph ii.
below, unless such holder represents and warrants in writing to New NTL
that, as of the Effective Date, such holder either (i) has disposed of a
sufficient amount of Allowed Claims or Interests such that as of the
Effective Date, such holder would not be a New NTL Chapter 11 Acquiring
Person or (ii) is a New NTL Grandfathered Distributee, and in either case,
such holder will be entitled to receive those distributions to which it
otherwise would have been entitled to receive under the Plan had it not
been for the provisions of Article VII.B.1 of the Plan.
ii. Distribution Procedures For Withheld Shares
Of New NTL Common Stock
Distributions of New NTL Common Stock withheld pursuant to Article
VII.B.1 of the Plan will be held in reserve by New NTL for the account of
the holder who otherwise would have been entitled, in the absence of the
limitations imposed by Article VII.B.1 of the Plan, to such distributions
until such time as New NTL is directed in writing by such holder to
distribute the shares of New NTL Common Stock, together with any Cash and
non-Cash dividends earned thereon, to another Person, such that after
giving effect to the disposition of the New NTL Common Stock, such other
Person would not be a New NTL Acquiring Person under the New NTL Rights
Agreement. As soon as practicable following receipt of such direction, New
NTL will distribute the withheld shares of New NTL Common Stock, together
with any Cash and non-Cash dividends earned thereon, to such Person as
directed in writing.
iii. Euroco Chapter 11 Acquiring Persons
If any holder of Allowed Claims or Interests entitled to receive a
distribution under the Plan becomes a Euroco Chapter 11 Acquiring Person
during the period from the first Business Day after the Petition Date
through the Effective Date, then (a) such holder will only be entitled to
receive aggregate distributions on account of its Allowed Claims or
Interests in an amount not to exceed 15% of the outstanding shares of
Euroco Common Stock so that, as of the Effective Date, such holder would
not be a Euroco Acquiring Person under the Euroco Rights Agreement (without
regard to whether such Person is a Euroco Grandfathered Distributee), and
(b) any shares of Euroco Common Stock that such holder otherwise would have
been entitled to receive but for the provisions of Article VII.B.3 of the
Plan will be withheld and retained by Euroco in accordance with the
provisions of subparagraph ii. below, unless such holder represents and
warrants in writing to Euroco that, as of the Effective Date, such holder
either (i) has disposed of a sufficient amount of Allowed Claims or
Interests such that as of the Effective Date, such holder would not be a
Euroco Chapter 11 Acquiring Person or (ii) is a Euroco Grandfathered
Distributee, and in either case, such holder will be entitled to receive
those distributions to which it otherwise would have been entitled to
receive under the Plan had it not been for the provisions of Article
VII.B.3 of the Plan.
iv. Distribution Procedures For Withheld Shares
Of Euroco Common Stock
Distributions of Euroco Common Stock withheld pursuant to Article
VII.B.3 of the Plan will be held in reserve by Euroco for the account of
the holder who otherwise would have been entitled, in the absence of the
limitations imposed by Article VII.B.3 of the Plan, to such distributions
until such time as Euroco is directed in writing by such holder to
distribute the shares of Euroco Common Stock, together with any Cash and
non-Cash dividends earned thereon, to another Person, such that after
giving effect to the disposition of the Euroco Common Stock, such other
Person would not be a Euroco Acquiring Person under the Euroco Rights
Agreement. As soon as practicable following receipt of such direction,
Euroco will distribute the withheld shares of Euroco Common Stock, together
with any Cash and non-Cash dividends earned thereon, to such Person as
directed in writing.
c. Surrender Of Securities Or Instruments
As a condition to receiving any distribution under the Plan, on or
before the Distribution Date, or as soon as practicable thereafter, each
holder of a Certificate evidencing a Claim or Interest on account of
Existing Securities that are not being Reinstated or transferred to New NTL
under the Plan must surrender such Certificate to the Disbursing Agent, or,
with respect to indebtedness that is governed by an Indenture or other
agreement, the respective Indenture Trustee, agent, or servicer, as the
case may be, and such Certificate will be canceled; provided, however, that
in accordance with the provisions of Article III.C.2 of the Plan, any and
all Certificates evidencing Claims on account of Diamond Cable Notes must
be delivered, assigned, conveyed, and transferred by the holders thereof to
New NTL. No distribution of property under the Plan will be made to or on
behalf of any such holder unless and until such Certificate is received by
the Disbursing Agent, the respective Indenture Trustee, agent, or servicer,
or New NTL, as the case may be, or the unavailability of such Certificate
is reasonably established to the satisfaction of the Disbursing Agent, the
respective Indenture Trustee, agent, or servicer, or New NTL, as the case
may be. Any such holder who fails to surrender or assign or cause to be
surrendered or assigned such Certificate or fails to execute and deliver an
affidavit of loss and indemnity reasonably satisfactory to the Disbursing
Agent, the respective Indenture Trustee, agent, or servicer, or New NTL, as
the case may be, prior to the later of (i) the second anniversary of the
Effective Date or (ii) six months after the date such holder's Claim
becomes an Allowed Claim, will be deemed to have forfeited all rights,
Claims, and Interests in respect of such Certificate and will not
participate in any distribution under the Plan, and all property in respect
of such forfeited distribution, including interest accrued thereon, will
revert to New NTL or Euroco, as the case may be, notwithstanding any
federal or state escheat laws to the contrary.
d. Record Date For Distributions To Holders Of Existing
Securities
The record date for distributions to holders of Allowed Claims or
Interests on account of Existing Securities that are not being Reinstated
under the Plan will be the Distribution Record Date. At the close of
business on the Distribution Record Date, the transfer ledgers for such
securities will be closed, and there will be no further changes in
the record holders of such securities. The Reorganized Debtors and the
Disbursing Agent, if any, will have no obligation to recognize any transfer
of any such securities occurring after the Distribution Record Date and
will be entitled instead to recognize and deal for all purposes under the
Plan with only those record holders listed on the transfer ledgers as of
the close of business on the Distribution Record Date.
e. Calculation Of Distribution Amounts Of Certain New
Securities
No fractional shares of New NTL Common Stock, Euroco Common Stock,
or Euroco Preferred Stock, and no fractional Series A Warrants or
fractional Rights, will be issued or distributed under the Plan or by New
NTL, Euroco, or any Disbursing Agent, Indenture Trustee, agent, or
servicer. Each Person entitled to receive Distributable Securities will
receive the total number of whole shares of stock, Series A Warrants, or
Rights, as the case may be, to which such Person is entitled. Whenever any
distribution to a particular Person would otherwise call for distribution
of a fraction of a share of stock, Series A Warrant, or Right, as the case
may be, the Disbursing Agent will allocate separately one whole share,
warrant, or right to such Person in order of the fractional portion of
their entitlements, starting with the largest such fractional portion,
until all remaining whole shares, warrants, or rights have been allocated.
Upon the allocation of a whole share, warrant, or right to a Person in
respect of the fractional portion of its entitlement, such fractional
portion will be canceled. If two or more Persons are entitled to equal
fractional entitlements and the number of Persons so entitled exceeds the
number of whole shares, warrants, or rights that remain to be allocated,
the Disbursing Agent will allocate the remaining whole shares, warrants, or
rights to such holders by random lot or such other impartial method as the
Disbursing Agent deems fair. Upon the allocation of all of the whole
shares, warrants, and rights authorized under the Plan, all remaining
fractional portions of the entitlements will be canceled and will be of no
further force and effect.
f. Delivery Of Distributions; Undeliverable Or Unclaimed
Distributions
Distributions to holders of Allowed Claims or Interests will be
made by the Disbursing Agent or the Indenture Trustee, agent, or servicer,
as the case may be, (i) at the holder's last known address, (ii) at the
address in any written notice of address change delivered to the Disbursing
Agent, (iii) in the case of the holder of an Existing Security, at the
address in the appropriate Indenture Trustee's, agent's, or servicer's
official records, or (d) set forth in a properly completed letter of
transmittal accompanying a Certificate properly remitted in accordance with
the terms of the Plan. If any holder's distribution is returned as
undeliverable, no further distributions to such holder will be made, unless
and until the Disbursing Agent or appropriate Indenture Trustee, agent, or
servicer is notified of such holder's then current address, at which time
all missed distributions will be made to such holder without interest.
Amounts in respect of undeliverable distributions made through the
Disbursing Agent or an Indenture Trustee, agent, or servicer will be
returned to the appropriate Reorganized Debtor or the Indenture Trustee,
agent, or servicer, as the case may be, until such distributions are
claimed. All claims for undeliverable distributions must be made on or
before the later to occur of (i) the second anniversary of the Effective
Date or (ii) six months after such holder's Claim becomes an Allowed Claim,
after which date all unclaimed property will revert to the appropriate
Reorganized Debtor free of any restrictions thereon and the claim of any
holder or successor to such holder with respect to such property will be
discharged and forever barred, notwithstanding any federal or state escheat
laws to the contrary. Any holder of an Allowed Claim who is entitled to
receive a Cash distribution under the Plan, but fails to cash a check
within 120 days of its issuance, will be entitled to receive a reissued
check from the Reorganized Debtors for the amount of the original check,
without interest, upon written request (prior to the second anniversary of
the Effective Date) to the Reorganized Debtors or their designee, which
request will include such documentation as the Reorganized Debtors or their
designee request to verify, in their reasonable discretion, that such
holder is entitled to such check. If a holder fails to cash a check within
120 days of its issuance and fails to request reissuance of such check
prior to the later to occur of (i) the second anniversary of the Effective
Date and (ii) six months following the date such holder's Claim becomes an
Allowed Claim, such holder will not be entitled to receive any distribution
under the Plan.
g. Setoffs
Except with respect to Causes of Action that are being released
under the Plan or pursuant to the Confirmation Order, any Reorganized
Debtor may, but will not be required to, set off against any Claim (other
than any Diamond Cable Notes Claims, NTL CC Senior Notes Claims, NTL CC
Subordinated Notes Claims, NTL Delaware Subordinated Notes Claims, or NTL
Inc. Subordinated Notes Claims) the payments or other distributions to be
made pursuant to the Plan in respect of such Claim, claims or Causes of
Action of any nature whatsoever that the Reorganized Debtor may have
against the Claim's holder; provided, however, that neither the failure to
set off nor the allowance of any Claim under the Plan will be, or be deemed
to be, a waiver or release by any Reorganized Debtor of a Cause of Action
that such Reorganized Debtor may have against such holder.
3. Treatment Of Executory Contracts And Unexpired Leases
Except as otherwise provided in the Plan, or in any contract,
instrument, release, Indenture, or other agreement or document entered into
in connection with the Plan, as of the Effective Date each Debtor will be
deemed to have assumed each executory contract and unexpired lease to which
it is a party, unless such contract or lease (i) was previously assumed or
rejected by the Debtors, (ii) previously expired or terminated pursuant to
its own terms, or (iii) is the subject of a motion to reject filed on or
before the Confirmation Date. Notwithstanding the foregoing, pursuant to
the Plan, the Debtors reserve the right, at any time prior to the
Confirmation Date, to seek to reject any executory contract or unexpired
lease to which any Debtor is a party.
The Confirmation Order will constitute an order of the Bankruptcy
Court under section 365 of the Bankruptcy Code approving the contract and
lease assumptions described above, as of the Effective Date. Any monetary
amounts by which any executory contract and unexpired lease to be assumed
under the Plan is in default will be satisfied, under section 365(b)(1) of
the Bankruptcy Code, at the option of the Debtor party to the contract or
lease or its assignee, by Cure. If there is a dispute regarding (i) the
nature or amount of any Cure, (ii) the ability of a Reorganized Debtor or
any assignee to provide "adequate assurance of future performance" (within
the meaning of section 365 of the Bankruptcy Code) under the contract or
lease to be assumed, or (iii) any other matter pertaining to assumption,
Cure will occur following the entry of a Final Order of the Bankruptcy
Court resolving the dispute and approving the assumption or assumption and
assignment, as the case may be.
4. Objections To Claims; Disputed Claims
Except as otherwise provided in the Plan or any order of the
Bankruptcy Court (e.g., with respect to holders of Securities Claims),
holders of Claims and Interests will not be required to, and should not,
file proofs of Claim or proofs of Interests with the Bankruptcy Court. If
any proofs of Claim or proofs of Interest are filed, then within 120 days
of the Effective Date (unless extended by an order of the Bankruptcy
Court), the Debtors or Reorganized Debtors may file objections to such
proofs of Claim or proofs of Interest with the Bankruptcy Court and serve
such objections upon the holders of each of the Claims or Interests to
which objections are made; provided, however, that the Debtors and
Reorganized Debtors will not object to Claims or Interests that are Allowed
Claims or Interests pursuant to the Plan. The Debtors and Reorganized
Debtors will be authorized to, and will, resolve all Disputed Claims or
Interests by withdrawing or settling any objections thereto, or by
litigating to judgment in the Bankruptcy Court or such other court having
jurisdiction over the validity, nature and/or amount thereof.
5. Retention Of Jurisdiction
Under sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the
Effective Date, the Bankruptcy Court will retain exclusive jurisdiction
(except with respect to the purposes described in Article XII.A of the
Plan, as to which jurisdiction will not be exclusive) over all matters
arising out of, and related to, the Chapter 11 Cases and the Plan, as more
fully set forth in Article XII of the Plan.
6. Compromises And Settlements
a. Generally
Pursuant to section 1123(b)(3) of the Bankruptcy Code and Fed. R.
Bankr. P. 9019(a), the Debtors may, with the consent of the Creditors'
Committee, compromise and settle various Claims against them and/or claims
they may have against other Persons. The Debtors expressly reserve the
right (with Bankruptcy Court approval, following appropriate notice and
opportunity for a hearing) to compromise and settle Claims against them and
claims that they may have against other Persons up to and including the
Effective Date. After the Effective Date, such right will pass to the
Reorganized Debtors pursuant to Articles IV.E and IV.G of the Plan.
b. France Telecom Compromise And Settlement
Under the terms of the April 16, 2002 agreement-in-principle, the
Debtors, the Noteholders' Steering Committee, and France Telecom reached a
full and complete compromise and settlement of a dispute regarding the
ramifications of NTL Inc. failing to redeem shares of Noos Junior Preferred
Stock and the rights and remedies of France Telecom under the Share Account
Pledge Agreement for a failure to redeem such shares.
The Share Account Pledge Agreement, which is governed by French
law, provides that (1) the Noos Interest was pledged to support the
obligation of NTL Inc. to redeem the Noos Junior Preferred Stock under the
terms of the Certificates of Designation governing such shares and (2)
France Telecom shall not be permitted to pursue (or attempt to pursue) the
enforcement of the pledge of the Noos Interest unless and until either one
of the classes of Noos Junior Preferred Stock becomes definitive and
non-contingent (i.e., the shares of either such class are permitted to be
redeemed by NTL Inc. in compliance with the surplus test under Delaware
corporate law).
Under Delaware corporate law, NTL Inc. is not permitted to declare
or pay dividends on or redeem its preferred stock if it does not have
available surplus. If NTL Inc. had available surplus under Delaware
corporate law on the redemption date of the specified class of Noos Junior
Preferred Stock (May 18, 2002 for the Variable Coupon Redeemable Preferred
Stock and May 18, 2007 for the 6.5% Fixed Coupon Redeemable Preferred
Stock) and NTL Inc. did not redeem the specified class of Noos Junior
Preferred Stock shares for cash on the applicable redemption date, France
Telecom would be permitted to enforce the pledge of the Noos Interest,
subject to the terms and conditions of the Share Account Pledge Agreement.
At the time of negotiating this compromise and settlement, France Telecom
claimed that it had rights under the terms of the Certificates of
Designation governing the shares of Noos Junior Preferred Stock and the
Share Account Pledge Agreement with respect to NTL Inc.'s obligation to
redeem the Noos Junior Preferred Stock.
As part of this compromise and settlement, (1) pursuant to the
terms of the Plan and subject to the occurrence of the Effective Date, the
Noos Interest will be released to France Telecom pursuant to the Share
Account Pledge Agreement in exchange for (w) the Noos Junior Preferred
Stock Interests, (x) the waiver by France Telecom of its rights to any
distribution on account of its Class 9 NTL Delaware Subordinated Notes
Claim and Class 10 NTL Inc. Subordinated Notes Claim, (y) the release by
France Telecom of any contingent payments due to France Telecom in
connection with the initial transfer of Noos franchises and any other
direct or indirect liability to France Telecom in connection with the
transfer of the 1G Franchises to Debtors or their subsidiaries and by
Debtors or their subsidiaries to Noos, and (z) the France Telecom Payment
and (2) France Telecom delivered a ballot to NTL Inc. prior to the
commencement of the Chapter 11 Cases and agreed to support the
restructuring of the Debtors in accordance with the terms of the Plan and
the transactions contemplated by the Plan, including, but not limited to,
any allocation of consideration or payments due in connection therewith.
Following implementation of this compromise and settlement,
neither the Debtors (nor any of them) nor France Telecom shall have any
further liability to the other(s) with respect to Noos, including, but not
limited to, the Noos Junior Preferred Stock, the Share Account Pledge
Agreement, France Telecom's Allowed Class 9 NTL Delaware Subordinated Notes
Claim and Allowed Class 10 NTL Inc. Subordinated Notes Claim, the Noos
Shareholders Agreement, any contingent payments due to France Telecom in
connection with the initial transfer of Noos franchises, and any other
direct or indirect liability to France Telecom in connection with the
transfer of the 1G Franchises to Debtors or their subsidiaries and by
Debtors or their subsidiaries to Noos. The implementation of this
compromise and settlement will not affect the terms and conditions of, or
the obligations of Noos pursuant to, the Noos Note, which will remain an
asset of Euroco from and after the Effective Date.
France Telecom owns shares of Old Common Stock and Old Junior
Preferred Stock and 5 3/4% convertible subordinated notes due 2009 of NTL
Inc. and NTL Delaware. France Telecom has three representatives on the
board of directors of each of NTL Inc., NTL Delaware, and NTL CC. In
addition, NTL Inc. and its subsidiaries have certain commercial
arrangements with France Telecom and its affiliates.
In connection with this compromise and settlement, except as
previously disclosed to the Noteholders' Steering Committee, France Telecom
represented and warranted to the Debtors and the Noteholders' Steering
Committee that as of the Petition Date, it was neither marketing nor had
pending agreements, interest, or letters of intent, nor had it engaged an
investment banker in connection with the direct or indirect transfer, sale,
or other disposition of its interest in Noos to a third party, nor was it
contemplating or aware of any other material transactions in respect of
Noos.
Notwithstanding anything to the contrary contained in this
Disclosure Statement, (1) the Debtors and the Creditors' Committee shall
not be entitled to modify or otherwise change the Plan or this Disclosure
Statement with respect to distributions to be provided to France Telecom
under the Plan without the prior consent of France Telecom, (2) the
Confirmation Order shall contain customary language with respect to the
release of the Noos Interest, and (3) nothing in the Plan shall be
construed to limit the rights of France Telecom and its affiliates to
receive distributions under the Plan, including the right to subscribe for
Equity Rights (including on an oversubscription basis), other than in its
capacity as a holder of 5 3/4% convertible subordinated notes due 2009 of
NTL Inc. and NTL Delaware; provided, however, that this right shall extend
only to the holdings of Existing Securities of France Telecom and its
affiliates as disclosed on its Schedule 13D on file with the SEC as of the
Petition Date. This right is personal to France Telecom and its affiliates
and is not assignable in whole or in part by France Telecom and its
affiliates.
7. Miscellaneous
a. Bar Dates For Certain Claims: Administrative,
Professional Fee, And Substantial Contribution Claims
The Confirmation Order will establish an Administrative Bar Date
for filing Administrative Claims (other than Professional Fee Claims and
claims for reimbursement of the expenses of the members of the Creditors'
Committee ), which date will be 30 days after the Confirmation Date.
Holders of asserted Administrative Claims, except for Professional Fee
Claims, United States Trustee fees, or the expenses of the members of the
Creditors' Committee (if appointed) whose claims were not paid prior to the
Confirmation Date, must submit requests for payment of administrative
expenses on or before such Administrative Claims Bar Date or forever be
barred from doing so. The notice of entry of the Confirmation Order to be
delivered pursuant to Fed. R. Bankr. P. 3020(c) and 2002(f) will set forth
such date and serve as notice of the Administrative Bar Date. The Debtors
or the Reorganized Debtors, as the case may be, will have 20 days (or such
longer period as may be allowed by order of the Bankruptcy Court) following
the Administrative Bar Date to review and object to such Administrative
Claims before a hearing for determination of allowance of such
Administrative Claims.
All final requests for compensation or reimbursement of
Professional Fees pursuant to sections 327, 328, 330, 331, 503(b), or 1103
of the Bankruptcy Code for services rendered to the Debtors or any
Committee (if appointed) prior to the Confirmation Date (including requests
under section 503(b)(4) of the Bankruptcy Code by any Professional or other
entity for making a substantial contribution in the Chapter 11 Cases) must
be filed and served upon the Reorganized Debtors and their counsel, as well
as those parties filing notices of appearance in these cases or otherwise
request notice of such application, no later than 30 days after the
Confirmation Date, unless otherwise ordered by the Bankruptcy Court.
Objections to applications of such Professionals or other entities for
compensation or reimbursement of expenses must be filed and served on the
Reorganized Debtors and their counsel and the requesting Professional or
other entity no later than 15 days (or such longer period as may be allowed
by order of the Bankruptcy Court) after the date on which the applicable
application for compensation or reimbursement was served.
b. Payment Of Statutory Fees
All fees payable under Section 1930 of Title 28 of the United
States Code, as determined by the Bankruptcy Court at the Confirmation
Hearing, will be paid on or before the Effective Date. All such fees that
arise after the Effective Date but before the closing of the Chapter 11
Cases will be paid by the Reorganized Debtors.
c. Severability Of Plan Provisions
If, prior to entry of the Confirmation Order, any term or
provision of the Plan is held by the Bankruptcy Court to be invalid, void,
or unenforceable, the Bankruptcy Court, at the request of the Debtors, with
the approval of their respective boards of directors (having due regard for
their fiduciary duties, after consultation with counsel), and with the
consent of the Creditors' Committee, will have the power to alter and
interpret such term or provision to make it valid or enforceable to the
maximum extent practicable, consistent with the original purpose of the
term or provision held to be invalid, void, or unenforceable, and such term
or provision will then be applicable as altered or interpreted.
Notwithstanding any such holding, alteration, or interpretation, the
remainder of the terms and provisions of the Plan will remain in full force
and effect and will in no way be affected, impaired, or invalidated by such
holding, alteration, or interpretation. The Confirmation Order will
constitute a judicial determination and will provide that each term and
provision of the Plan, as it may have been altered or interpreted in
accordance with the foregoing, is valid and enforceable pursuant to its
terms.
d. Exculpation And Limitation Of Liability
To the full extent permitted by applicable law, neither the
Debtors, the Reorganized Debtors, the Noteholders' Steering Committee, the
Creditors' Committee, the Diamond Administrators, nor any holder of Senior
Notes, Subordinated Notes, or Old Preferred Stock, or any of their
respective current or former officers, directors, subsidiaries, affiliates,
members, managers, shareholders, partners, representatives, employees,
attorneys, or agents, or any of their respective successors and assigns,
and their respective property, will have or incur any liability to any
holder of a Claim or an Interest, or any other party in interest, or any of
their respective officers, directors, subsidiaries, affiliates, members,
managers, shareholders, partners, representatives, employees, attorneys, or
agents, or any of their respective successors and assigns, and their
respective property, for any act or omission in connection with, relating
to, or arising out of, the Chapter 11 Cases, the solicitation of
acceptances of the Plan, the pursuit of confirmation of the Plan, the
consummation of the Plan, or the administration of the Plan or the property
to be distributed under the Plan, except for their gross negligence or
willful misconduct, and in all respects will be entitled to reasonably rely
the advice of counsel with respect to their duties and responsibilities
under the Plan.
Notwithstanding any other provision of the Plan, no holder of a
Claim or Interest, no other party in interest, none of their respective
current or former officers, directors, subsidiaries, affiliates, members,
managers, shareholders, partners, representatives, employees, attorneys, or
agents, or any of their respective successors and assigns, and their
respective property, will have any right of action, demand, suit or
proceeding against the Debtors, the Reorganized Debtors, the Noteholders'
Steering Committee, the Creditors' Committee, the Diamond Administrators,
or any holder of Senior Notes, Subordinated Notes, or Old Preferred Stock,
or any or any of their respective current or former officers, directors,
subsidiaries, affiliates, members, managers, shareholders, partners,
representatives, employees, attorneys, or agents, or any of their
respective successors and assigns, and their respective property, for any
act or omission in connection with, relating to, or arising out of, the
Chapter 11 Cases, the solicitation of acceptances of the Plan, the pursuit
of confirmation of the Plan, the consummation of the Plan, or the
administration of the Plan or the property to be distributed under the
Plan, except for their gross negligence or willful misconduct.
The foregoing exculpation and limitation on liability will not,
however, limit, abridge, or otherwise affect the rights, if any, of the
Reorganized Debtors to enforce, sue on, settle, or compromise the Causes of
Action retained pursuant to Article IV.H of the Plan.
e. Waiver Of Enforcement Of Subordination
All Claims against and Interests in the Debtors and all rights and
claims between or among holders of Claims and Interests relating in any
manner whatsoever to Claims against and Interests in the Debtors, based
upon any claimed subordination rights (if any), will be deemed satisfied by
the distributions under the Plan to holders of Claims and Interests having
such subordination rights, and such subordination rights will be deemed
waived, released, discharged, and terminated as of the Effective Date, and
all actions related to the enforcement of such subordination rights will be
permanently enjoined. The foregoing, however, will not apply to any
subordination provision for the benefit of the lenders under the Credit
Facilities. Distributions to the various Classes of Claims and Interests
under the Plan will not be subject to levy, garnishment, attachment, or
like legal process by any holder of a Claim by reason of any claimed
subordination rights or otherwise, so that each holder of a Claim or
Interest will have and receive the benefit of the distributions in the
manner set forth in the Plan. The foregoing, however, will not apply to any
subordination provision for the benefit of the lenders under the Credit
Facilities.
f. Term Of Injunctions Or Stays
Unless otherwise provided in the Plan or in the Confirmation
Order, all injunctions or stays in effect in the Chapter 11 Cases under
sections 105 or 362 of the Bankruptcy Code or any order of the Bankruptcy
Court, and extant on the Confirmation Date (excluding any injunctions or
stays contained in the Plan or the Confirmation Order), will remain in full
force and effect until the Effective Date. All injunctions or stays
contained in the Plan or the Confirmation Order will remain in full force
and effect in accordance with their terms.
g. Revocation, Withdrawal, Or Non-Consummation
The Debtors may, with the consent of the Creditors' Committee,
revoke or withdraw the Plan at any time prior to the Confirmation Date and
file other plans of reorganization. If the Debtors revoke or withdraw the
Plan, or if Confirmation or consummation of the Plan does not occur, then
(i) the Plan will be null and void in all respects, (ii) any settlement or
compromise embodied in the Plan (including the fixing or limiting to an
amount any Claim or Interest or Class of Claims or Interests), assumption
or rejection of executory contracts or leases effected by the Plan, and any
document or agreement executed pursuant to the Plan will be deemed null and
void, and (iii) nothing contained in the Plan, and no acts taken in
preparation for consummation of the Plan, will (a) constitute or be deemed
to constitute a waiver or release of any Claims by or against, or any
Interests in, the Debtors or any other Person, (b) prejudice in any manner
the rights of the Debtors or any Person in any further proceedings
involving the Debtors, or (c) constitute an admission of any sort by the
Debtors or any other Person.
h. Plan Supplement
Any and all exhibits, lists, or schedules referred to in the Plan
but not filed with the Plan will be contained in the Plan Supplement and
filed with the Clerk of the Bankruptcy Court at least seven days prior to
the date of the commencement of the Confirmation Hearing. Thereafter, any
Person may examine the Plan Supplement in the office of the Clerk of the
Bankruptcy Court during normal court hours. Holders of Claims or Interests
may obtain a copy of the Plan Supplement upon written request to the
Debtors in accordance with Article XV.K of the Plan.
i. Indemnification Obligations
Except as otherwise specifically limited in the Plan, any
obligations or rights of the Debtors or Reorganized Debtors to defend,
indemnify, reimburse, or limit the liability of Covered Persons pursuant to
the Debtors' or Reorganized Debtors' certificates of incorporation,
by-laws, policy of providing employee indemnification, applicable state
law, or specific agreement in respect of any claims, demands, suits, causes
of action, or proceedings against such Covered Persons based upon any act
or omission related to such Covered Persons' service with, for, or on
behalf of the Debtors prior to the Effective Date, will survive
Confirmation of the Plan and remain unaffected thereby, and will not be
discharged, irrespective of whether such defense, indemnification,
reimbursement, or limitation of liability is owed in connection with an
occurrence before or after the Petition Date.
D. Confirmation Of The Plan
Described below are certain important considerations under the
Bankruptcy Code in connection with confirmation of the Plan.
1. Classes Entitled To Vote; Requisite Acceptances
Each Impaired Class of Claims or Interests that will (or may)
receive or retain property or any interest in property under the Plan is
entitled to vote to accept or reject the Plan. By operation of law, all
unimpaired Classes of Claims or Interests are deemed to have accepted the
Plan and, accordingly, are not entitled to vote. Similarly, holders of
Claims or Interests in Classes that are not entitled to receive a
distribution under the Plan are conclusively presumed to have rejected the
Plan and, accordingly, are not entitled to vote. Under the Bankruptcy Code,
an Impaired Class of Claims will be found to have accepted the Plan if the
holders of at least two-thirds in amount and more than one-half in number
of the Allowed Claims in the Class actually voting on the Plan have voted
to accept the Plan, not counting the votes of insiders or any holder
"designated" under section 1126(e) of the Bankruptcy Code. The Bankruptcy
Code further provides that an Impaired Class of Interests will have
accepted the Plan if the holders of at least two-thirds in amount of the
Allowed Interests actually voting in the Class have voted to accept the
Plan (other than insiders and any holders "designated" under section
1126(e) of the Bankruptcy Code).
2. Confirmation Hearing
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy
Court, after notice, to hold a Confirmation Hearing. Section 1128(b) of the
Bankruptcy Code provides that any party in interest may object to
confirmation of the Plan.
The Debtors will provide a Confirmation Hearing Notice to all
known holders of Claims against and Interests in the Debtors, or their
representatives. The Confirmation Hearing may be adjourned from time to
time by the Bankruptcy Court without further notice except for an
announcement of the adjourned date made at the Confirmation Hearing or any
adjournment thereof. Objections to confirmation must be filed and served in
the manner and within the time set forth in the Confirmation Hearing Notice
and must (i) be in writing, (ii) comply with the Bankruptcy Rules, (iii)
set forth the name of the objector, and the nature and amount of any Claim
or Interest asserted by the objector against or in the Debtors, their
Estates, or their property, and (iv) state with particularity the legal and
factual bases for the objection. See "Voting Instructions and Procedures --
Confirmation Hearing And Deadline For Objections To Confirmation."
OBJECTIONS TO CONFIRMATION THAT ARE NOT TIMELY FILED AND SERVED MAY NOT BE
CONSIDERED BY THE BANKRUPTCY COURT AND MAY BE OVERRULED.
3. Requirements For Confirmation Of The Plan
At the Confirmation Hearing, the Bankruptcy Court will determine
whether the Plan satisfies the following requirements for confirmation, set
forth in section 1129(a) of the Bankruptcy Code:
a. The Plan complies with the applicable provisions of
the Bankruptcy Code.
b. The Debtors have complied with the applicable
provisions of the Bankruptcy Code.
c. The Plan has been proposed in good faith and not by
any means forbidden by law.
d. Any payment made or to be made by the Debtors or by a
Person issuing securities or acquiring property under the Plan for services
or for costs and expenses in, or in connection with, the Chapter 11 Cases,
or in connection with the Plan and incident to the Chapter 11 Cases has
been approved by, or is subject to approval by, the Bankruptcy Court as
reasonable.
e. The Debtors have disclosed the identity and
affiliations of (a) any individual proposed to serve, after Confirmation of
the Plan, as a director, officer, or voting trustee of the Reorganized
Debtors, (b) any affiliate of the Debtors participating in a joint plan
with the Debtors, or (c) any successor to the Debtors under the Plan (and
the appointment to, or continuance in, such office of such individual(s) is
consistent with the interests of Creditors and Interest holders and with
public policy), and (d) the identity of any insider that will be employed
or retained by the Reorganized Debtors and the nature of any compensation
for such insider.
f. With respect to each Class of Claims or Interests,
each Impaired Creditor and Impaired Interest holder either has accepted the
Plan or will receive or retain under the Plan, on account of the Claims or
Interests held by such entity, property of a value, as of the Effective
Date, that is not less than the amount that such entity would receive or
retain if the Debtors were to be liquidated on such date under Chapter 7 of
the Bankruptcy Code. See "Feasibility Of The Plan And The Best Interests Of
Creditors Test."
g. The Plan provides that Administrative Claims and
Priority Claims (other than Priority Tax Claims) will be paid in full on
the Effective Date and that Priority Tax Claims will receive on account of
such Claims deferred cash payments, over a period not exceeding six years
after the date of assessment of such Claims, of a value, as of the
Effective Date, equal to the Allowed Amount of such Claims, except to the
extent that the holder of any such Claim has agreed to a different
treatment.
h. If a Class of Claims is Impaired under the Plan, at
least one Class of Impaired Claims has accepted the Plan, determined
without including any acceptance of the Plan by insiders holding Claims in
such Class.
i. Confirmation of the Plan is not likely to be followed
by the liquidation, or the need for further financial reorganization, of
the Debtors or any successor to them under the Plan, unless such
liquidation or reorganization is proposed in the Plan. See "Feasibility Of
The Plan And The Best Interests Of Creditors Test."
j. The Plan provides for the continuation after the
Effective Date of all retiree benefits, if any, at the level established
pursuant to section 1114(e)(1)(B) or 1114(g) of the Bankruptcy Code at any
time prior to Confirmation of the Plan, for the duration of the period the
Debtors have obligated themselves to provide such benefits.
The Debtors believe that, upon receipt of the requisite
acceptances of the Plan, the Plan will satisfy all the statutory
requirements of Chapter 11of the Bankruptcy Code, including the requirement
that they have complied or will have complied with all of the requirements
of Chapter 11 and that the Plan has been proposed in good faith.
4. Confirmation Without Acceptance Of All Impaired
Classes - "Cramdown"
Because of the deemed rejection of the Plan by Classes 15 and 16
(see discussion below), the Debtors will request confirmation of the Plan
as it relates to Classes 15 and 16 as the Plan may be modified from time to
time, under section 1129(b) of the Bankruptcy Code and have reserved the
right to modify the Plan to the extent, if any, that confirmation under
section 1129(b) of the Bankruptcy Code requires modification. Section
1129(b) of the Bankruptcy Code provides that a plan can be confirmed even
if it is not accepted by all impaired classes of claims and interests, as
long as at least one impaired class of claims has accepted it. Thus, if the
requisite acceptances are received, the Bankruptcy Court may confirm the
Plan notwithstanding the rejection, deemed or otherwise, of an Impaired
Class of Claims or Interests if the Plan "does not discriminate unfairly"
and is "fair and equitable" as to each Impaired Class that has rejected, or
is deemed to have rejected, the Plan. A plan does not discriminate unfairly
within the meaning of the Bankruptcy Code if a rejecting impaired class is
treated equally with respect to other classes of equal rank.
A plan is fair and equitable as to a class of unsecured claims
that rejects the plan if, among other things, the plan provides that (i)
each holder of a claim in the rejecting class will receive or retain on
account of its claim property that has a value, as of the effective date of
the plan, equal to the allowed amount of the claim or (ii) no holder of a
claim or interest that is junior to the claims of the rejecting class will
receive or retain under the plan any property on account of such junior
claim or interest.
A plan is fair and equitable as to a class of equity interests
that rejects the plan if the plan provides that (i) each holder of an
interest included in the rejecting class will receive or retain on account
of that interest property that has a value, as of the effective date of the
plan, equal to the greatest of the allowed amount of any fixed liquidation
preference to which such holder is entitled, any fixed redemption price to
which such holder is entitled, or the value of such interest or (ii) no
holder of an interest that is junior to the interest of the rejecting class
will receive or retain under the plan any property on account of such
junior interest.
As described above, the holders of the Debt Securities have agreed
to provide a portion of their distribution to the Junior Stakeholders if
they accept the Plan. The Debt Securities holders have not, however, agreed
to provide value to holders of Claims and Interests in Classes 15 and 16.
Holders of Claims in Class 15 and Interests in Class 16 will not receive or
retain property under the Plan on account of their Claims or Interests in
such Classes. See "Summary Of The Plan -- Certain Matters Regarding
Classification And Treatment Of Claims And Interests -- Impaired Classes Of
Interests." Accordingly, under section 1126(g) of the Bankruptcy Code,
Classes 15 and 16 are presumed to have rejected the Plan. The Debtors thus
intend to request confirmation of the Plan under section 1129(b) of the
Bankruptcy Code as to Classes 15 and 16. The Debtors believe that the Plan
may be confirmed pursuant to the above-described "cramdown" provisions over
the dissent of Classes 15 and 16 because the Plan does not unfairly
discriminate against Classes 15 and 16 and the treatment under the Plan of
the holders of Claims and Interests in Classes 15 and 16 satisfies the
"fair and equitable" test (i.e., although Classes 15 and 16 be deemed to
have rejected the Plan, no Class junior to Class 15 or Class 16 will
receive or retain any property under the Plan).
5. Conditions To Confirmation And Effective Date
a. Conditions To Confirmation
The following are conditions precedent to confirmation of
the Plan:
i. The Bankruptcy Court must have entered an
order, in form and substance reasonably acceptable to the Debtors and the
Creditors' Committee, approving the Disclosure Statement with respect to the
Plan as containing adequate information within the meaning of section 1125 of
the Bankruptcy Code.
ii. The proposed Confirmation Order must be
in form and substance reasonably acceptable to the Debtors and the
Creditors' Committee.
b. Conditions To Effective Date
The following are conditions precedent to the occurrence
of the Effective Date that must be (i) satisfied or (ii) waived in
accordance with Article X.C of the Plan:
i. The Confirmation Date must have occurred
and the Confirmation Order, in form and substance reasonably acceptable to
the Debtors and the Creditors' Committee, confirming the Plan, as the same
may have been modified, supplemented, or amended, must have been entered by
the Bankruptcy Court.
ii. The Confirmation Order must have become a
Final Order.
iii. No request for revocation of the
Confirmation Order under section 1144 of the Bankruptcy Code must have been
made, or, if made, must remain pending.
iv. All authorizations, consents, and
regulatory approvals required, if any, in connection with the consummation
of the Plan must have been obtained and not revoked.
v. The following agreements, in form and on
terms reasonably satisfactory to the Debtors and the Creditors' Committee,
shall have been executed and delivered, and any conditions precedent
thereto must have been satisfied:
(A) Amended and Restated
Certificate of Incorporation
and By-laws of NTL Inc.;
(B) Amended and Restated Certificate
of Incorporation and By-laws of NTL
CC;
(C) Registration Rights Agreements;
(D) Series A Warrant Agreement;
(E) Certificate of Designation for
Euroco Preferred Stock (which
will be included in the Amended
and Restated Certificate of
Incorporation of NTL Inc.);
(F) New NTL Management Incentive Plan;
(G) Euroco Management Incentive Plan; and
(H) New NTL Exit Facility or any
alternative financing in a
minimum amount of $500 million.
vi. The Debtors or Reorganized Debtors must
have executed and delivered all documents necessary to effectuate the
issuance of the New Securities.
vii. All other actions, documents, and
agreements necessary to implement the Plan must have been effected or
executed.
viii. France Telecom must have delivered a
letter containing the representations and warranties described in Article
XIV.B of the Plan.
ix. There must be no material debt of the
Debtors other than Debt Securities that are Reinstated under the Plan,
guaranties under the Working Capital Facility and the New NTL Exit
Facility.
x. The Senior Credit Facility and the Working
Capital Facility must have been amended and restated on terms acceptable to
the Debtors and the Creditors' Committee, and must not have been
terminated.
xi. The Diamond Administration Orders must
have been discharged or must be discharged substantially contemporaneously
with the Effective Date.
c. Waiver Of Conditions
Each of the conditions set forth in Article X.A and X.B of the
Plan, other than those set forth in Articles X.A.1 and X.B.1, may be waived
in whole or in part by the Debtors (with the prior consent of the
Creditors' Committee), without any notice to parties in interest or the
Bankruptcy Court and without a hearing. The failure to satisfy or waive any
condition to the Effective Date may be asserted by the Debtors regardless
of the circumstances giving rise to the failure of such condition to be
satisfied (including any action or inaction by the Debtors or any of them).
The failure of the Debtors to exercise any of the foregoing rights will not
be deemed a waiver of any other rights, and each such right will be deemed
an ongoing right that may be asserted at any time.
d. Effects Of Failure Of Conditions
If the conditions to occurrence of the Effective Date have not
been satisfied or waived in accordance with Articles X.B or X.C of the Plan
on or before the first Business Day that is more than 179 days after the
Confirmation Date, or by such later date as is approved by the Bankruptcy
Court after notice and a hearing, then on motion by the Debtors made prior
to the time that all of the conditions have been satisfied or waived, the
Confirmation Order shall be vacated by the Bankruptcy Court.
Notwithstanding the foregoing, the Confirmation Order will not be vacated
by the Bankruptcy Court if all of the conditions to the occurrence of the
Effective Date set forth in Article X.B are either satisfied or waived
prior to entry by the Bankruptcy Court of an order granting the Debtors'
motion. If the Confirmation Order is vacated pursuant to Article X.D of the
Plan, then the Plan will be null and void in all respects, and nothing
contained in the Plan will constitute a waiver or release of any Claims
against or Interests in the Debtors, or prejudice in any manner the rights
of the holder of any Claim against or Interest in the Debtors.
e. Modifications And Amendments
The Debtors may (with the prior consent of the Creditors'
Committee), alter, amend, or modify the Plan or any Exhibits thereto under
section 1127(a) of the Bankruptcy Code at any time prior to the
Confirmation Date and may include any such amended Exhibits in the Plan or
the Plan Supplement. After the Confirmation Date and prior to substantial
consummation of the Plan, as defined in section 1101(2) of the Bankruptcy
Code, the Debtors may, under section 1127(b) of the Bankruptcy Code,
institute proceedings in the Bankruptcy Court to remedy any defect or
omission or reconcile any inconsistencies in the Plan, the Disclosure
Statement, or the Confirmation Order, and such matters as may be necessary
to carry out the purposes and effects of the Plan so long as such
proceedings do not materially adversely affect the treatment of holders of
Claims or Interests under the Plan; provided, however, that prior notice of
such proceedings shall be served in accordance with the Bankruptcy Rules or
order of the Bankruptcy Court.
E. Effects Of Confirmation
1. Binding Effect
The Plan will be binding upon and inure to the benefit of the
Debtors, all present and former holders of Claims against and Interests in
the Debtors, their respective successors and assigns, including, but not
limited to, the Reorganized Debtors, and all other parties-in-interest in
the Chapter 11 Cases.
2. Authorization Of Corporate Action
The entry of the Confirmation Order will constitute a direction to
and authorization for the Debtors and the Reorganized Debtors to take or
cause to be taken any action necessary or appropriate to consummate the
transactions contemplated by the Plan and any related documents or
agreements prior to and through the Effective Date, and all such actions
taken or caused to be taken will be deemed to have been authorized and
approved by the Bankruptcy Code without the need for any additional
authorizations, approvals, or consents.
3. Discharge Of The Debtors
All consideration distributed under the Plan will be in exchange
for, and in complete satisfaction, settlement, discharge, and release of,
all Claims against and Interests in the Debtors of any nature whatsoever,
or against any of the Debtors' assets or properties. Subject to the
occurrence of the Effective Date, except as otherwise expressly provided in
the Plan or the Confirmation Order, entry of the Confirmation Order will
act as a discharge under section 1141(d)(1)(A) of the Bankruptcy Code from
and of all Claims against, Liens on, and Interests in each of the Debtors,
their assets, and their properties, arising at any time before the entry of
the Confirmation Order, regardless of whether a proof of Claim or proof of
Interest therefor was filed, whether the Claim or Interest is Allowed, or
whether the holder thereof votes to accept the Plan or is entitled to
receive a distribution thereunder. Upon entry of the Confirmation Order,
and subject to the occurrence of the Effective Date, any holder of such a
discharged Claim or Interest will be precluded from asserting against the
Debtor or any of its assets or properties any other or further Claim or
Interest based upon any document, instrument, act, omission, transaction,
or other activity of any kind or nature that occurred before the date of
entry of the Confirmation Order. The Confirmation Order will be a judicial
determination of discharge of all liabilities of the Debtors (except as
otherwise provided in the Plan), subject to the occurrence of the Effective
Date. Notwithstanding the foregoing, or any provision to the contrary
contained in the Plan, the Class 6 Diamond Cable Notes Claims will not be,
and will not be deemed to be, discharged until after completion of the
delivery, transfer, conveyance, and assignment to New NTL of the global
bearer notes evidencing the Diamond Cable Notes.
4. Injunction
Pursuant to section 524 of the Bankruptcy Code, the discharge
provided by Article XIII.C of the Plan and section 1141 of the Bankruptcy
Code will act as an injunction against the commencement or continuation of
any action, employment of process, or act to collect, offset, or recover
the Claims and Interests discharged hereby. Except as otherwise expressly
provided in the Plan or the Confirmation Order, all entities who have held,
hold, or may hold Claims against or Interests in the Debtors will be
permanently enjoined, on and after the Confirmation Date, subject to the
occurrence of the Effective Date, from (i) commencing or continuing in any
manner any action or other proceeding of any kind with respect to any such
Claim or Interest, (ii) the enforcement, attachment, collection, or
recovery by any manner or means of any judgment, award, decree, or order
against the Debtors on account of any such Claim or Interest, (iii)
creating, perfecting, or enforcing any encumbrance of any kind against the
Debtors or against the property or interests in property of the Debtors on
account of any such Claim or Interest, and (iv) asserting any right of
setoff, subrogation, or recoupment of any kind against any obligation due
from the Debtors or against the property or interests in property of the
Debtors on account of any such Claim or Interest. The foregoing injunction
will extend to successors of the Debtors (including, but not limited to,
the Reorganized Debtors) and their respective properties and interests in
property.
5. Releases
Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, to the full extent permitted by
applicable law, the Debtors, the Reorganized Debtors, the Noteholders'
Steering Committee, the Diamond Administrators, each holder of Senior Notes
(other than Diamond Holdings Notes), Subordinated Notes, or Old Preferred
Stock, and each of the foregoing's respective current or former officers,
directors, subsidiaries, affiliates, members, managers, shareholders,
partners, representatives, employees, attorneys, financial advisors, and
agents, or any of their respective successors and assigns, and their
respective property, will be released from any and all claims, obligations,
rights, Causes of Action, demands, suits, proceedings, and liabilities
which the Debtors, the Reorganized Debtors, or any holder of a Claim
against or Interest in the Debtors or Reorganized Debtors may be entitled
to assert, whether for tort, fraud, contract, violations of federal or
state securities laws, or otherwise, whether known or unknown, foreseen or
unforeseen, existing or hereafter arising, contingent or non-contingent,
based in whole or in part on any act or omission, transaction, state of
facts, circumstances, or other occurrence taking place on or before the
Confirmation Date in any way relating to the Debtors, the Reorganized
Debtors, the issuance, purchase or sale of the Senior Notes (other than
Diamond Holdings Notes), Subordinated Notes, or Preferred Stock, the
Chapter 11 Cases, the Diamond Administration Cases, or the Plan; provided,
however, that nothing in the Plan will release any Person from any claims,
obligations, rights, Causes of Action, demands, suits, proceedings, or
liabilities based on any act or omission arising out of such Person's gross
negligence or willful misconduct; provided further, however, that the
Debtors and Reorganized Debtors will have the right to pursue such rights
of action, including the rights under section 502(d) of the Bankruptcy
Code, as a defensive measure, including for purposes of setoff against
distributions, if any, due to a holder of a Claim or Interest pursuant to
the Plan, and such rights will be exercised exclusively by the Reorganized
Debtors; provided further, that with respect to the Diamond Cable Notes,
such release will be subject to the transfer of the Diamond Cable Notes to
New NTL in accordance with Article III.C.2 of the Plan and will not include
any claim by or of New NTL in respect of such notes.
Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, to the fullest extent permitted by
applicable law all holders of Senior Notes (other than Diamond Holdings
Notes), Subordinated Notes, Old Preferred Stock, and Old Common Stock will
be deemed to release, and will be permanently enjoined from bringing,
maintaining, facilitating, or assisting any action, demand, suit, or
proceeding against the Debtors or Reorganized Debtors and their respective
current or former officers, directors, subsidiaries, affiliates, members,
managers, shareholders, partners, representatives, employees, attorneys,
financial advisors, and agents, or any of their respective successors and
assigns, and their respective property, in respect of any claims,
obligations, rights, Causes of Action, demands, suits, proceedings, or
liabilities related to, or arising from, any and all claims or interests
arising under, in connection with, or related to the Senior Notes (other
than Diamond Holdings Notes), Subordinated Notes, Old Preferred Stock, Old
Common Stock, or the issuance, purchase, or sale thereof, provided, that
with respect to the Diamond Cable Notes, such release will be subject to
the transfer of the Diamond Cable Notes to New NTL in accordance with
Article III.C.2 of the Plan and will not include any claim by or of New NTL
in respect of such Notes.
Notwithstanding anything in the Plan to the contrary, no Claims of
any Person or entity arising out of, with respect to, or on account of the
Debtors' commercial and ordinary course of business relationships will be
deemed to be modified or affected by any of the release and/or exculpation
provisions of the Plan.
Nothing in the Plan shall effect a release in favor of any
released party with respect to any claim by the United States government
for any liability arising under the IRC, the environmental laws or any
criminal laws of the United States; nor shall anything in the Plan enjoin
the United States government from bringing any claim, suit, action or other
proceeding against any released party for any liability arising under the
IRC, the environmental laws or any criminal laws of the United States;
provided, however, that this paragraph shall in no way affect or limit the
discharge granted to the Debtors under Chapter 11 of the Bankruptcy Code.
Certain putative class representatives and holders of Class 15.02
Equity Securities Claims against NTL Inc. have informed the Debtors that
they dispute the propriety of the release provisions of Article XIII.E of
the Plan. The Debtors believe that the provisions of Article XIII.E are
both legally and factually appropriate under the Bankruptcy Code and
prevailing Second Circuit authority, and intend to vigorously dispute any
challenge thereto by these holders.
F. Insurance Proceeds
If, and to the extent that, the plaintiffs and putative class in
the Securities Actions possess any rights to the proceeds of NTL Inc.'s
relevant insurance coverage with respect to the claims asserted in the
Securities Actions, such rights will not be affected by the discharge of
the Debtors under the Plan and any such claims may be pursued solely as
against such proceeds.
VIII. TREATMENT OF EMPLOYEES DURING THE CHAPTER 11 CASES
The Debtors intend that salaries, wages, accrued paid vacation,
health related benefits, and similar employee benefits will be unaffected
by the Chapter 11 Cases. Employee benefit claims that accrue prepetition
will be Unimpaired under the terms of the Plan. To ensure the continuity of
the Debtors' workforce and to further accommodate the unimpaired treatment
of employee benefits, the Debtors have sought the approval of the
Bankruptcy Court to honor payroll checks outstanding as of the Petition
Date, to permit employees to use their accrued vacation time, and to
continue paying medical and other benefits under benefit plans. Employee
claims and benefits not paid or honored, as the case may be, prior to
consummation of the Plan will be paid or honored in full on the Effective
Date of the Plan or as soon thereafter as such payment or other obligation
becomes due or performable.
IX. FINANCING DURING THE CHAPTER 11 CASES
The Debtors have determined that access to debtor-in-possession
financing is necessary for the Debtors to continue to operate their
businesses in Chapter 11 and to ensure the Debtors' successful
reorganization. Because the Debtors may need incremental liquidity pending
completion of the Restructuring, the Debtors have concluded that
obtaining a firm commitment for postpetition financing at the outset of
these cases is necessary and in the best interest of their estates and
their creditors.
Prior to the Petition Date, in the context of more comprehensive
negotiations regarding the terms of the Debtors' recapitalization, the
Debtors approached the Noteholders' Steering Committee to determine whether
any of its members would be interested in providing postpetition financing
for the Debtors. The Debtors received affirmative responses from certain
members of the Noteholders' Steering Committee (such members, or their
affiliates or fiduciary accounts or funds, the "Noteholder DIP Lenders")
and, accordingly, began to discuss with the Noteholder DIP Lenders the
general parameters of a financing proposal that would suit the Debtors'
purposes.
The Noteholder DIP Lenders provided the Debtors, prior to the
Petition Date, with a commitment to provide $500,000,000 in
debtor-in-possession financing subject to the terms and conditions set
forth therein. The commitment letter contemplated a DIP Facility in the
aggregate principal amount of $670,796,000, under which NTL Delaware would
lend up to $300,000,000, less the proceeds of the Delaware/NTL (UK) Group
Note or $170,796,000, and the Noteholder DIP Lenders would lend up to an
additional $500,000,000.
In connection with the commitment, the Debtors were to pay a
commitment fee to the Noteholder DIP Lenders equal to 2% of the $500
million commitment (i.e., $10,000,000). Accordingly, on May 6, 2002, and
May 7, 2002, the Debtors delivered to their bank written instructions to
pay by wire transfer to each Noteholder DIP Lender such lender's pro rata
portion of the commitment fee. Due to administrative difficulties, however,
certain of the Noteholder DIP Lenders did not receive their pro rata
portion of the commitment fee prior to the commencement of the Chapter 11
Cases. In total, as of the Petition Date, $521,000 of the $10,000,000
commitment fee had not been paid to the applicable Noteholder DIP Lenders.
Pursuant to an order of the court dated May 31, 2002, the remaining
$521,000 of the commitment fee has been paid to the applicable Noteholder
DIP Lenders.
As indicated above, NTL Delaware also will be a lender to the
Debtors under the DIP Facility. NTL Delaware has a significant amount of
cash on hand and, because these cases are not substantively consolidated,
the Debtors and the Noteholders' Steering Committee have concluded that if
the cash at NTL Delaware is to be used to partially fund the reorganization
of all of the Debtors, NTL Delaware should receive interest and the other
protections of the Noteholder DIP Lenders.
Under the DIP Facility Agreement, Cable Funding will be the
borrower, and all of the other Debtors (other than Diamond Cable and
Diamond Holdings) will be guarantors, except that NTL CC will also be a
co-obligor of the loans to NTL Delaware. Under the DIP Facility Agreement,
the cash (except for the DIP Facility proceeds) of the borrower and the
guarantors will be cash collateral for the DIP Facility and will not be
used or transferred for any purpose whatsoever without the consent of the
Noteholder DIP Lenders. All funding needs of the Debtors will be funded
through the proceeds of the DIP Facility, in accordance with a budget and
the terms of the DIP Facility Agreement.
Under the DIP Facility Agreement, the loan structure contains
three tranches that are all pari passu. The first tranche is referred to as
the "Closing Date Term Loans," the second tranche is referred to as the
"Delaware Term Loans," and the third tranche is referred to as the
"Deferred Draw Term Loans." The Closing Date Term Loans, the Delaware Term
Loans and the Deferred Draw Term Loans, as applicable, together with all
other amounts owed under the DIP Facility Agreement , are required to be
paid in full no later than the earlier of (i) the consummation of the Plan,
(ii) December 1, 2002, and (iii) the date on which all such term loans
become due and payable in full under the DIP Facility Agreement, whether by
acceleration or otherwise.
GE Capital, an affiliate of GE Capital Structured Finance Group
Limited, one of the lenders under the Senior Credit Facility, and
Wilmington Trust Company, the trustee under the Indentures governing
certain of the NTL Inc. Subordinated Notes, filed objections to the DIP
Facility. The Bankruptcy Court approved the DIP Facility in the principal
amount of $630,000,000 over such objections in an order issued on July 3,
2002.
This summary of the DIP Facility is qualified in its entirety by
reference to the DIP Facility Agreement filed with the Bankruptcy Court.
X. CERTAIN ADDITIONAL RISK FACTORS TO BE CONSIDERED
Holders of Impaired Claims and Impaired Interests who are entitled
to vote on the Plan should carefully consider the following factors, in
addition to the risk factors described in "Certain Matters Regarding New
NTL -- Risk Factors Relating To New NTL" and "Certain Matters Regarding
Euroco -- Risk Factors Relating To Euroco," as well as other matters
described or referenced in this Disclosure Statement, including the public
filings of NTL Inc. and NTL CC annexed as exhibits to this Disclosure
Statement before deciding whether to vote to accept or to reject the Plan.
A. Certain General Business Risks
1. Competition
The Debtors conduct their businesses and offer their services in
highly competitive markets. Competition in these markets is based upon
price, service, quality, reliability, and the ability to offer a broad
range of services. Certain of the Reorganized Debtors' competitors will
have greater financial resources than the Reorganized Debtors and are
capable of competing effectively with the Reorganized Debtors. Certain
competitors may be willing to reduce prices and accept lower profit margins
to compete with the Reorganized Debtors. As a result, the Reorganized
Debtors may be unable to gain sufficient market share to support their
working capital needs, which could have a material adverse effect on the
Reorganized Debtors' future performance.
2. Customers
The future success of the Reorganized Debtors will depend, in
large part, on their ability to retain a significant portion of the
Debtors' existing customer base, expand the business relationships with
such customers, and attract and retain new customers. There can be no
assurance that the Reorganized Debtors will be able to maintain a
significant portion of the current customer base, increase the amount of
business done with some or all these customers, or grow the existing
customer base. Failure by the Reorganized Debtors to maintain a significant
portion of their existing customer base and to grow that base would have a
material adverse effect on future performance.
3. Constraints On Growth Due To Limited Funding
Since the fourth quarter of 2001, the Debtors have significantly
reduced their levels of capital expenditures, primarily due to liquidity
constraints and the attendant need to divert increasing amounts of
financial resources to service debt. The reduction was in line with the
Debtors' strategy of maximizing revenue from their existing customers
rather than increasing their customer base. Because of this decrease in
capital expenditures, however, the Debtors have been unable to increase
subscriber numbers and the Reorganized Debtors may be unable to increase
subscriber numbers in the short term following the Effective Date. As a
result, the Reorganized Debtors' revenue may be adversely affected. The
reduction in capital expenditures for connecting new subscribers to the
network likely will lead to a decrease in the rate of revenue growth for
the Reorganized Debtors in the future.
4. Efforts To Reduce Customer Churn
The Debtors have experienced rapid growth and development in a
relatively short period, either through acquisitions or connecting
customers to its network. One of its biggest challenges as it has grown has
been to limit customer churn. The results of operations of
telecommunications service providers, such as the Debtors, can be
significantly affected by subscriber cancellations. The sales and marketing
costs associated with attracting new subscribers are substantial relative
to the costs of providing service to existing customers. Because the
telecommunications business is characterized by high fixed costs,
disconnections directly and adversely affect EBITDA. An increase in the
subscriber cancellation rate could have a material adverse effect on the
Debtors or the Reorganized Debtors.
Factors contributing to the increase in customer churn experienced
during 2001 included the continued integration of the ConsumerCo
acquisition, the existence of multiple billing systems, the introduction of
digital television, the negative publicity surrounding NTL and its
financial condition and customer service in the UK, and the decision to
disconnect some of its delinquent customers. The successful implementation
of the Reorganized Debtors' business plan depends upon a reduction in the
percentage of customers that stop using the services provided by the
Debtors. There can be no assurance, however, that the Reorganized Debtors
will successfully accomplish this or that churn will not increase.
The Debtors do not as yet have an integrated billing and
operational platform. In order to reduce churn in the future, the
Reorganized Debtors' business plan will concentrate on continuing to
improve customer service. Improvement will be difficult to obtain without
an integrated billing system and a customer database across the entire
network.
Another part of the Debtors' strategy to reduce churn has been
through increased take up by existing customers of broadband services.
There is a risk that failure to convince existing customers to take up
broadband services may make it more difficult to reduce churn levels,
thereby adversely impacting results of operations.
5. Dependence On Key Personnel
A relatively small number of key executive officers manage the
Debtors' various businesses and the loss of one or more of these executive
officers could have a material adverse effect on the businesses going
forward. As of the date of this Disclosure Statement, the Debtors had not
entered into written employment contracts or non-compete agreements with,
nor had they obtained life insurance policies covering, all of such key
executive officers.
The Debtors believe that the future success of the Reorganized
Debtors will depend in large part on the continued ability to attract and
retain highly skilled and qualified personnel. For that reason, the Debtors
expect that following the Effective Date, the compensation committees of
the boards of directors of New NTL and Euroco will adopt the Management
Incentive Plans, which are intended to assist the Reorganized Debtors to
retain certain of their key employees. There is no guaranty, however, that
such programs will have the intended effect.
6. Government Regulation
The Debtors' principal business activities in the UK, the Republic
of Ireland, and Switzerland, as well as the activities of the companies in
which the Debtors have investments in Germany and Sweden, are regulated and
supervised by various governmental bodies. Changes in laws, regulations, or
governmental policy, or the interpretations of those laws or regulations
affecting the Debtors' activities and those of their competitors, such as
licensing requirements, changes in price regulation and deregulation of
interconnection arrangements, could have a material adverse effect on the
Reorganized Debtors.
The Reorganized Debtors also will be subject to regulatory
initiatives of the European Commission. Changes in EU Directives may reduce
the range of programming and increase the costs of purchasing television
programming or require the Reorganized Debtors to provide access to the
cable network infrastructure to other service providers, which could have a
material adverse effect on the Reorganized Debtors' results.
7. Loss Or Reduction Of Tax Attributes
For a discussion of the loss or reduction of certain tax
attributes upon consummation of the Plan, see "Certain United States
Federal Income Tax Consequences Of The Plan."
B. Current Financing
1. Defaults Under Credit Facilities
Before the Debtors could commence negotiations with the
Noteholders' Steering Committee, NTL needed to obtain waivers from the
Secured Lenders to avoid a default arising under the terms of the Credit
Facilities. See "General Information -- Events Leading To Chapter 11 Cases
- -- Negotiations With The Secured Lenders." The amendment to the Initial
Waivers in respect of the UK Credit Facilities terminated on April 29,
2002, as a result of which there was an event of default under each of the
UK Credit Facilities with respect to the missed interest payments on April
1, 2002. In addition, the Debtors' voluntary filing under Chapter 11 of the
Bankruptcy Code constituted events of default under each of the Credit
Facilities. These and other subsisting events of default entitle the
Secured Lenders to accelerate repayment. The NTL entities obligated under
the Credit Facilities do not have sufficient cash resources to repay their
outstanding indebtedness if it is declared immediately due and payable. In
addition, the Secured Lenders could also seek to take control over the
assets over which they hold security to the extent such assets are held by
entities other than the Debtors.
2. Defaults On Outstanding Notes
NTL CC did not make scheduled interest payments and payments of
related fees due on April 1, 2002 and NTL Inc., NTL Delaware, and NTL CC
did not make scheduled interest payments and payments of related fees due
on April 15, 2002. See "General Information - Events Leading To Chapter 11
Cases - Interest Payment And Covenant Defaults; Failure To Pay Dividends."
As a result of their Chapter 11 Filings, the Debtors currently are
prohibited from making any additional interest payments on their
outstanding publicly traded notes. As described in "Certain Matters
Regarding New NTL -- Certain Financing Matters -- Diamond Holdings Notes "
the Diamond Holdings Notes will be reinstated on the Effective Date.
3. No Current Availability Under Credit Facilities
NTL has no current ability to borrow further amounts under the UK
Credit Facilities, as it has borrowed the full amounts available. With
respect to the Cablecom Credit Facility, the term tranche is fully drawn
and the revolving tranche has been capped at its utilized amount of CHF
1,055 million although the availability may be increased with the consent
of the requisite percentage of lenders under the facility. If the Cablecom
Credit Facility is not refinanced or Cablecom cannot be sold, the Cablecom
Credit Facility is due to be repaid on April 30, 2003. Without substantial
investment from a third party or further borrowing, Cablecom would be
unable to repay the Cablecom Credit Facility which would have a material
adverse effect on its business.
C. Maintenance Of Operations And Postpetition Financing
Although the Debtors believe they will have sufficient funds to
meet their obligations under the Plan, the failure to actually have
sufficient funds to meet these obligations would pose serious risks to the
Debtors' viability and could preclude consummation of the Plan or any other
recapitalization or reorganization.
New NTL's ability to meet its near term funding requirements upon
consummation of the Plan is dependent upon a number of factors, including
the revenue generated by its operating subsidiaries, its existing cash
balances, the continued availability of the UK Credit Facilities, and its
ability to draw upon the New NTL Exit Facility or any alternative
financing. See "Certain Matters Regarding New NTL -- Certain Financing
Matters -- The New NTL Exit Facility." The terms and conditions of the New
NTL Exit Facility have not been finalized and remain subject to
negotiation. There can be no guaranty that the New NTL Exit Facility or any
alternative financing will be made upon terms and conditions which enable
New NTL to fully satisfy its funding requirements.
Euroco's ability to meet its near term funding requirements upon
consummation of the Plan is dependent upon a number of factors, including
the revenue generated by its operating subsidiaries and companies in which
it has investments, its existing cash balances, the continued availability
of the Cablecom Credit Facility, and any disposals of non-core assets. See
"Certain Matters Regarding Euroco -- Risk Factors Relating To Euroco --
Repayment Of Cablecom Credit Facility; No Assurance Of Future Funding."
There can be no guaranty that Euroco will be successful in raising
additional financing if required.
D. Certain Bankruptcy Considerations
1. Effect Of Chapter 11 Cases On Non-Debtor Subsidiaries
The filing of the Chapter 11 Cases and the Diamond Administration
Cases by the Debtors and the attendant publicity could adversely affect the
businesses of the Non-Debtor Subsidiaries, particularly in the UK where
Chapter 11 is often not well understood and may be equated with dissimilar
UK insolvency processes involving the loss of control over the operations
of, or the liquidation of, corporate businesses. Because the Debtors are
holding companies with no independent business operations, the financial
viability and businesses of the Debtors is dependent upon the businesses of
its Non-Debtor Subsidiaries, particularly in the UK, and any downturn in
the businesses of the Non-Debtor Subsidiaries as a result of the Chapter 11
Cases and the Diamond Administration Cases could severely affect the
Debtors' prospects for a successful reorganization. Although the Debtors
believe that the Chapter 11 Cases and the Diamond Administration Cases will
have a minimal future effect on relationships with the Non-Debtor
Subsidiaries' customers, employees, and suppliers, if the Chapter 11 Cases
and the Diamond Administration Cases become protracted, the possibility of
adverse effects on such Non-Debtor Subsidiaries, which do not enjoy the
benefit of an automatic stay, may increase. In addition, certain of the
third party participants in joint ventures in which the Debtors and certain
of the Non- Debtor Subsidiaries are involved are entitled to exercise
certain rights as a result of the commencement of the Chapter 11 Cases to
compulsorily acquire the interests of the Debtors and the Non-Debtors
Subsidiaries in the joint ventures at a third party appraisal valuation.
2. Failure To Confirm The Plan
Section 1129 of the Bankruptcy Code requires, among other things,
a showing that confirmation of the Plan will not be followed by liquidation
or the need for further financial reorganization of the Debtors (see
"Feasibility Of The Plan And The Best Interests Of Creditors Test --
Feasibility Of The Plan"), and that the value of distributions to
dissenting holders of Claims and Interests may not be less than the value
such holders would receive if the Debtors were liquidated under Chapter 7
of the Bankruptcy Code (see "Feasibility Of The Plan And The Best Interests
Of Creditors Tests -- Best Interests Test"). Although the Debtors believe
that the Plan will meet these tests, there can be no assurance that the
Bankruptcy Court will reach the same conclusion.
The Bankruptcy Code also requires that a Plan must provide the
same treatment for each claim or interest in a particular class, unless a
holder agrees to a less favorable treatment of its particular claim or
interest. The Debtors believe that they have complied with the requirements
of the Bankruptcy Code by their classification and treatment of various
holders of Claims and Interests under the Plan. However, if a member of a
Class objects to its treatment, or if the Bankruptcy Court finds that the
Plan does not comply with the requirements of the Bankruptcy Code,
confirmation of the Plan could be delayed or prevented. In addition, each
class of Impaired Claims and Interests that will (or may) be entitled to
received property under the Plan will have the opportunity to vote to
accept or reject the Plan. If an Impaired Class of Claims or Interests
rejects the Plan, the Debtors may request confirmation of the Plan pursuant
to the "cramdown" provisions of the Bankruptcy Code. Even if the
requirements for "cramdown" are met, the Bankruptcy Court, which, as a
court of equity, may exercise substantial discretion, may choose not to
confirm the Plan. See "Summary Of The Plan -- Confirmation Of The Plan --
Confirmation Without Acceptance Of All Impaired Classes -- "Cramdown.""
3. Failure To Consummate The Plan
Consummation of the Plan is conditioned upon, among other things,
entry of the Confirmation Order and the negotiation and execution of
certain definitive agreements. As of the date of this Disclosure Statement,
there can be no assurance that any or all of the foregoing conditions will
be met (or waived) or that the other conditions to consummation, if any,
will be satisfied. Accordingly, even if the Bankruptcy Court confirms the
Plan, there can be no assurance that the Plan will be consummated. If a
liquidation or protracted reorganization were to occur, there is a
substantial risk that the value of the Debtors' enterprise would be
substantially eroded to the detriment of all stakeholders.
4. Loss Of NOLs
A restructuring of the Debtors' debt can be expected to give to
rise to COD, which if it occurs in the course of a proceeding pursuant to
Chapter 11 of the Bankruptcy Code, would be non-taxable. If the COD is
non-taxable, the Debtors will be required to reduce their NOLs and other
tax attributes, such as capital loss carryforwards and the tax bases in
assets, by an amount equal to the COD not recognized as income. Thus, it is
likely that as a result of the successful completion of the proposed plan
of recapitalization, the Debtors expect to have no significant United
States NOLs.
E. Certain Tax Considerations
THERE ARE A NUMBER OF MATERIAL INCOME TAX CONSIDERATIONS, RISKS,
AND UNCERTAINTIES ASSOCIATED WITH CONSUMMATION OF THE PLAN. INTERESTED
PARTIES SHOULD READ CAREFULLY THE DISCUSSIONS SET FORTH IN THE SECTIONS OF
THIS DISCLOSURE STATEMENT ENTITLED "CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF THE PLAN" AND "CERTAIN UNITED KINGDOM INCOME TAX
CONSEQUENCES OF THE PLAN" FOR A DISCUSSION OF THE MATERIAL UNITED STATES
AND UNITED KINGDOM INCOME TAX CONSEQUENCES AND RISKS FOR HOLDERS OF CLAIMS
AND INTERESTS AND THE DEBTORS RESULTING FROM THE TRANSACTIONS OCCURRING IN
CONNECTION WITH THE PLAN.
F. Inherent Uncertainty Of Financial Projections
The Financial Projections set forth in Exhibit H annexed hereto
cover the operations of New NTL and Euroco through the period ending
December 31, 2006. These Financial Projections are based on numerous
assumptions that are an integral part thereof, including Confirmation and
consummation of the Plan in accordance with its terms, the anticipated
future performance of New NTL and Euroco, industry performance, general
business and economic conditions, competition, adequate financing, absence
of material contingent or unliquidated litigation or indemnity claims, and
other matters, many of which are beyond the control of New NTL and Euroco
and some or all of which may not materialize. In addition, unanticipated
events and circumstances occurring subsequent to the date of this
Disclosure Statement may affect the actual financial results of the
operations of New NTL and Euroco. These variations may be material and may
adversely affect the ability of New NTL and Euroco to pay the obligations
owing to certain holders of Claims or Interests entitled to distributions
under the Plan and other post-Effective Date indebtedness. Because the
actual results achieved throughout the periods covered by the Financial
Projections may vary from the projected results, the Financial Projections
should not be relied upon as a guaranty, representation, or other assurance
of the actual results that will occur.
G. Dividends
The Debtors do not anticipate that any dividends will be paid with
respect to the New NTL Common Stock or the Euroco Common Stock in the near
term. The Financial Projections contemplate no payment of dividends through
at least the end of the projection period ending December 31, 2006. There
can be no assurance that Euroco will have adequate surplus under Delaware
law to pay dividends in respect of the Euroco Preferred Stock in accordance
with its terms.
XI. CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
PROVIDED BELOW IS A SUMMARY DESCRIPTION OF CERTAIN UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO THE DEBTORS AND TO CERTAIN
HOLDERS OF ALLOWED CLAIMS OR INTERESTS WITH RESPECT TO CERTAIN EXISTING
SECURITIES. THIS DESCRIPTION IS FOR INFORMATIONAL PURPOSES ONLY AND, DUE TO
A LACK OF DEFINITIVE JUDICIAL OR ADMINISTRATIVE AUTHORITY OR
INTERPRETATION, SUBSTANTIAL UNCERTAINTIES EXIST WITH RESPECT TO VARIOUS TAX
CONSEQUENCES OF THE PLAN AS DISCUSSED HEREIN. ONLY CERTAIN CONSEQUENCES OF
THE PLAN FOR THE DEBTORS AND FOR HOLDERS OF ALLOWED CLAIMS OR INTERESTS
DESCRIBED ABOVE, ARE DESCRIBED BELOW. NO OPINION OF COUNSEL HAS BEEN SOUGHT
OR OBTAINED WITH RESPECT TO ANY TAX CONSEQUENCES OF THE PLAN. NO RULINGS OR
DETERMINATIONS OF THE IRS OR ANY OTHER TAX AUTHORITIES HAVE BEEN SOUGHT OR
OBTAINED WITH RESPECT TO THE TAX CONSEQUENCES OF THE PLAN, AND THE
DISCUSSION BELOW IS NOT BINDING UPON THE IRS OR SUCH OTHER AUTHORITIES. THE
DEBTORS ARE NOT MAKING ANY REPRESENTATIONS REGARDING THE PARTICULAR TAX
CONSEQUENCES OF THE CONFIRMATION AND CONSUMMATION OF THE PLAN AS TO ANY
HOLDER, AND NO PERSON IS RENDERING ANY FORM OF LEGAL OPINION AS TO SUCH TAX
CONSEQUENCES. NO ASSURANCE CAN BE GIVEN THAT THE IRS WOULD NOT ASSERT, OR
THAT A COURT WOULD NOT SUSTAIN, A POSITION DIFFERENT FROM ANY DISCUSSED
HEREIN.
THE DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
BELOW IS BASED ON THE IRC, TREASURY REGULATIONS, JUDICIAL AUTHORITIES,
PUBLISHED POSITIONS OF THE IRS AND OTHER APPLICABLE AUTHORITIES, ALL AS IN
EFFECT ON THE DATE OF THIS DOCUMENT AND ALL OF WHICH ARE SUBJECT TO CHANGE
OR DIFFERING INTERPRETATIONS (POSSIBLY WITH RETROACTIVE EFFECT).
THE FOLLOWING DISCUSSION DOES NOT ADDRESS FOREIGN, STATE OR LOCAL
TAX CONSEQUENCES OF THE PLAN, NOR DOES IT PURPORT TO ADDRESS THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN TO SPECIAL CLASSES OF
TAXPAYERS SUBJECT TO SPECIAL TAX RULES (E.G., BANKS AND CERTAIN OTHER
FINANCIAL INSTITUTIONS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS,
PERSONS THAT ARE, OR HOLD THEIR ALLOWED CLAIMS OR INTERESTS INDIRECTLY
THROUGH PASS-THROUGH ENTITIES, PERSONS WHOSE FUNCTIONAL CURRENCY IS NOT THE
UNITED STATES DOLLAR, DEALERS IN SECURITIES OR FOREIGN CURRENCY, PERSONS
WHO RECEIVED THEIR ALLOWED CLAIMS OR INTERESTS PURSUANT TO THE EXERCISE OF
AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION AND PERSONS HOLDING
ALLOWED CLAIMS OR INTERESTS AS A HEDGE AGAINST, OR THAT ARE HEDGED AGAINST,
CURRENCY RISK OR THAT ARE PART OF A STRADDLE, CONSTRUCTIVE SALE OR
CONVERSION TRANSACTION). FURTHERMORE, THE FOLLOWING DISCUSSION DOES NOT
ADDRESS UNITED STATES FEDERAL TAXES OTHER THAN INCOME TAXES. THE FOLLOWING
DISCUSSION ASSUMES THAT HOLDERS HOLD THEIR ALLOWED CLAIMS OR INTERESTS AS
CAPITAL ASSETS FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. IT IS
ASSUMED, FOR PURPOSES OF THIS DISCUSSION, THAT NO EXCHANGING NOTEHOLDER OR
STOCKHOLDER IS A CHAPTER 11 ACQUIRING PERSON LIMITED IN ITS ABILITY TO
RECEIVE CONSIDERATION UNDER THE PLAN.
EACH HOLDER IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND ANY FOREIGN TAX
CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN AND IN THE PLAN.
A. Consequences To The Debtors
1. COD Income
The exchange of certain Debt Securities for New Securities and
other consideration will result in the cancellation of a portion of the
Debtors' outstanding indebtedness. Under the Plan, each Debtor will
generally realize COD in an amount equal to the excess of the adjusted
issue price of any of its indebtedness exchanged or canceled (including any
accrued but unpaid interest) over the amount of cash and the fair market
value of any New Securities issued in exchange therefor. The Debtors
included in the Chapter 11 Cases at the time they realize such COD will not
be required to include such COD in their taxable gross income. Instead,
such Debtors will generally be required to reduce certain of their tax
attributes by the amount of COD excluded from taxable income by reason of
the bankruptcy.
The amount of attribute reduction will first be applied to reduce the
Debtors' NOLs, to the extent of such NOLs, and then, to reduce certain
other tax attributes of the Debtors and their property (including capital
loss carryforwards and the tax bases of certain property).
While not free from doubt, the Debtors currently intend to take
the position that any reduction in Debtor tax attributes under the Plan
should generally occur on a separate company basis, even though NTL Inc.
and certain of its subsidiaries file a consolidated federal income tax
return. The IRS has recently taken the position, however, that consolidated
NOLs are an attribute that must be reduced as a result of excluded COD,
irrespective of whether the corporation realizing the COD was the source of
the losses reflected in the consolidated NOLs. The current IRS position as
to COD-related attribute reduction on other tax attributes of consolidated
group members is unclear.
2. NOLs
Although no determination has been made, it is possible that all
or substantially all of the Debtors' NOLs will be eliminated, and certain
of their other tax attributes (including capital loss carryforwards and the
tax bases of certain property owned by the Debtors) will be reduced or
eliminated, as a result of the attribute reductions required by the
exclusion of COD realized under the Plan. As discussed below, if there are
any remaining NOLs or capital loss carryforwards, Section 382 may apply to
limit the ability of New NTL and Euroco and their respective subsidiaries
to utilize any such NOLs and capital loss carryforwards in future years.
When a corporation undergoes an Ownership Change, the Annual
Section 382 Limitation generally limits the ability of the corporation to
utilize historic NOLs, capital loss carryforwards and certain subsequently
recognized "built- in" losses and deductions (i.e., losses and deductions
that have economically accrued but are unrecognized as of the date of the
Ownership Change) if the corporation has a net unrealized built-in loss on
the date of the Ownership Change. As a general rule, the Annual Section 382
Limitation equals the product of the value of the stock of the corporation
(with certain adjustments) immediately before the Ownership Change and the
applicable "long-term tax-exempt rate" (which is 5.01% for May, 2002).
Subject to certain limitations, any unused portion of the Annual Section
382 Limitation may be available in subsequent years. A corporation must
meet certain continuity of business enterprise requirements for at least
two years following an Ownership Change in order to preserve the Annual
Section 382 Limitation.
NTL believes that both NTL CC and NTL Inc. will undergo Ownership
Changes as a result of the implementation of the Plan but has not yet
determined whether either corporation will have a net unrealized built-in
loss on the Effective Date. If one or more Ownership Changes occur, the
ability of New NTL and Euroco and their respective subsidiaries to utilize
any NOLs and capital loss carryforwards that may remain after the
implementation of the Plan will be, and their ability to utilize certain
subsequently recognized built-in losses and deductions (if any) may be,
subject to an Annual Section 382 Limitation, as described above. However,
Section 382 provides a Bankruptcy Exception to the application of the
Annual Section 382 Limitation for corporations under the jurisdiction of a
court in a bankruptcy case. The Bankruptcy Exception will apply to New NTL
or Euroco if their historic shareholders and creditors that held certain
"qualified indebtedness" (as defined by regulation) prior to implementation
of the Plan own at least 50% of the total voting power and total value of
the New NTL Common Stock or Euroco Common Stock, respectively, after such
implementation. If the Bankruptcy Exception applies to either or both of
New NTL or Euroco, the ability to utilize NOLs and capital loss
carryforwards arising prior to the Effective Date and built-in losses and
deductions (if any) recognized after the Effective Date will not be limited
as described above. The Bankruptcy Exception would, however, require a
reduction of pre-change NOLs that may be carried over to a post-change year
by the amount of any interest paid or accrued during the year of the
Ownership Change and the three preceding years on Debt Securities in
respect of which New NTL Common Stock and Euroco stock are issued. This
reduction of NOLs would occur prior to any attribute reduction as a result
of COD. The Bankruptcy Exception also provides that a second Ownership
Change occurring during the two-year period immediately following the first
Ownership Change would reduce the Annual Section 382 Limitation to zero.
Section 382 provides that a corporation under the jurisdiction of
a Bankruptcy Court may elect out of the Bankruptcy Exception even if the
corporation meets all of the requirements thereof. It has not yet been
determined whether New NTL or Euroco may qualify for the Bankruptcy
Exception or whether it would be advantageous for either to elect out of
the Bankruptcy Exception if they qualify. A timely decision will be made
regarding whether either New NTL or Euroco would qualify for the Bankruptcy
Exception and, if so, whether to elect out of the Bankruptcy Exception.
If New NTL or Euroco does not qualify for the Bankruptcy Exception
or either elects out of the Bankruptcy Exception as discussed above, a
special rule under Section 382 applicable to corporations under the
jurisdiction of a Bankruptcy Court that are not subject to the Bankruptcy
Exception will apply in calculating the Annual Section 382 Limitation.
Under this special rule, the limitation will be calculated by reference to
the lesser of the value of their respective new stocks (with certain
adjustments) immediately after the Ownership Change (as opposed to
immediately before the Ownership Change, as discussed above) or the value
of such company's assets (determined without regard to liabilities)
immediately before the Ownership Change. Although such calculation may
substantially increase the Annual Section 382 Limitation, New NTL's and
Euroco's use of any remaining NOLs, capital loss carryforwards, built-in
losses and deductions remaining after the implementation of the Plan may
still be substantially limited after an Ownership Change.
B. Consequences To Certain Exchanging Noteholders
1. United States Noteholders
The United States federal income tax consequences of the Plan to
United States Noteholders who receive New Securities in exchange for their
Debt Securities under the Plan (including the character and amount of
income, gain or loss recognized) will depend upon, among other things, (a)
the manner in which a Noteholder acquired such Debt Securities; (b) the
length of time such Debt Securities have been held; (c) whether such Debt
Securities were acquired at a discount; (d) whether the Noteholder has
taken a bad debt deduction with respect to such Debt Securities (or any
portion thereof) in the current or prior years; (e) whether the Noteholder
has previously included in income any accrued but unpaid interest with
respect to such Debt Securities; (f) the Noteholder's method of tax
accounting; and (g) whether such Debt Securities constitute "securities"
for United States federal income tax purposes. Therefore, United States
Noteholders should consult their own tax advisors for information that may
be relevant to their particular situations and circumstances and the
particular tax consequences of the Plan to them.
Although not free from doubt, the Debtors believe that the receipt
of New Securities and cash (including amounts paid to professionals of the
Noteholders' Steering Committee as additional distributions) in exchange
for Debt Securities pursuant to the Plan should be treated as (i) a
transaction pursuant to Section 351 in which Noteholders exchange some or
all of their Debt Securities for New Securities issued by New NTL and (ii)
a second transaction, pursuant to Section 351, in which some Noteholders
exchange their remaining Debt Securities for New Securities issued by
Euroco, and in some instances, cash. Moreover, the Debtors also believe
that New Securities issued by a Debtor to Noteholders in exchange for such
Debtor's Debt Securities (as opposed to the Debt Securities of one of the
other Debtors) will also be received tax-free by such Noteholders as part
of a "recapitalization" transaction for federal income tax purposes. Either
treatment will depend upon, among other things, whether the Debt Securities
constitute "securities" for United States federal income tax purposes. The
determination of whether a debt instrument constitutes a security for such
purposes depends upon an evaluation of the term and nature of the debt
instrument. Generally, corporate debt instruments with maturities of less
than five years when issued are not considered securities, while corporate
debt instruments with maturities of ten years or more when issued are
considered securities. The Debtors intend to take the position that each of
the Debt Securities are securities for United States federal income tax
purposes.
Whether the receipt of New Securities will qualify as part of a
Section 351 transaction with respect to either New NTL or Euroco will also
depend upon whether exchanging Noteholders (and with respect to Euroco, the
Stockholders) are in "control," as defined for federal income tax purposes,
of either corporation immediately after the exchanges undertaken pursuant
to the Plan by virtue of their having transferred property to such
corporation. In general, for federal income tax purposes, Noteholders and
Stockholders will be considered to be in control of a corporation
immediately after the exchanges under the Plan if they, as a group, own 80
percent of the total combined voting power of all classes of stock entitled
to vote and at least 80 percent of the total number of shares of each
non-voting class of stock, if any, of such corporation. Any stock of such
corporation that is, as of the Effective Date, subject to a pre-existing
contract of Noteholders or Stockholders to transfer such stock will not be
counted as held by them for purposes of establishing such control. The Plan
provides that Noteholders receiving stock of one of the Reorganized Debtors
will be treated as having received such stock in consideration for having
transferred to the Reorganized Debtor all or a portion of their Debt
Securities. Accordingly, under the Plan, the Noteholders will be treated as
having transferred property to each of the Reorganized Debtors whose New
Securities they receive.
If an exchange of Debt Securities for New Securities of New NTL or
an exchange of Debt Securities for New Securities of Euroco pursuant to the
Plan is treated as part of a Section 351 transaction or as part of a
recapitalization, an exchanging United States Noteholder should recognize
gain on such exchange, but not loss, with respect to that portion of the
Debt Securities surrendered pursuant to the Plan in such exchange in an
amount equal to the lesser of (x) the amount of gain realized in such
exchange (i.e., the excess of the amount of any cash and fair market value
of the New Securities received by such Noteholder over the adjusted tax
basis of such Debt Securities), and (y) any cash and, solely with respect
to NTL Delaware Subordinated Notes Holders and NTL Inc. Subordinated Notes
Holders, the fair market value of any Noteholder Election Option received
in such exchange. Any such gain recognized will generally be treated as
capital gain, except to the extent that the cash and New Securities are
received in exchange for accrued but unpaid interest or accrued market
discount that, in either case, have not been previously taken into account
under the Noteholder's method of accounting. The Plan provides that amounts
received by Noteholders shall be treated first, as satisfying the stated
principal amount of such holder's Debt Securities and second, to the extent
of any remaining consideration, as satisfying accrued, but unpaid,
interest, if any. Additionally, Noteholders who realize gain on the receipt
of New Securities from one corporation in exchange for Debt Securities of a
different corporation with accrued market discount will generally be
required to recognize as ordinary income accrued market discount not
already recognized by virtue of the rule in the preceding sentence to the
extent of such gain. The amount of any remaining accrued market discount
not recognized in the exchange will generally be treated as ordinary income
to the Noteholder upon a disposition of the New Securities received
pursuant to the exchange. Noteholders who have taken a bad debt deduction
with respect to their claims should consult their own tax advisors as to
the effect of such deduction in light of their particular circumstances.
A Noteholder's aggregate tax basis in stock received in an
exchange for Debt Securities will be equal to the aggregate tax basis in
the portion of the Debt Securities surrendered in exchange therefor,
decreased by the amount of any cash received therefor or, as the case may
be, by the adjusted basis of any Noteholder Election Option received
therefor (as discussed below), and increased by the amount of any income or
gain recognized on the exchange with respect to such stock. In general,
such tax basis will be allocated among the stock received based upon their
relative fair market values on the Effective Date. A Noteholder's holding
period for its stock received in exchange for Debt Securities will include
the holding period of such holder's Debt Securities surrendered in exchange
therefor, except that the holding period for stock received in respect of
accrued but unpaid interest not previously taken into account or in respect
of accrued market discount included in income will begin on the day
following the Effective Date. The tax basis of any Noteholder Election
Option received by NTL Delaware Subordinated Noteholders and NTL Inc.
Subordinated Noteholders will be its fair market value on the Effective
Date. The tax basis of any Noteholder Election Option received by holders
of NTL CC Senior Notes and NTL CC Subordinated Notes in a recapitalization
transaction will be an allocated amount of the adjusted basis of the
portion of the Debt Securities surrendered in such transaction. A
Noteholder will generally recognize a capital loss equal to the adjusted
tax basis of any Noteholder Election Options that are allowed to lapse
unexercised.
If, contrary to the Debtors' intended position, the receipt of any
New Securities and cash, if any, by a Noteholder pursuant to the Plan is
not treated as part of a Section 351 transaction or a recapitalization,
such exchange of Debt Securities for New Securities would be fully taxable.
For example, if the exchange of Debt Securities for New Securities of New
NTL does not constitute part of a Section 351 transaction or part of a
recapitalization for federal income tax purposes, then with respect to that
exchange a United States Noteholder would, except as described in the next
sentence, generally recognize capital gain or loss in an amount equal to
the difference between (i) the fair market value on the Effective Date of
the New Securities received in such exchange, and (ii) the holder's
adjusted tax basis in the exchanged Debt Securities. Any such gain
recognized would generally be treated as ordinary income to the extent that
the cash and New Securities are received in respect of accrued but unpaid
interest or accrued market discount that, in either case, have not been
previously taken into account under the Noteholder's method of accounting.
In such case, a Noteholder's aggregate tax basis in any New Securities
received in exchange for its Debt Securities would generally be equal to
the aggregate fair market value of such New Securities on the Effective
Date. Any gain or loss would be long-term gain or loss if the Noteholder's
holding period for its Debt Securities was more than one year on the
Effective Date, and the holding period for New Securities received pursuant
to the Plan would begin on the day after the Effective Date.
Distributions, if any, on New NTL Common Stock and Euroco Common
Stock will generally be taxable as an ordinary dividend to the extent of
the holder's pro rata share of New NTL's or Euroco's "earnings and profits"
(as determined for United States federal income tax purposes), as the case
may be, then as a return of basis to the extent of the holder's adjusted
tax basis in the stock on which such distribution was made, with any excess
treated as a capital gain. Certain adjustments to or failures to adjust the
conversion ratio or exercise price of the Series A Warrants pursuant to the
antidilution provisions of such instrument may result in a taxable
constructive dividend to the holders of Series A Warrants or New NTL Common
Stock pursuant to IRC Section 305, to the extent of New NTL's earnings and
profits. Euroco Preferred stock is mandatorily redeemable and accretes
until redeemed at its liquidation preference plus accrued but unpaid
dividends. In general, holders who receive Euroco Preferred Stock pursuant
to the Plan will be required to treat the excess of the redemption price of
the Euroco Preferred Stock over the issue price of such stock as a
constructive distribution received by the holder over the life of such
stock under a constant interest (economic yield) method that takes into
account the compounding of yield. The issue price of Euroco Preferred Stock
received pursuant to the Plan will be its fair market value on the
Effective Date. Constructive distributions on Euroco Preferred Stock will
be taxable as dividend income to holders only to the extent of their pro
rata share of Euroco's current and accumulated earnings and profits for
federal income tax purposes. Although not free from doubt, Euroco intends
to take the position that any accrual of unpaid dividends on Euroco
Preferred Stock is not a constructive distribution for federal income tax
purposes. No assurance can be given that the IRS could not successfully
challenge this treatment.
2. Non-United States Noteholders
A Non-United States Noteholder will generally not be subject to
United States federal income tax with respect to New Securities and cash
(including amounts paid to professionals of the Noteholders' Steering
Committee as additional distributions) received in exchange for its Debt
Securities pursuant to the Plan unless, among other things, (a) such holder
is engaged in a trade or business in the United States to which income,
gain or loss from the exchange is "effectively connected" for United States
federal income tax purposes, or (b) in the case of an individual, such
holder is present in the United States for 183 days or more during the
taxable year that includes the Effective Date, and certain other
requirements are met. A Non-United States Noteholder may, however, be
subject to United States federal information reporting with respect to the
cash and the fair market value of New Securities received, as well as to
withholding tax on distributions (including constructive distributions)
with respect to New NTL Common Stock or Euroco Common Stock and with
respect to constructive distributions (as discussed above) on Euroco
Preferred Stock.
C. Certain Consequences To Exchanging Stockholders
1. United States Stockholders
Although not free from doubt, the Debtors believe that the receipt
of New Securities in exchange for Equity Securities pursuant to the Plan
should be treated as (i) a "recapitalization" transaction for federal
income tax purposes in which some Stockholders exchange some of their
Equity Securities for New Securities of Euroco and (ii) a second
transaction, in which Stockholders exchange their remaining Equity
Securities for New Securities issued by New NTL.
Stockholders who exchange Equity Securities for New Securities of
New NTL will generally recognize gain or loss in an amount equal to the
difference between (i) the fair market value on the Effective Date of the
New Securities received in such exchange and (ii) the holder's adjusted tax
basis in the portion of the Equity Securities exchanged with New NTL.
Stockholders will have a fair market value tax basis in New NTL Common
Stock and Equity Rights received in exchange for a portion of their Equity
Securities and the holding period will begin on the date following the
Effective Date.
Stockholders who exchange Equity Securities for New Securities of
Euroco should not recognize gain or loss on the exchange and the holder's
tax basis and holding period of the New Securities received from Euroco
should be the same as in the portion of the Equity Securities exchanged
therefor. Further, certain adjustments to, or failures to adjust the
conversion ratio or exercise price of the Series A Warrants pursuant to the
antidilution provisions of such instrument may result in a taxable
constructive dividend to the holder of Series A Warrants or New NTL Common
Stock pursuant to IRC Section 305, to the extent of New NTL's earnings and
profits.
United States Stockholders who have taken a worthless stock loss
with respect to their Equity Securities should consult their own tax
advisors as to the effect of such deduction in light of their particular
circumstances.
2. Non-United States Stockholders
Except as discussed below, a Non-United States Stockholder will
generally not be subject to United States federal income tax with respect
to New Securities received in exchange for its Equity Securities pursuant
to the Plan unless, among other things, (a) such Non-United States
Stockholder is engaged in a trade or business in the United States to which
income, gain or loss from the exchange is "effectively connected" for
United States federal income tax purposes, or (b) in the case of an
individual, such Non-United States Stockholder is present in the United
States for 183 days or more during the taxable year that includes the
Effective Date, and certain other requirements are met. A Non-United States
Stockholder may, however, be subject to United States federal income
reporting with respect to the fair market value of New Securities received,
as well as to withholding tax on distributions (including constructive
distributions) with respect to the New NTL Common Stock or Euroco Common
Stock.
D. Exercise Of Rights And Series A Warrants, Basis, And Holding Period
Of Acquired New NTL Common Stock
No gain or loss will be recognized upon the exercise of any
Noteholder Election Option, Equity Right or Series A Warrant received
pursuant to the Plan. The basis of each New NTL Common Stock share acquired
and any Series A Warrants acquired through exercise of a Noteholder
Election Option, Equity Right or Series A Warrant will be equal to the sum
of the subscription price paid therefor and the basis of the Noteholder
Election Option, Equity Right or Series A Warrant. The holding period for
New NTL Common Stock and any Series A Warrants acquired through exercise of
a Noteholder Election Option, Equity Right or Series A Warrant will begin
on the date the Noteholder Election Option, Equity Right or Series A
Warrant is exercised.
E. Information Reporting And Backup Withholding
Certain payments, including New Securities and cash received in
respect of Debt Securities and Equity Securities and distributions on New
NTL Common Stock, Euroco Common Stock, or Euroco Preferred Stock are
generally subject to information reporting by the payor (i.e., the
Disbursing Agent) to the IRS. Moreover, such reportable payments are
subject to backup withholding under certain circumstances. Under the IRC's
backup withholding rules, distributions or payments made to a holder of the
Debt Securities or Equity Securities pursuant to the Plan, as well as
distributions with respect to the New NTL Common Stock, Euroco Common
Stock, or Euroco Preferred Stock may be subject to information reporting
and backup withholding, unless the holder (a) comes within certain exempt
categories (which generally include corporations and non-United States
holders) and, when required, demonstrates this fact or (b) provides a
correct United States taxpayer identification number and certifies under
penalty of perjury that the taxpayer identification number is correct and
that the holder is not subject to backup withholding because of a failure
to report all dividend and interest income.
Payments made to a Non-United States Noteholder or Non-United
States Stockholder pursuant to the Plan, as well as distributions made with
respect to New NTL Common Stock or Euroco Common Stock and constructive
distributions on Euroco Preferred Stock, will generally not be subject to
backup withholding; provided that such holder furnishes certification of
its non-United States status (and any other required certifications), or is
otherwise exempt from backup withholding. Generally, such certification is
provided on IRS Form W-8BEN. Information reporting may apply to payments or
distributions received by a Non-United States Noteholder or a Non-United
States Stockholder.
Backup withholding is not an additional tax. Amounts withheld
under the backup withholding rules may be credited against such holder's
United States federal income tax liability, and a holder may obtain a
refund of any excess amounts withheld under the backup withholding rules by
filing an appropriate claim for refund with the IRS.
XII. CERTAIN UNITED KINGDOM INCOME TAX CONSEQUENCES OF THE PLAN
A. Diamond Cable
The transfer of the Diamond Cable Notes to New NTL will have no
immediate UK tax consequences for Diamond Cable. Subsequent to the
transfer, restrictions on the deductibility of interest and discount
accruing on the Diamond Cable Notes will apply.
B. Holders Of Diamond Cable Notes, Certain NTL CC Senior Notes, And
Old Common Stock
THIS SECTION SUMMARIZES THE UK TAX CONSEQUENCES ARISING FROM
IMPLEMENTATION OF THE PLAN FOR CERTAIN UK TAX RESIDENT HOLDERS OF THE
DIAMOND CABLE NOTES, NTL CC'S 10 3/4% SENIOR DEFERRED COUPON NOTES DUE
2008, 9 1/2% SENIOR NOTES DUE 2008, 9 1/4% SENIOR NOTES DUE 2006, 97/8%
SENIOR NOTES DUE 2009, 11 1/2% SENIOR DEFERRED COUPON NOTES DUE 2009,
123/8% SENIOR NOTES DUE 2008, 9 3/4% SENIOR DEFERRED COUPON NOTES DUE 2009,
AND OLD COMMON STOCK. DIAMOND CABLE, NTL CC, AND NTL INC. MAKE NO
REPRESENTATION REGARDING THE PARTICULAR UK TAX CONSEQUENCES OF THE
IMPLEMENTATION OF THE PLAN FOR ANY NOTEHOLDER OR STOCKHOLDER AND THE
DISCLOSURE CONTAINED HEREIN SHALL NOT CONSTITUTE ANY FORM OF LEGAL OPINION
AS TO SUCH TAX CONSEQUENCES.
THIS SUMMARY DOES NOT ADDRESS THE TAX CONSEQUENCES OF THE PLAN FOR
SPECIAL TYPES OF UK TAXPAYERS SUCH AS INVESTMENT FUNDS, FINANCIAL
INSTITUTIONS, BANKS, TRADERS AND DEALERS IN SECURITIES, PARTNERSHIPS,
TAX-EXEMPT INSTITUTIONS, INSURANCE COMPANIES, TRUSTEES, NON-RESIDENTS
CARRYING ON A TRADE IN THE UK OR PERSONS WHO ACQUIRED OLD COMMON STOCK
THROUGH A STOCK OPTION OR OTHER EMPLOYEE INCENTIVE SCHEME.
THIS SUMMARY IS LIMITED TO A DESCRIPTION OF THE TAX CONSEQUENCES
FOR UK INDIVIDUALS WHO ARE RESIDENT AND DOMICILED IN THE UK AND FOR
COMPANIES RESIDENT IN THE UK WHO HOLD NOTES OR OLD COMMON STOCK AS CAPITAL
INVESTMENTS. HOLDERS OF NOTES AND OLD COMMON STOCK HOLDERS ARE URGED TO
CONSULT THEIR OWN PROFESSIONAL ADVISERS ON THE UK TAX CONSEQUENCES ARISING
FROM IMPLEMENTATION OF THE PLAN.
1. Holders Of Notes
As the Plan involves the transfer and extinguishment of debt
securities under laws other than those of the UK, the precise application
of UK tax law is not entirely certain, but the following summary sets out
the likely UK tax treatment for holders of Notes.
a. Transfer Of Class 6 Diamond Cable Notes Claims
The Diamond Cable Notes are "relevant discounted securities" for
purposes of United Kingdom legislation. Under current United Kingdom
legislation, a UK resident holder of Diamond Cable Notes may, depending on
its circumstances, suffer a charge to UK taxation on the transfer of
Diamond Cable Notes, and the rights and interests related thereto, to New
NTL under the Plan.
A UK resident individual holder of Diamond Cable Notes will be
liable for UK income tax on any profit realized on such transfer. The
profit for this purpose will be equal to the excess of the amount payable
on the transfer of the Diamond Cable Notes to New NTL under the Plan above
the amount paid by such holder of Diamond Cable Notes in respect of its
acquisition of its interest in Diamond Cable Notes. In computing any
profit, account will be taken of any incidental costs of the holder's
acquisition or disposal of its interest in the Diamond Cable Notes. In
principle, a UK resident individual holder of Diamond Cable Notes who makes
a loss on the transfer of his/her Diamond Cable Notes to New NTL should be
eligible for relief from income tax in respect of such loss.
The New NTL Common Stock received by a UK resident individual
holder of Diamond Cable Notes in consideration for the transfer of such
Diamond Cable Notes will be treated as having been acquired (for UK capital
gains tax purposes) for a consideration equal to the market value of
his/her interest in the Diamond Cable Notes immediately prior to the
transfer.
A UK corporate holder of Diamond Cable Notes will be required to
bring such credits and debits into account for the purposes of the Finance
Act 1996 as if it had disposed of Diamond Cable Notes for their market
value immediately prior to such transfer.
b. Exchange And Release Of Certain Class 7 NTL CC Senior
Notes Claims
i. 9 1/4% Senior Notes Due 2006, 97/8% Senior
Notes Due 2009 and 123/8% Senior Notes Due 2008
(A) UK Individuals
The receipt of the New NTL Common Stock in exchange for the 9 1/4%
Senior Notes due 2006, 97/8% Senior Notes due 2009, and 123/8 % Senior
Notes due 2008 pursuant to the Plan is likely to be treated as a
"reorganization" for the purposes of UK taxation. Accordingly a UK resident
individual holder of the 9 1/4% Senior Notes due 2006, 97/8% Senior Notes
due 2009, or 123/8% Senior Notes due 2008 will not be treated as disposing
of such Notes but the such Notes and the New NTL Common Stock will be
treated as the same asset acquired at the same time the 9 1/4% Senior Notes
due 2006, 97/8% Senior Notes due 2009, or 123/8% Senior Notes due 2008 were
acquired.
The receipt of the Euroco Common Stock, Euroco Preferred Stock,
the Delaware Cash Amount, the NTL Cash Amount, and the Class 7 Euroco Value
in consideration of the contribution to Euroco and/or release of the 9 1/4%
Senior Notes due 2006, 97/8% Senior Notes due 2009, and 123/8% Senior Notes
due 2008 pursuant to the Plan will be treated as giving rise to a part
disposal of the 9 1/4% Senior Notes due 2006, 97/8% Senior Notes due 2009,
or 123/8% Senior Notes due 2008 in consideration for an amount equal to the
market value of the Euroco Common Stock, Euroco Preferred Stock and the
amount of any Delaware Cash Amount, the NTL Cash Amount and the Class 7
Euroco Value. The calculation of any gain or loss arising on the part
disposal will be made by reference to the market value of the Euroco Common
Stock and Euroco Preferred Stock plus the amount of any Delaware Cash
Amount, NTL Cash Amount and Class 7 Euroco Value ("A") and the market value
of the New NTL Common Stock ("B") immediately after the issue of the Euroco
Common Stock and Euroco Preferred Stock by applying a formula, A divided by
(A plus B), to the acquisition cost of the 9 1/4% Senior Notes due 2006,
97/8% Senior Notes due 2009, or 123/8% Senior Notes due 2008 to determine
the allowable acquisition cost which may be apportioned to calculate the
gain or loss on the part disposal.
Under the UK accrued income scheme, the release, exchange and
contribution to Euroco of the 9 1/4% Senior Notes due 2006, 97/8% Senior
Notes due 2009, and 123/8% Senior Notes due 2008 may give rise to a charge
to tax on income in respect of an amount representing interest on such
Notes which has accrued since the preceding interest payment date.
(B) UK Corporates
A UK corporate holder of the 9 1/4% Senior Notes due 2006, 97/8%
Senior Notes due 2009, or 123/8% Senior Notes due 2008 will be required to
bring credits and debits into account for the purposes of the Finance Act
1996 on the release, exchange and contribution to Euroco of such Notes in
accordance with their statutory accounting treatment. Any fluctuation in
value relating to foreign exchange gains and losses in respect of such
Notes will generally be brought into account as income.
ii. 10 3/4% Senior Deferred Coupon Sterling
Notes due 2008, 11 1/2% Senior Deferred Coupon Notes due 2009, And 9 3/4%
Senior Deferred Coupon Notes due 2009
(A) UK Individuals
The 10 3/4% Senior Deferred Coupon Sterling Notes due 2008, 11
1/2% Senior Deferred Coupon Notes due 2009 and 9 3/4% Senior Deferred
Coupon Notes due 2009 are "relevant discounted securities" for the purposes
United Kingdom legislation. Under current United Kingdom legislation, a UK
resident holder of 10 3/4% Senior Deferred Coupon Sterling Notes due 2008,
11 1/2% Senior Deferred Coupon Notes due 2009, or 9 3/4% Senior Deferred
Coupon Notes due 2009 may, depending on his/her circumstances, suffer a
charge to UK taxation on the exchange, release or contribution to Euroco of
such notes under the Plan.
A UK resident individual holder of 10 3/4% Senior Deferred Coupon
Sterling Notes due 2008, 11 1/2% Senior Deferred Coupon Notes due 2009 or 9
3/4% Senior Deferred Coupon Notes due 2009 will be liable to UK income tax
on any profit realized on such exchange, release or contribution. The
profit for this purpose will be equal to the excess of the amount payable
on the exchange, release or contribution of the 10 3/4% Senior Deferred
Coupon Sterling Notes due 2008, 11 1/2% Senior Deferred Coupon Notes due
2009 or 9 3/4% Senior Deferred Coupon Notes due 2009 under the Plan above
the amount paid by such holder of 10 3/4% Senior Deferred Coupon Sterling
Notes due 2008, 11 1/2% Senior Deferred Coupon Notes due 2009, or 9 3/4%
Senior Deferred Coupon Notes due 2009 in respect of his acquisition of his
interest in such notes. In computing any profit account will be taken of
any incidental costs of his acquisition or disposal of his interest in such
notes.
In principle, a UK resident individual holder of 10 3/4% Senior
Deferred Coupon Sterling Notes due 2008, 11 1/2% Senior Deferred Coupon
Notes due 2009, or 9 3/4% Senior Deferred Coupon Notes due 2009 who makes a
loss on the exchange, release or contribution of his 10 3/4% Senior
Deferred Coupon Sterling Notes due 2008, 11 1/2% Senior Deferred Coupon
Notes due 2009, or 9 3/4% Senior Deferred Coupon Notes due 2009 under the
Plan should be eligible for relief from income tax in respect of such loss.
The New NTL Common Stock and Euroco Common Stock and Euroco
Preferred Stock received by a UK individual holder of 10 3/4% Senior
Deferred Coupon Sterling Notes due 2008, 11 1/2% Senior Deferred Coupon
Notes due 2009 or 9 3/4% Senior Deferred Coupon Notes due 2009 in exchange
for or as consideration for the contribution to Euroco of such notes will
be treated as having been acquired (for UK capital gains tax purposes) for
a consideration equal to the market value of his 10 3/4% Senior Deferred
Coupon Sterling Notes due 2008, 11 1/2% Senior Deferred Coupon Notes due
2009, or 9 3/4% Senior Deferred Coupon Notes due 2009 immediately prior to
the transfer less the amount of any Delaware Cash Payment, NTL Cash Payment
and Class 7 Euroco Value received under the Plan.
(B) UK Corporates
A UK corporate holder of 10 3/4% Senior Deferred Coupon Sterling
Notes due 2008, 11 1/2% Senior Deferred Coupon Notes due 2009, or 9 3/4%
Senior Deferred Coupon Notes due 2009, will be required to bring such
credits and debits into account for the purposes of the Finance Act 1996 as
if it had disposed of its 10 3/4% Senior Deferred Coupon Sterling Notes due
2008, 11 1/2% Senior Deferred Coupon Notes due 2009, or 9 3/4% Senior
Deferred Coupon Notes due 2009 for their market value immediately prior to
such exchange, release, or contribution.
iii. 9 1/2% Senior Notes due 2008
(A) UK Individuals
The 9 1/2% Senior Notes due 2008 are "qualifying corporate bonds"
for the purposes of UK legislation. Under current UK legislation, a UK
resident holder of the 9 1/2% Senior Notes due 2008 will not be subject to
United Kingdom capital gains tax on the exchange, release or contribution
to Euroco of the 9 1/2% Senior Notes due 2008 under the Plan (and
accordingly will be unable to claim any capital loss in respect of such
exchange, release, or contribution to Euroco).
Under the UK accrued income scheme, the release and exchange or
contribution to Euroco of the 9 1/2% Senior Notes due 2008 may give rise to
a charge to tax on income in respect of an amount representing interest on
such Notes which has accrued since the preceding interest payment date.
(B) UK Corporates
A UK corporate holder of 9 1/2% Senior Notes due 2008 will be
required to bring such credits and debits into account for the purposes of
the Finance Act 1996 as if it had disposed of its notes for their market
value immediately prior to such exchange, release, or contribution.
2. Holders Of Old Common Stock
As the Plan involves the restructuring of companies incorporated
outside the UK, the precise application of UK tax law is not entirely
certain, but the following summary sets out the likely UK tax treatment for
UK resident holders of Old Common Stock.
a. Receipt Of Euroco Common Stock
The receipt of Euroco Common Stock in exchange for Old Common
Stock under the Plan is likely to be treated as a "reorganization" for UK
tax purposes. Accordingly, a UK resident holder of Old Common Stock will
not be treated as disposing of the Old Common Stock, but the Old Common
Stock and new Euroco Common Stock will be treated as the same asset
acquired as the original Old Common Stock was acquired.
b. Receipt Of Series A Warrants And Equity Rights
The receipt of Series A Warrants and Equity Rights by holders of
Old Common Stock will be treated as giving rise to a part disposal of the
Old Common Stock in consideration for an amount equal to the market value
of the Series A Warrants and the Equity Rights. The calculation of any gain
or loss arising on the part disposal will be made by reference to the
market value of the Series A Warrants and Equity Rights ("A") and the
market value of the Euroco Common Stock ("B") immediately following the
issue of the Series A Warrants and Equity Rights by applying the formula, A
divided by (A plus B), to the acquisition cost of the Old Common Stock to
determine the allowable acquisition cost which may be apportioned to
calculate the gain or loss on the part disposal.
If the issue of the Series A Warrants and Equity Rights were to be
treated by the UK Inland Revenue as a transfer of assets to holders of Old
Common Stock by NTL Inc., such a transfer would be treated as an income
distribution in the hands of the recipient to the extent that the market
value of the Series A Warrants and Equity Rights exceeded the value of the
consideration being given by the holders of Old Common Stock for the Series
A Warrants and Equity Rights, such consideration being the extinguishment
in part of rights as holders of Old Common Stock. The value of the Series A
Warrants and Equity Rights could only be taxable as an income distribution
to the extent that it exceeded the amount originally subscribed for the Old
Common Stock extinguished in consideration for the issue of the Series A
Warrants and Equity Rights, irrespective of the market value of the Old
Common Stock being so extinguished.
3. Dividends Received By UK Resident Holders Of New Securities
Under current UK tax legislation, a holder of New Securities may,
depending on his or its circumstances, suffer a charge under UK taxation on
dividends received from Euroco or New NTL in respect of New Securities
received under the Plan.
A UK resident holder of New Securities not otherwise exempt from
tax on such dividends will be liable for UK income tax or corporation tax,
as appropriate, on the amount of the gross dividend paid, but will normally
be entitled to a credit for any United States withholding tax charged on
the dividend at the appropriate rate.
4. Stamp Duty And Stamp Duty Reserve Tax
A transfer of New Securities received under the Plan which is
executed in, or relates to any matter or thing to be done in the UK (e.g.,
if such stock is registered on a register of such New Securities maintained
in the UK or is transferred in return for the issue of shares in a UK
company) will, in general, be subject to UK stamp duty at the rate of 0.5%
of the consideration paid. An agreement for the transfer of New Securities
will be outside the scope of stamp duty reserve tax (at the rate of 0.5%)
if the New Securities to be transferred are not registered on a register of
such stock maintained in the UK.
Special rules apply to the agreements made by market makers in the
ordinary course of their business, brokers, dealers, and certain other
persons. Agreements to transfer shares to charities will not give rise to
stamp duty reserve tax or stamp duty.
XIII. FEASIBILITY OF THE PLAN AND THE BEST INTERESTS OF CREDITORS TEST
A. Feasibility Of The Plan
As a condition to confirmation of a plan, the Bankruptcy Code
requires, among other things, that a bankruptcy court determine that the
plan is "feasible" (i.e., that confirmation is not likely to be followed by
a liquidation or the need for further financial reorganization of the
debtor) as set forth in section 1129(a)(11) of the Bankruptcy Code. In
connection with the development of the Plan, and for purposes of
determining whether the Plan satisfies feasibility standards, the Debtors'
management has, through the development of the Financial Projections
annexed hereto as Exhibit H analyzed the ability of the Debtors to meet
their obligations under the Plan to maintain sufficient liquidity and
capital resources to conduct their businesses. The Financial Projections
were also prepared to assist each holder of a Claim or Interest entitled to
vote under the Plan in determining whether to accept or reject the Plan.
The Financial Projections indicate that each of New NTL and Euroco
should have sufficient cash flow to (i) make the payments required under
the Plan on the Distribution Date, (ii) repay and service debt obligations,
in the case of New NTL, including but not limited to the New NTL Exit
Facility or any alternative financing, and (iii) maintain operations on a
going-forward basis. Accordingly, the Debtors believe that the Plan
complies with section 1129(a)(11) of the Bankruptcy Code.
The Financial Projections should be read in conjunction with the
assumptions, qualifications and footnotes to tables containing the
Financial Projections set forth therein, the historical consolidated
financial information (including the notes and schedules thereto) and the
other information set forth in NTL Inc.'s Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 annexed to this Disclosure
Statement as Exhibit B, NTL Inc.'s Quarterly Report on Form 10-Q for the
three months ended March 31, 2002 annexed to this Disclosure Statement as
Exhibit C, Amendment No. 1 to NTL Inc.'s Annual Report on Form 10-K/A
annexed to this Disclosure Statement as Exhibit D, NTL CC's Annual Report
on Form 10-K for the fiscal year ended December 31, 2001 annexed to this
Disclosure Statement as Exhibit E, and NTL CC's Quarterly Report on Form
10-Q for the three months ended March 31, 2002 annexed to this Disclosure
Statement as Exhibit F. The Financial Projections were prepared in good
faith based upon assumptions believed to be reasonable and applied in a
manner consistent with past practice. The Financial Projections
are based on (1) the current business plans for the Reorganized Debtors and
the assumptions set forth in Exhibit H and (2) information available as of
February 28, 2002, updated in certain respects to May 20, 2002 related
principally to the relevant terms of the Plan. While as of the date of this
Disclosure Statement the economic, competitive and general business
conditions prevailing as of February 28, 2002 have not materially changed,
any future changes in these conditions may materially impact the ability of
New NTL and Euroco to achieve the Financial Projections.
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARD COMPLYING
WITH THE GUIDELINES FOR PROSPECTIVE FINANCIAL STATEMENTS PUBLISHED BY THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. NEITHER THE DEBTORS'
INDEPENDENT AUDITORS NOR ANY OTHER INDEPENDENT ACCOUNTANTS HAVE COMPILED OR
EXAMINED THE ACCOMPANYING PROSPECTIVE FINANCIAL INFORMATION TO DETERMINE
THE REASONABLENESS THEREOF AND, ACCORDINGLY, HAS NOT EXPRESSED AN OPINION
OR ANY OTHER FORM OF ASSURANCE WITH RESPECT THERETO. NOTHING IN THIS
SECTION XIII OR EXHIBITS G AND H SHALL FORM PART OF THE UK PROSPECTUS
PURSUANT TO THE POS REGULATIONS, DETAILS OF WHICH ARE SET OUT IN THE
DISCLAIMER AT THE FRONT OF THIS DISCLOSURE STATEMENT.
THE DEBTORS DO NOT AS A MATTER OF COURSE MAKE PUBLIC PROJECTIONS
AS TO FUTURE REVENUES, EARNINGS, OR OTHER RESULTS. HOWEVER, THE DEBTORS'
MANAGEMENT HAS PREPARED THE FINANCIAL PROJECTIONS SET FORTH BELOW TO COMPLY
WITH THE REQUIREMENTS OF THE BANKRUPTCY CODE. THE ACCOMPANYING PROSPECTIVE
FINANCIAL INFORMATION WAS NOT PREPARED WITH A VIEW TOWARD PUBLIC
DISCLOSURE, BUT, IN THE VIEW OF MANAGEMENT, WERE PREPARED ON A REASONABLE
BASIS, REFLECT THE BEST CURRENTLY AVAILABLE ESTIMATES AND JUDGMENTS, AND
PRESENT, TO THE BEST OF MANAGEMENT'S KNOWLEDGE AND BELIEF, THE EXPECTED
COURSE OF ACTION AND THE EXPECTED FUTURE FINANCIAL PERFORMANCE OF THE
REORGANIZED DEBTORS. HOWEVER, THIS INFORMATION IS NOT FACT AND SHOULD NOT
BE RELIED UPON AS BEING NECESSARILY INDICATIVE OF FUTURE RESULTS, AND
READERS OF THIS DISCLOSURE STATEMENT ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THE FINANCIAL PROJECTIONS. ACCORDINGLY, THE DEBTORS DO NOT
INTEND, AND DISCLAIM ANY OBLIGATION, TO (A) FURNISH UPDATED PROJECTIONS TO
HOLDERS OF CLAIMS OR INTERESTS PRIOR TO THE EFFECTIVE DATE OR TO HOLDERS OF
NEW NTL COMMON STOCK OR EUROCO COMMON STOCK, OR ANY OTHER PARTY AFTER THE
EFFECTIVE DATE, (B) INCLUDE SUCH UPDATED INFORMATION IN ANY DOCUMENTS THAT
MAY BE REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, OR
(C) OTHERWISE MAKE SUCH UPDATED INFORMATION PUBLICLY AVAILABLE.
THE PROJECTIONS PROVIDED IN THIS DISCLOSURE STATEMENT HAVE BEEN
PREPARED EXCLUSIVELY BY THE DEBTORS' MANAGEMENT, EXCEPT FOR PROJECTIONS
RELATING TO THE MINORITY HOLDINGS, WHICH HAVE BEEN PREPARED BY THE
MANAGEMENT OF THE RESPECTIVE MINORITY HOLDINGS. THESE PROJECTIONS, WHILE
PRESENTED WITH NUMERICAL SPECIFICITY, ARE NECESSARILY BASED ON A VARIETY OF
ESTIMATES AND ASSUMPTIONS WHICH, THOUGH CONSIDERED REASONABLE BY
MANAGEMENT, MAY NOT BE REALIZED, AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF
WHICH ARE BEYOND THE DEBTORS' CONTROL. NO REPRESENTATIONS CAN BE MADE AS TO
THE ACCURACY OF THESE FINANCIAL PROJECTIONS OR TO THE REORGANIZED DEBTORS'
ABILITY TO ACHIEVE THE PROJECTED RESULTS. SOME ASSUMPTIONS INEVITABLY WILL
NOT MATERIALIZE. FURTHER, EVENTS AND CIRCUMSTANCES OCCURRING SUBSEQUENT TO
THE DATE ON WHICH THESE PROJECTIONS WERE PREPARED MAY BE DIFFERENT FROM
THOSE ASSUMED OR, ALTERNATIVELY, MAY HAVE BEEN UNANTICIPATED, AND THUS THE
OCCURRENCE OF THESE EVENTS MAY AFFECT FINANCIAL RESULTS IN A MATERIAL AND
POSSIBLY ADVERSE MANNER. THE PROJECTIONS, THEREFORE, MAY NOT BE RELIED UPON
AS A GUARANTY OR OTHER ASSURANCE OF THE ACTUAL RESULTS THAT WILL OCCUR.
FINALLY, THE FOLLOWING PROJECTIONS INCLUDE ASSUMPTIONS AS TO THE
ENTERPRISE VALUE OF THE REORGANIZED DEBTORS, THE FAIR VALUE OF THEIR ASSETS
AND THEIR ACTUAL LIABILITIES AS OF AUGUST 31, 2002. THE REORGANIZED DEBTORS
WILL BE REQUIRED TO MAKE SUCH ESTIMATIONS AS OF THE EFFECTIVE DATE. SUCH
DETERMINATION WILL BE BASED UPON THE FAIR VALUES AS OF THAT DATE, WHICH
COULD BE MATERIALLY GREATER OR LOWER THAN THE VALUES ASSUMED IN THE
FOREGOING ESTIMATES.
B. Best Interests Test
Pursuant to section 1129(a)(7) of the Bankruptcy Code (also called
the "best interests" test), the Bankruptcy Code requires that each holder
of an impaired claim or interest either (i) accept the plan or (ii) receive
or retain under the plan property of a value, as of the effective date,
that is not less than the value such holder would receive or retain if the
debtor were liquidated under Chapter 7 of the Bankruptcy Code on the
effective date. The first step in meeting this test is to determine the
dollar amount that would be generated from the hypothetical liquidation of
the debtor's assets in the context of a liquidation in a Chapter 7 case.
To calculate the probable distribution to members of each impaired
class of holders of claims and equity interests if a debtor were liquidated
under Chapter 7, the Bankruptcy Court must first determine the aggregate
dollar amount that would be generated from the debtor's assets if its
Chapter 11 case were converted to a Chapter 7 case under the Bankruptcy
Code. This "liquidation value" would consist primarily of the proceeds from
a forced sale of the debtor's assets by a Chapter 7 trustee.
The amount of liquidation value available to holders of unsecured
claims against and interests in the debtor would be reduced by, first,
secured claims (to the extent of the value of their collateral), and
second, by the costs and expenses of liquidation, as well as by other
administrative expenses and costs of both the Chapter 7 case and the
Chapter 11 case. Costs of a liquidation of the debtor under Chapter 7 of
the Bankruptcy Code would include the compensation of a Chapter 7 trustee,
as well as of attorneys and other professionals retained by the trustee,
asset disposition expenses, all unpaid expenses incurred by the debtor in
the Chapter 11 case (such as compensation of attorneys, financial advisors,
and accountants) that are allowed in the Chapter 7 case, litigation costs,
and claims arising from the operations of the debtor during the pendency of
the Chapter 11 case. The liquidation itself could trigger certain priority
payments that otherwise would be due in the ordinary course of business.
Those priority claims would be paid in full from the liquidation proceeds
before the balance would be made available to pay unsecured claims or to
make any distribution in respect of equity interests. The liquidation could
also prompt the rejection of executory contracts and unexpired leases and
thereby create a significantly greater amount of unsecured claims.
In a Chapter 7 liquidation, no junior class of claims may be paid
unless all classes of claims senior to such junior class are paid in full.
Section 510(a) of the Bankruptcy Code provides that subordination
agreements are enforceable in a bankruptcy case to the same extent that
such subordination is enforceable under applicable non-bankruptcy law.
Therefore, no class of claims that is contractually subordinated to another
class would receive any payment on account of its claims, unless and until
such senior class were paid in full.
Once the Bankruptcy Court determines the recoveries in liquidation
of the debtor's secured and priority creditors, it would then determine the
probable distribution to unsecured creditors from the remaining available
proceeds of the liquidation. If this probable distribution has a value
greater than the distributions to be received by the unsecured creditors
under the plan, then the plan is not in the best interests of creditors and
cannot be confirmed by the Bankruptcy Court. As shown in the Liquidation
Analysis prepared by the Debtors with the assistance of Kane Reece, its
financial advisors, which is annexed hereto as Exhibit G, the Debtors
believe that each Class of Impaired Claims and Interests will receive under
the Plan not less than it would receive if the Debtors were liquidated.
C. Liquidation Analysis
As noted above, the Debtors believe that under the Plan each
holder of Impaired Claims and Interests will receive distributions with a
value not less than the value such holder would receive in a liquidation of
the Debtors under Chapter 7 of the Bankruptcy Code. The Debtors' belief is
based primarily upon (i) consideration of the effects that a Chapter 7
liquidation would have on the ultimate proceeds available for distribution
to creditors including, but not limited to, (a) the increased costs and
expenses of a liquidation under Chapter 7 arising from fees payable to a
Chapter 7 trustee and advisors to the trustee, (b) any erosion in value of
assets in a Chapter 7 case in the context of the rapid liquidation required
under Chapter 7 and the "forced sale" atmosphere that would prevail, (c)
any adverse effects on the Debtors' businesses as a result of the likely
departure of key employees, (d) any increase in Claims, such as estimated
contingent Claims or guaranties stemming from funding commitments of the
Debtors' joint venture business units, (e) any reduction of value
associated with a Chapter 7 trustee's operation of the Debtors' businesses,
and (f) any substantial delay in distributions to the Debtors' Creditors
that may ensue in a Chapter 7 liquidation, and (ii) the Liquidation
Analysis. Holders of Impaired Claims and Interests should note that the
Liquidation Analysis does not reflect any delay in distributions to
creditors in a liquidation scenario, which, if considered, would only
further reduce the present value of any liquidation proceeds. Potential
delays could be caused by regulatory issues and could delay receipt of
proceeds from the liquidation of the Debtors' business units.
The Debtors believe that any liquidation analysis is speculative
because such an analysis is necessarily premised upon assumptions and
estimates that are inherently subject to significant uncertainties and
contingencies, many of which would be beyond the control of the Debtors.
Thus, there can be no assurance as to values that would actually be
realized or that a sale could, in fact, be consummated in a Chapter 7
liquidation, nor can there be any assurance that the Bankruptcy Court would
accept the Debtors' conclusions or concur with such assumptions in making
its determinations under section 1129(a)(7) of the Bankruptcy Code.
For example, the Liquidation Analysis necessarily contains an
estimate of the amount of Claims that will ultimately become Allowed
Claims. This estimate is based solely upon the Debtors' review of their
books and records and the Debtors' estimates as to additional Claims, if
any, that may be filed in the Chapter 11 Cases or that would arise in the
event of a conversion of the cases from Chapter 11 to Chapter 7. No order
or finding has been entered by the Bankruptcy Court fixing the amount of
Claims at the projected amounts of Allowed Claims set forth in the
Liquidation Analysis. In preparing the Liquidation Analysis, the Debtors'
have projected an amount of Allowed Claims that is at the lower end of a
range of reasonableness such that, for purposes of the Liquidation
Analysis, the largest possible liquidation dividend to holders of Allowed
Claims can be assessed. The estimate of the amount of Allowed Claims set
forth in the Liquidation Analysis should not be relied upon for any other
purpose, including, without limitation, any determination of the value of
any distribution to be made on account of Allowed Claims or Interests under
the Plan. The Liquidation Analysis is provided solely to disclose to
holders the effects of a hypothetical Chapter 7 liquidation of the Debtors,
subject to the assumptions set forth therein.
To the extent that confirmation of the Plan requires the
establishment of amounts for the Chapter 7 liquidation value of the
Debtors, funds available to pay Claims, and the reorganization value of the
Debtors, the Bankruptcy Court will determine those amounts at the
Confirmation Hearing. Accordingly, the annexed Liquidation Analysis is
provided solely to disclose to holders the effects of a hypothetical
Chapter 7 liquidation of the Debtors, subject to the assumptions set forth
therein.
D. Valuation Of The Reorganized Debtors
In connection with confirmation of the Plan, the Bankruptcy Court
may be asked to determine the enterprise value of the Reorganized Debtors
after giving effect to the Restructuring. The enterprise value of a
reorganized entity often is used by a bankruptcy court for the purpose of
evaluating the consideration that creditors and holders of equity interests
will receive under a plan of reorganization. Accordingly, the Debtors
requested that CSFB, their prepetition financial advisor in connection with
the negotiation of the Restructuring, provide the Debtors with estimates of
enterprise values of New NTL and Euroco, after giving effect to the
Restructuring as set forth in the Plan.
1. Valuation Overview
THE ESTIMATED ENTERPRISE VALUES SET FORTH HEREIN REPRESENT
HYPOTHETICAL REORGANIZATION ENTERPRISE VALUES THAT WERE DEVELOPED SOLELY
FOR THE PURPOSE OF THE PLAN.
In preparing its analysis, CSFB, among other things: (a) reviewed
certain financial statements of the Debtors for recent years and interim
periods; (b) reviewed certain internal financial and operating data
prepared by the Debtors' management; (c) reviewed the financial projections
for the Reorganized Debtors prepared by the Debtors covering periods
through December 31, 2006; (d) prepared a discounted cash flow analysis for
the business of the Debtors based on such financial projections; (e)
reviewed certain publicly available financial and stock market information
of certain publicly traded companies believed to be comparable to the
Debtors in one or more respects; (f) considered the financial terms, to the
extent publicly available, of certain historical acquisitions of companies
and businesses believed to be comparable to the Debtors in one or more
respects; (g) discussed the current operations and prospects of the
business with the Debtors' management; (h) reviewed the Plan and this
Disclosure Statement; and (i) made such other analyses and examinations as
CSFB deemed necessary or appropriate.
The preparation of a valuation analysis is a complex analytical
process involving various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods
to particular facts and circumstances, many of which are beyond the control
of the Debtors and CSFB. The estimated total enterprise value for the
Debtors indicated by CSFB's analysis is not necessarily indicative of the
price at which the common stock or other securities of the Debtors may be
bought or sold after giving effect to the Restructuring, as set forth in
the Plan, or predictive of future financial or operating results for the
Debtors, which may be significantly more or less favorable than those
indicated by CSFB's analysis.
Certain of the financial results set forth in the financial
forecasts prepared and provided to CSFB by the Debtors' management are
materially better than recent historical results of operations for the
Debtors. CSFB's analyses are dependent upon the Reorganized Debtors
achieving management's forecasts, and, consequently, such estimates must be
considered speculative and inherently subject to substantial uncertainty.
CSFB has not independently evaluated the reasonableness of the Debtors'
projections. Because projections by definition are forward looking, certain
of the financial results projected by the Debtors' management may differ
from the recent historical results of operations for the Debtors and from
future actual results of operations.
The summary set forth below does not purport to be a complete
description of the analysis performed by CSFB. The preparation of a
valuation estimate involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an
estimate is not readily susceptible to summary description. In performing
its analysis, CSFB made numerous assumptions with respect to business and
economic conditions and other matters which may not be necessarily
indicative of actual financial performance, business and economic
conditions, all of which may be significantly more or less favorable.
2. Methodology
In preparing its valuation, CSFB performed a variety of analyses,
and considered a variety of factors. A summary of certain of the analyses
and factors are described below. This summary of such analyses and factors
considered does not purport to be a complete description of the analyses
and factors considered.
In arriving at its conclusions, CSFB made judgments as to the
significance and relevance of each analysis and factor but did not assign
weights or consider any one analysis or factor to the exclusion of all
other analyses or factors. Accordingly, CSFB believes that its valuations
must be considered as a whole and that selecting portions of its analyses,
without considering all such analyses, could create a misleading or
incomplete view of the processes underlying the preparation of its findings
and conclusions. In its analyses, CSFB necessarily made numerous
assumptions with respect to the Debtors, industry performance, general
business, regulatory, economic, market and financial conditions and other
matters, many of which are beyond the Debtors' control. In addition,
analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at
which such businesses may be sold or securities will actually trade.
CSFB has employed a variety of valuation techniques in estimating
the Debtors' total enterprise value and applied such techniques to the
Debtors' various business segments. However, certain assets were not
included because, based on the Debtors' management's estimates, the values
of such assets were deemed immaterial. The total enterprise value consists
of both the debt and equity, less cash, of the Debtors. The three primary
methodologies used in calculating the total enterprise value for New NTL
were: (1) Comparables; (2) DCF; and (3) M&A. The primary methodology used
for calculating the total enterprise value for Euroco was DCF with respect
to the material businesses comprising Euroco.
a. Comparable Public Company Analysis
In a Comparables analysis, a company or business is valued by
comparing it with a publicly-held company in reasonably similar lines of
business.
After analyzing the Debtors, a range of comparable companies was
compiled from various sources including conversations with management. It
is frequently difficult to identify companies that are truly comparable to
the subject companies. Publicly-held corporations differ in terms of
markets, size, financial structure, organization and corporate strategies.
CSFB compared total enterprise values, calculated as equity value
on a fully diluted basis, plus debt, less cash, as a multiple of projected
earnings before interest, taxes, depreciation, and amortization, commonly
referred to as EBITDA. Estimated financial data for the selected companies
were based on publicly available research analysts' estimates and estimated
financial data for the Debtors were based on internal estimates of Debtors'
management. CSFB then applied a range of selected multiples derived from
the comparable companies to corresponding financial data of the Debtors.
b. Discounted Cash Flow Analysis
DCF is another method of estimating a company's value. The DCF
value represents the present value of unlevered, after-tax cash flows to
all providers of capital using a discount rate. The DCF valuation method
allows an expected operating strategy to be incorporated into a financial
projection model. In essence, the DCF method entails estimating the free
cash flow available to debt and equity investors (i.e., the annual cash
flows generated by the business) and a terminal value of the business at
the end of a time horizon and discounting these flows back to the present
using a discount rate to arrive at the present value of these flows. The
terminal value is determined by assuming the sale of the business at the
end of the time horizon.
The Debtors' projections reflect significant assumptions made by
the Debtors' management concerning anticipated results. The assumptions and
judgments used in the projections may or may not prove to be correct, and
there can be no assurance that projected results are attainable or will be
realized. Actual future results may vary significantly from the forecasts.
CSFB cannot and does not make any representations or warranties as to the
accuracy or completeness of the Debtors' projections.
CSFB performed various sensitivity analyses to two principal
variables within the DCF methodology: (1) the discount rate; and (2) the
exit multiple in the terminal year. These sensitivity analyses were
performed, and the resulting discounted cash flow valuations were
considered, in CSFB's analysis.
c. Mergers And Acquisitions Analysis
The comparable mergers and acquisitions analysis is another
methodology for estimating a company's enterprise value. Using this
methodology, CSFB compared enterprise values in certain selected
transactions as multiples of historical EBITDA. Estimated financial data
for the selected transactions were based on publicly available research
analysts' estimates, and estimated financial data for the Debtors were
based on internal estimates of the Debtors' management. CSFB then applied a
range of selected multiples derived from the selected transactions to
corresponding financial data of the Debtors.
For purposes of estimating the enterprise value of the Reorganized
Debtors, CSFB used the transaction values of a selected group of
transactions. As with the Comparables analysis, because no acquisition used
in any analysis is identical to a target transaction, valuation conclusions
cannot be based solely on quantitative results. The reasons for and
circumstances surrounding each acquisition transaction are specific to such
transaction and there are inherent differences between the businesses,
operations and prospects of each target.
3. Valuation Of The Reorganized Debtors
In connection with its review, CSFB did not assume any
responsibility for independent investigation or verification of any of the
information that was provided to or otherwise reviewed by it and relied on
such information being complete and accurate in all material respects. With
respect to the financial forecasts prepared and provided to CSFB by the
Debtors, CSFB was advised, and assumed, that the forecasts were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the Debtors' management as to the future financial performance
of the Debtors after giving effect to the proposed Restructuring as set
forth in the Plan. In addition, CSFB assumed that the Restructuring would
be completed in accordance with the terms of the Plan without any
amendments, modifications or waivers and also assumed that in the course of
obtaining the necessary consents and approvals for the proposed
Restructuring and related transactions, there would be no delays,
modifications or restrictions imposed that would have a material adverse
effect on the contemplated benefits of the proposed Restructuring as set
forth in the Plan. CSFB was not requested to, and did not, make an
independent evaluation or appraisal of the assets or liabilities,
contingent or otherwise, of the Debtors, and was not furnished with any
such evaluations or appraisals. CSFB's estimated total enterprise value for
the Debtors did not address any other aspect of the proposed Restructuring
or any related transactions or constitute a recommendation to any holder of
outstanding securities of the Debtors as to how such security holder should
vote or act on any matter relating to the Restructuring or any related
transaction. In addition, neither CSFB's valuation analysis nor its
estimated total enterprise value for the Debtors constituted an opinion as
to the fairness to holders of outstanding securities of the Debtors from a
financial point of view of the consideration to be received by such
security holders pursuant to the Restructuring.
CSFB's valuation analysis and estimated total enterprise value for
the Debtors were based on information available as of May 2, 2002, and
financial, economic, market and other conditions as they existed and could
be evaluated by CSFB on such date and assumed that the Restructuring became
effective on September 1, 2002. September 1, 2002 was selected as an
assumed date of effectiveness of the Restructuring so that there was a
close proximity between the time in which CSFB reviewed materials in
forming its valuation analysis and the date on which the Restructuring was
assumed to be completed. Although developments subsequent to May 2, 2002
may affect the results of CSFB's analysis, CSFB does not have any
obligation to update, revise or reaffirm its analysis or its estimated
total enterprise value for the Debtors.
CSFB has advised the Debtors that for purposes of the valuation
expressed below, CSFB assumed that, as of the Effective Date: (a) the
proposed capitalization of the Debtors will be as set forth in the Plan and
Disclosure Statement; (b) market, business and general economic conditions
will be similar to conditions observed; (c) financial and other information
furnished to CSFB by the Debtors and its professionals and the publicly
available information are accurate and complete in all material respects;
(d) the Plan is confirmed without material changes; and (e) each of New NTL
and Euroco will be able to obtain the capital, financing and refinancing
contemplated by the forecasts in the amounts, upon the terms and at the
times indicated herein or as otherwise required. Based upon its analyses,
the assumptions made, matters considered and limits of review as set forth
above, CSFB has advised the Debtors that, as of May 2, 2002, the estimated
total enterprise value of New NTL following the Restructuring is between
$10.9 billion and $12.9 billion and the estimated total enterprise value,
excluding subsidiary debt, of Euroco following the Restructuring is between
$230 million and $550 million. For purposes of CSFB's analyses, with the
Debtors' consent, CSFB assumed no exercise by the Cablecom Banks of their
right to require NTL Delaware, as more fully disclosed earlier in this
Disclosure Statement, to make any sale of or investment in the Cablecom
Group and the potential value of certain businesses because, based on the
Debtors' management's estimates, the values of such assets were deemed
immaterial. Any exercise of this right by the Cablecom Banks may have a
material adverse effect on the enterprise value of Euroco indicated by
CSFB's analyses.
The estimated total enterprise values do not purport to be an
appraisal or necessarily reflect the value that may be realized if assets
are sold. The estimated total enterprise values represent hypothetical
going-concern enterprise values for the Reorganized Debtors. Such estimate
reflects computations of the estimated going-concern enterprise values of
the Reorganized Debtors through the application of various valuation
techniques and does not purport to reflect or constitute an appraisal,
liquidation value, or estimate of the actual market value that may be
realized through the sale of any securities to be issued pursuant to the
Plan, which may be significantly different than the amounts set forth
herein. The value of an operating business such as the Reorganized Debtors'
businesses is subject to uncertainties and contingencies that are difficult
to predict and will fluctuate with changes in factors affecting the
financial condition and prospects of such a business. AS A RESULT, THE
ESTIMATED GOING-CONCERN ENTERPRISE VALUES OF THE REORGANIZED DEBTORS'
BUSINESSES SET FORTH HEREIN ARE NOT NECESSARILY INDICATIVE OF ACTUAL
OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR LESS FAVORABLE THAN THOSE SET
FORTH HEREIN. BECAUSE SUCH ESTIMATE IS INHERENTLY SUBJECT TO UNCERTAINTIES,
CSFB DOES NOT ASSUME RESPONSIBILITY FOR ITS ACCURACY.
4. Further Information On Valuation Of Euroco
In evaluating Euroco, CSFB separately evaluated each of the major
business units, including Cablecom, iesy (formerly eKabel), and B2.
o Cablecom and iesy provide cable television services in
Switzerland and Germany, respectively. B2 operates as a
"pure play" fiber-to-the-home operator, offering
high-speed data services in Sweden.
o Cablecom is the largest cable television provider in
Switzerland, with 54% market share. Unlike the United
States or UK, penetration levels for analog service are
already relatively high. Thus, growth at Cablecom is
dependent upon migrating customers from analog to digital
and an uptake in telephony services. Similar conditions
exist with respect to iesy.
o NTL Europe has a common management team that oversees all
of NTL's European assets. No centralized purchasing of
set-top boxes or programming is conducted on a group
basis, however.
o Network architecture of Cablecom and iesy is different
from that of United States or UK operators. The cable
networks of Switzerland and Germany are split between
"Level 3" operators, which have cable headends and most
of the local loop infrastructure, and "Level 4"
operators, which control the end user connections.
CSFB noted that market deterioration in the European cable
television sector and the lack of substantive transactions in the recent
past complicated any comparable company or comparable transactions
analysis. Therefore, CSFB focused on a DCF analysis, performing such
analysis by operating unit.
In evaluating Cablecom, CSFB:
o Determined an appropriate discount rate to be applied in
a DCF analysis of Cablecom by reference to the weighted
average cost of capital ("WACC") of United States cable
comparables as well as DCF assumptions utilized by the
Wall Street research community. The WACC of European
cable comparables was not considered relevant due to
prevailing distressed trading levels.
o CSFB utilized a range of discount rates from 12% to 14%
for its DCF analysis of Cablecom, adjusting the WACC of
United States cable comparables for factors including:
(i) new growth being dependent on the successful rollout
of consumer telephony and digital services, (ii) price
increases on basic cable tier services are subject to
regulatory oversight, and (iii) the restructuring process
at Cablecom, which may impact the business for the next
several quarters.
o CSFB used terminal value based on a 6.5 times to 8.5
times 2006 EBITDA.
o At the direction of management, CSFB allocated 100% of
NTL Europe shared resources costs (amounting to $12
million annually) to Cablecom.
o At the direction of management, CSFB assumed a tax rate
of 31% and assumed no taxes would be paid beginning in
2003 due to limited existing NOLs in Switzerland.
The lenders under the Cablecom Credit Facility have the option to
initiate a sale of the Cablecom Group after Euroco's emergence from
bankruptcy without consent from any other party. Should a sale occur on or
prior to August 31, 2003 and should the sale price exceed the face value of
the Cablecom bank debt outstanding, the lenders under the Cablecom Credit
Facility would retain 20% of the excess value.
CSFB's analysis assumes that the banks do not exercise such
option. In the event that they do, the implied equity value of Cablecom to
Euroco may be substantially reduced and could be zero.
In evaluating B2, CSFB used B2's business plan as the basis for
the DCF analysis. B2 is a pure play high-speed data operator, a start-up
opportunity to develop the Swedish market. NTL invested in B2 in 2000,
acquiring a 34% stake for $197.8 million.
o B2's business plan is only funded through the second
quarter of 2003. B2 is expecting to fund a capital call
this year for $21.0 million.
o The risks associated with executing the business plan
include, among others, an assumption that voice service
as well as video service will be successfully deployed
over the projection period.
o CSFB used a discount rate of 45% - 55%. Neither United
States cable companies nor European cable companies are
direct comparables for reasons that include, among
others: B2's sole focus on providing high speed data, the
start-up nature of the business, high requirements for
capital expenditures, and limited access to funding.
o CSFB used terminal multiples of 7.0 times to 9.0 times
2006 EBITDA.
o At the direction of management and due to start-up
losses, CSFB did not assume that B2 would be a taxpayer
through the projection period.
In evaluating iesy, CSFB used iesy's business plan as the basis
for the DCF analysis. iesy is the largest cable television company in
Hessen, and Hessen includes Frankfurt and has the highest per capita GDP of
the nine cable regions in Germany. NTL invested in iesy in August 2000,
acquiring a 32.5% stake for $158.5 million.
o iesy had access to credit lines totaling (U)850 million.
iesy's business plan presumes the company is currently
fully funded.
o The business plan for iesy assumes that voice as well as
digital cable will be successfully deployed in 2003.
o The architecture of the German market (Level 3 and Level
4) makes United States cable companies not directly
comparable.
o CSFB used a discount rate of 20% - 24%, noting that (i)
iesy's high yield bonds were trading at "distressed"
levels and (ii) iesy's business plan calls for a
significant amount of capital to be spent between 2003 -
2006.
o CSFB used terminal multiples of 7.0 times to 9.0 times
2006 EBITDA.
o At the direction of management, CSFB used a tax rate of
31% and assumed no taxes would be paid until 2005 due to
utilization of existing NOLs.
Utilizing the assumptions set forth above, CSFB performed a DCF
analysis and then selected a range of $150 - $400 million for Cablecom, $40
- - $60 million for B2 and $40 - $90 million for iesy. The valuation
attributed no value to other minority interests to be included in Euroco in
determining a projected enterprise value for Euroco of $230 - $550 million.
5. Further Information On Euroco Projections
The projections used in the DCF analysis of Euroco were prepared
by the Debtors and were primarily derived from Cablecom's business plan.
Cablecom currently serves over 95% of the homes passed by its network with
the basic cable offering. Cablecom is just beginning to offer advanced
services such as digital cable, high-speed data and internet access and
telephone. A significant portion of the investment required to provide
these advanced services has already been made, however. Therefore, growth
in Cablecom's business is expected to be robust as Cablecom transitions
from its investment phase and customers begin to take more than a single
offering.
Specific underlying assumptions regarding this transition to a
"triple play" model include the following:
o Basic subscriber penetration rates stay relatively flat
throughout the projection period as existing penetration
rates are already high (in excess of 95%).
o Digital subscriber penetration rates increase from
approximately 9% of digital-ready homes passed in 2002 to
approximately 28% in 2006.
o Cablemodem, or high speed data, penetration rates
increase from approximately 29% of high speed data homes
passed in 2002 to approximately 45% in 2006.
o Consumer telephony is launched in 2002, and penetration
rates associated with this new offering increase to
approximately 33% of telephony-ready homes passed in
2006.
The growth in advanced services is expected to contribute to
overall revenue and cash flow growth as Cablecom begins to leverage the
significant network investment. Specifically, Cablecom's plan reflects:
o Compound annual revenue growth of approximately 24%
between 2002 and 2006.
o EBITDA margin expansion from approximately 33% in 2002 to
approximately 48% by the end of 2006.
o Reduced capital expenditures as a percentage of total
revenues, with such percentage declining from 33% in 2002
to 17% by the end of 2006 as the majority of capital
spending becomes based on customer utilization.
Cablecom also is anticipating growth in its business services
unit, which provides telecommunications services to small and medium-sized
businesses. In 2002, Cablecom's business operations are expected to
contribute 7% to total revenue, which is expected to increase to 11% in
2006.
Working capital assumptions used in the projections are consistent
with Cablecom's historical experience.
As Cablecom is the primary consolidated asset of Euroco, the
projections for Euroco set forth in Exhibit H to the Disclosure Statement
are substantially related to the foregoing assumptions.
XIV. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
The Debtors believe the Plan affords holders of Claims and
Interests the potential for the greatest realization on the Debtors' assets
and, therefore, is in the best interests of such holders. If, however, the
requisite acceptances are not received, or the Plan is not subsequently
confirmed and consummated, the theoretical alternatives include (i)
formulation of an alternative plan of reorganization or (ii) liquidation of
the Debtors under Chapter 7 or 11 of the Bankruptcy Code.
A. Alternative Plan
If the requisite acceptances are not received or if the Plan is
not confirmed, the Debtors, or, if the Debtors' exclusive periods in which
to file and solicit acceptances of a reorganization plan have expired, any
other party-in-interest, could attempt to formulate and propose a different
plan of reorganization. Such a plan might involve either a reorganization
and continuation of the Debtors' businesses or an orderly liquidation of
assets.
With respect to an alternative plan, the Debtors have explored
various other alternatives in connection with the extensive negotiation
process involved in the formulation and development of the Plan. The
Debtors believe that the Plan, which is the result of extensive
negotiations between, among others, the Debtors, the Noteholders' Steering
Committee, the Preferred Shareholders, and their professional
representatives, enables the holders of Claims against and Interests in the
Debtors to realize the greatest possible value under the circumstances and,
that as compared to any alternative plan of reorganization, the Plan has
the greatest chance to be confirmed and consummated.
B. Liquidation Under Chapter 7 Or Chapter 11
If no plan is confirmed, the Chapter 11 Cases may be converted to
cases under Chapter 7 of the Bankruptcy Code, pursuant to which a trustee
would be elected or appointed to liquidate the Debtors' assets for
distribution in accordance with the priorities prescribed by the Bankruptcy
Code. It is impossible to predict precisely how the proceeds of the
liquidation would be distributed to the respective holders of Claims
against or Interests in the Debtors.
The Debtors believe that in a liquidation under Chapter 7, before
holders of Claims against and Interests in the Debtors receive any
distribution, additional administrative expenses arising from the
appointment of a trustee and attorneys, accountants, and other
professionals to assist such trustee would cause a substantial diminution
in the value of the Debtors' Estates. The assets available for distribution
to holders of Claims against and Interests in the Debtors would be reduced
by such additional expenses and by Claims, some of which would be entitled
to priority, which would arise by reason of the liquidation and from the
rejection of leases and other executory contracts in connection with the
cessation of operations and the failure to realize the greater going
concern value of the Debtors' assets.
The Debtors could also be liquidated pursuant to the provisions of
a Chapter 11 plan of reorganization. In a liquidation under Chapter 11, the
Debtors' assets could be sold in an orderly fashion over a more extended
period of time than in a liquidation under Chapter 7. Thus, a Chapter 11
liquidation might result in larger recoveries than in a Chapter 7
liquidation, but the delay in distributions could result in lower present
values received and higher administrative costs. Because a trustee is not
required in a Chapter 11 case, expenses for professional fees could be
lower than in a Chapter 7 case, in which a trustee must be appointed. Any
distribution to the holders of Claims and Interests under a Chapter 11
liquidation plan probably would be delayed substantially.
The Debtors believe that, although preferable to a Chapter 7
liquidation, any alternative liquidation under Chapter 11 is a much less
attractive alternative than the Plan to holders of Claims against and
Interests in the Debtors.
THE DEBTORS BELIEVE THAT THE PLAN AFFORDS SUBSTANTIALLY GREATER BENEFITS TO
CREDITORS AND INTEREST HOLDERS THAN WOULD A LIQUIDATION UNDER CHAPTER 7 OR
CHAPTER 11 OF THE BANKRUPTCY CODE.
The Liquidation Analysis, prepared by the Debtors with the
assistance of Kane Reece, is premised upon a liquidation in a Chapter 7
case. In the Liquidation Analysis, the Debtors have taken into account the
nature, status, and underlying value of their assets, the ultimate
realizable value of such assets, and the extent to which the assets are
subject to Liens and security interests.
The likely form of any liquidation would be the sale of individual
assets. Based on this analysis, it is likely that a liquidation of the
Debtors' assets would produce less value for distribution to creditors than
that recoverable in each instance under the Plan. In the Debtors' opinion,
the recoveries projected to be available in liquidation are not likely to
afford holders of Claims as great a realization potential as does the Plan.
XV. SOLICITATION; VOTING PROCEDURES
A. Voting Deadline
On July 12, 2002, the Bankruptcy Court entered the Solicitation
Procedures Order, approving, among other things, this Disclosure Statement
and the Debtors' proposed forms of Ballots and the Confirmation Hearing
Notice, and establishing certain solicitation, voting, and tabulation
procedures with respect to voting on the Plan. A copy of the Confirmation
Hearing Notice, which sets forth in detail, among other things, the
procedures governing voting deadlines and objection deadlines, is enclosed
with this Disclosure Statement. The Confirmation Hearing Notice and the
instructions annexed to the Ballots should be read in connection with this
section of this Disclosure Statement.
B. Voting Procedures
Under the Bankruptcy Code, for purposes of determining whether the
requisite acceptances have been received, only holders of Impaired Claims
and Impaired Interests who actually vote will be counted. The failure of a
holder to deliver a duly executed Ballot will be deemed to constitute an
abstention by such holder with respect to voting on the Plan and such
abstentions will not be counted as votes for or against the Plan.
The Debtors are providing copies of this Disclosure Statement
(including all Exhibits) and related materials and, where appropriate,
Ballots (in either case, a "Solicitation Package"), to registered holders
of their Debt Securities, Old Preferred Stock, and Old Common Stock.
Registered holders may include brokerage firms, commercial banks, trust
companies, or other Nominees. If such entities do not hold for their own
account, they should provide copies of the Solicitation Package (including,
in the case of the Debt Securities and Old Preferred Stock, the appropriate
Ballot) to their customers and to beneficial owners of Debt Securities or
Old Preferred Stock. Any beneficial owner of Debt Securities or Old
Preferred Stock who has not received a Ballot should contact his/her or its
Nominee, or the Solicitation Agent.
Persons or entities voting on the Plan must provide all of the
information requested by the Ballot(s) they receive. Such Persons or
entities should complete and return all Ballots in the return envelope
provided with each such Ballot.
C. Special Note For Holders Of Debt Securities And Equity Securities
The Voting Record Date for determining which holders of Debt
Securities and Old Preferred Stock are (i) entitled to vote on the Plan and
(ii) eligible to participate in the Offerings was May 9, 2002. The
Indenture Trustees for the Debt Securities will not vote on behalf of the
holders of such Debt Securities. Holders must submit their own Ballots.
1. Beneficial Owners
a. A beneficial owner holding a Debt Security or Old
Preferred Stock as record holder in its own name should vote on the Plan by
completing and signing the enclosed Ballot and returning it directly to the
Solicitation Agent on or before the Voting Deadline using the enclosed
self-addressed, postage-paid envelope.
b. A beneficial owner holding a Debt Security or Old
Preferred Stock in "street name" through a nominee may vote on the Plan by
one of the following two methods (as selected by such beneficial owner's
Nominee). See "Solicitation; Voting Procedures -- Special Note For Holders
Of Debt Securities And Old Preferred Stock -- Nominees."
o Complete and sign the enclosed beneficial owner
Ballot. Return the Ballot to your Nominee as
promptly as possible and in sufficient time to
allow such Nominee to process the Ballot and
return it to the Solicitation Agent by the
Voting Deadline. If no self-addressed, postage-
paid envelope was enclosed for this purpose,
contact the Solicitation Agent for instructions;
or
o Complete and sign the pre-validated Ballot (as
described below) provided to you by your
Nominee. Return the pre-validated Ballot to the
Solicitation Agent by the Voting Deadline using
the return envelope provided in the Solicitation
Package.
Any Ballot returned to a Nominee by a beneficial owner will not be
counted for purposes of acceptance or rejection of the Plan until such
Nominee properly completes and delivers to the Solicitation Agent that
Ballot or a Master Ballot that reflects the vote of such beneficial owner.
If any beneficial owner owns Debt Securities or Old Preferred
Stock through more than one Nominee, such beneficial owner may receive
multiple mailings containing the Ballots. The beneficial owner should
execute a separate Ballot for each block of Debt Securities or Old
Preferred Stock that it holds through any particular Nominee and return
each Ballot to the respective Nominee in the return envelope provided
therewith. Beneficial owners who execute multiple Ballots with respect to
Debt Securities held through more than one Nominee must indicate on each
Ballot the names of ALL such other Nominees and the additional amounts of
such Debt Securities or Old Preferred Stock so held and voted. If a
beneficial owner holds a portion of its Debt Securities through a Nominee
and another portion as a record holder, the beneficial owner should follow
the procedures described in subparagraph (1) (a) above to vote the portion
held of record and the procedures described in subparagraph (1) (b) above
to vote the portion held through a Nominee or Nominees.
2. Nominees
A Nominee that on the Voting Record Date is the registered holder
of Debt Securities or Old Preferred Stock for a beneficial owner can obtain
the votes of the beneficial owners of such Debt Securities or Old Preferred
Stock, consistent with customary practices for obtaining the votes of
securities held in "street name," in one of the following two ways:
a. Pre-Validated Ballots
The Nominee may "pre-validate" a Ballot by (i) signing the Ballot;
(ii) indicating on the Ballot the name of the registered holder, the amount
of Debt Securities or Old Preferred Stock held by the Nominee for the
beneficial owner, and the account number(s) for the account(s) in which
such Debt Securities or Old Preferred Stock are held by the Nominee; and
(iii) forwarding such Ballot, together with the Disclosure Statement,
return envelope and other materials requested to be forwarded, to the
beneficial owner for voting. The beneficial owner must then complete the
information requested in the Ballot, review the certifications contained in
the Ballot, and return the Ballot directly to the Solicitation Agent in the
pre-addressed, postage-paid envelope so that it is RECEIVED by the
Solicitation Agent before the Voting Deadline. A list of the beneficial
owners to whom "pre-validated" Ballots were delivered should be maintained
by Nominees for inspection for at least one year from the Voting Deadline;
or
b. Master Ballots
If the Nominee elects not to prevalidate Ballots, the Nominee may
obtain the votes of beneficial owners by forwarding to the beneficial
owners the unsigned Ballots, together with the Disclosure Statement, a
return envelope provided by, and addressed to, the Nominee, and other
materials requested to be forwarded. Each such beneficial owner must then
indicate his/ her or its vote on the Ballot, complete the information
requested in the Ballot, review the certifications contained in the Ballot,
execute the Ballot, and return the Ballot to the Nominee. After collecting
the Ballots, the Nominee should, in turn, complete a Master Ballot
compiling the votes and other information from the Ballot, execute the
Master Ballot, and deliver the Master Ballot to the Solicitation Agent so
that it is RECEIVED by the Solicitation Agent before the Voting Deadline.
All Ballots returned by beneficial owners should either be forwarded to the
Solicitation Agent (along with the Master Ballot) or retained by Nominees
for inspection for at least one year from the Voting Deadline. EACH NOMINEE
SHOULD ADVISE ITS BENEFICIAL OWNERS TO RETURN THEIR BALLOTS TO THE NOMINEE
BY A DATE CALCULATED BY THE NOMINEE TO ALLOW IT TO PREPARE AND RETURN THE
MASTER BALLOT TO THE SOLICITATION AGENT SO THAT IT IS RECEIVED BY THE
SOLICITATION AGENT BEFORE THE VOTING DEADLINE.
3. Securities Clearing Agencies
The Debtors expect that The Depository Trust Company, as a Nominee
holder of Debt Securities, will arrange for its participants to vote by
executing an omnibus proxy in favor of such participants. As a result of
the omnibus proxy, such participants will be authorized to vote their
Voting Record Date positions held in the name of The Depository Trust
Company. The Debtors further expect that Clearstream and Euroclear will
transmit the votes of participants in customary fashion, and may transmit
voting confirmations electronically as customary.
4. Miscellaneous
For purposes of voting to accept or reject the Plan, the
beneficial owners of Debt Securities, Old Preferred Stock or Old Common
Stock will be deemed to be the "holders" of the Claims or Interests, as the
case may be, represented by such Debt Securities or Old Preferred Stock, or
Old Common Stock. Unless otherwise ordered by the Bankruptcy Court, Ballots
or Master Ballots that are signed, dated and timely received, but on which
a vote to accept or reject the Plan has not been indicated, will not be
counted. The Debtors, in their sole discretion, may request that the
Solicitation Agent attempt to contact such voters to cure any such defects
in the Ballots or Master Ballots.
Except as provided below, unless the Ballot or Master Ballot is
timely submitted to the Solicitation Agent before the Voting Deadline
together with any other documents required by such Ballot or Master Ballot,
the Debtors may, in their sole discretion, reject such Ballot or Master
Ballot as invalid, and therefore decline to utilize it in connection with
seeking confirmation of the Plan.
In the event of a dispute with respect to any Debt Securities
Claim, Old Preferred Stock Interest, or Old Common Stock Interest, any vote
to accept or reject the Plan cast with respect to such Claim or Interest
will not be counted for purposes of determining whether the Plan has been
accepted or rejected, unless the Bankruptcy Court orders otherwise.
5. Delivery Of Notes
The Debtors are NOT at this time requesting the delivery of, and
neither the Debtors nor the Solicitation Agent will accept, certificates
representing any Debt Securities, Old Preferred Stock, or Old Common Stock.
In connection with consummation of the Plan, the Debtors will furnish all
record holders of Debt Securities, Old Preferred Stock, or Old Common Stock
with appropriate letters of transmittal to be used to remit their Debt
Securities or Old Preferred Stock in exchange for their distributions under
the Plan. Information regarding such remittance procedure (together with
all appropriate materials) will be distributed by the Debtors after the
Confirmation Date.
If you have any questions about the procedure for voting your
Claim or Interest or about the packet of materials you received or wish to
obtain an additional copy of the Plan, the Plan Supplement, when available,
this Disclosure Statement, or any Exhibits to such documents, at your own
expense, unless otherwise specifically required by Fed. R. Bankr. P.
3017(d), please contact the Solicitation Agent:
Innisfree M&A Incorporated
501 Madison Avenue
20th Floor
New York, New York 10022
Telephone: (877) 750-2689
Banks and Brokers: (212) 750-5833
You may also obtain additional copies of the Plan and Disclosure
Statement by logging on to the Bankruptcy Court's website at
http://www.nysb.uscourts.gov. A password is needed to access case files.
Details on how to obtain a password are available on the Bankruptcy Court's
website.
D. Fiduciaries And Other Representatives
If a Ballot is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation, or another acting in
a fiduciary or representative capacity, such person should indicate such
capacity when signing and, unless otherwise determined by the Debtors, must
submit proper evidence satisfactory to the Debtors of authority to so act.
Authorized signatories should submit separate Ballots for each beneficial
owner for whom they are voting.
UNLESS THE BALLOT BEING FURNISHED TO YOU WITH THIS DISCLOSURE
STATEMENT (OR THE MASTER BALLOT CAST ON YOUR BEHALF) IS TIMELY SUBMITTED TO
THE SOLICITATION AGENT ON OR PRIOR TO THE VOTING DEADLINE TOGETHER WITH ANY
OTHER DOCUMENTS REQUIRED BY SUCH BALLOT, THE DEBTORS MAY, IN THEIR SOLE
DISCRETION, REJECT SUCH BALLOT AS INVALID AND, THEREFORE, DECLINE TO COUNT
IT AS AN ACCEPTANCE OR REJECTION OF THE PLAN. IN NO CASE SHOULD A BALLOT OR
MASTER BALLOT BE DELIVERED TO ANY ENTITY OTHER THAN THE NOMINEE OR THE
SOLICITATION AGENT, AND IN NO CASE SHOULD ANY DEBT SECURITIES, OLD
PREFERRED STOCK, OR OLD COMMON STOCK BE DELIVERED TO THE DEBTORS OR ANY OF
THEIR ADVISORS, INCLUDING THE SOLICITATION AGENT.
E. Parties In Interest Entitled To Vote
Under section 1124 of the Bankruptcy Code, a class of claims or
equity interests is deemed to be impaired under a plan unless (i) the plan
leaves unaltered the legal, equitable, and contractual rights to which such
claim or equity interest entitles the holder thereof or (ii)
notwithstanding any contractual provision or applicable law that entitles
the holder of such claim or interest to demand or receive accelerated
payment of such claim or interest after the occurrence of a default, the
plan (a) cures any default that occurred before or after the commencement
of the case, other than a default resulting from a debtor's financial
condition, bankruptcy, or failure to satisfy a penalty rate or nonmonetary
obligation, (b) reinstates the maturity of such claim or interest as such
maturity existed before such default, (c) compensates the holder of such
claim or interest for any damages incurred as a result of any reasonable
reliance by such holder on such contractual provision or such applicable
law, and (d) does not otherwise alter the legal, equitable or contractual
rights to which such claim or interest entitles the holder of such claim or
interest.
In general, a holder of a claim or equity interest may vote to
accept or to reject a plan if (i) the claim or equity interest is allowed,
which means generally that no party in interest has objected to such claim
or equity interest, and (ii) the claim or equity interest is impaired by
the Plan. If the holder of an impaired claim or interest will not receive
or retain any distribution under the plan in respect of such claim or
interest, the Bankruptcy Code deems such holder to have rejected the plan.
If the claim or interest is not impaired, the Bankruptcy Code deems that
the holder of such claim or interest has accepted the plan and the plan
proponent need not solicit such holder's vote.
Generally, the holder of a claim against the debtor that is
impaired under the plan is entitled to vote to accept or reject the plan if
the plan provides a distribution in respect of such claim and the claim is
deemed "allowed" for voting purposes. Any claim as to which an objection
has been timely filed and has not been withdrawn or dismissed is not
entitled to vote unless the Bankruptcy Court, pursuant to Fed. R. Bankr. P.
3018(a), upon application of the holder of the claim with respect to which
there has been objection, temporarily allows the claim in an amount that
the Bankruptcy Court deems proper for the purpose of accepting or rejecting
the Plan.
A vote may be disregarded if the Bankruptcy Court determines,
pursuant to section 1126(e) of the Bankruptcy Code, that it was not
solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code. The Solicitation Procedures Order also sets forth
assumptions and procedures for tabulating Ballots that are not completed
fully or correctly.
F. Classes Impaired Under The Plan
Class 6 Diamond Cable Notes Claims, Class 7 NTL CC Senior Notes
Claims, Class 8 NTL CC Subordinated Notes Claims, Class 9 NTL Delaware
Subordinated Notes Claims, Class 10 NTL Inc. Subordinated Notes Claims,
Class 11 Intercompany Claims, Class 12 Old Senior Preferred Stock
Interests, Class 13 Old Junior Preferred Stock Interests, and Class 14 Old
Common Stock Interests are Impaired under the Plan and entitled to vote on
the Plan. Class 1 Other Priority Claims, Class 2 Secured Claims, Class 3
General Unsecured Claims and Class 4 Diamond Holdings Notes Claims, are not
Impaired under the Plan, are deemed under section 1126(f) of the Bankruptcy
Code to have accepted the Plan, and their votes to accept or to reject the
Plan will not be solicited. All holders of Class 5 Subsidiary Common Stock
Interests are either unimpaired or have agreed to accept the Plan;
accordingly their votes will not be solicited. Class 15 Securities Claims
and Class 16 Other Old Equity Interests And Claims will receive no
distributions and will retain no property under the Plan, are deemed under
section 1126(g) of the Bankruptcy Code to have rejected the Plan, and their
votes to accept or reject the Plan will not be solicited.
XVI. FINANCIAL ADVISORS; SOLICITATION AGENT; FEES; EXPENSES;
AND OTHER ARRANGEMENTS
A. Credit Suisse First Boston
Pursuant to a letter agreement dated as of March 7, 2002 (the
"CSFB Engagement Letter"), NTL Inc., NTL Delaware, and NTL Communications
Limited, on behalf of themselves and their respective subsidiaries
(collectively, the "Companies"), engaged CSFB on a non-exclusive sole-lead
basis to act as the Companies' financial advisor in connection with the
restructuring of certain of NTL's debt and equity securities, including the
Restructuring and the Plan. The CSFB Engagement Letter provided for the
payment of certain cash fees (the "Fees") to CSFB, including: (i) a non-
refundable retainer fee of $2,000,000, payable upon execution of the CSFB
Engagement Letter; (ii) a monthly non- refundable cash fee of $250,000,
beginning on April 1, 2002 and ending on the termination date of the CSFB
Engagement Letter; (iii) a non-refundable cash progress payment of
$5,000,000, payable upon the occurrence of certain specified events; (iv) a
non-refundable cash payment of $10,000,000, payable upon the occurrence of
certain additional specified events, including receipt by NTL of sufficient
indications of support from its creditors to justify the filing of the
Plan; and (v) a non-refundable cash completion payment of $5,000,000 (less
certain payments already made to CSFB pursuant to the CSFB Engagement
Letter). In addition to the foregoing Fees, the CSFB Engagement Letter
provides that CSFB will be paid all reasonable out-of-pocket expenses
(including all reasonable fees and expenses of counsel) incurred by it
under the CSFB Engagement Letter (the "Expenses"). NTL agreed to indemnify
CSFB with respect to its services under the CSFB Engagement Letter, which
indemnification will survive termination of the CSFB Engagement Letter. As
of the Petition Date, NTL had paid approximately $18.6 million in Fees and
Expenses to CSFB pursuant to the terms of the CSFB Engagement Letter. The
CSFB Engagement Letter provides the Companies certain rights to terminate
the services of CSFB under such engagement letter.
B. J.P. Morgan plc
Pursuant to a letter agreement dated January 30, 2002, by and
among J.P. Morgan plc and the Companies, as amended as of March 29, 2002
(the "Original J.P. Morgan Engagement Letter"), the Companies engaged J.P.
Morgan plc on a non-exclusive basis to act as their financial advisor in
connection with the restructuring of certain of NTL's debt and equity
securities, including the Restructuring and the Plan. On May 2, 2002, the
Companies and J.P. Morgan plc entered into a further letter agreement (the
"Modified J.P. Morgan Letter Agreement"), pursuant to which they agreed to
amend the Original J.P. Morgan Engagement Letter. The Modified J.P. Morgan
Letter Agreement provides that in consideration for financial services
provided pursuant to the Original J.P. Morgan Engagement Letter, the
Companies would pay an aggregate cash fee not to exceed $6,000,000 to J.P.
Morgan plc. As of the Petition Date, NTL had paid approximately $6,000,000
to J.P. Morgan plc pursuant to these agreements.
C. Morgan Stanley & Co. Inc.
Pursuant to a letter agreement dated January 30, 2002, as amended
on April 4, 2002 (the "Original Morgan Stanley Engagement Letter"), the
Companies engaged Morgan Stanley & Co. Incorporated ("Morgan Stanley") on a
non- exclusive basis to act as their financial advisor in connection with
the restructuring of certain of NTL's debt and equity securities, including
the Restructuring and the Plan. On May 1, 2002, the Companies and Morgan
Stanley entered into a letter agreement (the "Modified Morgan Stanley
Letter Agreement"), pursuant to which they agreed to amend the Original
Morgan Stanley Engagement Letter. The Modified Morgan Stanley Letter
Agreement provides that in consideration for financial services provided
pursuant to the Original Morgan Stanley Engagement Letter, the Companies
would pay an aggregate cash fee not to exceed $6,000,000 to Morgan Stanley.
As of the Petition Date, NTL had paid approximately $6,000,000 to Morgan
Stanley pursuant to these agreements.
D. Arrangements Regarding Financial Advisory Services
On May 2, 2002, the Companies (on a joint and several basis), the
Noteholders' Steering Committee, J.P. Morgan plc, J.P. Morgan Chase, Morgan
Stanley Dean Witter Bank Limited and Morgan Stanley Senior Funding, Inc.
entered into a letter agreement to amend the existing engagement provisions
contained in the engagement letter dated May 17, 2000, among the Companies,
J.P. Morgan plc, J.P. Morgan Chase, Morgan Stanley Dean Witter Bank Limited
and Morgan Stanley Senior Funding, Inc. (the "Modified Engagement Letter")
as follows:
(1) J.P. Morgan plc and J.P. Morgan Chase (collectively, the "J.P.
Morgan Parties"), and Morgan Stanley Dean Witter Bank Limited and Morgan
Stanley Senior Funding, Inc. (collectively, the "Morgan Stanley Parties")
shall each be engaged on a non-exclusive basis by the Companies and their
respective subsidiaries as Joint Book Running Managers in any capital
market financing (other than the Offerings) entered into by the Companies
or any of their respective subsidiaries, the proceeds of which are used to
refinance all or any portion of the Working Capital Facility. In connection
with their engagement as Joint Book Running Managers, each of the J.P.
Morgan Parties and the Morgan Stanley Parties shall be entitled to receive
30% of the underwriting discount of the aggregate principal amount of such
capital markets issuance (the "Book Running Fee");
(2) the J.P. Morgan Parties and the Morgan Stanley Parties shall
each also be engaged on a non-exclusive basis by the Companies and their
respective subsidiaries as Co-Managers in any capital markets financing
(other than the Offerings, the New NTL Exit Facility or any alternative
financing) the proceeds of which are used to refinance the DIP Facility
and/or the New NTL Exit Facility. In connection with their engagement as
Co-Managers, each of the J.P. Morgan Parties and the Morgan Stanley Parties
shall be entitled to receive 10% of the underwriting discount of the
aggregate principal amount of such capital markets issuance (the "Managing
Fee"); and
(3) Each of the Companies agreed that after the refinancing of the
DIP Facility, the New NTL Exit Facility and/or the Working Capital
Facility, if the aggregate of the Book Running Fee and the Managing Fee
paid to each of the J.P. Morgan Parties and the Morgan Stanley Parties
pursuant to paragraphs (1) and (2) above is less than $3,000,000 per
institution, each of the Companies shall, on a joint and several basis, pay
or procure that there is paid to each of the J.P. Morgan Parties and the
Morgan Stanley Parties an amount equal to the amount by which $3,000,000
exceeds the aggregate of the fees paid to each such institution pursuant to
paragraphs (1) and (2) above; provided that if New NTL elects to use the
proceeds from the Offerings to satisfy the obligations and terminate the
commitments under the Working Capital Facility in full, no such amounts are
payable by the Companies pursuant to this paragraph.
From and after the Effective Date, the foregoing provisions of the
Modified Engagement Letter will be a joint and several obligation of NTL
Inc. and NTL Delaware (which will form part of Euroco), and NTL
Communications Limited (which will form part of New NTL).
E. Kane Reece
Pursuant to an engagement letter dated May 6, 2002, the Debtors
have retained Kane Reece to serve as financial consultants to the Debtors
during the pendency of the Chapter 11 Cases. The primary focus of Kane
Reece's engagement is to assist the Debtors with their preparation of the
Liquidation Analysis annexed to this Disclosure Statement as Exhibit G. The
Debtors will compensate Kane Reece in accordance with the terms of the
engagement letter, and currently expect that Kane Reece's fees and expenses
will be approximately $150,000 in the aggregate.
F. Innisfree M&A Incorporated
The Debtors have retained Innisfree M&A Incorporated ("Innisfree")
to serve as the Solicitation Agent in connection with the solicitation of
votes to accept or reject the Plan. The Debtors will pay Innisfree
reasonable and customary compensation for its services in connection with
the solicitation, plus reimbursement for its reasonable out-of- pocket
disbursements. Brokers, dealers, commercial banks, trust companies and
other Nominees will be reimbursed by the Debtors for customary mailing and
handling expenses incurred by them in forwarding materials to their
customers, but, with the exception of the Indenture Trustees for the Debt
Securities, will not otherwise be compensated for their services. The
Debtors also will pay any other fees and expenses attributable to the
solicitation.
RECOMMENDATION AND CONCLUSION
For all of the reasons set forth in this Disclosure Statement, the
Debtors, the Creditors' Committee, and the Preferred Shareholders, believe
that Confirmation and consummation of the Plan is preferable to all other
alternatives. Consequently, the Debtors, the Creditors' Committee, and the
Preferred Shareholders urge all eligible holders of Impaired Claims and
Impaired Interests to vote to ACCEPT the Plan, and to complete and return
their ballots so that they will be RECEIVED by the Solicitation Agent on or
before the Voting Deadline.
Dated: New York, New York
July 15, 2002
NTL INCORPORATED
NTL (DELAWARE), INC.
NTL COMMUNICATIONS CORP.
COMMUNICATIONS CABLE FUNDING CORP.
Debtors and Debtors-in-Possession
By: /s/ Barclay Knapp
---------------------------------------
Barclay Knapp
President and Chief Executive Officer
DIAMOND CABLE COMMUNICATIONS LIMITED
DIAMOND HOLDINGS LIMITED
Debtors and Debtors-in-Possession
By: /s/ Barclay Knapp
---------------------------------------
Barclay Knapp
Director
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
Attorneys for NTL Incorporated, et al.
Debtors and Debtors-in-Possession
By:/s/ Kayalyn A. Marafioti
---------------------------------
Kayalyn A. Marafioti (KM 9362)
Jay M. Goffman (JG 6722)
Lawrence V. Gelber (LG 9384)
Four Times Square
New York, New York 10036-6522
(212) 735-3000
EXHIBIT A
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO SECOND AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
SECOND AMENDED JOINT REORGANIZATION PLAN OF
NTL INCORPORATED AND CERTAIN SUBSIDIARIES
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - x
:
In re :
: Chapter 11
NTL INCORPORATED, et al., : Case No. 02-41316 (ALG)
: (Jointly Administered)
Debtors. :
:
- - - - - - - - - - - - - - - - - - - - - - - x
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Kayalyn A. Marafioti (KM 9362)
Jay M. Goffman (JG 6722)
Lawrence V. Gelber (LG 9384)
Four Times Square
New York, New York 10036-6522
(212) 735-3000
Attorneys for NTL Incorporated, et al.,
Debtors and Debtors-in-Possession
Dated: New York, New York
July 15, 2002
TABLE OF CONTENTS
INTRODUCTION.................................................................................................PLAN-1
ARTICLE I.
DEFINITIONS, RULES OF INTERPRETATION,
AND COMPUTATION OF TIME......................................................................................PLAN-1
A. Scope Of Definitions; Rules Of Construction...................................................PLAN-1
B. Definitions...................................................................................PLAN-1
C. Rules Of Interpretation......................................................................PLAN-18
1. General.................................................................................PLAN-18
2. "Including".............................................................................PLAN-18
3. "On"....................................................................................PLAN-18
4. "Contra Proferentum" Rule Not Applicable................................................PLAN-18
D. Computation Of Time..........................................................................PLAN-18
ARTICLE II.
CLASSIFICATION OF CLAIMS AND INTERESTS......................................................................PLAN-18
A. Introduction.................................................................................PLAN-18
B. Unclassified Claims..........................................................................PLAN-19
1. Administrative Claims...................................................................PLAN-19
2. Priority Tax Claims.....................................................................PLAN-19
C. Unimpaired Classes Of Claims.................................................................PLAN-19
1. Class 1: Other Priority Claims (All Debtors)...........................................PLAN-19
2. Class 2: Secured Claims (All Debtors)..................................................PLAN-19
3. Class 3: General Unsecured Claims (All Debtors)........................................PLAN-19
4. Class 4: Diamond Holdings Notes Claims.................................................PLAN-19
D. Impaired Classes Of Claims And Interests.....................................................PLAN-19
1. Class 5: Subsidiary Common Stock Interests.............................................PLAN-19
2. Class 6: Diamond Cable Notes Claims....................................................PLAN-20
3. Class 7: NTL CC Senior Notes Claims....................................................PLAN-20
4. Class 8: NTL CC Subordinated Notes Claims..............................................PLAN-20
5. Class 9: NTL Delaware Subordinated Notes Claims........................................PLAN-20
6. Class 10: NTL Inc. Subordinated Notes Claims...........................................PLAN-21
7. Class 11: Intercompany Claims..........................................................PLAN-21
E. Impaired Classes Of Interests................................................................PLAN-21
1. Class 12: Old Senior Preferred Stock Interests.........................................PLAN-21
2. Class 13: Old Junior Preferred Stock Interests.........................................PLAN-21
3. Class 14: Old Common Stock Interests...................................................PLAN-21
F. Additional Impaired Classes..................................................................PLAN-22
1. Class 15: Securities Claims............................................................PLAN-22
2. Class 16: Other Old Equity Interests And Claims........................................PLAN-22
ARTICLE III.
TREATMENT OF CLAIMS AND INTERESTS...........................................................................PLAN-22
A. Unclassified Claims............................................................................PLAN-22
1. Administrative Claims...................................................................PLAN-22
2. Priority Tax Claims.....................................................................PLAN-22
B. Unimpaired Classes Of Claims.................................................................PLAN-23
1. Class 1: Other Priority Claims (All Debtors)...........................................PLAN-23
2. Class 2: Secured Claims................................................................PLAN-23
3. Class 3: General Unsecured Claims......................................................PLAN-23
4. Class 4: Diamond Holdings Notes Claims.................................................PLAN-24
C. Impaired Classes Of Claims And Interests.....................................................PLAN-24
1. Class 5: Subsidiary Common Stock Interests.............................................PLAN-24
2. Class 6: Diamond Cable Notes Claims....................................................PLAN-24
3. Class 7: NTL CC Senior Notes Claims....................................................PLAN-25
4. Class 8: NTL CC Subordinated Notes Claims..............................................PLAN-25
5. Class 9: NTL Delaware Subordinated Notes Claims........................................PLAN-26
6. Class 10: NTL Inc. Subordinated Notes Claim............................................PLAN-26
7. Class 11: Intercompany Claims..........................................................PLAN-26
D. Impaired Classes Of Interests................................................................PLAN-27
1. Class 12: Old Senior Preferred Stock Interests.........................................PLAN-27
2. Class 13: Old Junior Preferred Stock Interests.........................................PLAN-27
3. Class 14: Old Common Stock Interests...................................................PLAN-28
E. Additional Impaired Classes..................................................................PLAN-28
1. Class 15: Securities Claims............................................................PLAN-28
2. Class 16: Other Old Equity Interests And Claims........................................PLAN-29
F. Additional Distributions With Respect To Allowed Claims In Classes 6, 7, 8, 9, And 10........PLAN-29
G. Special Provision Regarding Unimpaired Claims................................................PLAN-29
H. Allowed Claims And Interests.................................................................PLAN-29
I. Accrual Of Postpetition Interest.............................................................PLAN-29
J. Alternative Treatment........................................................................PLAN-30
ARTICLE IV.
MEANS FOR IMPLEMENTATION OF THE PLAN........................................................................PLAN-30
A. Continued Corporate Existence................................................................PLAN-30
B. Corporate Action.............................................................................PLAN-30
1. Amended Certificates Of Incorporation And By-laws.......................................PLAN-30
2. Cancellation Of Existing Securities And Agreements......................................PLAN-30
C. Restructuring Transactions...................................................................PLAN-31
1. Reorganization Into New NTL And Euroco..................................................PLAN-31
2. New Securities..........................................................................PLAN-31
3. Listing and Registration Rights.........................................................PLAN-32
4. Offerings...............................................................................PLAN-33
5. Exit Financing..........................................................................PLAN-34
6. Cancellation Of Certain Obligations.....................................................PLAN-34
7. Restructuring Expense Adjustment........................................................PLAN-34
D. New NTL Rights Agreement.....................................................................PLAN-34
E. Euroco Rights Agreement......................................................................PLAN-35
F. Directors And Officers.......................................................................PLAN-35
1. Current Board Of Directors Of NTL Inc...................................................PLAN-35
2. New NTL.................................................................................PLAN-35
3. Euroco..................................................................................PLAN-35
G. Revesting Of Assets..........................................................................PLAN-36
H. Preservation Of Rights Of Action; Settlement Of Causes Of Action.............................PLAN-36
I. Employment Agreements........................................................................PLAN-36
J. Management Incentive Plans...................................................................PLAN-36
K. Effectuating Documents; Further Transactions.................................................PLAN-36
L. Exemption From Certain Transfer Taxes........................................................PLAN-37
M. Transactions On Business Days................................................................PLAN-37
N. Implementation...............................................................................PLAN-37
ARTICLE V.
ACCEPTANCE OR REJECTION OF THE PLAN.........................................................................PLAN-37
A. Classes Entitled To Vote.....................................................................PLAN-37
B. Acceptance By Impaired Classes...............................................................PLAN-37
C. Elimination Of Classes.......................................................................PLAN-37
D. Cramdown.....................................................................................PLAN-38
ARTICLE VI.
SECURITIES TO BE ISSUED
IN CONNECTION WITH THE PLAN.................................................................................PLAN-38
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS..........................................................................PLAN-38
A. Distributions For Claims And Interests Allowed As Of The Effective Date......................PLAN-38
B. Special Distribution Procedures For Certain Persons..........................................PLAN-38
1. New NTL Chapter 11 Acquiring Persons....................................................PLAN-38
2. Distribution Procedures For Withheld Shares Of New NTL Common Stock.....................PLAN-39
3. Euroco Chapter 11 Acquiring Persons.....................................................PLAN-39
4. Distribution Procedures For Withheld Shares Of Euroco Common Stock......................PLAN-39
C. Allocation Of Consideration..................................................................PLAN-39
D. Disbursing Agent.............................................................................PLAN-40
E. Distributions By Indenture Trustees..........................................................PLAN-40
F. Surrender Of Securities Or Instruments.......................................................PLAN-40
G. Instructions To Disbursing Agent.............................................................PLAN-40
H. Services Of Indenture Trustees, Agents, And Servicers........................................PLAN-41
I. Record Date For Distributions To Holders Of Existing Securities..............................PLAN-41
J. Means Of Cash Payment........................................................................PLAN-41
K. Fractional Dollars; De Minimis Distributions.................................................PLAN-41
L. Calculation Of Distribution Amounts Of Certain New Securities................................PLAN-41
M. Delivery Of Distributions; Undeliverable Or Unclaimed Distributions..........................PLAN-42
N. Withholding And Reporting Requirements.......................................................PLAN-42
O. Setoffs......................................................................................PLAN-42
ARTICLE VIII.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES........................................................................................PLAN-43
A. Assumed Contracts And Leases.................................................................PLAN-43
B. Payments Related To Assumption Of Contracts And Leases.......................................PLAN-43
C. Rejected Contracts And Leases................................................................PLAN-43
D. Claims Based On Rejection Of Executory Contracts Or Unexpired Leases.........................PLAN-43
E. Compensation And Benefit Plans...............................................................PLAN-44
ARTICLE IX.
PROCEDURES FOR RESOLVING DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS.........................................................................PLAN-44
A. Objections To Claims; Disputed Claims........................................................PLAN-44
B. No Distribution Pending Allowance............................................................PLAN-44
C. Distributions After Allowance................................................................PLAN-44
ARTICLE X.
CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN....................................................................................PLAN-45
A. Conditions To Confirmation...................................................................PLAN-45
B. Conditions To Effective Date.................................................................PLAN-45
C. Waiver Of Conditions.........................................................................PLAN-46
D. Effects Of Failure Of Conditions.............................................................PLAN-46
ARTICLE XI.
MODIFICATIONS AND AMENDMENTS................................................................................PLAN-47
ARTICLE XII.
RETENTION OF JURISDICTION...................................................................................PLAN-47
ARTICLE XIII.
EFFECTS OF CONFIRMATION.....................................................................................PLAN-48
A. Binding Effect...............................................................................PLAN-48
B. Authorization Of Corporate Action............................................................PLAN-49
C. Discharge Of The Debtors.....................................................................PLAN-49
D. Injunction...................................................................................PLAN-49
E. Releases.....................................................................................PLAN-49
F. Insurance Proceeds...........................................................................PLAN-50
ARTICLE XIV.
COMPROMISES AND SETTLEMENTS.................................................................................PLAN-51
A. Generally....................................................................................PLAN-51
B. France Telecom Compromise And Settlement.....................................................PLAN-51
ARTICLE XV.
MISCELLANEOUS PROVISIONS....................................................................................PLAN-52
A. Bar Dates For Certain Claims.................................................................PLAN-52
1. Administrative Claims...................................................................PLAN-52
2. Professional Fee Claims; Substantial Contribution Claims................................PLAN-52
B. Payment Of Statutory Fees....................................................................PLAN-52
C. Severability Of Plan Provisions..............................................................PLAN-52
D. Successors And Assigns.......................................................................PLAN-53
E. Exculpation And Limitation Of Liability......................................................PLAN-53
F. Waiver Of Enforcement Of Subordination.......................................................PLAN-53
G. Term Of Injunctions Or Stays.................................................................PLAN-54
H. Revocation, Withdrawal, Or Non-Consummation..................................................PLAN-54
I. Committees...................................................................................PLAN-54
J. Plan Supplement..............................................................................PLAN-54
K. Notices To Debtors...........................................................................PLAN-54
L. Indemnification Obligations..................................................................PLAN-55
M. Governing Law................................................................................PLAN-55
N. Prepayment...................................................................................PLAN-56
TABLE OF EXHIBITS(1)
Exhibit
A Amended And Restated Certificate Of Incorporation And By-laws Of NTL CC*
B Amended And Restated Certificate Of Incorporation And By-laws Of NTL Inc.*
C List Of Subsidiaries As Of July 1, 2002
D Description Of New NTL Common Stock
E Series A Warrant Agreement*
F Equity Rights Offering Procedures*
G Noteholder Election Option Procedures*
H Description Of Euroco Common Stock
I Description Of Euroco Preferred Stock
J Terms Of Series A Warrants
K New NTL Registration Rights Agreement*
L Euroco Registration Rights Agreement*
M Form Of Employment Agreement
N New NTL Rights Agreement*
O Euroco Rights Agreement*
P Effectuating Transactions*
Q Form Of New NTL Management Incentive Plan*
R Form Of Euroco Management Incentive Plan*
- --------
1 Exhibits marked with an asterisk shall be included in the Plan Supplement.
INTRODUCTION
NTL Inc. and its Debtor Subsidiaries hereby propose the following
second amended joint reorganization plan (the "Plan") for the resolution of
their outstanding creditor Claims and equity Interests. This Plan amends
and supercedes the "Amended Joint Reorganization Plan Of NTL Incorporated
And Certain Subsidiaries," dated and filed with the Bankruptcy Court on May
24, 2002. Reference is made to the Disclosure Statement (as that term is
defined herein), distributed contemporaneously with this Plan, which
contains a discussion of the Debtors' history, businesses, properties,
results of operations, projections for future operations, risk factors, a
summary and analysis of the Plan, and certain related matters, each of
which is a central feature of the Plan. The Debtors urge all holders of
Claims and/or Interests to read this Plan and the Disclosure Statement in
their entirety before voting to accept or reject this Plan.
The Debtors are the proponents of this Plan within the meaning of
section 1129 of the Bankruptcy Code (as that term is defined herein).
Subject to certain restrictions and requirements set forth in section 1127
of the Bankruptcy Code and Fed. R. Bankr. P. 3019, the Debtors reserve the
right (with the prior consent of the Creditors' Committee) to alter, amend
or modify this Plan, as the Debtors deem necessary, prior to its
substantial consummation.
ARTICLE I.
DEFINITIONS, RULES OF INTERPRETATION,
AND COMPUTATION OF TIME
A. Scope Of Definitions; Rules Of Construction
Except as expressly provided or unless the context otherwise requires,
capitalized terms used but not otherwise defined in this Plan shall have
the meanings ascribed to them in this Article I. Any term used in this Plan
that is not defined herein, but is defined in the Disclosure Statement, the
Bankruptcy Code, or the Bankruptcy Rules, shall have the meaning ascribed
to it therein. Whenever the context requires, such terms shall include the
plural as well as the singular number, the masculine gender shall include
the feminine, and the feminine gender shall include the masculine.
B. Definitions
1.1 "Administrative Bar Date" means the date designated by the
Bankruptcy Court as the last date for filing requests for payment of
Administrative Claims against the Debtors.
1.2 "Administrative Claim" means a Claim for payment of an
administrative expense of a kind specified in section 503(b) or 1114(e)(2)
of the Bankruptcy Code and entitled to priority under section 507(a)(1) of
the Bankruptcy Code, including (a) actual, necessary costs and expenses,
incurred after the Petition Date, of preserving the Debtors' Estates and
operating their businesses, including wages, salaries, or commissions for
services rendered after the Petition Date, (b) Professional Fees, (c) all
fees and charges assessed against the Estates under chapter 123 of title
28, United States Code, (d) all Allowed Claims that are entitled to be
treated as Administrative Claims by virtue of a Final Order entered under
section 546(c)(2)(A) of the Bankruptcy Code, and (e) the reasonable
post-petition fees and expenses of the Indenture Trustees, including
successors thereto, including reasonable attorney's fees and expenses of
such Indenture Trustees.
1.3 "Aggregate Investments" means the sum of all investments made
between April 10, 2002 and the Effective Date in those assets that will
become the property of Euroco pursuant to this Plan.
1.4 "Aggregate Operating Expenses" means the aggregate corporate
overhead expenses (excluding Restructuring Expenses) at NTL Inc. and NTL
Delaware incurred during the period from April 10, 2002 to the Effective
Date.
1.5 "Allowed" means, with respect to a Claim or Interest within a
particular class, an Allowed Claim or Allowed Interest of the type
described in such class.
PLAN-1
1.6 "Allowed Claim" means any Claim against any Debtor, which is
listed by such Debtor in its books and records as liquidated in amount and
not disputed or contingent; provided, however, that to the extent that a
Claim is a Disputed Claim, the determination of whether such Claim shall be
allowed and/or the amount of any such Claim shall be determined, resolved,
or adjudicated, as the case may be, in the manner in which such Claim would
have been determined, resolved, or adjudicated if the Chapter 11 Cases had
not been commenced; provided further, however, that the Reorganized
Debtors, in their discretion may bring an objection or other motion before
the Bankruptcy Court with respect to a Disputed Claim for resolution. An
Allowed Claim (a) includes a Disputed Claim to the extent such Disputed
Claim becomes Allowed after the Effective Date and (b) shall be net of any
valid setoff exercised with respect to such Claim under the provisions of
the Bankruptcy Code and applicable law. Unless otherwise specified herein,
in section 506(b) of the Bankruptcy Code, or in any order of the Bankruptcy
Court, "Allowed Claim" shall not, for purposes of distributions under the
Plan, include for prepetition Claims, interest on such Claim, or Claims
accruing from or after the Petition Date. In addition, a Claim is an
Allowed Claim if it is deemed Allowed by the provisions of this Plan.
1.7 "Allowed Interest" means an Interest in any Debtor, which has been
or hereafter is listed by such Debtor in its books and records as
liquidated in an amount and not disputed or contingent; provided, however,
that to the extent an Interest is a Disputed Interest, the determination of
whether such Interest shall be allowed and/or the amount of any such
Interest shall be determined, resolved, or adjudicated, as the case may be,
in the manner in which such Interest would have been determined, resolved,
or adjudicated if the Chapter 11 Cases had not been commenced; and provided
further, however, that proofs of Interest need not and should not be filed
in the Bankruptcy Court with respect to any Interests; and provided
further, however, that the Reorganized Debtors, in their discretion, may
bring an objection or motion with respect to a Disputed Interest before the
Bankruptcy Court for resolution.
1.8 "Amended And Restated Certificate Of Incorporation And By-laws of
NTL CC" means Reorganized NTL CC's certificate of incorporation and by-laws
in effect under the laws of the State of Delaware, as amended and restated
by the Plan, in substantially the form of Exhibit A hereto.
1.9 "Amended And Restated Certificate Of Incorporation And By-laws of
NTL Inc." means Reorganized NTL Inc.'s certificate of incorporation and
by-laws in effect under the laws of the State of Delaware, as amended and
restated by the Plan, in substantially the form of Exhibit B hereto.
1.10 "Ballot" means each of the ballot forms distributed with the
Disclosure Statement to holders of Impaired Claims and Impaired Interests
entitled to vote under Article II hereof in connection with the
solicitation of acceptances of the Plan, for the purpose of indicating an
acceptance or rejection of this Plan.
1.11 "Bankruptcy Code" means the Bankruptcy Reform Act of 1978, as
codified in title 11 of the United States Code, 11 U.S.C. ss.ss. 101-1330,
as now in effect or hereafter amended, and as applicable to these Chapter
11 Cases.
1.12 "Bankruptcy Court" means the United States Bankruptcy Court for
the Southern District of New York or any other court with jurisdiction over
the Chapter 11 Cases.
1.13 "Bankruptcy Rules" means, collectively, the Federal Rules of
Bankruptcy Procedure promulgated under section 2075 of title 28 of the
United States Code and the Official Bankruptcy Forms, the Federal Rules of
Civil Procedure, as applicable to the Chapter 11 Cases or proceedings
therein, and the Local Rules of the Bankruptcy Court, all as now in effect
or hereafter amended, and as applicable to these Chapter 11 Cases.
1.14 "Business Day" means any day, excluding Saturdays, Sundays, or
"legal holidays" (as defined in Bankruptcy Rule 9006(a)), on which
commercial banks are open for business in New York, New York or London,
England, as the context requires.
1.15 "Cable Funding" means Communications Cable Funding Corp., a
Delaware corporation, which is a wholly- owned subsidiary of NTL CC and the
immediate parent of NTL (UK) Group, Inc.
PLAN-2
1.16 "Cablecom Credit Facility" means the credit agreement, dated
March 28, 2000, as amended on May 16, 2000 and as amended and restated as
of May 2, 2002, between, among others, NTL Delaware as parent, NTL Cablecom
Holding GmbH as shareholder, Cablecom GmbH as principal borrower, J.P.
Morgan plc and Morgan Stanley Senior Funding, Inc. as arrangers and joint
book managers, J.P. Morgan Europe Limited as agent, and the lenders party
thereto, as may be further amended and/or restated from time to time.
1.17 "Case Interest Rate" means the federal judgment rate described in
28 U.S.C. ss. 1961 in effect on the Petition Date, compounded annually on
each anniversary of the Petition Date.
1.18 "Cash" means United States currency, a certified check, a
cashier's check, or a wire transfer of good funds from any source, or a
check drawn on a United States or UK bank by the Debtors or any other
Person making any payment or distribution under this Plan.
1.19 "Cause of Action" means any and all actions, causes of action,
suits, accounts, controversies, agreements, promises, rights to legal
remedies, rights to equitable remedies, rights to payment, and claims,
whether known or unknown, reduced to judgment, not reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, secured, unsecured, and whether asserted or assertable directly
or derivatively, in law, equity, or otherwise.
1.20 "Chapter 11 Acquiring Person" means any holder of an Allowed
Claim or Interest or any Person or group of affiliated or associated
Persons to such holder who, with respect to any determination date, would
beneficially own 15% or more of the outstanding shares of New NTL Common
Stock on account of such Allowed Claim or Interest, assuming that the Plan
is consummated on such determination date.
1.21 "Chapter 11 Case(s)" means, individually, the Chapter 11 Case of
any of NTL Inc., NTL Delaware, NTL CC, Cable Funding, Diamond Cable, and
Diamond Holdings, and, collectively, the jointly administered Chapter 11
Cases of NTL Inc., NTL Delaware, NTL CC, Cable Funding, Diamond Cable, and
Diamond Holdings.
1.22 "Claim" means a claim against any Debtor, whether or not
asserted, as defined in section 101(5) of the Bankruptcy Code.
1.23 "Class" means one of the classes of Claims or Interests listed in
Article III of this Plan.
1.24 "Class 7 Euroco Value" means the value of 331,222 shares of
Euroco Common Stock.
1.25 "Class . . . Noteholder Election Option" means the Pro Rata share
of the Noteholder Election Option allocable to the identified Class.
1.26 "Confirmation" means entry by the Bankruptcy Court of the
Confirmation Order.
1.27 "Confirmation Date" means the date of entry of the Confirmation
Order on the docket maintained by the Clerk of the Bankruptcy Court with
respect to these Chapter 11 Cases.
1.28 "Confirmation Hearing" means the hearing held by the Bankruptcy
Court pursuant to section 1128(a) of the Bankruptcy Code, to consider
confirmation of the Plan under section 1129 of the Bankruptcy Code, as such
hearing may be adjourned or continued from time to time.
1.29 "Confirmation Order" means the order of the Bankruptcy Court
confirming the Plan under section 1129 of the Bankruptcy Code.
1.30 "Credit Facilities" means, individually and collectively, the
Senior Credit Facility, the Working Capital Facility, and the Cablecom
Credit Facility.
PLAN-3
1.31 "Creditor" means a creditor, within the meaning of section
101(10) of the Bankruptcy Code, of one or more of the Debtors.
1.32 "Creditors' Committee" means the official committee of unsecured
creditors appointed in the Chapter 11 Cases pursuant to section 1102(a) of
the Bankruptcy Code on June 21, 2002, as such committee may be
reconstituted from time to time.
1.33 "Cumulative Convertible Preferred Stock" means the shares of
cumulative convertible preferred stock, Series A, of NTL Inc. outstanding
immediately prior to the Petition Date.
1.34 "Cure" means the distribution of Cash, or such other property as
may be agreed upon by the parties or ordered by the Bankruptcy Court, with
respect to the assumption of an executory contract or unexpired lease under
section 365(b) of the Bankruptcy Code, in an amount equal to all unpaid
monetary obligations, without interest, or such other amount as may be
agreed upon by the parties, under such executory contract or unexpired
lease, to the extent such obligations are enforceable under the Bankruptcy
Code and applicable bankruptcy law.
1.35 "Debt Securit(ies)" means, individually and collectively, the
Senior Notes and Subordinated Notes.
1.36 "Debt Securities Claim" means a Securities Claim, if any, arising
from a Debt Security.
1.37 "Debtor(s)" means, individually and collectively, NTL Inc., NTL
Delaware, NTL CC, Diamond Cable, and Diamond Holdings and, when the context
so requires, Cable Funding, including in their capacities as debtors-in-
possession under sections 1107 and 1108 of the Bankruptcy Code and, when
appropriate, as post-confirmation entities reorganized hereunder.
1.38 "Debtor Subsidiaries" means, collectively, NTL Delaware, NTL CC,
Cable Funding, Diamond Cable, and Diamond Holdings.
1.39 "Debtor Subsidiary Interests" means, collectively, the issued and
outstanding shares of common stock of the Debtor Subsidiaries as of the
Petition Date, all of which shares are directly or indirectly owned by NTL
Inc.
1.40 "Delaware Cash Amount" means 79.1% of the Delaware/Inc. Cash
Amount.
1.41 "Delaware/Inc. Cash Amount" means the sum of (a) available cash
at NTL Inc. and NTL Delaware as of April 10, 2002, which is $279,533,000,
plus (b) the principal and accrued interest on the Delaware/NTL (UK) Group
Note, plus (c) the France Telecom Payment, plus (d) Excess Restructuring
Expenses, minus (e) the sum of (i) Euroco Cash, (ii) Aggregate Operating
Expenses, (iii) Aggregate Investments, and (iv) Delaware/Inc. Restructuring
Expenses.
1.42 "Delaware/Inc. Restructuring Expenses" means an amount equal to
Restructuring Expenses minus NTL CC Restructuring Expenses.
1.43 "Delaware/NTL (UK) Group Note" means the (pound)90 million
aggregate principal amount 23% senior note due 2006, dated as of April 5,
2002, from NTL (UK) Group, Inc. to NTL Delaware, as may be amended and/or
restated and/or novated or assigned from time to time in accordance with
the DIP Facility.
1.44 "Diamond Administration Case(s)" means the administration(s) of
Diamond Cable and Diamond Holdings pursuant to the Diamond Administration
Orders.
1.45 "Diamond Administration Orders" means the administration orders
of the Courts of England and Wales under Part II of the Insolvency Act
relating to Diamond Cable and Diamond Holdings.
1.46 "Diamond Administrators" means, collectively, Nicholas Guy
Edwards and James Robert Drummond Smith of Deloitte & Touche.
PLAN-4
1.47 "Diamond Cable" means Diamond Cable Communications Limited, a
company registered in England and Wales with company number 02965241.
1.48 "Diamond Cable Guaranty" means the guaranty by Diamond Cable of
the obligations of Diamond Holdings as issuer of the Diamond Holdings
Notes.
1.49 "Diamond Cable Notes" means, collectively, the (a) 13 1/4% Senior
Discount Notes due 2004, issued by Diamond Cable under an indenture dated
September 28, 1994, as amended by a First Supplemental Indenture dated May
31, 1996, (b) 11 3/4% Senior Discount Notes due 2005, issued by Diamond
Cable under an indenture dated December 15, 1995, and (c) 10 3/4% Senior
Discount Notes due 2007, issued by Diamond Cable under an indenture dated
February 27, 1997.
1.50 "Diamond Cable Notes Claim" means a Claim of a Diamond Cable
Notes Holder arising under or as a result of the Diamond Cable Notes;
provided, however, that the term "Diamond Cable Notes Claim" shall not
include any claim by or of New NTL, as the sole holder of the Diamond Cable
Notes (or any other rights and interests associated thereto that are
delivered, assigned, conveyed, or transferred to New NTL) pursuant to
Article III.C.2 hereof, in respect of, or under, the Diamond Cable Notes
from and after the Effective Date.
1.51 "Diamond Cable Notes Holder" means a holder of Diamond Cable Notes.
1.52 "Diamond Holdings" means Diamond Holdings Limited, a company
registered in England and Wales with company number 03483724.
1.53 "Diamond Holdings Notes" means, collectively, the (a) 10% Senior
Notes due 2008 issued by Diamond Holdings (and guaranteed by Diamond Cable)
under an indenture dated February 6, 1998 and (b) 91/8% Senior Notes due
2008 issued by Diamond Holdings (and guaranteed by Diamond Cable) under an
indenture dated February 6, 1998.
1.54 "Diamond Holdings Notes Claim" means a Claim of a Diamond
Holdings Notes Holder arising under or as a result of the Diamond Holdings
Notes.
1.55 "Diamond Holdings Notes Holder" means a holder of Diamond
Holdings Notes.
1.56 "DIP Facility" means the debtor-in-possession credit facility to
be provided to Cable Funding during the Chapter 11 Cases in the principal
amount of $630,000,000 pursuant to the DIP Facility Agreement.
1.57 "DIP Facility Agreement" means the Debtor-In-Possession Credit
And Guaranty Agreement, expected to be dated as of July 15, 2002, by and
among others, Cable Funding, as borrower, and the various lenders,
including NTL Delaware, signatory thereto.
1.58 "DIP Facility Claim" means a Claim arising under or as a result
of the DIP Facility.
1.59 "Disallowed Claim" or "Disallowed Interest" means any Claim
against or Interest in any Debtor which has been disallowed, in whole or in
part, by Final Order of the Bankruptcy Court, or which has been withdrawn,
in whole or in part, by the holder thereof.
1.60 "Disbursing Agent" means New NTL or any party designated by New
NTL, in its sole discretion, to serve as a disbursing agent under this
Plan.
1.61 "Disclosure Statement" means the written disclosure statement
that relates to this Plan, as approved by the Bankruptcy Court as
containing adequate information pursuant to section 1125 of the Bankruptcy
Code and Fed. R. Bankr. P. 3017, as such disclosure statement may be
amended, modified, or supplemented from time to time.
PLAN-5
1.62 "Disputed Claim" or "Disputed Interest" means any Claim against
or Interest in a Debtor, or any portion thereof, that is not an Allowed
Claim or Interest or a Disallowed Claim or Interest, as the case may be.
1.63 "Distribution Date" means the date, occurring on or as soon as
practicable after the Effective Date, on which the Disbursing Agent first
makes distributions to holders of Allowed Claims and Allowed Interests as
provided in Article VII of this Plan.
1.64 "Distribution Record Date" means the record date for purposes of
making distributions under this Plan on account of Allowed Claims and
Allowed Interests, which date shall be designated in an order of the
Bankruptcy Court.
1.65 "Effective Date" means the date that is two Business Days after
the closing of the Offerings, or, if such date is not a Business Day, the
next succeeding Business Day, or such later date after such closing as is
determined by the Debtors so long as no stay of the Confirmation Order is
in effect on such date; provided, however, that if, on or prior to such
date, all conditions to the Effective Date set forth in Article X.B of this
Plan have not been satisfied or waived, then the Effective Date shall be
the first Business Day following the day on which all such conditions to
the Effective Date have been satisfied or waived, or such later date as the
Debtors may determine.
1.66 "Effectuating Transaction(s)" means, individually and
collectively, the transactions to be consummated on the Effective Date to
implement the provisions of Articles IV.C.1.a and IV.C.1.b of this Plan, as
described in Exhibit P annexed hereto.
1.67 "Employment Agreements" means the employment agreements to be
entered into between New NTL and Euroco and their respective key
executives, which agreements shall be in substantially the form of Exhibit
M annexed hereto.
1.68 "Equity Rights" means the rights to purchase shares of New NTL
Common Stock and Series A Warrants that will be offered pro rata to the
holders of Equity Rights Eligible Preferred Stock and Old Common Stock
pursuant to the Equity Rights Offering and which will be exercisable for
the 20 Business Day period after the entry of the Confirmation Order, as
such period may be extended, and on an oversubscription basis.
1.69 "Equity Rights Eligible Preferred Stock" means, collectively, the
Old Senior Preferred Stock and Other Junior Preferred Stock.
1.70 "Equity Rights Offering" means the offer of Equity Rights to
holders of Equity Rights Eligible Preferred Stock and Old Common Stock as
of the Equity Rights Offering Record Date to acquire, as a detachable unit,
New NTL Common Stock and Series A Warrants.
1.71 "Equity Rights Offering Price" means the price per share of New
NTL Common Stock (accompanied by a Series A Warrant) purchased in the
Equity Rights Offering, which shall be equal to (a)(i) $10.5 billion minus
(ii) New NTL's pro forma debt as of the Effective Date as set forth in the
Confirmation Order, plus (iii) New NTL's pro forma cash (with such pro
forma amounts to be determined in accordance with New NTL's most recent
monthly financials available prior to the commencement of the Equity Rights
Offering), divided by (b) 200 million.
1.72 "Equity Rights Offering Procedures" means the Equity Rights
Offering Procedures annexed hereto as Exhibit F.
1.73 "Equity Rights Offering Record Date" means the date for
determination of holders of Equity Rights Eligible Preferred Stock and Old
Common Stock eligible to participate in the Equity Rights Offering, which
date shall be designated in an order of the Bankruptcy Court.
1.74 "Equity Securit(ies)" means, individually and collectively, the
Old Preferred Stock, Old Common Stock, Old Warrants, and Old Options.
PLAN-6
1.75 "Equity Securities Claim" means a Securities Claim arising from
an Equity Security.
1.76 "Estate(s)" means, individually and collectively, the estate(s)
of the Debtors in the Chapter 11 Cases, as created under section 541 of the
Bankruptcy Code.
1.77 "Euroco" means NTL Inc., on and after the Effective Date.
1.78 "Euroco Cash" means the sum of (i) $100 million, plus (ii) the
France Telecom Payment, minus (iii) the sum of (x) Aggregate Operating
Expenses, plus (y) Aggregate Investments.
1.79 "Euroco Chapter 11 Acquiring Person" means any holder of an
Allowed Claim or Interest or any Person or group of affiliated or
associated Persons to such holder who, with respect to any determination
date, would beneficially own 15% or more of the outstanding shares of
Euroco Common Stock on account of such Allowed Claim or Interest, assuming
that the Plan is consummated on such determination date.
1.80 "Euroco Common Stock" means the 60 million shares of common stock
of Euroco, par value $0.01 per share, authorized under Article IV.C.2.b.i
of this Plan and the Amended Certificate of Incorporation of NTL Inc.,
including the associated Euroco Stockholder Rights, to be issued by Euroco
under this Plan as of the Effective Date.
1.81 "Euroco Grandfathered Distributee" means any Euroco Chapter 11
Acquiring Person who, as determined in the sole and absolute discretion of
the Debtors and the Creditors' Committee, (i) would hold, after giving
effect to the consummation of the Plan, its Euroco Common Stock for
investment purposes only, such that such Euroco Chapter 11 Acquiring Person
would qualify to file a Schedule 13-G pursuant to Section 13 of the
Exchange Act, (ii) would not directly or indirectly, through investments or
otherwise, constitute a competitor of any of the business lines of Euroco,
(iii) would not own or operate, in the United States or elsewhere, a
business that operates or holds a license to operate a cable television
system or service, fixed-line telephone or telecommunications system or
service, or broadcasting transmission system or service, and (iv) would not
be a strategic investor in Euroco.
1.82 "Euroco Management Incentive Options" means the options to be
issued by Euroco pursuant to the provisions of the Euroco Management
Incentive Plan.
1.83 "Euroco Management Incentive Plan" means the management incentive
plan pursuant to which the Euroco Management Incentive Options will be
issued, to be adopted by the compensation committee of the board of
directors of Euroco on or after the Effective Date.
1.84 "Euroco Preferred Stock" means the shares of preferred stock of
Euroco, par value $0.01 per share, authorized under Article IV.C.2.b.i of
this Plan and the Amended and Restated Certificate of Incorporation of NTL
Inc., with a liquidation preference of $1,000 per share and an aggregate
liquidation preference equal to the sum of (a) $250 million, plus (b) the
Aggregate Investments, plus (c) the Euroco Cash, plus (d) accrued and
unpaid dividends on the Euroco Preferred Stock.
1.85 "Euroco Registration Rights Agreement" means the registration
rights agreement governing the registration of Euroco Common Stock and
Euroco Preferred Stock issued under this Plan, in substantially the form of
Exhibit L annexed hereto, by and among Euroco and certain holders from time
to time of Euroco Common Stock and Euroco Preferred Stock who are or may be
deemed to be "affiliates" or "underwriters" of Euroco for purposes of the
Securities Act.
1.86 "Euroco Rights Agent" means Continental Stock Transfer & Trust
Company, in its capacity as rights agent under the Euroco Rights Agreement.
1.87 "Euroco Rights Agreement" means the stockholder rights agreement,
substantially in the form of Exhibit O annexed hereto, between Euroco and
Continental Stock Transfer & Trust Company, as Euroco Rights Agent.
PLAN-7
1.88 "Euroco Stockholder Rights" means the stockholder rights to be
issued in accordance with the terms of the Euroco Rights Agreement.
1.89 "Euroco Stockholder Rights Preferred Stock" means Series A Junior
Participating Preferred Stock, par value $0.01 per share, of Euroco.
1.90 "Euroco Stockholder Rights Purchase Price" means the price per
one one-hundredth of a share of Euroco Stockholder Rights Preferred Stock
that will be determined prior to the Effective Date.
1.91 "Excess Restructuring Expenses" means an amount equal to the
Restructuring Expenses actually incurred and paid by NTL Inc. and NTL
Delaware prior to April 10, 2002.
1.92 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor statutes.
1.93 "Existing Securities" means, collectively, the Equity Securities
and the Debt Securities.
1.94 "Face Amount" means (a) when used in reference to a Disputed
Claim, the full stated amount claimed by the holder of such Claim in any
proof of Claim timely filed with the Bankruptcy Court, (b) when used in
reference to an unliquidated Claim, the amount of the Claim as estimated by
the Bankruptcy Court under section 502(c) of the Bankruptcy Code, and (c)
when used in reference to an Allowed Claim, the Allowed amount of such
Claim.
1.95 "Final Order" means an order, ruling, or judgment of the
Bankruptcy Court or any other court of competent jurisdiction as to which
the time to appeal, petition for certiorari, or move for reargument or
rehearing has expired and as to which no appeal, petition for certiorari,
or other proceedings for reargument or rehearing shall then be pending, or
as to which any right to appeal, petition for certiorari, reargue, or
rehear shall have been waived in writing, in form and substance
satisfactory to the Debtors or, on and after the Effective Date, the
Reorganized Debtors or, in the event that an appeal, writ of certiorari, or
reargument or rehearing thereof has been sought, such order of the
Bankruptcy Court of other court of competent jurisdiction shall have been
determined by the highest court to which such order was appealed, or
certiorari, reargument or rehearing shall have been denied and the time to
take any further appeal, petition for certiorari, or move for reargument or
rehearing shall have expired; provided, however, that the possibility that
a motion under Rule 59 or Rule 60 of the Federal Rules of Civil Procedure,
or any analogous Bankruptcy Rule or applicable state court rules of civil
procedure, may be filed with respect to such order shall not cause such
order not to be a Final Order.
1.96 "5% Cumulative Participating Convertible Preferred Stock" means,
collectively, the shares of 5% cumulative participating convertible
preferred stock, Series A (and dividend shares Series C through Series K),
and 5% cumulative participating convertible preferred stock, Series B (and
dividend shares Series B-1 through Series B-6), of NTL Inc. outstanding
immediately prior to the Petition Date.
1.97 "France Telecom" means, collectively, France Telecom, a societe
anonyme organized under the laws of France, and its indirect wholly-owned
subsidiary RAPP 26.
1.98 "France Telecom Payment" means the payment in cash, in the amount
of $25,000,000, to be made on the Effective Date by France Telecom for the
benefit of Euroco.
1.99 "General Unsecured Claim" means a prepetition unsecured Claim
that is not entitled to priority under section 507 of the Bankruptcy Code,
but excluding a Senior Notes Claim, Subordinated Notes Claim, Intercompany
Claim, or Securities Claim, and including, among others, all Claims of the
Diamond Holdings Notes Holders arising under or related to the Diamond
Cable Guaranty.
1.100 "Impaired" means, when used with reference to a Claim or
Interest, a Claim or Interest that is impaired within the meaning of
section 1124 of the Bankruptcy Code.
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1.101 "Indenture(s)" means, individually and collectively, the
indentures pursuant to which the Senior Notes and Subordinated Notes were
issued, as such indentures are or have been amended or supplemented from
time to time in accordance with the terms thereof.
1.102 "Indenture Trustee(s)" means, individually and collectively, the
indenture trustees (or their respective successors) for the Senior Notes
and Subordinated Notes.
1.103 "Insolvency Act" means the Insolvency Act 1986 of the UK.
1.104 "Intercompany Claim" means, collectively, any Claim held by a
Debtor against another Debtor as of the Effective Date, including, without
limitation, (a) any account reflecting intercompany book entries by a
Debtor with respect to another Debtor, (b) any such Claim not reflected in
such book entries that is held by a Debtor against another Debtor, and (c)
any derivative Claim asserted by or on behalf of a Debtor against another
Debtor; provided, however, that the term Intercompany Claim shall not
include (i) a Claim of New NTL as the holder of the Diamond Cable Notes
after the Effective Date, (ii) a DIP Facility Claim, (iii) a Claim by or
against Cable Funding, (iv) a Claim arising under or related to the
Delaware/NTL (UK) Group Note, or (v) any Debt Securities.
1.105 "Interest" means the legal, equitable, contractual, and other
rights of any holder of Equity Securities of a Debtor represented by any
issued and outstanding shares of Old Common Stock, Old Preferred Stock, or
other instrument evidencing a current ownership interest in such Debtor,
whether or not transferable, and any option, warrant, or right, contractual
or otherwise, to purchase, sell, subscribe for, or otherwise acquire or
receive any such interest.
1.106 "J.P. Morgan Chase" means J.P. Morgan Chase Bank, a New York
domestic banking corporation, in its capacity as counterparty to the PTV
Swap Agreement.
1.107 "Junior Stakeholders" means, collectively, the holders of Old
Senior Preferred Stock Interests, Old Junior Preferred Stock Interests, and
Old Common Stock Interests.
1.108 "Lien" means a charge against or interest in property to secure
payment of a debt or performance of an obligation.
1.109 "Litigation Claims" means any Cause of Action that any Debtor or
Estate may hold against any Person, including, but not limited to, the
claims, rights of action, suits, and proceedings to be retained by the
Reorganized Debtors pursuant to Article IV.H of this Plan.
1.110 "Management Incentive Plans" means, collectively, the New NTL
Management Incentive Plan and the Euroco Management Incentive Plan.
1.111 "New NTL" means NTL CC, on and after the Effective Date.
1.112 "New NTL Chapter 11 Acquiring Person" means any holder of an
Allowed Claim or Interest or any Person or group of affiliated or
associated Persons to such holder who, with respect to any determination
date, would beneficially own 15% or more of the outstanding shares of New
NTL Common Stock on account of such Allowed Claim or Interest, assuming
that the Plan is consummated on such determination date.
1.113 "New NTL Common Stock" means the 600 million shares of common
stock of New NTL, par value $0.01 per share, authorized under IV.C.2.a.i of
this Plan and the Amended and Restated Certificate of Incorporation of NTL
CC, including the associated New NTL Stockholder Rights, to be issued by
New NTL under this Plan as of the Effective Date.
1.114 "New NTL Exit Facility" means that certain credit facility to be
provided to New NTL and/or Cable Funding on the Effective Date.
PLAN-9
1.115 "New NTL Exit Facility Agreement" means an agreement to provide
the New NTL Exit Facility.
1.116 "New NTL Grandfathered Distributee" means any New NTL Chapter 11
Acquiring Person who, as determined in the sole and absolute discretion of
the Debtors and the Creditors' Committee, (i) would hold, after giving
effect to the consummation of the Plan, its New NTL Common Stock for
investment purposes only, such that such New NTL Chapter 11 Acquiring
Person would qualify to file a Schedule 13-G pursuant to Section 13 of the
Exchange Act, (ii) would not directly or indirectly, through investments or
otherwise, constitute a competitor of any of the business lines of New NTL,
(iii) would not own or operate, in the United States or elsewhere, a
business that operates or holds a license to operate a cable television
system or service, fixed-line telephone or telecommunications system or
service, or broadcasting transmission system or service, and (iv) would not
be a strategic investor in New NTL.
1.117 "New NTL Lenders" means those entities identified as "Lenders"
with respect to the New NTL Exit Facility in the New NTL Exit Facility
Agreement, and their respective successors and assigns.
1.118 "New NTL Management Incentive Options" means the options to
purchase up to 10% of the issued and outstanding New NTL Common Stock, to
be issued by New NTL pursuant to the provisions of the New NTL Management
Incentive Plan.
1.119 "New NTL Management Incentive Plan" means the management
incentive plan pursuant to which the New NTL Management Incentive Options
will be issued, to be adopted by the compensation committee of the board of
directors of New NTL on or after the Effective Date.
1.120 "New NTL Registration Rights Agreement" means the registration
rights agreement governing the registration of New NTL Common Stock in
substantially the form of Exhibit K annexed hereto, by and among New NTL
and certain holders from time to time of New NTL Common Stock and Series A
Warrants who are or may be deemed to be "affiliates" or "underwriters" of
New NTL for purposes of the Securities Act.
1.121 "New NTL Rights Agent" means Continental Stock Transfer & Trust
Company, in its capacity as rights agent under the New NTL Rights
Agreement.
1.122 "New NTL Rights Agreement" means the stockholder rights
agreement, substantially in the form of Exhibit N annexed hereto, between
New NTL and Continental Stock Transfer & Trust Company, as Rights Agent.
1.123 "New NTL Stockholder Rights" means the stockholder rights to be
issued in accordance with the terms of the New NTL Rights Agreement.
1.124 "New NTL Stockholder Rights Preferred Stock" means Series A
Junior Participating Preferred Stock, par value $0.01 per share, of New
NTL.
1.125 "New NTL Stockholder Rights Purchase Price" means the price per
one one-hundredth of a share of New NTL Stockholder Rights Preferred Stock
that will be determined prior to the Effective Date.
1.126 "New Options" means, collectively, the New NTL Management
Incentive Options and the Euroco Management Incentive Options.
1.127 "New Securities" means, collectively, the New NTL Common Stock,
Euroco Common Stock, Euroco Preferred Stock, Series A Warrants, New
Options, and, as the context requires, Rights.
1.128 "Non-Debtor Subsidiar(ies)" means, individually and
collectively, the direct and indirect subsidiaries of NTL Inc. listed on
Exhibit C hereto that are not Debtor Subsidiaries.
1.129 "Noos" means Suez Lyonnaise Telecom, a societe anonyme organized
under the laws of France.
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1.130 "Noos Interest" means NTL Inc.'s entire interest in the ordinary
registered shares of Noos owned by NTL Inc., as pledged pursuant to Annex 1
of the Share Account Pledge Agreement and as subject to the Noos
Shareholder Agreement.
1.131 "Noos Junior Preferred Stock" means, collectively, the 6.5%
Fixed Coupon Redeemable Preferred Stock and the Variable Coupon Redeemable
Preferred Stock.
1.132 "Noos Junior Preferred Stock Interest" means an Interest of a
holder of Noos Junior Preferred Stock arising under or as a result of Noos
Junior Preferred Stock.
1.133 "Noos Note" means the debt obligation of Noos contained in
Sections 2.2.2(a) and (b) of the 1G Sale Agreement, by and among Noos,
Nogenta Holding BV, NTL Delaware, and NTL Inc.
1.134 "Noos Shareholders Agreement" means the Shareholders' Agreement,
dated April 10, 2001, by and among Suez SA, NTL Inc., MSDW Capital Partners
IV, LLC and Noos, as amended on October 26, 2001, November 23, 2001, and
May 14, 2002, and as may be further amended and/or restated from time to
time.
1.135 "Noteholder" means a holder of Debt Securities.
1.136 "Noteholder Election Option" means the option offered to the NTL
CC Subordinated Notes Holders, the NTL Delaware Subordinated Notes Holders
(other than France Telecom), and the NTL Inc. Subordinated Notes Holders
(other than France Telecom) as of the Noteholder Election Option Record
Date, to purchase (a) shares of New NTL Common Stock and (b) shares of New
NTL Common Stock (each accompanied by a Series A Warrant) that were not
subscribed for in the Equity Rights Offering.
1.137 "Noteholder Election Option Procedures" means the Noteholder
Election Option Procedures annexed hereto as Exhibit G.
1.138 "Noteholder Election Option Price" means the price per share of
New NTL Common Stock purchased in the Noteholder Election Option, which
shall be equal to (a)(i) $10.5 billion, minus (ii) New NTL's pro forma debt
as of the Effective Date as set forth in the Confirmation Order, plus (iii)
New NTL's pro forma cash (with such pro forma amounts to be determined in
accordance with New NTL's most recent monthly financials available prior to
the commencement of the Noteholder Election Option), divided by (b) 200
million.
1.139 "Noteholder Election Option Record Date" means the date for
determination of holders of NTL CC Convertible Senior Notes, NTL CC
Subordinated Notes, NTL Delaware Subordinated Notes (other than France
Telecom), and NTL Inc. Subordinated Notes (other than France Telecom)
eligible to participate in the Noteholder Election Option, which date shall
be designated in an order of the Bankruptcy Court.
1.140 "Noteholders' Steering Committee" means the steering committee
of the unofficial committee of holders of notes which are obligations of
NTL Inc., NTL Delaware, NTL CC, Diamond Cable, Diamond Holdings, and
Triangle.
1.141 "NTL Cash Amount" means 20.9% of the Delaware/Inc. Cash Amount.
1.142 "NTL CC" means NTL Communications Corp., a Delaware corporation.
1.143 "NTL CC Convertible Senior Notes" means the 6 3/4% Convertible
Senior Notes due 2008, issued by NTL CC (and a subordinated co-obligation
of NTL Inc.) under an indenture dated May 15, 2001.
1.144 "NTL CC Convertible Senior Notes Claim" means a Claim of an NTL
CC Convertible Senior Notes Holder arising under or as a result of the NTL
CC Convertible Senior Notes.
1.145 "NTL CC Convertible Senior Notes Holder" means a holder of NTL
CC Convertible Senior Notes.
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1.146 "NTL CC Guaranty" means the guaranty by NTL CC of the
obligations of NTL Communications Limited as borrower under the Working
Capital Facility.
1.147 "NTL CC Restructuring Expenses" means an allocable portion of
the Restructuring Expenses, equal to the amount that the estimated value of
the aggregate recovery of Classes 6, 7, and 8 bears to the estimated value
of the aggregate recovery of Classes 6, 7, 8, 9, and 10.
1.148 "NTL CC Senior Notes" means, collectively, the (a) 12 3/4%
Senior Deferred Coupon Notes due 2005, issued by NTL CC under an indenture
dated April 20, 1995, as amended by a First Supplemental Indenture dated as
of January 22, 1996, and a Second Supplemental Indenture dated as of
October 14, 1998, (b) 11 1/2% Senior Deferred Coupon Notes due 2006, issued
by NTL CC under an indenture dated January 30, 1996, as amended by a First
Supplemental Indenture dated October 14, 1998, (c) 10% Senior Notes due
2007, issued by NTL CC under an indenture dated February 12, 1997, as
amended by a First Supplemental Indenture dated October 14, 1998, (d) 9
3/4% Senior Deferred Coupon Notes due 2008, issued by NTL CC under an
indenture dated March 13, 1998, (e) 10 3/4% Senior Deferred Coupon Notes
due 2008, issued by NTL CC under an indenture dated March 13, 1998, (f) 9
1/2% Senior Notes due 2008, issued by NTL CC under an indenture dated March
13, 1998, (g) 11 1/2% Senior Notes due 2008, issued by NTL CC under an
indenture dated November 2, 1998, (h) 123/8% Senior Deferred Coupon Notes
due 2008, issued by NTL CC under an indenture dated November 6, 1998, (i) 9
3/4% Senior Deferred Coupon Notes due 2009, issued by NTL CC under an
indenture dated April 14, 1999, (j) 9 1/4% Senior Notes due 2006, issued by
NTL CC under an indenture dated November 24, 1999, (k) 97/8% Senior Notes
due 2009, issued by NTL CC under an indenture dated November 24, 1999, (l)
11 1/2% Senior Deferred Coupon Notes due 2009, issued by NTL CC under an
indenture dated November 24, 1999, (m) 117/8% Senior Notes due 2010, issued
by NTL CC under an indenture dated October 2, 2000, (n) 123/8% Senior Notes
due 2008, issued by NTL CC under an indenture dated January 24, 2001, and
(o) 6 3/4% Convertible Senior Notes due 2008, issued by NTL CC (and a
subordinated co-obligation of NTL Inc.) under an indenture dated May 15,
2001.
1.149 "NTL CC Senior Notes Claim" means a Claim of an NTL CC Senior
Notes Holder arising under or as a result of the NTL CC Senior Notes.
1.150 "NTL CC Senior Notes Holder" means a holder of NTL CC Senior
Notes.
1.151 "NTL CC Subordinated Notes" means 7% Convertible Subordinated
Notes due 2008, issued by NTL CC (and a subordinated co-obligation of NTL
Delaware and NTL Inc.) under an indenture dated December 16, 1998, as
amended by a First Supplemental Indenture dated March 31, 1999, a Second
Supplemental Indenture dated March 16, 2000, and a Third Supplemental
Indenture dated May 17, 2000.
1.152 "NTL CC Subordinated Notes Claim" means a Claim of an NTL CC
Subordinated Notes Holder arising under or as a result of the NTL CC
Subordinated Notes.
1.153 "NTL CC Subordinated Notes Holder" means a holder of NTL CC
Subordinated Notes.
1.154 "NTL Delaware" means NTL (Delaware), Inc., a Delaware corporation.
1.155 "NTL Delaware Subordinated Notes" means, collectively, the (a) 5
3/4% Convertible Subordinated Notes due 2009, issued by NTL Delaware (and a
subordinated co-obligation of NTL Inc.) under an indenture dated December
22, 1999, as amended by a First Supplemental Indenture dated May 17, 2000,
(b) 5 3/4% Convertible Subordinated Notes due 2011, co-issued on a
subordinated basis by NTL Delaware and NTL Inc. under an indenture dated
June 22, 2001, as amended by a First Supplemental Indenture dated July 27,
2001, and (c) 7% Convertible Subordinated Notes due 2008, issued by NTL CC
(and a subordinated co-obligation of NTL Delaware and NTL Inc.) under an
indenture dated December 16, 1998, as amended by a First Supplemental
Indenture dated March 31, 1999, a Second Supplemental Indenture dated March
16, 2000, and a Third Supplemental Indenture dated May 17, 2000.
1.156 "NTL Delaware Subordinated Notes Claim" means a Claim of an NTL
Delaware Subordinated Notes Holder arising under or as a result of the NTL
Delaware Subordinated Notes.
PLAN-12
1.157 "NTL Delaware Subordinated Notes Holder" means a holder of NTL
Delaware Subordinated Notes.
1.158 "NTL Inc." means NTL Incorporated, a Delaware corporation.
1.159 "NTL Inc. Subordinated Notes" means, collectively, the (a) 5
3/4% Convertible Subordinated Notes due 2009, issued by NTL Delaware (and a
subordinated co-obligation of NTL Inc.) under an indenture dated December
22, 1999, as amended by a First Supplemental Indenture dated May 17, 2000,
(b) 5 3/4% Convertible Subordinated Notes due 2011, co-issued on a
subordinated basis by NTL Delaware and NTL Inc. under an indenture dated
June 22, 2001, as amended by a First Supplemental Indenture dated July 27,
2001, (c) 7% Convertible Subordinated Notes due 2008, issued by NTL CC (and
a subordinated co-obligation of NTL Delaware and NTL Inc.) under an
indenture dated December 16, 1998, as amended by a First Supplemental
Indenture dated March 31, 1999, a Second Supplemental Indenture dated March
16, 2000, and a Third Supplemental Indenture dated May 17, 2000, and (d) 6
3/4% Convertible Senior Notes due 2008, issued by NTL CC (and a
subordinated co-obligation of NTL Inc.) under an indenture dated May 15,
2001.
1.160 "NTL Inc. Subordinated Notes Claim" means a Claim of an NTL Inc.
Subordinated Notes Holder arising under or as a result of the NTL Inc.
Subordinated Notes.
1.161 "NTL Inc. Subordinated Notes Holder" means a holder of NTL Inc.
Subordinated Notes.
1.162 "NYSE" means the New York Stock Exchange, Inc.
1.163 "Offerings" means, collectively, the Equity Rights Offering and
the Noteholder Election Option.
1.164 "Old Common Stock" means NTL Inc.'s common stock, par value
$0.01 per share, issued and outstanding immediately before the Petition
Date, or at any time prior to the Effective Date, including the associated
rights under NTL Inc.'s shareholder rights plan extant on the Petition
Date, quoted on the Over The Counter Bulletin Board system under the symbol
"NTLD."
1.165 "Old Common Stock Interest" means an Interest of a holder of Old
Common Stock evidenced by Old Common Stock arising under or as a result of
the Old Common Stock.
1.166 "Old Junior Preferred Stock" means, collectively, the Noos
Junior Preferred Stock and Other Junior Preferred Stock.
1.167 "Old Junior Preferred Stock Interest" means an Interest of a
holder of Old Junior Preferred Stock evidenced by Old Junior Preferred
Stock arising under or as a result of the Old Junior Preferred Stock.
1.168 "Old Options" means, collectively, all issued, outstanding, and
unexpired options to purchase (i) Old Common Stock outstanding as of the
Petition Date, and any and all "puts" or similar rights or claims relating
in any manner to such options, including, but not limited to, the options
issued to Bruno Claude pursuant to section 3(c) of his employment
agreement, made as of October 16, 2000 or (ii) common stock of NTL CC or
NTL Delaware.
1.169 "Old Preferred Stock" means, collectively, the Old Senior
Preferred Stock and Old Junior Preferred Stock.
1.170 "Old Senior Preferred Stock" means, collectively, the 13% Senior
Redeemable Exchangeable Preferred Stock and 13% Series B Senior Redeemable
Exchangeable Preferred Stock.
1.171 "Old Senior Preferred Stock Interest" means an Interest of a
holder of Old Senior Preferred Stock evidenced by Old Senior Preferred
Stock arising under or as a result of the Old Senior Preferred Stock.
1.172 "Old Warrants" means all issued, outstanding, and unexpired
warrants to purchase Old Common Stock outstanding as of the Petition Date.
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1.173 "1G Franchises" means the five CATV franchises sold by France
Telecom to NTL Inc. pursuant to the 1G Protocol and Convention Agreement,
dated May 6, 1999.
1.174 "Other Junior Preferred Stock" means, collectively, the (a) 5%
Cumulative Participating Convertible Preferred Stock, Series A (and
dividend shares Series C through Series K), (b) 5% Cumulative Participating
Convertible Preferred Stock, Series B (and dividend shares Series B-1
through Series B-6), and (c) Cumulative Convertible Preferred Stock.
1.175 "Other Junior Preferred Stock Interest" means an Interest of a
holder of Other Junior Preferred Stock evidenced by Other Junior Preferred
Stock arising under or as a result of the Other Junior Preferred Stock.
1.176 "Other Old Equity Interests And Claims" means all Interests and
any and all rights and Claims, including, but not limited to, Claims of the
type described in, and subject to subordination under, section 510(b) of
the Bankruptcy Code, of a holder of Old Warrants or Old Options, arising
under, as a result of, or relating to the Old Warrants or Old Options, as
the case may be, and any other Interest or Claim relating to Old Common
Stock , including, without limitation, conversion rights, principal or
other legal or contractual rights to acquire Old Common Stock.
1.177 "Other Priority Claim" means a Claim entitled to priority under
section 507(a) of the Bankruptcy Code other than a Priority Tax Claim or an
Administrative Claim.
1.178 "Other Secured Claims" means, collectively, all Secured Claims
against the Debtors, or any of them, other than the Secured Claims included
in Classes 2.01 and 2.02 of this Plan.
1.179 "Person" means an individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company,
limited liability partnership, trust, trustee, United States Trustee,
estate, unincorporated organization, government, governmental unit (as
defined in the Bankruptcy Code), agency, or political subdivision thereof,
or other entity.
1.180 "Petition Date" means May 8, 2002, the date on which the Debtors
filed their petitions for reorganization relief commencing the Chapter 11
Cases.
1.181 "Plan" means this second amended joint plan of reorganization,
together with all exhibits hereto, as it may be further amended, modified,
or supplemented from time to time in accordance with section 1127 of the
Bankruptcy Code, including any Plan Supplements.
1.182 "Plan Supplement" means the compilation of documents or forms of
documents specified in this Plan (approved in all respects by the
Creditors' Committee,) including any Exhibits to this Plan not included
herewith, that the Debtors will file with the Bankruptcy Court on or before
the date that is fourteen days prior to the Confirmation Hearing.
1.183 "Priority Tax Claim" means a Claim that is entitled to priority
under section 507(a)(8) of the Bankruptcy Code.
1.184 "Pro Rata" means, at any time, the proportion that the Face
Amount of an Allowed Claim or Allowed Interest in a particular Class bears
to the aggregate Face Amount of all Claims or Interests (including Disputed
Claims or Disputed Interests, but excluding Disallowed Claims or Disallowed
Interests) in that Class, unless this Plan provides otherwise.
1.185 "Professional" means any professional, other than a professional
employed or retained by the Noteholders' Steering Committee solely in such
capacity prior to being employed by the Creditors' Committee nunc pro tunc
to June 24, 2002, (a) employed in the Chapter 11 Cases under sections 327,
328, 329, or 1103 of the Bankruptcy Code or (b) seeking compensation or
reimbursement of expenses in connection with the Chapter 11 Cases under
section 503(b)(4) or 1129(a)(4) of the Bankruptcy Code.
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1.186 "Professional Fee Claim" means a Claim of a Professional, other
than a professional employed or retained by the Noteholders' Steering
Committee solely in such capacity prior to being employed by the Creditors'
Committee nunc pro tunc to June 24, 2002, for compensation for services
rendered, and/or reimbursement of costs and expenses incurred, after the
Petition Date and prior to and including the Confirmation Date.
1.187 "PTV Swap Agreement" means the ISDA Master Agreement, dated as
of March 26, 2001, by and between J.P. Morgan Chase and NTL Inc., as
amended, modified, or supplemented.
1.188 "PTV Swap Agreement Collateral" means the (pound)23,000,000
pledged by NTL Inc. to J.P. Morgan Chase pursuant to the Credit Support
Annex to the PTV Swap Agreement, dated as of January 30, 2002, to secure
NTL Inc.'s obligations under the PTV Swap Agreement.
1.189 "Registration Rights Agreement(s)" means, individually and
collectively, the New NTL Registration Rights Agreement and the Euroco
Registration Rights Agreement.
1.190 "Reinstated" or "Reinstatement" means (i) leaving unaltered the
legal, equitable, and contractual rights to which a Claim entitles the
holder of such Claim so as to leave such Claim unimpaired in accordance
with section 1124 of the Bankruptcy Code or (ii) notwithstanding any
contractual provision or applicable law that entitles the holder of such
Claim to demand or receive accelerated payment of such Claim after the
occurrence of a default, (a) curing any such default that occurred before,
on, or after the Petition Date, other than a default of a kind specified in
section 365(b)(2) of the Bankruptcy Code, (b) reinstating the maturity of
such Claim as such maturity existed before such default, (c) compensating
the holder of such Claim for any damages incurred as a result of any
reasonable reliance by such holder on such contractual provision or such
applicable law, and (d) not otherwise altering the legal, equitable, or
contractual rights to which such Claim entitles the holder of such Claim.
1.191 "Reorganized Debtor(s)" means, collectively, the Debtors on and
after the Effective Date.
1.192 "Reorganized . . ." means the identified entity on and after the
Effective Date.
1.193 "Restructuring Expenses" means the aggregate expenses incurred
by NTL and its subsidiaries in connection with the Restructuring, as more
fully described in the Disclosure Statement.
1.194 "Rights" means, collectively, the Equity Rights and the
Noteholder Election Option.
1.195 "SEC" means the United States Securities and Exchange Commission.
1.196 "Secured Claim" means a Claim, other than a Setoff Claim, that
is secured by a Lien that is valid, perfected, and enforceable, and not
avoidable, on property in which a Debtor has an interest, or the proceeds
of the sale of such property, to the extent of the value, as of the
Effective Date, of such interest or Lien as determined by a Final Order of
the Bankruptcy Court under section 506 of the Bankruptcy Code or as
otherwise agreed upon in writing by a Debtor or Reorganized Debtor and the
holder of such Claim.
1.197 "Securities Act" means the Securities Act of 1933, as amended
from time to time and any successor statutes.
1.198 "Securities Actions" means, collectively, the actions captioned
(a) James Haber v. NTL Inc., et al., Civil Action No. 02-CV-3013, (b) Mike
Atassi v. NTL Inc., et al., Civil Action No. 02-CV-3297, (c) Harry Pariser
v. NTL Inc., et al., Civil Action No. 02-CV-3415, and (d) Addy Krebs v. NTL
Inc., et al., Civil Action No. 02-CV-3485, each pending in the United
States District Court for the Southern District of New York.
1.199 "Securities Claim" means a Claim of the type described in, and
subject to subordination under, section 510(b) of the Bankruptcy Code,
including any Claim arising from the rescission of a purchase or sale of an
Existing Security of a Debtor, for damages arising from the purchase or
sale of such an Existing Security, or for reimbursement, contribution or
indemnification allowed under section 502 of the Bankruptcy Code on account
of such Claim, including,
PLAN-15
but not limited to, a Claim with respect to any action pending against any
Debtor and/or its current or former officers and directors in which
Securities Claims are asserted, including the Securities Actions.
1.200 "Securities Claim Bar Date" means July 24, 2002, the date that
was designated by the Bankruptcy Court as the last date for filing proofs
of Securities Claims against the Debtors.
1.201 "Senior Credit Facility" means the credit agreement, dated May
30, 2000, by and among NTL Communications Limited, as parent, NTL
Investment Holdings Limited, as post-novation borrower, the guarantors
named therein, NTL CC, J.P. Morgan plc (formerly known as Chase Manhattan
plc) and Morgan Stanley Dean Witter Bank Limited, as arrangers, J.P. Morgan
Europe Limited (formerly known as Chase Manhattan International Limited),
as agent and security trustee, and the other parties thereto, as may be
further amended and/or restated from time to time.
1.202 "Senior Notes" means, collectively, Diamond Holdings Notes,
Diamond Cable Notes, NTL CC Convertible Senior Notes, and NTL CC Senior
Notes.
1.203 "Senior Notes Claim" means a Claim of a Senior Notes Holder
arising under or as a result of the Senior Notes.
1.204 "Senior Notes Holder" means a holder of Senior Notes.
1.205 "Series A Warrant Agent" means Continental Stock Transfer &
Trust Company, in its capacity as warrant agent under the Series A Warrant
Agreement.
1.206 "Series A Warrant Agreement" means the warrant agreement,
substantially in the form of Exhibit E annexed hereto, between New NTL and
Continental Stock Transfer & Trust Company, as Series A Warrant Agent.
1.207 "Series A Warrants" means the warrants to purchase shares of New
NTL Common Stock authorized under Article IV.C.2.a.i of this Plan and the
Amended Certificate of Incorporation of NTL CC and described in the term
sheet annexed hereto as Exhibit J, to be issued by New NTL under this Plan
as of the Effective Date in accordance with the Series A Warrant Agreement.
1.208 "Setoff Claim" means a Claim of a holder that has a valid right
of setoff with respect to such Claim, which right is enforceable under
section 553 of the Bankruptcy Code as determined by a Final Order or as
otherwise agreed in writing by any Debtor, to the extent of the amount
subject to such right of setoff.
1.209 "Share Account Pledge Agreement" means the Share Account Pledge
Agreement, dated May 18, 2001, by and between NTL Inc. and France Telecom,
pursuant to which NTL Inc. pledged the Noos Interest to France Telecom.
1.210 "6.5% Fixed Coupon Redeemable Preferred Stock" means the shares
of 6.5% Fixed Coupon Redeemable Preferred Stock, Series A, of NTL Inc.
outstanding immediately prior to the Petition Date.
1.211 "6.5% Fixed Coupon Redeemable Preferred Stock Interest" means an
Interest of a holder of 6.5% Fixed Coupon Redeemable Preferred Stock
arising under or as a result of the 6.5% Fixed Coupon Redeemable Preferred
Stock.
1.212 "Solicitation Agent" means Innisfree M&A Incorporated, in its
capacity as information, balloting, and noticing agent for the Debtors.
1.213 "Solicitation Procedures Order" means the order of the
Bankruptcy Court or other court of competent jurisdiction approving the
Debtors' proposed procedures to govern their solicitation of votes on this
Plan.
1.214 "Stockholders" means, collectively, the holders of Old Common
Stock, Other Junior Preferred Stock, and Old Senior Preferred Stock.
PLAN-16
1.215 "Subordinated Notes" means, collectively, the NTL CC
Subordinated Notes , NTL Delaware Subordinated Notes, and NTL Inc.
Subordinated Notes.
1.216 "Subordinated Notes Claim" means a Claim of a Subordinated Note
Holder arising under or as a result of the Subordinated Notes.
1.217 "Subordinated Notes Holder" means a holder of Subordinated Notes.
1.218 "Subsidiary Common Stock Interests" means, collectively, the
issued and outstanding common stock of each of the Debtor Subsidiaries.
1.219 "13% Senior Redeemable Exchangeable Preferred Stock" means the
shares of 13% senior redeemable exchangeable preferred stock of NTL Inc.
outstanding as of the Petition Date.
1.220 "13% Series B Senior Redeemable Exchangeable Preferred Stock"
means the shares of 13% senior redeemable exchangeable preferred stock,
Series B, of NTL Inc. outstanding as of the Petition Date.
1.221 "Triangle" means NTL (Triangle) LLC, a Delaware limited
liability company.
1.222 "UBS Warburg" means UBS Warburg LLC.
1.223 "Unimpaired Claim" means a Claim that is not Impaired under this
Plan.
1.224 "Unsecured Claim" means a Claim against any Debtor, other than
an Administrative Claim or a Secured Claim.
1.225 "Variable Coupon Redeemable Preferred Stock" means the shares of
variable coupon redeemable preferred stock, Series A, of NTL Inc.
outstanding immediately prior to the Petition Date.
1.226 "Variable Coupon Redeemable Preferred Stock Interest" means an
Interest of a holder of Variable Coupon Redeemable Preferred Stock arising
under or as a result of the Variable Coupon Redeemable Preferred Stock.
1.227 "Voting Deadline" means the date and time, as fixed by an order
of the Bankruptcy Court and set forth in the Disclosure Statement, by which
all Ballots to accept or reject this Plan must be received by the
Solicitation Agent.
1.228 "Voting Record Date" means the record date for voting to accept
or reject this Plan, as fixed by an order of the Bankruptcy Court, which
date shall be one (1) Business Day after the Petition Date.
1.229 "Working Capital Facility" means the credit agreement, dated May
30, 2000, by and among NTL CC, as parent, NTL (UK) Group, Inc., as
intermediate parent, NTL Communications Limited, as borrower, and J.P.
Morgan plc (formerly known as Chase Manhattan plc) and Morgan Stanley Dean
Witter Bank Limited, as arrangers and joint book managers, J.P. Morgan
Europe Limited (formerly known as Chase Manhattan International Limited),
as agent and security trustee, and the other parties thereto, as may be
further amended and/or restated from time to time.
1.230 "Working Capital Facility Guaranty" means the guaranty by NTL CC
of the obligations of NTL Communications Limited as borrower under the
Working Capital Facility.
1.231 "Working Capital Facility Guaranty Collateral" means the
collateral securing the Working Capital Facility Guaranty.
1.232 "Working Capital Facility Lenders" means the lenders under the
Working Capital Facility.
PLAN-17
C. Rules Of Interpretation
1. General
In this Plan (a) any reference to a contract, instrument, release,
indenture, or other agreement or document as being in a particular form or
on particular terms and conditions means the agreement or document
substantially in that form or on those terms and conditions, (b) any
reference to an existing document or exhibit means that document or exhibit
as it may have been or may be amended, modified, or supplemented, (c)
unless otherwise specified, all references to Sections, Articles,
Schedules, and Exhibits are references to Sections, Articles, Schedules,
and Exhibits of or to this Plan, (d) the words "herein" and "hereto" refer
to this Plan in its entirety rather than to a particular portion of this
Plan, (e) captions and headings to Articles and Sections are for
convenience of reference only and are not intended to be a part of or to
affect the interpretation of this Plan, and (f) the rules of construction
in section 102 of the Bankruptcy Code and in the Bankruptcy Rules shall
apply.
2. "Including"
As used in this Plan, "including" means "including without
limitation."
3. "On"
With reference to any distribution under this Plan, "on" a date means
on or as soon as reasonably practicable after that date.
4. "Contra Proferentum" Rule Not Applicable
This Plan is the product of extensive discussions and negotiations
between and among, inter alia, the Debtors, the Noteholders' Steering
Committee, France Telecom, and certain other holders of Existing
Securities. Each of the foregoing was represented by counsel who either
participated in the formulation and documentation of, or was afforded the
opportunity to review and provide comments on, this Plan, the Disclosure
Statement, and the documents ancillary thereto. Accordingly, the general
rule of contract construction known as "contra proferentum" shall not apply
to the interpretation of any provision of this Plan, the Disclosure
Statement, or any agreement or document generated in connection herewith.
D. Computation Of Time
In computing any period of time prescribed or allowed by this Plan,
the provisions of Fed. R. Bankr. P. 9006(a) shall apply.
ARTICLE II.
CLASSIFICATION OF CLAIMS AND INTERESTS
A. Introduction
All Claims and Interests, except Administrative Claims and Priority
Tax Claims, are placed in the Classes set forth below. In accordance with
section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and
Priority Tax Claims, as described below, have not been classified and are
not entitled to vote on this Plan.
A Claim or Interest is placed in a particular Class only to the extent
that the Claim or Interest falls within the description of that Class, and
is classified in other Classes to the extent that any portion of the Claim
or Interest falls within the description of such other Classes. A Claim is
also placed in a particular Class for the purpose of receiving
PLAN-18
distributions pursuant to this Plan only to the extent that such Claim is
an Allowed Claim in that Class and such Claim has not been paid, released,
or otherwise settled prior to the Effective Date.
B. Unclassified Claims (not entitled to vote on the Plan)
1. Administrative Claims
2. Priority Tax Claims
C. Unimpaired Classes Of Claims (deemed to have accepted the Plan and,
therefore, not entitled to vote)
1. Class 1: Other Priority Claims (All Debtors)
Class 1 consists of all Other Priority Claims against all Debtors.
2. Class 2: Secured Claims (All Debtors)
Class 2 consists of separate subclasses for each Secured Claim secured
by a security interest in or lien on property in which a Debtor's Estate
has an interest and, in the aggregate, all Secured Claims against all
Debtors. Each subclass is deemed to be a separate Class for all purposes
under the Bankruptcy Code and this Plan, including for purposes of voting
to accept or reject this Plan.
a. Class 2.01: Working Capital Facility Guaranty Secured Claims
Class 2.01 consists of all Claims against NTL CC, secured by and to
the extent of the value (as of the Petition Date), of the Working Capital
Facility Guaranty Collateral, directly or indirectly arising from or under,
or relating in any way to, the Working Capital Facility Guaranty.
b. Class 2.02: PTV Swap Secured Claims
Class 2.02 consists of all Claims against NTL Inc., secured by and to
the extent of the value (as of the Petition Date), if any, of the PTV Swap
Agreement Collateral, directly or indirectly arising from or under, or
relating in any way to, the PTV Swap Agreement.
c. Class 2.03: Other Secured Claims
Class 2.03 consists of all Other Secured Claims against all Debtors.
3. Class 3: General Unsecured Claims (All Debtors)
Class 3 consists of all General Unsecured Claims against all Debtors.
4. Class 4: Diamond Holdings Notes Claims
Class 4 consists of all Diamond Holdings Notes Claims against Diamond
Holdings.
D. Impaired Classes Of Claims And Interests (entitled to vote on the Plan)
1. Class 5: Subsidiary Common Stock Interests
Class 5 consists of all Subsidiary Common Stock Interests.
PLAN-19
2. Class 6: Diamond Cable Notes Claims
Class 6 consists of all Diamond Cable Notes Claims against Diamond
Cable. Notwithstanding any provision to the contrary contained in this
Plan, the Diamond Cable Notes Claims shall be deemed Allowed Class 6 Claims
for all purposes under this Plan or the Confirmation Order, without the
need to file proofs of Claim, in the aggregate amount of $1,275,793,104, as
follows: (a) Claims with respect to the 13 1/4% Senior Discount Notes due
2004 shall be deemed Allowed Class 6 Claims in the amount of $289,087,440,
(b) Claims with respect to the 11 3/4% Senior Discount Notes due 2005 shall
be deemed Allowed Class 6 Claims in the amount of $555,783,688, and (c)
Claims with respect to the 10 3/4% Senior Discount Notes due 2007 shall be
deemed Allowed Class 6 Claims in the amount of $430,921,976.
3. Class 7: NTL CC Senior Notes Claims
Class 7 consists of all NTL CC Senior Notes Claims. Notwithstanding
any provision to the contrary contained in this Plan, the NTL CC Senior
Notes Claims shall be deemed Allowed Class 7 Claims for all purposes under
this Plan or the Confirmation Order, without the need to file proofs of
Claim, in the aggregate amount of $7,755,752,661 as follows: (a) Claims
with respect to the 12 3/4% Senior Deferred Coupon Notes due 2005 shall be
deemed Allowed Class 7 Claims in the amount of $297,772,663, (b) Claims
with respect to the 11 1/2 Senior Deferred Coupon Notes due 2006 shall be
deemed Allowed Class 7 Claims in the amount of $1,082,535,417, (c) Claims
with respect to the 10% Senior Notes due 2007 shall be deemed Allowed Class
7 Claims in the amount of $409,222,222, (d) Claims with respect to the 9
3/4% Senior Deferred Coupon Notes due 2008 shall be deemed Allowed Class 7
Claims in the amount of $1,193,794,948, (e) Claims with respect to the 10
3/4% Senior Deferred Coupon Notes due 2008 shall be deemed Allowed Class 7
Claims in the amount of $400,863,234, (f) Claims with respect to the 9 1/2%
Senior Notes due 2008 shall be deemed Allowed Class 7 Claims in the amount
of $193,941,845, (g) Claims with respect to the 11 1/2% Senior Notes due
2008 shall be deemed Allowed Class 7 Claims in the amount of $668,324,653,
(h) Claims with respect to the 123/8% Senior Deferred Coupon Notes due 2008
shall be deemed Allowed Class 7 Claims in the amount of $380,610,860, (i)
Claims with respect to the 9 3/4% Senior Deferred Coupon Notes due 2009
shall be deemed Allowed Class 7 Claims in the amount of $402,810,754, (j)
Claims with respect to the 9 1/4% Senior Notes due 2006 shall be deemed
Allowed Class 7 Claims in the amount of $238,866,033, (k) Claims with
respect to the 97/8% Senior Notes due 2009 shall be deemed Allowed Class 7
Claims in the amount of $335,374,097, (l) Claims with respect to the 11
1/2% Senior Deferred Coupon Notes due 2009 shall be deemed Allowed Class 7
Claims in the amount of $144,952,020, (m) Claims with respect to the 117/8%
Senior Notes due 2010 shall be deemed Allowed Class 7 Claims in the amount
of $535,789,931, (n) Claims with respect to the 123/8% Senior Notes due
2008 shall be deemed Allowed Class 7 Claims in the amount of $283,590,859,
and (o) Claims with respect to the 6 3/4% Convertible Senior Notes due 2008
shall be deemed Allowed Class 7 Claims in the amount of $1,187,303,125.
4. Class 8: NTL CC Subordinated Notes Claims
Class 8 consists of all NTL CC Subordinated Notes Claims.
Notwithstanding any provision to the contrary contained in this Plan, the
NTL CC Subordinated Notes Claims shall be deemed Allowed Class 8 Claims for
all purposes under this Plan or the Confirmation Order, without the need to
file proofs of Claim, in the aggregate amount of $503,399,633.
5. Class 9: NTL Delaware Subordinated Notes Claims
Class 9 consists of all NTL Delaware Subordinated Notes Claims;
provided, however, that as of the Effective Date, France Telecom shall be
deemed to have waived its NTL Delaware Subordinated Notes Claims in the
aggregate amount of $232,000,000 plus accrued interest through the Petition
Date, and shall not be entitled to, and shall not, receive or retain any
property or interest in property on account of such NTL Delaware
Subordinated Notes Claims. Notwithstanding any provision to the contrary
contained in this Plan, the NTL Delaware Subordinated Notes Claims shall be
deemed Allowed Class 9 Claims for all purposes under this Plan or the
Confirmation Order, without the need to file proofs of Claim, in the
aggregate amount of $1,833,955,494, as follows: (a) Claims with respect to
the 5 3/4% Convertible Subordinated Notes due 2009 shall be deemed Allowed
Class 9 Claims in the amount of $1,227,408,333, (b) Claims with respect to
the 5 3/4% Convertible Subordinated Notes due 2011 shall be deemed Allowed
Class 9 Claims in the amount
PLAN-20
of $103,147,528, and (c) Claims with respect to the 7% Convertible
Subordinated Notes due 2008 shall be deemed Allowed Class 9 Claims in the
amount of $503,399,633.
6. Class 10: NTL Inc. Subordinated Notes Claims
Class 10 consists of all NTL Inc. Subordinated Notes Claims; provided,
however, that as of the Effective Date, France Telecom shall be deemed to
have waived its NTL Inc. Subordinated Notes Claims in the aggregate amount
of $232,000,000 plus accrued interest through the Petition Date, and shall
not be entitled to, and shall not, receive or retain any property or
interest in property on account of such NTL Inc. Subordinated Notes Claims.
Notwithstanding any provision to the contrary contained in this Plan, the
NTL Inc. Subordinated Notes Claims shall be deemed Allowed Class 10 Claims
for all purposes under this Plan or the Confirmation Order, without the
need to file proofs of Claim, in the aggregate amount of $3,021,258,619, as
follows: (a) Claims with respect to the 5 3/4% Convertible Subordinated
Notes due 2009 shall be deemed Allowed Class 10 Claims in the amount of
$1,227,408,333, (b) Claims with respect to the 5 3/4% Convertible
Subordinated Notes due 2011 shall be deemed Allowed Class 10 Claims in the
amount of $103,147,528, (c) Claims with respect to the 7% Convertible
Subordinated Notes due 2008 shall be deemed Allowed Class 10 Claims in the
amount of $503,399,633, and (d) Claims with respect to the 6 3/4%
Convertible Senior Notes due 2008 shall be deemed Allowed Class 10 Claims
in the amount of $1,187,303,125.
7. Class 11: Intercompany Claims
Class 11 consists of all Intercompany Claims.
E. Impaired Classes Of Interests (Classes 12, 13, and 14 are entitled to
vote on the Plan)
1. Class 12: Old Senior Preferred Stock Interests
Class 12 consists of all Old Senior Preferred Stock Interests in NTL
Inc. Notwithstanding any provision to the contrary contained in this Plan,
the Old Senior Preferred Stock Interests shall be deemed Allowed Class 12
Interests for all purposes under this Plan or the Confirmation Order.
2. Class 13: Old Junior Preferred Stock Interests
Class 13 consists of all Old Junior Preferred Stock Interests in NTL
Inc. Notwithstanding any provision to the contrary contained in this Plan,
the Old Junior Preferred Stock Interests shall be deemed Allowed Class 13
Interests for all purposes under this Plan or the Confirmation Order.
a. Group 13-A: Noos Junior Preferred Stock Interests
Group 13-A consists of all Noos Junior Preferred Stock Interests.
b. Group 13-B: Other Junior Preferred Stock Interests
Group 13-B consists of all Other Junior Preferred Stock Interests.
3. Class 14: Old Common Stock Interests
Class 14 consists of all Old Common Stock Interests in NTL Inc.
Notwithstanding any provision contained in this Plan to the contrary, the
Old Common Stock Interests shall be deemed Allowed Class 14 Interests for
all purposes under this Plan.
PLAN-21
F. Additional Impaired Classes (Classes 15 and 16 are deemed to have
rejected the Plan and, therefore, are not entitled to vote)
1. Class 15: Securities Claims
a. Class 15.01: Debt Securities Claims
Class 15.01 consists of all Debt Securities Claims against a Debtor.
b. Class 15.02: Equity Securities Claims
Class 15.02 consists of all Equity Securities Claims against NTL Inc.
2. Class 16: Other Old Equity Interests And Claims
Class 16 consists of all Other Old Equity Interests And Claims in
and/or against the Debtors.
ARTICLE III.
TREATMENT OF CLAIMS AND INTERESTS
A. Unclassified Claims
1. Administrative Claims
Except as otherwise provided for herein, and subject to the
requirements of Article XV.A.2 hereof, on, or as soon as reasonably
practicable after the latest of (a) the Effective Date, (b) the date that
is five (5) Business Days after the date such Administrative Claim becomes
an Allowed Administrative Claim, or (c) the date that is five (5) Business
Days after the date such Administrative Claim becomes payable pursuant to
any agreement between a Debtor and the holder of such Administrative Claim,
each holder of an Allowed Administrative Claim shall, receive in full
satisfaction, settlement, release, and discharge of and in exchange for
such Allowed Administrative Claim, Cash equal to the unpaid portion of such
Allowed Administrative Claim; provided, however, that (i) DIP Facility
Claims against any Debtor shall be paid in full in Cash on the Effective
Date and (ii) obligations incurred in the ordinary course of business,
consistent with past practice, or assumed by the Debtors shall be paid in
full or performed by the Debtors or Reorganized Debtors in the ordinary
course of business, consistent with past practice; provided further,
however, that Allowed Administrative Claims incurred by the Debtors or
Reorganized Debtors after the Confirmation Date, including, without
limitation, Professional Fee Claims, shall not be subject to application
and may be paid by the Debtors or Reorganized Debtors, as the case may be,
in the ordinary course of business and without further Bankruptcy Court
approval.
2. Priority Tax Claims
Each holder of an Allowed Priority Tax Claim shall receive, at the
sole discretion of the Debtors, and in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Priority Tax
Claim, (a) Cash equal to the unpaid portion of such Allowed Priority Tax
Claim, (b) Cash payments made in equal annual installments beginning on or
before the first anniversary following the Effective Date, with the final
installment payable not later than the sixth (6th) anniversary of the date
of the assessment of such Allowed Priority Tax Claim, together with
interest on the unpaid portion thereof at the Case Interest Rate from the
Effective Date through the date of payment thereof, or (c) such other
treatment as to which the applicable Debtor and such holder shall have
agreed on in writing; provided, however, that the Debtors reserve the right
to pay any Allowed Priority Tax Claim, or any remaining balance of any
Allowed Priority Tax Claim, in full at any time on or after the
Distribution Date without premium or penalty; and provided further, that no
holder of an Allowed Priority Tax Claim shall be entitled to any payments
on account of any
PLAN-22
pre-Effective Date interest accrued on or penalty arising after the
Petition Date with respect to or in connection with such Allowed Priority
Tax Claim.
B. Unimpaired Classes Of Claims
1. Class 1: Other Priority Claims (All Debtors)
On, or as soon as reasonably practicable after, the later of (i) the
Distribution Date or (ii) the date such Other Priority Claim becomes an
Allowed Other Priority Claim, each holder of an Allowed Other Priority
Claim shall receive, in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Class 1 Other Priority Claim,
(a) Cash in an amount equal to the unpaid portion of such Allowed Other
Priority Claim or (b) such other treatment as to the applicable Debtor and
such holder shall have agreed upon in writing; provided, however, that
Allowed Other Priority Claims with respect to liabilities incurred by a
Debtor in the ordinary course of business during the Chapter 11 Cases shall
be paid in the ordinary course of business in accordance with the terms and
conditions of any agreements relating thereto.
2. Class 2: Secured Claims
Each holder of a Class 2 Secured Claim shall be treated as a separate
class for all purposes under this Plan, and each holder of an Allowed Class
2 Secured Claim shall receive the treatment set forth below. To the extent,
if any, that the value of the collateral securing a Class 2 Secured Claim
is less than the total amount of such Claim, the difference shall be
treated as a Class 3 General Unsecured Claim. The Debtors specifically
reserve all rights to challenge the validity, nature, and perfection of,
and to avoid pursuant to the provisions of the Bankruptcy Code and other
applicable law, any purported liens and security interests.
a. Class 2.01: Working Capital Facility Guaranty Secured Claims
The legal, equitable, and contractual rights to which each Allowed
Class 2.01 Working Capital Facility Guaranty Secured Claims entitles its
holders are unaltered by this Plan and all such Allowed Class 2.01 Working
Capital Facility Guaranty Secured Claims shall be Reinstated on the
Effective Date.
b. Class 2.02: PTV Swap Secured Claims
The legal, equitable, and contractual rights to which each Allowed
Class 2.02 PTV Swap Secured Claim entitles its holders are unaltered by
this Plan and all such Allowed Class 2.02 PTV Swap Secured Claims shall be
Reinstated on the Effective Date.
c. Class 2.03: Other Secured Claims
The legal, equitable, and contractual rights to which each Allowed
Class 2.03 Other Secured Claim entitles its holders are unaltered by this
Plan and all such Allowed Class 2.03 Other Secured Claims shall be
Reinstated on the Effective Date.
3. Class 3: General Unsecured Claims
The legal, equitable, and contractual rights to which each Allowed
Class 3 General Unsecured Claim entitles its holders are unaltered by this
Plan and all such Allowed Class 3 General Unsecured Claims shall be
Reinstated on the Effective Date. Allowed Class 3 General Unsecured Claims
incurred in the ordinary course of business shall be paid in full or
performed by the Debtors or the Reorganized Debtors in the ordinary course
of business, consistent with past practice.
PLAN-23
4. Class 4: Diamond Holdings Notes Claims
The legal, equitable, and contractual rights to which each Allowed
Class 4 Diamond Holdings Notes Claim entitles its holders are unaltered by
this Plan and all such Allowed Class 4 Diamond Holdings Notes Claims shall
be Reinstated on the Effective Date.
C. Impaired Classes Of Claims And Interests
This Plan is predicated on, among other things, agreement to the terms
of the Debtors' restructuring between and among the Senior Notes Holders
(Classes 6 and 7) and the Subordinated Notes Holders (Classes 8, 9, and
10). The Senior Notes Holders, along with the Secured Lenders who will
remain unimpaired under the Plan, are entitled under the Bankruptcy Code to
a distribution of 100% of the Debtors' and Reorganized Debtors' enterprise
value, other than the Delaware/Inc. Cash Amount and certain assets owned by
NTL Inc. and NTL Delaware, respectively, which, subject to the discussion
herein and in Article III.D below, shall be distributed in part to the
Subordinated Notes Holders under the Plan. Absent the willingness of the
Senior Notes Holders in Classes 6 and 7 to provide the additional value
described below to the Subordinated Notes Holders in Classes 8, 9, and 10,
the Subordinated Notes Holders would not be entitled to, and would not,
receive any distribution from the Debtors under the Plan on account of
their Claims against the Debtors other than the cash and assets described
above. Nevertheless, to facilitate and avoid delay in consummation of the
Plan and the Debtors' restructuring, among other things, the Senior Notes
Holders have agreed to provide to the Subordinated Notes Holders, in
exchange for their acceptance of the Plan and assent to the transactions
contemplated thereby, a portion of the Debtors' and Reorganized Debtors'
enterprise value that the Senior Notes Holders otherwise would be entitled
to receive. Accordingly, if and to the extent that a Class of Subordinated
Notes Holders entitled to vote on this Plan fails to accept the Plan, then
no member of such rejecting Class of Subordinated Notes Holders shall be
entitled to, or shall receive, the additional value being provided by the
Senior Notes Holders, which additional value shall be retained by the
Senior Notes Holders or treated as otherwise set forth in the Confirmation
Order.
1. Class 5: Subsidiary Common Stock Interests
NTL Delaware (which shall be deemed to have accepted this Plan), the
holder of 100% of the shares of capital stock of NTL CC, has agreed that
its Subsidiary Common Stock Interests in NTL CC shall be exchanged with New
NTL on the Effective Date for those portions of the NTL Delaware
Subordinated Notes, NTL Inc. Subordinated Notes, Old Common Stock, Old
Senior Preferred Stock, and Other Junior Preferred Stock, and the
respective Claims or Interests associated therewith contributed to New NTL
by the holders of such notes and stock pursuant to the Plan, and NTL
Delaware shall not be entitled to, and shall not, receive or retain any
other property or interest in property on account of such Interests;
provided, however, that such exchange shall not occur until after the
issuance by New NTL and Euroco of all of the New Securities. All other
Allowed Class 5 Subsidiary Common Stock Interests shall, at the discretion
of NTL Inc., (a) receive treatment that leaves unaltered the legal,
equitable, and contractual rights to which such Interest entitles the
holder thereof, (b) be Reinstated, or (c) receive such other treatment as
NTL Inc. and such holder have agreed upon in writing.
2. Class 6: Diamond Cable Notes Claims
On, or as soon as reasonably practicable after, the Distribution
Date, each holder of an Allowed Class 6 Diamond Cable Notes Claim shall
receive, in full satisfaction, settlement, release, and discharge of and in
exchange for such Allowed Class 6 Diamond Cable Notes Claim, its Pro Rata
share of 27,271,736 shares of New NTL Common Stock. Notwithstanding
anything to the contrary contained in this Plan, (a) on the Effective Date
the Diamond Cable Notes, all rights and interests related to or arising
from any and all Class 6 Diamond Cable Notes Claims and all rights and
interests of the relevant Indenture Trustees relating to the Diamond Cable
Notes Indentures shall be delivered, assigned, conveyed, and transferred by
such Persons to New NTL, which shall be the holder of the Diamond Cable
Notes and all such rights and interests from and after the Effective Date,
(b) on the Effective Date and without prejudice to the generality of clause
(a) above, each holder of a Class 6 Diamond Cable Notes Claim that holds
any definitive registered security or securities in respect of its Diamond
Cable Notes shall transfer such security or securities to New NTL, and (c)
in each case, if Class 6 votes as a Class to accept the Plan, then on and
after the Effective Date, each Person who was a holder of a Class 6
PLAN-24
Diamond Cable Notes Claim immediately prior to the transfers described in
clauses (a) and (b) above and, whether or not such Person has (i) voted on
the Plan or (ii) voted to reject the Plan, shall, insofar as it relates to
such holder, (x) do all such acts and things, and execute such documents as
may be reasonably necessary or desirable to effect and complete such
transfers and (y) be deemed to have appointed New NTL as its agent to
undertake such additional actions as may be necessary to effectuate such
transfers; provided, however, that notwithstanding the foregoing clauses
(a) through (c), the right to receive the distributions contemplated by
this Article shall not be transferred to New NTL and shall remain the
property of the holders of Class 6 Diamond Cable Notes Claims immediately
prior to such transfers.
A vote to accept this Plan by a holder of an Allowed Class 6 Diamond
Cable Notes Claims shall constitute an irrevocable direction by such holder
to the relevant Person, Indenture Trustee, securities intermediary, or
Nominee through, or in relation to which, the holder holds its Class 6
Diamond Cable Notes Claim, to direct its relevant Indenture Trustee,
securities intermediary, or Nominee, or other trustee for the global bearer
notes evidencing the Diamond Cable Notes, to deliver, transfer, convey, and
assign the global bearer notes evidencing the Diamond Cable Notes to New
NTL. In the event that Class 6 votes to accept the Plan, then upon entry of
the Confirmation Order, all holders of Allowed Class 6 Diamond Cable Notes
Claims who did not vote on the Plan or who voted to reject the Plan shall
be deemed to have made such an irrevocable direction.
In consideration of the foregoing, on the Effective Date or, if later
and unless waived by New NTL, immediately following completion of the
transfers described in clauses (a) and (b) above and the delivery,
transfer, conveyance, and assignment of the global bearer notes evidencing
the Diamond Cable Notes to New NTL, to the fullest extent permitted by law,
all holders of Class 6 Diamond Cable Notes Claims shall be deemed to
release, and shall be permanently enjoined from bringing any action
against, the Debtors, New NTL, Euroco, the Indenture Trustees, and their
respective members, officers, directors, agents, financial advisors,
attorneys, employees, equity holders, partners, affiliates, and
representatives and their respective property, on account of any claims,
obligations, rights, causes of action, or liabilities related to or arising
from any and all Class 6 Diamond Cable Notes Claims.
3. Class 7: NTL CC Senior Notes Claims
On, or as soon as reasonably practicable after, the Distribution Date,
each holder of an Allowed Class 7 NTL CC Senior Notes Claim shall receive,
in full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Class 7 NTL CC Senior Notes Claim, its Pro Rata share of
(i) 165,504,192 shares of New NTL Common Stock, (ii) 3,790 shares of Euroco
Preferred Stock, (iii) 0.725% of the Delaware Cash Amount, (iv) 5.012% of
the NTL Cash Amount, and (v) the Class 7 Euroco Value.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 7 NTL CC Senior Notes Claims shall be deemed to
release, and shall be permanently enjoined from bringing any action
against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 7
NTL CC Senior Notes Claims.
4. Class 8: NTL CC Subordinated Notes Claims
On, or as soon as reasonably practicable after, the Distribution Date,
each holder of an Allowed Class 8 NTL CC Subordinated Notes Claim shall
receive, in full satisfaction, settlement, release, and discharge of and in
exchange for such Allowed Class 8 NTL CC Subordinated Notes Claim, its Pro
Rata share of (i) 3,292,516 shares of New NTL Common Stock, (ii) 6,615
shares of Euroco Common Stock, (iii) 76 shares of Euroco Preferred Stock,
(iv) 0.014% of the Delaware Cash Amount, (v) 0.100% of the NTL Cash Amount,
and (vi) the Class 8 Noteholder Election Option; provided, however, that in
the event that the holders of Class 8 NTL CC Subordinated Notes Claims vote
as a class to reject this Plan, then the holders of Class 8 NTL CC
Subordinated Notes Claims shall not be entitled to, and shall not, receive
the shares of New NTL Common Stock and Class 8 Noteholder Election Option
described above.
PLAN-25
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 8 NTL CC Subordinated Notes Claims shall be
deemed to release, and shall be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 8
NTL CC Subordinated Notes Claims.
5. Class 9: NTL Delaware Subordinated Notes Claims
On, or as soon as reasonably practicable after, the Distribution Date,
each holder of an Allowed Class 9 NTL Delaware Subordinated Notes Claim,
other than France Telecom, shall receive, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Class 9 NTL
Delaware Subordinated Notes Claim, its Pro Rata share of (i) 2,661,253
shares of New NTL Common Stock, (ii) 10,692,532 shares of Euroco Common
Stock, (iii) 299,391 shares of Euroco Preferred Stock, (iv) 85.540% of the
Delaware Cash Amount, and (v) the Class 9 Noteholder Election Option;
provided, however, that in the event that the holders of Class 9 NTL
Delaware Subordinated Notes Claims vote as a class to reject this Plan,
then the holders of Class 9 NTL Delaware Subordinated Notes Claims shall
not be entitled to, and shall not, receive the shares of New NTL Common
Stock and Class 9 Noteholder Election Option described above.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 9 NTL Delaware Subordinated Notes Claims shall be
deemed to release, and shall be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 9
NTL Delaware Subordinated Notes Claims.
6. Class 10: NTL Inc. Subordinated Notes Claim
On, or as soon as reasonably practicable after, the Distribution Date,
each holder of an Allowed Class 10 NTL Inc. Subordinated Notes Claim, other
than France Telecom, shall receive, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Class 10 NTL
Inc. Subordinated Notes Claim, its Pro Rata share of (i) 1,270,303 shares
of New NTL Common Stock, (ii) 6,270,159 shares of Euroco Common Stock,
(iii) 71,744 shares of Euroco Preferred Stock, (iv) 13.720% of the Delaware
Cash Amount, (v) 94.887% of the NTL Cash Amount, and (vi) the Class 10
Noteholder Election Option; provided, however, that in the event that the
holders of Class 10 NTL Inc. Subordinated Notes Claims vote as a class to
reject this Plan, then the holders of Class 10 NTL Inc. Subordinated Notes
Claims shall not be entitled to, and shall not, receive the shares of New
NTL Common Stock and Class 10 Noteholder Election Option described above.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 10 NTL Inc. Subordinated Notes Claims shall be
deemed to release, and shall be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 10
NTL Inc. Subordinated Notes Claims.
7. Class 11: Intercompany Claims
On the Effective Date, all Class 11 Intercompany Claims owed by a
Debtor, directly or indirectly, to any of its Debtor Subsidiaries shall be
distributed by such Debtor Subsidiary up to its corporate parent in
exchange for one share of such Debtor Subsidiary's common stock and in
extinguishment of such Claim. On the Effective Date, all Class 11
Intercompany Claims owed, directly or indirectly, by any Debtor Subsidiary
to any parent Debtor, shall be contributed by the parent Debtor down to
such Debtor Subsidiary in exchange for one additional share of common stock
from such Debtor Subsidiary and in extinguishment of such Claim.
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D. Impaired Classes Of Interests
This Plan is predicated on, among other things, agreement to the terms
of the Debtors' restructuring between and among the Junior Stakeholders
(Classes 12, 13, and 14), on the one hand, and the holders of Debt
Securities (Classes 6, 7, 8, 9, and 10), on the other. The Debt Securities
holders, along with the Secured Lenders who will remain unimpaired under
the Plan, are entitled under the Bankruptcy Code to a distribution of 100%
of the Debtors' and Reorganized Debtors' enterprise value. Absent the
willingness of the Debt Securities holders in Classes 6, 7, 8, 9, and 10 to
provide value, in the form of the distributions described below, to the
Junior Stakeholders in Classes 12, 13, and 14, the Junior Stakeholders
would not be entitled to, and would not, receive any distribution from the
Debtors under the Plan on account of their Interests in the Debtors.
Nevertheless, to facilitate and avoid delay in consummation of the Plan and
the Debtors' restructuring, among other things, holders of more than 50% of
the aggregate principal amount at maturity of the Debt Securities have
agreed to provide to the Junior Stakeholders, in exchange for their
acceptance of this Plan and assent to the transactions contemplated hereby,
a portion of the Debtors' and Reorganized Debtors' enterprise value that
such Debt Securities holders otherwise are entitled to receive.
Accordingly, if and to the extent that a Class of Junior Stakeholders
entitled to vote on this Plan fails to accept the Plan, then no member of
such rejecting Class of Junior Stakeholders shall be entitled to, or shall
receive, any distribution under the Plan on account of its Interests in the
Debtors and the consideration otherwise available to the members of such
rejecting Class shall be retained by the Debt Securities holders or treated
as otherwise set forth in the Confirmation Order.
1. Class 12: Old Senior Preferred Stock Interests
On, or as soon as reasonably practicable after, the Distribution Date,
each holder of an Allowed Class 12 Old Senior Preferred Stock Interest
shall receive, in full satisfaction, settlement, release, and discharge of
and in exchange for such Allowed Class 12 Old Senior Preferred Stock
Interest, its Pro Rata share of (i) 2,996,475 Series A Warrants, (ii)
1,284,205 Equity Rights, and (iii) 642,102 shares of Euroco Common Stock;
provided, however, that in the event that the holders of Class 12 Old
Senior Preferred Stock Interests vote as a class to reject this Plan, then
such holders of Class 12 Old Senior Preferred Stock Interests shall not be
entitled to, and shall not, receive or retain any property or interest in
property on account of such Class 12 Old Senior Preferred Stock Interests.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 12 Old Senior Preferred Stock Interests shall be
deemed to release, and shall be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 12
Old Senior Preferred Stock Interests.
2. Class 13: Old Junior Preferred Stock Interests
a. Group 13-A: Noos Junior Preferred Stock Interests
i. 6.5% Fixed Coupon Redeemable Preferred Stock Interests
On, or as soon as reasonably practicable after, the Distribution Date,
the holder of the Allowed 6.5%Fixed Coupon Redeemable Preferred Stock
Interests in Group 13-A shall receive, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed 6.5% Fixed
Coupon Redeemable Preferred Stock Interests, 20.553% of the Noos Interest;
provided, however, that in the event that the holders of Class 13 Old
Junior Preferred Stock Interests vote as a class to reject this Plan, then
the holder of the Allowed 6.5% Fixed Coupon Redeemable Preferred Stock
Interests in Group 13-A shall not be entitled to, and shall not, receive or
retain any property or interest in property on account of such Interests.
PLAN-27
ii. Variable Coupon Redeemable Preferred Stock Interests
On, or as soon as reasonably practicable after, the Distribution Date,
the holder of the Allowed Variable Coupon Redeemable Preferred Stock
Interests in Group 13-A shall receive, in full satisfaction, settlement,
release, and discharge of and in exchange for such Allowed Variable Coupon
Redeemable Preferred Stock Interests, 79.447% of the Noos Interest;
provided, however, that in the event that the holders of Class 13 Old
Junior Preferred Stock Interests vote as a class to reject this Plan, then
the holder of the Allowed Variable Coupon Redeemable Preferred Stock
Interests in Group 13-A shall not be entitled to, and shall not, receive or
retain any property or interest in property on account of such Interests.
b. Group 13-B: Other Junior Preferred Stock Interests
On, or as soon as reasonably practicable after, the Distribution Date,
each holder of an Allowed Other Junior Preferred Stock Interest in Group
13-B shall receive, in full satisfaction, settlement, release, and
discharge of and in exchange for such Allowed Other Junior Preferred Stock
Interest, its Pro Rata share of (i) 22,402,468 Series A Warrants and (ii)
9,601,058 Equity Rights; provided, however, that in the event that the
holders of Class 13 Old Junior Preferred Stock Interests vote as a class to
reject this Plan, then the holder of the Allowed Other Junior Preferred
Stock Interests in Group 13-B shall not be entitled to, and shall not,
receive or retain any property or interest in property on account of such
Interests.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 13 Old Junior Preferred Stock Interests shall be
deemed to release, and shall be permanently enjoined from bringing any
action against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities related to or arising from any and all Class 13
Old Junior Preferred Stock Interests.
3. Class 14: Old Common Stock Interests
On, or as soon as reasonably practicable after, the Distribution Date,
each holder of an Allowed Class 14 Old Common Stock Interest shall receive
in full satisfaction, settlement, release, and discharge of and in exchange
for such Allowed Class 14 Old Common Stock Interest, its Pro Rata share of
(i) 9,601,058 Series A Warrants, (ii) 4,114,739 Equity Rights, and (iii)
2,057,369 shares of Euroco Common Stock; provided, however, that in the
event that the holders of Class 14 Old Common Stock Interests vote as a
class to reject this Plan, then the holders of Allowed Class 14 Old Common
Stock Interests shall not be entitled to, and shall not, receive or retain
any property or interest in property on account of such Interests or
Claims.
In consideration of the foregoing, on the Effective Date, but
effective as of the Confirmation Date, to the fullest extent permitted by
law, all holders of Class 14 Old Common Stock Interests shall be deemed to
release, and shall be permanently enjoined from bringing any action
against, the Debtors, New NTL, Euroco, and their respective members,
officers, directors, agents, financial advisors, attorneys, employees,
equity holders, partners, affiliates, and representatives and their
respective property, on account of any claims, obligations, rights, causes
of action, or liabilities relating to or arising from any and all Class 14
Old Common Stock Interests.
E. Additional Impaired Classes
1. Class 15: Securities Claims
a. Class 15.01: Debt Securities Claims
The Class 15.01 Debt Securities Claims shall be extinguished and the
holders thereof shall not be entitled to, and shall not, receive or retain
any property or interest in property on account of such Debt Securities
Claims.
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b. Class 15.02: Equity Securities Claims
The Class 15.02 Equity Securities Claims shall be extinguished and the
holders thereof shall not be entitled to, and shall not, receive or retain
any property or interest in property on account of such Equity Securities
Claims.
Notwithstanding the foregoing, on the Effective Date, but effective as
of the Confirmation Date, all holders of Class 15 Securities Claims shall
be deemed to be bound by the provisions of Article XIII of the Plan.
2. Class 16: Other Old Equity Interests And Claims
The Class 16 Other Old Equity Interests And Claims shall be
extinguished and the holders thereof shall not be entitled to, and shall
not, receive or retain any property or interest in property on account of
such Other Old Equity Interests And Claims.
Notwithstanding the foregoing, on the Effective Date, but effective as
of the Confirmation Date, all holders of Class 16 Other Old Equity
Interests And Claims shall be deemed to be bound by the provisions of
Article XIII of the Plan.
F. Additional Distributions With Respect To Allowed Claims In Classes 6, 7,
8, 9, And 10
With respect to the treatment of Allowed Claims in Classes 6, 7, 8, 9,
and 10, in addition to the distributions described in Articles III.C.2
through III.C.6 above, the professionals of the Noteholders' Steering
Committee shall be paid their unpaid fees and expenses incurred in
accordance with their prepetition engagement arrangements. Thus, on the
Effective Date, the Reorganized Debtors shall pay, in Cash, the unpaid fees
and expenses incurred on and after the Petition Date through June 24, 2002
(solely in their capacity as professionals of the Noteholders' Steering
Committee) by Fried, Frank, Harris, Shriver & Jacobson and Cadwalader,
Wickersham & Taft, and UBS Warburg shall be paid in full all of its unpaid
fees and expenses owing and due, as provided in its prepetition engagement
letter. Such amounts shall be deemed to be incremental distributions on
behalf of Allowed Claims in Classes 6, 7, 8, 9, and 10.
G. Special Provision Regarding Unimpaired Claims
Except as otherwise provided in this Plan, the Confirmation Order, any
other order of the Bankruptcy Court, or any document or agreement entered
into and enforceable pursuant to the terms of this Plan, nothing shall
affect the Debtors' or Reorganized Debtors' rights and defenses, both legal
and equitable, with respect to any Unimpaired Claims, including, but not
limited to, all rights with respect to legal and equitable defenses to
setoffs or recoupments against Unimpaired Claims.
H. Allowed Claims And Interests
Notwithstanding any provision herein to the contrary, the Disbursing
Agent shall make distributions only to holders of Allowed Claims and
Interests. No holder of a Disputed Claim or Interest shall receive any
distribution on account thereof until and to the extent that its Disputed
Claim or Interest becomes an Allowed Claim or Interest. The presence of a
Disputed Claim or Interest in any Class shall not be a cause to delay
distribution to Allowed Claims or Interests in that Class or in any junior
Classes. Any holder of a Disputed Claim or Interest that becomes an Allowed
Claim or Interest after the Distribution Date shall receive its
distribution, without postpetition interest (except as otherwise expressly
provided in this Plan), within ten (10) Business Days of the date that such
Disputed Claim or Interest becomes an Allowed Claim or Interest.
I. Accrual Of Postpetition Interest
In accordance with section 502(b)(2) of the Bankruptcy Code, the
amount of all Claims against all Debtors shall be calculated as of the
Petition Date. Except as otherwise provided elsewhere in this Plan or in an
order of the Bankruptcy Court, no holder of an Allowed Claim shall be
entitled to the accrual of postpetition interest or the payment by the
Debtors or Reorganized Debtors of postpetition interest on account of such
Claim for any purpose; provided, however,
PLAN-29
that holders of Unimpaired Claims shall be entitled to postpetition
interest to the extent required under any applicable agreement or by
applicable non-bankruptcy law.
J. Alternative Treatment
Notwithstanding any provision to the contrary contained in this Plan,
any holder of an Allowed Claim or Interest may receive, in lieu of the
distribution or treatment to which it is entitled under this Article III,
any other distribution or treatment to which it and the applicable Debtor
(with the prior consent of the Creditors' Committee) may agree in writing.
ARTICLE IV.
MEANS FOR IMPLEMENTATION OF THE PLAN
A. Continued Corporate Existence
Subject to the provisions of Article IV.C.1 of this Plan, each of the
Reorganized Debtors shall continue to exist after the Effective Date as a
separate corporate entity in accordance with the applicable law in the
applicable jurisdiction in which it is incorporated, under its respective
certificate of incorporation and by-laws or other organizational documents
in effect before the Effective Date, except as its certificate of
incorporation and by-laws or other organizational documents are amended by
this Plan.
B. Corporate Action
1. Amended Certificates Of Incorporation And By-laws
The certificate of incorporation and by-laws of NTL Inc. and NTL CC
shall be amended as necessary to satisfy the provisions of this Plan and
the Bankruptcy Code and shall include, among other things, pursuant to
section 1123(a)(6) of the Bankruptcy Code, (x) a provision prohibiting the
issuance of non-voting equity securities, and, if applicable, (y) a
provision as to the classes of securities issued pursuant to this Plan or
thereafter possessing voting power, for an appropriate distribution of such
power among such classes, including, in the case of any class of equity
securities having a preference over another class of equity securities with
respect to dividends, adequate provisions for the election of directors
representing such preferred class in the event of default in the payment of
such dividends. The Amended Certificate of Incorporation of NTL CC also
shall include, among other things, provisions authorizing (i) a change in
the name of the corporation from "NTL Communications Corp." to "NTL
Incorporated" and (ii) 600 million shares of New NTL Common Stock and 5
million shares of "blank check" preferred stock. The Amended Certificate of
Incorporation of NTL Inc. also shall include, among other things,
provisions authorizing (i) a change in the name of the corporation from
"NTL Incorporated" to "NTL Europe, Inc." and (ii) 60 million shares of
Euroco Common Stock and 1 million shares of "blank check" preferred stock,
including the shares of Euroco Preferred Stock.
2. Cancellation Of Existing Securities And Agreements
On the Effective Date, except as otherwise provided for herein, (i)
the Existing Securities and any other note, bond, Indenture, or other
instrument or document evidencing or creating any indebtedness or
obligation of a Debtor, except the Diamond Cable Notes or any other
instrument or document evidencing such indebtedness under the Diamond Cable
Notes, and such notes or other instruments evidencing indebtedness or
obligations of a Debtor as are Reinstated under this Plan, shall be
canceled, and (ii) the obligations of the Debtors under any agreements,
Indentures, or certificates of designations governing the Existing
Securities and any other note, bond, Indenture, or other instrument or
document evidencing or creating any indebtedness or obligation of a Debtor,
except the Diamond Cable Notes or any other instrument or document
evidencing such indebtedness under the Diamond Cable Notes, and such notes
or other instruments evidencing indebtedness or obligations of a Debtor
that are Reinstated under this Plan, as the case may be, shall be
discharged; provided, however, that each Indenture or other agreement that
governs the rights of a holder of a Claim and that is administered by an
Indenture Trustee shall continue in effect for the purposes of allowing the
Indenture
PLAN-30
Trustee to make any distributions on account of such Claims pursuant to
this Plan and to perform any other necessary administrative functions with
respect thereto. Notwithstanding any provision to the contrary contained in
this Plan, distributions on account of the Debt Securities shall not be
reduced by the amount of the reasonable fees and documented out-of-pocket
expenses incurred by the Indenture Trustees or any undisputed claim for
payment by the Indenture Trustees (which includes the reasonable fees and
documented out-of-pocket expenses of any professionals retained by the
Indenture Trustees). Upon approval by the Bankruptcy Court of an
application by an Indenture Trustee, the reasonable fees and documented
out-of-pocket expenses incurred by the Indenture Trustee or any other claim
for payment by the Indenture Trustee (which includes the reasonable fees
and documented out-of-pocket expenses of any professionals retained by the
Indenture Trustee) through the Effective Date shall be paid in full in Cash
as soon as practicable after the Effective Date. In addition, upon the
occurrence of the Effective Date, the asserted charging liens of the
Indenture Trustees shall be released and their sole claims shall be for
their reasonable fees and documented out-of-pocket expenses pursuant to
application to the Bankruptcy Court.
Any actions taken by an Indenture Trustee, an agent, or a servicer
that are not for the purposes authorized in this Article IV.B.2 shall not
be binding upon the Debtors or Reorganized Debtors. Notwithstanding the
foregoing, any Debtor may terminate any Indenture or other governing
agreement and the authority of any Indenture Trustee, agent, or servicer to
act thereunder at any time, with or without cause, by giving five (5) days'
written notice of termination to the Indenture Trustee, agent, or servicer.
If distributions under this Plan have not been completed at the time of
termination of the Indenture or other governing agreement, the applicable
Debtor shall designate a Disbursing Agent to act in place of the Indenture
Trustee, agent, or servicer, and the provisions of this Article IV.B.2
shall be deemed to apply to the new Disbursing Agent.
C. Restructuring Transactions
1. Reorganization Into New NTL And Euroco
a. New NTL
On the Effective Date, NTL CC shall (i) amend and restate its
certificate of incorporation and by-laws to provide for, among other
things, a change in the name of the corporation from "NTL Communications
Corp." to "NTL Incorporated" and (ii) consummate the Effectuating
Transactions. Upon, and as a result of, consummation of the Effectuating
Transactions, New NTL and its subsidiaries shall be separated from Euroco
and those of its subsidiaries that are not also subsidiaries of New NTL.
b. Euroco
On the Effective Date, NTL Inc. shall (i) amend and restate its
certificate of incorporation and by-laws to provide for, among other
things, a change in the name of the corporation from "NTL Incorporated" to
"NTL Europe, Inc." and (ii) consummate the Effectuating Transactions. Upon
consummation of the Effectuating Transactions, New NTL and its subsidiaries
shall be separated from Euroco and those of its subsidiaries that are not
also subsidiaries of New NTL.
2. New Securities
a. New NTL
i. Authorization
As of the Effective Date, the authorization by New NTL of (a) 600
million shares of New NTL Common Stock, (b) 5 million shares of "blank
check" preferred stock, (c) 50 million Series A Warrants, (d) 15 million
Equity Rights, (e) the Noteholder Election Option in an amount equal to the
quotient obtained by dividing (1) the Delaware/Inc. Cash Amount by (2) the
Noteholder Election Option Price, and (f) the New NTL Management Incentive
Options is hereby authorized without further act or action under applicable
law, regulation, order, or rule.
PLAN-31
ii. Issuance
The New Securities authorized pursuant to Article IV.C.2.a.i hereof
shall be issued by New NTL pursuant to this Plan without further act or
action under applicable law, regulation, order, or rule; provided, however,
that notwithstanding any provision to the contrary contained in this Plan,
the New NTL Common Stock shall be issued prior to the exchange of NTL
Delaware's Subsidiary Common Stock Interests in NTL CC. The New NTL
Management Incentive Options shall be issued by New NTL in accordance with
the New NTL Management Incentive Plan to be adopted by the compensation
committee of the board of directors of New NTL on or after the Effective
Date.
iii.Reserve
New NTL shall reserve (a) 50 million shares of New NTL Common Stock
for issuance pursuant to the Series A Warrants, (b) 15 million shares of
New NTL Common Stock for issuance pursuant to the Equity Rights Offering,
(c) the number of shares of New NTL Common Stock required for issuance
pursuant to the Noteholder Election Option as determined in Article
IV.C.2.a.i above, and (d) up to 20 million shares of New NTL Common Stock
for issuance pursuant to the New NTL Management Incentive Plan without
further act or action under applicable law, regulation, order, or rule.
b. Euroco
i. Authorization
As of the Effective Date, the authorization by Euroco of (a) 60
million shares of Euroco Common Stock, (b) one million shares of Euroco
Preferred Stock, and (c) the Euroco Management Incentive Options is hereby
authorized without further act or action under applicable law, regulation,
order, or rule.
ii. Issuance
The New Securities authorized pursuant to Article IV.C.2.b.i hereof
shall be issued by Euroco pursuant to this Plan without further act or
action under applicable law, regulation, order, or rule; provided, however,
that notwithstanding any provision to the contrary contained in this Plan,
the Euroco Common Stock and Euroco Preferred Stock shall be issued prior to
the exchange of NTL Delaware's Subsidiary Common Stock Interests in NTL CC.
The Euroco Management Incentive Options shall be issued by Euroco in
accordance with the Euroco Management Incentive Plan to be adopted by the
compensation committee of the board of directors of Euroco on or after the
Effective Date.
iii.Reserve
Euroco shall reserve up to two million shares of Euroco Common Stock
for issuance pursuant to the Euroco Management Incentive Plan without
further act or action under applicable law, regulation, order, or rule.
3. Listing and Registration Rights
On the Effective Date, New NTL shall (i) be a reporting company under
the Exchange Act, (ii) cause the shares of New NTL Common Stock to be
listed on the NYSE or such other securities exchange as agreed with the
Creditors' Committee, or, if New NTL is unable to have the New NTL Common
Stock listed on the NYSE or another securities exchange, quoted in the
national market system or small cap system of the National Association of
Securities Dealers' Automated Quotation System, (iii) in accordance with
the New NTL Registration Rights Agreement, file a shelf registration
statement under the Securities Act for resale of shares of New NTL Common
Stock (the "New NTL Shelf Registration Statement"), (iv) keep the New NTL
Shelf Registration Statement effective for a three-year period and (v)
supplement or make amendments to the New NTL Shelf Registration Statement,
if required under the Securities Act or by the rules and regulations
promulgated thereunder, or in accordance with the terms of the New NTL
Registration Rights Agreement, and have such amendments declared effective
as soon as practicable after filing with the SEC. New NTL
PLAN-32
will enter into the New NTL Registration Rights Agreement governing the
registration of shares of New NTL Common Stock in the form of Exhibit K to
this Plan.
On the Effective Date, Euroco shall (i) be a reporting company under
the Exchange Act, (ii) cause the shares of Euroco Common Stock to be quoted
in the national market system or small cap system of the National
Association of Securities Dealers' Automated Quotation System or, if Euroco
is unable to have the Euroco Common Stock so quoted, listed or quoted on a
securities exchange or quotation system agreed between NTL Inc. and the
Creditors' Committee or any other arrangement agreed between NTL Inc. and
the Creditors' Committee, (iii) in accordance with the Euroco Registration
Rights Agreement, file a shelf registration statement under the Securities
Act for resale of shares of Euroco Common Stock and Euroco Preferred Stock
(the "Euroco Shelf Registration Statement"), (iv) keep the Euroco Shelf
Registration Statement effective for a three-year period, and (v)
supplement or make amendments to the Euroco Shelf Registration Statement,
if required under the Securities Act or by the rules and regulations
promulgated thereunder, or in accordance with the terms of the Euroco
Registration Rights Agreement, and have such amendments declared effective
as soon as practicable after filing with the SEC. Euroco will enter into
the Euroco Registration Rights Agreement governing the registration of
shares of Euroco Common Stock and Euroco Preferred Stock in the form of
Exhibit L to this Plan.
4. Offerings
a. Equity Rights Offering
In accordance with the terms contained in the Equity Rights Offering
Procedures, the Equity Rights Offering shall permit the holders of Old
Senior Preferred Stock Interests, Other Junior Preferred Stock Interests,
and Old Common Stock Interests as of the Equity Rights Offering Record Date
to receive rights to subscribe to purchase 15,000,000 shares of New NTL
Common Stock exercisable on an oversubscription basis at the Equity Rights
Offering Price. Each share of New NTL Common Stock purchased in the Equity
Rights Offering shall be accompanied by a Series A Warrant (maximum
issuance of warrants representing 15,000,000 shares of New NTL Common
Stock) with a strike price of $77.47 (which assumes 162.5% recovery for the
NTL CC Senior Notes, NTL CC Subordinated Notes, and the Diamond Cable
Notes). The Equity Rights, which shall be exercisable for a period of 20
Business Days following the entry of the Confirmation Order, as such period
may be extended, shall be offered pro rata, but shall be exercisable on an
oversubscription basis, such that holders of Equity Rights can subscribe
for shares of New NTL Common Stock (each accompanied by a Series A Warrant)
underlying unexercised Equity Rights, if any. Subject to any requirement of
applicable securities laws, the Equity Rights shall be transferable in
accordance with the provisions set forth in the Equity Rights Offering
Procedures.
b. Noteholder Election
In accordance with the terms contained in the Noteholder Election
Option Procedures, the Noteholder Election Option shall permit the holders
of NTL CC Subordinated Notes, NTL Delaware Subordinated Notes (other than
France Telecom), and NTL Inc. Subordinated Notes (other than France
Telecom) as of the Noteholder Election Option Record Date to purchase (i)
shares of New NTL Common Stock using up to 100% of the Delaware/Inc. Cash
Amount distributed to holders of NTL CC Subordinated Notes, NTL Delaware
Subordinated Notes (other than France Telecom), and NTL Inc. Subordinated
Notes (other than France Telecom) pursuant to Article III.C of this Plan at
the Noteholder Election Option Price, plus (ii) any shares of New NTL
Common Stock and Series A Warrants not subscribed for in the Equity Rights
Offering on an oversubscription basis at the Noteholder Election Option
Price. The Noteholder Election Option, which shall be exercisable for a
period of 20 Business Days following the entry of the Confirmation Order,
as such period may be extended, shall be offered pro rata, but shall be
exercisable on an oversubscription basis. Subject to any requirement of
applicable securities laws, the Noteholder Election Option shall be
transferable in accordance with the provisions set forth in the Noteholder
Election Option Procedures.
PLAN-33
5. Exit Financing
The Debtors expect that Cable Funding and/or New NTL will enter into
an exit financing agreement, which may be the New NTL Exit Facility, to (a)
refinance amounts outstanding on the Effective Date under the DIP Facility,
(b) make other payments required to be made on the Effective Date or the
Distribution Date, and (c) provide additional borrowing capacity to New NTL
and its subsidiaries following the Effective Date. If such exit financing
agreement is to be the New NTL Exit Facility, then on the Effective Date,
the Reorganized Debtors shall be authorized to enter into, execute, and
deliver the New NTL Exit Facility (which shall be acceptable in all
respects to the Creditors' Committee).
6. Cancellation Of Certain Obligations
On or immediately prior to the Effective Date, NTL Inc. shall assume
the account payable of NTL TWTV Holdings Limited, a Non-Debtor Subsidiary
of NTL Inc., to NTL (CWC) Limited, an indirect Non-Debtor Subsidiary of NTL
CC. Substantially contemporaneously therewith, NTL (CWC) Limited shall
transfer to NTL CC, through various intermediate transactions in
satisfaction of intercompany obligations, its account receivable from NTL
TWTV Holdings Limited (as assumed, or to be assumed, by NTL Inc.). On the
Effective Date, the resultant Intercompany Claim of NTL CC against NTL Inc.
shall be canceled pursuant to Article III.C.7 of this Plan.
7. Restructuring Expense Adjustment
As of the Effective Date, if NTL Inc. and NTL Delaware have incurred
Restructuring Expenses in excess of the Delaware/Inc. Restructuring
Expenses, then New NTL shall transfer the amount of such excess to Euroco.
If the Delaware/Inc. Restructuring Expenses exceed the Restructuring
Expenses actually incurred by NTL Inc. and NTL Delaware, then Euroco shall
transfer the amount of such excess to New NTL.
D. New NTL Rights Agreement
Prior to the Effective Date, New NTL and Continental Stock Transfer
and Trust Company will enter into the New NTL Rights Agreement. In
accordance therewith, upon issuance on the Effective Date, each share of
New NTL Common Stock (whether originally issued or from New NTL's treasury)
shall be accompanied by a New NTL Stockholder Right entitling the
registered holder to purchase from New NTL one one-hundredth (1/100) of a
share of New NTL Stockholder Rights Preferred Stock at the New NTL
Stockholder Rights Purchase Price, subject to adjustment pursuant to the
terms of the New NTL Rights Agreement. Subject to certain exceptions
specified in the New NTL Rights Agreement, the New NTL Stockholder Rights
will separate from the New NTL Common Stock, be represented by separate
certificates, and a New NTL Stockholder Rights distribution date will occur
upon the earlier of:
(a) 10 business days following a public announcement that a Person
or group of affiliated or associated Persons other than a New NTL
Grandfathered Distributee (a "New NTL Acquiring Person") has acquired
beneficial ownership of 15% or more of the outstanding shares of New
NTL Common Stock (or beneficial ownership of securities which, upon
confirmation of the Plan, will become shares of New NTL Common Stock)
(the "New NTL Stock Acquisition Date"), other than as a result of
repurchases of stock by New NTL or certain inadvertent actions by
institutional or certain other stockholders; or
(b) 10 business days (or such later date as the New NTL board of
directors shall determine prior to any Person becoming a New NTL
Acquiring Person) following the commencement of a tender offer or
exchange offer that would result in a Person or group becoming a New
NTL Acquiring Person.
The New NTL Stock Acquisition Date could occur as early as the
Effective Date. The earlier of the events described in clauses (a) and (b)
above to occur shall be the "New NTL Stockholder Rights Distribution Date."
In no event, however, shall the separation of the New NTL Stockholder Right
from the New NTL Common Stock occur prior to the Effective Date.
PLAN-34
E. Euroco Rights Agreement
Prior to the Effective Date, Euroco and Continental Stock Transfer and
Trust Company will enter into the Euroco Rights Agreement. In accordance
therewith, upon issuance on the Effective Date, each share of Euroco Common
Stock (whether originally issued or from Euroco's treasury) shall be
accompanied by a Euroco Stockholder Right entitling the registered holder
to purchase from Euroco one one-hundredth (1/100) of a share of Euroco
Stockholder Rights Preferred Stock at the Euroco Stockholder Rights
Purchase Price, subject to adjustment pursuant to the terms of the Euroco
Rights Agreement. Subject to certain exceptions specified in the Euroco
Rights Agreement, the Euroco Stockholder Rights will separate from the
Euroco Common Stock, be represented by separate certificates, and a Euroco
Stockholder Rights distribution date will occur upon the earlier of:
(a) 10 business days following a public announcement that a Person
or group of affiliated or associated Persons other than a Euroco
Grandfathered Distributee (a "Euroco Acquiring Person") has acquired
beneficial ownership of 15% or more of the outstanding shares of
Euroco Common Stock (or beneficial ownership of securities which, upon
confirmation of the Plan, will become shares of Euroco Common Stock)
(the "Euroco Stock Acquisition Date"), other than as a result of
repurchases of stock by Euroco or certain inadvertent actions by
institutional or certain other stockholders; or
(b) 10 business days (or such later date as the Euroco board of
directors shall determine prior to any Person becoming a Euroco
Acquiring Person) following the commencement of a tender offer or
exchange offer that would result in a Person or group becoming a
Euroco Acquiring Person.
The Euroco Stock Acquisition Date could occur as early as the
Effective Date. The earlier of the events described in clauses (a) and (b)
above to occur shall be the "Euroco Stockholder Rights Distribution Date."
In no event, however, shall the separation of the Euroco Stockholder Right
from the Euroco Common Stock occur prior to the Effective Date.
F. Directors And Officers
1. Current Board Of Directors Of NTL Inc.
On the Effective Date, the term of the current board of directors of
NTL Inc. shall expire and the operations of New NTL shall become the
general responsibility of the board of directors of New NTL.
2. New NTL
The initial board of directors of New NTL after the Effective Date
shall be comprised of nine members selected by the Creditors' Committee,
one of whom shall be designated as Chairman and one of whom shall be
designated as Chief Executive Officer of New NTL. The Debtors will identify
the individuals proposed to serve as directors and senior management of New
NTL in the Plan Supplement. The board of directors of New NTL shall have
the responsibility for the management, control, and operation of New NTL on
and after the Effective Date. The existing officers and directors of the
Debtor Subsidiaries of NTL CC shall initially be permitted to serve in
their respective capacities as officers and directors of the Reorganized
Debtor Subsidiaries of New NTL, unless otherwise provided in the Plan
Supplement.
3. Euroco
The initial board of directors of Euroco after the Effective Date
shall be comprised of nine members selected by the Creditors' Committee,
one of whom shall be designated as Chairman and one of whom shall be
designated as Chief Executive Officer of Euroco. The Debtors shall identify
the individuals proposed to serve as directors and senior management of
Euroco in the Plan Supplement. The board of directors of Euroco shall have
the responsibility for the management, control, and operation of Euroco on
and after the Effective Date. The existing officers and directors of the
Debtor Subsidiaries of NTL Inc. (excluding NTL CC and its subsidiaries)
shall initially be permitted to serve in their respective capacities as
officers and directors of the Reorganized Debtor Subsidiaries of Euroco,
unless otherwise provided in the Plan Supplement.
PLAN-35
G. Revesting Of Assets
Except as provided in Article III above, the property of each Debtor's
Estate, together with any property of each Debtor that is not property of
its Estate and that is not specifically disposed of pursuant to this Plan,
shall revest in the applicable Reorganized Debtor on the Effective Date.
Thereafter, the Reorganized Debtors may operate their businesses and may
use, acquire, and dispose of property free of any restrictions of the
Bankruptcy Code, the Bankruptcy Rules, and the Bankruptcy Court. As of the
Effective Date, all property of the Reorganized Debtors shall be free and
clear of all Claims, encumbrances, Interests, charges, and Liens except as
specifically provided in this Plan or Confirmation Order or as contemplated
by the New NTL Exit Facility. Without limiting the generality of the
foregoing, the Reorganized Debtors may, without application to or approval
by the Bankruptcy Court, pay Professional Fees and expenses incurred after
the Confirmation Date.
H. Preservation Of Rights Of Action; Settlement Of Causes Of Action
Except as otherwise provided in this Plan or the Confirmation Order,
or in any contract, instrument, release, indenture, or other agreement
entered into in connection with this Plan, in accordance with section
1123(b) of the Bankruptcy Code, the Reorganized Debtors shall retain and
have the exclusive right, in their sole discretion, to enforce, sue on,
settle, or compromise (or decline to do any of the foregoing) all claims,
rights, Causes of Action, suits, and proceedings, whether in law or in
equity, whether known or unknown, that the Debtors or their Estates may
hold against any Person or entity. The Reorganized Debtors or their
successor(s) may pursue such retained claims, rights, Causes of Action,
suits, or proceedings as appropriate, in accordance with the best interests
of the Reorganized Debtors or their successor(s) who hold such rights.
I. Employment Agreements
On the Effective Date, New NTL and Euroco shall enter into employment
agreements with their respective key executives, substantially in the form
of the agreement annexed hereto as Exhibit M.
J. Management Incentive Plans
On or after the Effective Date, the compensation committees of the
boards of directors of New NTL and Euroco, respectively, are authorized to
and shall adopt the New NTL Management Incentive Plan and Euroco Management
Incentive Plan. Under the New NTL Management Incentive Plan, options to
purchase up to 10% of the issued and outstanding shares of New NTL Common
Stock as of the Effective Date may be granted from time to time to certain
employees of New NTL and, on the Effective Date, New NTL shall reserve up
to 20 million shares of New NTL Common Stock for issuance under the New NTL
Management Incentive Plan. The form of the New NTL Management Incentive
Plan is annexed as Exhibit Q hereto. Under the Euroco Management Incentive
Plan, options to purchase up to 10% of the issued and outstanding shares of
Euroco Common Stock as of the Effective Date may be granted from time to
time to certain employees of Euroco and, on the Effective Date, Euroco
shall reserve up to 2 million shares of Euroco Common Stock for issuance
under the Euroco Management Incentive Plan. The form of Euroco Management
Incentive Plan is annexed as Exhibit R hereto.
K. Effectuating Documents; Further Transactions
The chairman of the board of directors, president, chief executive
officer, chief financial officer, or any other appropriate officer of each
Debtor, shall be authorized to execute, deliver, file, or record such
contracts, instruments, releases, indentures, and other agreements or
documents, and take such actions, as may be necessary or appropriate to
effectuate and further evidence the terms and conditions of this Plan. The
secretary or assistant secretary of the appropriate Debtor shall be
authorized to certify or attest to any of the foregoing actions.
PLAN-36
L. Exemption From Certain Transfer Taxes
Pursuant to section 1146(c) of the Bankruptcy Code, the issuance,
transfer, or exchange of a security, or the making or delivery of an
instrument of transfer from a Debtor to a Reorganized Debtor or any other
Person or entity pursuant to this Plan, including, without limitation, the
granting or recording of any Lien or mortgage on any property under the New
NTL Exit Facility, shall not be subject to any document recording tax,
stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp
act, real estate transfer tax, mortgage recording tax, or other similar tax
or governmental assessment, and the Confirmation Order shall direct the
appropriate state or local governmental officials or agents to forego the
collection of any such tax or governmental assessment and to accept for
filing and recordation any of the foregoing instruments or other documents
without the payment of any such tax or governmental assessment.
M. Transactions On Business Days
If the date on which a transaction may occur under this Plan shall
occur on a day that is not a Business Day, then such transaction shall
instead occur on the next succeeding Business Day.
N. Implementation
Pursuant to the Confirmation Order and upon Confirmation of this Plan,
the Debtors and the Reorganized Debtors shall be authorized to take all
necessary steps, and perform all necessary acts, to consummate the terms
and conditions of this Plan. On or before the Effective Date, the Debtors
may file with the Bankruptcy Court such agreements and other documents as
may be necessary or appropriate to effectuate or further evidence the terms
and conditions of this Plan and the other agreements referred to herein.
The Debtors or the Reorganized Debtors, as the case may be, shall execute
such documents and take such other actions as necessary to effectuate the
transactions provided for in this Plan, including, without limitation, the
New NTL Exit Facility Agreement and the Employment Agreements without the
need for any additional approvals, authorizations, or consents.
ARTICLE V.
ACCEPTANCE OR REJECTION OF THE PLAN
A. Classes Entitled To Vote
Each Impaired Class of Claims or Interests that will (or may) receive
or retain property or any interest in property under this Plan is entitled
to vote to accept or reject this Plan. By operation of law, each unimpaired
Class of Claims or Interests is deemed to have accepted this Plan and,
therefore, is not entitled to vote. Because holders of Interests in Classes
that are not entitled to receive or retain any property under this Plan are
presumed to have rejected this Plan, they are not entitled to vote.
B. Acceptance By Impaired Classes
An Impaired Class of Claims shall have accepted this Plan if (i) the
holders of at least two-thirds in amount of the Allowed Claims actually
voting in the Class have voted to accept this Plan and (ii) the holders of
more than one-half in number of the Allowed Claims actually voting in the
Class have voted to accept this Plan, in each case not counting the vote of
any holder designated under section 1126(e) of the Bankruptcy Code. An
Impaired Class of Interests shall have accepted this Plan if the holders
(other than any holder designated under section 1126(e) of the Bankruptcy
Code) of at least two-thirds in amount of the Allowed Interests actually
voting in such Class have voted to accept this Plan.
C. Elimination Of Classes
Any Class that does not contain, as of the date of the commencement of
the Confirmation Hearing, any Allowed Claims or Interests or any Claims or
Interests temporarily allowed for voting purposes under Fed. R. Bankr. P.
3018 shall
PLAN-37
be deemed to have been deleted from this Plan for purposes of (i) voting to
accept or reject this Plan and (ii) determining whether it has accepted or
rejected this Plan under section 1129(a)(8) of the Bankruptcy Code.
D. Cramdown
As described in Article III.D above, the holders of the Debt
Securities have agreed to provide a portion of their distribution to the
Junior Stakeholders, subject to their acceptance of this Plan. The Debt
Securities holders have not, however, agreed to provide value to holders of
Claims and Interests in Classes 15 and 16; consequently, holders of Claims
and Interests in Classes 15 and 16 shall not receive or retain property
under the Plan on account of such Claims and Interests and, under section
1126(g) of the Bankruptcy Code, are presumed to have rejected the Plan.
If, and to the extent, necessary to confirm the Plan notwithstanding
the deemed rejection of the Plan by Classes 15 and 16, the Debtors shall
request confirmation of the Plan, as it relates to Classes 15 and 16 and as
it may be modified from time to time, under section 1129(b) of the
Bankruptcy Code. The Debtors reserve the right to modify this Plan to the
extent, if any, that confirmation pursuant to section 1129(b) of the
Bankruptcy Code requires modification.
ARTICLE VI.
SECURITIES TO BE ISSUED
IN CONNECTION WITH THE PLAN
On the Effective Date, New NTL and Euroco shall issue for distribution
in accordance with the provisions of this Plan the New Securities required
for distribution pursuant to the provisions of Articles III and IV hereof.
All New Securities to be issued shall be issued on the Effective Date,
regardless of the date on which they are actually distributed. Descriptions
of the terms of each of the New Securities are included in Exhibits D, F,
G, H, I, and J, each of which is annexed to and incorporated herein by
reference.
ARTICLE VII.
PROVISIONS GOVERNING DISTRIBUTIONS
A. Distributions For Claims And Interests Allowed As Of The Effective Date
Except as otherwise provided herein or as ordered by the Bankruptcy
Court, distributions to be made on account of Claims or Interests that are
Allowed Claims or Interests as of the Effective Date shall be made on the
Distribution Date, or as soon thereafter as reasonably practicable. Any
Cash distributions shall be made by the Disbursing Agent from available
Cash of the Reorganized Debtors. Any distribution under this Plan of
property other than Cash shall be made by the Disbursing Agent or the
appropriate Indenture Trustee, agent, or servicer, in accordance with the
terms of this Plan.
B. Special Distribution Procedures For Certain Persons
1. New NTL Chapter 11 Acquiring Persons
If any holder of Allowed Claims or Interests entitled to receive a
distribution under the Plan becomes a New NTL Chapter 11 Acquiring Person
during the period from the first Business Day after the Petition Date
through the Effective Date, then (a) such holder shall only be entitled to
receive aggregate distributions on account of its Allowed Claims or
Interests in an amount not to exceed 15% of the outstanding shares of New
NTL Common Stock (including, without limitation, any shares of New NTL
Common Stock purchased or that may be acquired after giving effect to the
Equity Rights Offering and the Noteholder Election Option and assuming
exercise of the Series A Warrants) so that, as of the Effective Date, such
holder would not be a New NTL Acquiring Person under the New NTL Rights
Agreement (without
PLAN-38
regard to whether such Person is a Grandfathered Distributee); and (b) any
shares of New NTL Common Stock that such holder otherwise would have been
entitled to receive but for the provisions of this Article VII.B.1 shall be
withheld and retained by New NTL in accordance with the provisions of
Paragraph 2 below, unless such holder represents and warrants in writing to
New NTL that, as of the Effective Date, such holder either (i) has disposed
of a sufficient amount of Allowed Claims or Interests such that as of the
Effective Date, such holder would not be a New NTL Chapter 11 Acquiring
Person, or (ii) is a New NTL Grandfathered Distributee, and in either case,
such holder shall be entitled to receive those distributions to which it
otherwise would have been entitled to receive under this Plan had it not
been for the provisions of this Article VII.B.1.
2. Distribution Procedures For Withheld Shares Of New NTL Common Stock
Distributions of New NTL Common Stock withheld pursuant to Article
VII.B.1 hereof shall be held in reserve by New NTL for the account of the
holder who otherwise would have been entitled, in the absence of the
limitations imposed by Article VII.B.1, to such distributions until such
time as New NTL is directed in writing by such holder to distribute the
shares of New NTL Common Stock, together with any Cash and non-Cash
dividends earned thereon, to another Person, such that after giving effect
to the disposition of New NTL Common Stock, such other Person would not be
a New NTL Acquiring Person under the New NTL Rights Agreement. As soon as
practicable following receipt of such direction, New NTL shall distribute
the withheld shares of New NTL Common Stock, together with any Cash and
non-Cash dividends earned thereon, to such Person as directed by such
Person in writing.
3. Euroco Chapter 11 Acquiring Persons
If any holder of Allowed Claims or Interests entitled to receive a
distribution under the Plan becomes a Euroco Chapter 11 Acquiring Person
during the period from the first Business Day after the Petition Date
through the Effective Date, then (a) such holder shall be entitled only to
receive aggregate distributions on account of its Allowed Claims or
Interests in an amount not to exceed 15% of the outstanding shares of
Euroco Common Stock so that, as of the Effective Date, such holder would
not be a Euroco Acquiring Person under the Euroco Rights Agreement (without
regard to whether such Person is a Euroco Grandfathered Distributee), and
(b) any shares of Euroco Common Stock that such holder otherwise would have
been entitled to receive but for the provisions of this Article VII.B.3
shall be withheld and retained by Euroco in accordance with the provisions
of Paragraph 4 below, unless such holder represents and warrants in writing
to Euroco that, as of the Effective Date, such holder either (i) has
disposed of a sufficient amount of Allowed Claims or Interests such that as
of the Effective Date, such holder would not be a Euroco Chapter 11
Acquiring Person, or (ii) is a Euroco Grandfathered Distributee, and in
either case, such holder shall be entitled to receive those distributions
to which it otherwise would have been entitled to receive under this Plan
had it not been for the provisions of this Article VII.B.3.
4. Distribution Procedures For Withheld Shares Of Euroco Common Stock
Distributions of Euroco Common Stock withheld pursuant to Article
VII.B.3 above shall be held in reserve by Euroco for the account of the
holder who otherwise would have been entitled, in the absence of the
limitations imposed by Article VII.B.3, to such distributions until such
time as Euroco is directed in writing by such holder to distribute the
shares of Euroco Common Stock, together with any Cash and non-Cash
dividends earned thereon, to another Person, such that after giving effect
to the disposition of Euroco Common Stock, such other Person would not be a
Euroco Acquiring Person under the Euroco Rights Agreement. As soon as
practicable following receipt of such direction, Euroco shall distribute
the withheld shares of Euroco Common Stock, together with any Cash and
non-Cash dividends earned thereon, to such Person as directed in writing.
C. Allocation Of Consideration
The aggregate consideration to be distributed to the holders of
Allowed Claims in each Class of Claims under this Plan shall be treated
first, as satisfying the stated principal amount of each holder's Allowed
Claim and second, to the extent of any remaining consideration, as
satisfying accrued but unpaid interest, if any.
PLAN-39
D. Disbursing Agent
The Disbursing Agent shall make all distributions required under this
Plan (subject to the provisions of Articles III, VII, and IX hereof), as
agent for New NTL and Euroco, except with respect to a holder of a Claim or
Interest whose distribution is governed by an Indenture or other agreement
and is administered by an Indenture Trustee, agent, or servicer, which
distributions shall be deposited with the appropriate Indenture Trustee,
agent, or servicer, who shall deliver such distributions to the holders of
Claims or Interests in accordance with the provisions of this Plan and the
terms of the relevant Indenture or other governing agreement.
If the Disbursing Agent is an independent third party designated by
the Reorganized Debtors to serve in such capacity, or an Indenture Trustee,
agent, or servicer that administers an Indenture or other agreement that
governs distributions, such Disbursing Agent, Indenture Trustee, agent, or
servicer shall receive, without further Bankruptcy Court approval,
reasonable compensation for distribution services rendered pursuant to this
Plan and reimbursement of reasonable out-of-pocket expenses incurred in
connection with such services from the Reorganized Debtors on terms
acceptable to the Reorganized Debtors. No Disbursing Agent shall be
required to give any bond or surety or other security for the performance
of its duties unless otherwise ordered by the Bankruptcy Court. If
otherwise so ordered, all costs and expenses of procuring any such bond
shall be paid by the Reorganized Debtors.
E. Distributions By Indenture Trustees
Any distributions on account of Allowed Claims arising under Debt
Securities or otherwise administered by an Indenture Trustee shall be made
to the appropriate Indenture Trustee, which, in each case, shall serve as
the Reorganized Debtors' designee for purposes of making distributions to
holders of such Allowed Claims under this Plan. The Reorganized Debtors
shall be responsible for payment to each Indenture Trustee of such
Indenture Trustee's reasonable fees and documented out-of-pocket expenses
incurred in connection with the making of distributions under this Plan to
holders of Allowed Claims governed by its Indenture.
F. Surrender Of Securities Or Instruments
As a condition to receiving any distribution under this Plan, on or
before the Distribution Date, or as soon as practicable thereafter, each
holder of an instrument (a "Certificate") evidencing a Claim or Interest on
account of Existing Securities that are not being Reinstated under this
Plan shall surrender such Certificate to the Disbursing Agent, as agent for
New NTL and Euroco, or, with respect to indebtedness that is governed by an
Indenture or other agreement, the respective Indenture Trustee, agent, or
servicer, as the case may be, and such Certificate shall be canceled;
provided, however, that in accordance with the provisions of Article
III.C.2 hereof, all Certificates evidencing Claims on account of Diamond
Cable Notes shall be assigned, conveyed, and transferred by the holder
thereof to New NTL. No distribution of property hereunder shall be made to
or on behalf of any such holder unless and until such Certificate is
received by the Disbursing Agent, the respective Indenture Trustee, agent,
or servicer, or New NTL, as the case may be, or the unavailability of such
Certificate is reasonably established to the satisfaction of the Disbursing
Agent, the respective Indenture Trustee, agent, or servicer, or New NTL, as
the case may be. Any such holder who fails to surrender or assign or cause
to be surrendered or assigned such Certificate or fails to execute and
deliver an affidavit of loss and indemnity reasonably satisfactory to the
Disbursing Agent, the respective Indenture Trustee, agent, or servicer, or
New NTL, as the case may be, prior to the later of (i) the second
anniversary of the Effective Date or (ii) six (6) months after the date
such holder's Claim becomes an Allowed Claim, shall be deemed to have
forfeited all rights, Claims, and Interests in respect of such Certificate
and shall not participate in any distribution hereunder, and all property
in respect of such forfeited distribution, including interest accrued
thereon, shall revert to New NTL or Euroco, as the case may be,
notwithstanding any federal or state escheat laws to the contrary.
G. Instructions To Disbursing Agent
Prior to any distribution to a holder of a Claim or Interest on
account of Existing Securities that are not being Reinstated under this
Plan, the appropriate Indenture Trustee, agent, or servicer, as the case
may be, shall (i) inform the Disbursing Agent as to the amount of properly
surrendered Existing Securities as to which such party serves as Indenture
PLAN-40
Trustee, agent, or servicer, and (ii) inform the Disbursing Agent in a
properly completed letter of transmittal accompanying properly remitted
securities of the names of the holders of Allowed Claims or Interests, and
the number of (x) shares of New NTL Common Stock, Euroco Preferred Stock,
and/or Euroco Common Stock, and/or (y) Series A Warrants and/or Rights, as
the case may be, to be issued and distributed to or on behalf of such
holders of Allowed Claims or Interests in exchange for properly surrendered
Existing Securities.
H. Services Of Indenture Trustees, Agents, And Servicers
The services of Indenture Trustees, agents, and servicers under
Indentures and other agreements that govern the rights of holders of Claims
and Interests, with respect to consummation of this Plan, shall be as set
forth in Article IV.B.2 and elsewhere in this Plan.
I. Record Date For Distributions To Holders Of Existing Securities
The record date for distributions to holders of Allowed Claims or
Interests on account of Existing Securities that are not being Reinstated
under this Plan shall be the Distribution Record Date. At the close of
business on the Distribution Record Date, the transfer ledgers for such
securities shall be closed, and there shall be no further changes in the
record holders of such securities. The Reorganized Debtors and the
Disbursing Agent, if any, shall have no obligation to recognize any
transfer of any such securities occurring after the Distribution Record
Date and shall be entitled instead to recognize and deal for all purposes
hereunder with only those record holders listed on the transfer ledgers as
of the close of business on the Distribution Record Date.
J. Means Of Cash Payment
Cash payments under this Plan shall be in U.S. funds, and shall be
made, at the option, and in the sole discretion, of the Reorganized
Debtors, by (i) checks drawn on or (ii) wire transfers from a domestic bank
selected by the Reorganized Debtors. Cash payments to foreign creditors may
be made, at the option, and in the sole discretion, of the Reorganized
Debtors, in such funds and by such means as are necessary or customary in a
particular foreign jurisdiction. Cash payments made pursuant to this Plan
in the form of checks issued by the Reorganized Debtors shall be null and
void if not cashed within 120 days of the date of the issuance thereof.
Requests for reissuance of any check shall be made directly to the
Reorganized Debtors.
K. Fractional Dollars; De Minimis Distributions
Any other provision of this Plan notwithstanding, payments of
fractions of dollars shall not be made. Whenever any payment of a fraction
of a dollar under this Plan would otherwise be called for, the actual
payment made shall reflect a rounding of such fraction to the nearest whole
dollar (up or down), with half dollars being rounded down. The Disbursing
Agent, or any Indenture Trustee, agent, or servicer, as the case may be,
shall not make any payment of less than $25.00 with respect to any Claim
unless a request therefor is made in writing to such Disbursing Agent,
Indenture Trustee, agent, or servicer, as the case may be.
L. Calculation Of Distribution Amounts Of Certain New Securities
No fractional shares of New NTL Common Stock, Euroco Common Stock, or
Euroco Preferred Stock, and no fractional Series A Warrants or Rights
(collectively, the "Distributable Securities"), shall be issued or
distributed under this Plan or by New NTL, Euroco, or any Disbursing Agent,
Indenture Trustee, agent, or servicer. Each Person entitled to receive
Distributable Securities shall receive the total number of whole shares of
stock, Series A Warrants, or Rights, as the case may be, to which such
Person is entitled. Whenever any distribution to a particular Person would
otherwise call for distribution of a fraction of a share of stock, Series A
Warrant, or Right, as the case may be, the Disbursing Agent shall allocate
separately one whole share, warrant or right to such Person in order of the
fractional portion of their entitlements, starting with the largest such
fractional portion, until all remaining whole shares, warrants, or rights
have been allocated. Upon the allocation of a whole share, warrant, or
right to a Person in respect of the fractional portion of its entitlement,
such fractional portion shall be canceled. If two or more Persons are
entitled to equal fractional
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entitlements and the number of Persons so entitled exceeds the number of
whole shares, warrants, or rights that remain to be allocated, the
Disbursing Agent shall allocate the remaining whole shares, warrants, or
rights to such holders by random lot or such other impartial method as the
Disbursing Agent deems fair. Upon the allocation of all of the whole
shares, warrants, and rights authorized under this Plan, all remaining
fractional portions of the entitlements shall be canceled and shall be of
no further force and effect.
M. Delivery Of Distributions; Undeliverable Or Unclaimed Distributions
Distributions to holders of Allowed Claims or Interests shall be made
by the Disbursing Agent or the Indenture Trustee, agent, or servicer, as
the case may be, (i) at the holder's last known address, (ii) at the
address in any written notice of address change delivered to the Disbursing
Agent, (iii) in the case of the holder of an Existing Security, at the
address in the appropriate Indenture Trustee's, agent's, or servicer's
official records, or (d) set forth in a properly completed letter of
transmittal accompanying a Certificate properly remitted in accordance with
the terms hereof. If any holder's distribution is returned as
undeliverable, no further distributions to such holder shall be made,
unless and until the Disbursing Agent or appropriate Indenture Trustee,
agent, or servicer is notified of such holder's then current address, at
which time all missed distributions shall be made to such holder without
interest. Amounts in respect of undeliverable distributions made through
the Disbursing Agent or an Indenture Trustee, agent, or servicer shall be
returned to the appropriate Reorganized Debtor or the Indenture Trustee,
agent, or servicer, as the case may be, until such distributions are
claimed. All claims for undeliverable distributions must be made on or
before the later to occur of (i) the second anniversary of the Effective
Date or (ii) six (6) months after such holder's Claim becomes an Allowed
Claim, after which date all unclaimed property shall revert to the
appropriate Reorganized Debtor free of any restrictions thereon and the
claim of any holder or successor to such holder with respect to such
property shall be discharged and forever barred, notwithstanding any
federal or state escheat laws to the contrary. Any holder of an Allowed
Claim who is entitled to receive a Cash distribution under this Plan, but
fails to cash a check within 120 days of its issuance, shall be entitled to
receive a reissued check from the Reorganized Debtors for the amount of the
original check, without interest, upon written request (prior to the second
anniversary of the Effective Date) to the Reorganized Debtors or their
designee, which request shall include such documentation as the Reorganized
Debtors or their designee request to verify, in their reasonable
discretion, that such holder is entitled to such check. If a holder fails
to cash a check within 120 days of its issuance and fails to request
reissuance of such check prior to the later to occur of (i) the second
anniversary of the Effective Date and (ii) six (6) months following the
date such holder's Claim becomes an Allowed Claim, such holder shall not be
entitled to receive any distribution under this Plan.
N. Withholding And Reporting Requirements
In connection with this Plan and all distributions hereunder, the
Disbursing Agent shall, to the extent applicable, comply with all tax
withholding and reporting requirements imposed by any federal, state,
local, or foreign taxing authority, and all distributions hereunder shall
be subject to any such withholding and reporting requirements. The
Disbursing Agent shall be authorized to take all actions necessary or
appropriate to comply with such withholding and reporting requirements.
O. Setoffs
Except with respect to Causes of Action released pursuant to this Plan
or the Confirmation Order, a Reorganized Debtor may, but shall not be
required to, set off against any Claim (other than any Diamond Cable Notes
Claims, NTL CC Senior Notes Claims, NTL CC Subordinated Notes Claims, NTL
Delaware Subordinated Notes Claims, or NTL Inc. Subordinated Notes Claims)
the payments or other distributions to be made pursuant to this Plan in
respect of such Claim, claims or Causes of Action of any nature whatsoever
that the Debtor or Reorganized Debtor may have against the Claim's holder;
provided, however, that neither the failure to do so nor the allowance of
any Claim hereunder shall constitute a waiver or release by any Debtor or
Reorganized Debtor of a Cause of Action that such Debtor or Reorganized
Debtor may have against such holder. Nothing herein shall be deemed to
expand rights to setoff under applicable law.
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ARTICLE VIII.
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
A. Assumed Contracts And Leases
Except as otherwise provided in this Plan, or in any contract,
instrument, release, indenture, or other agreement or document entered into
in connection with this Plan, as of the Effective Date each Debtor shall be
deemed to have assumed each executory contract and unexpired lease to which
it is a party, unless such contract or lease (i) was previously assumed or
rejected by the Debtors, (ii) previously expired or terminated pursuant to
its own terms, or (iii) is the subject of a motion to reject filed on or
before the Confirmation Date. The Confirmation Order shall constitute an
order of the Bankruptcy Court under section 365 of the Bankruptcy Code
approving the contract and lease assumptions described above, as of the
Effective Date.
Each executory contract and unexpired lease that is assumed and
relates to the use, ability to acquire, or occupancy of real property shall
include (a) all modifications, amendments, supplements, restatements, or
other agreements made directly or indirectly by any agreement, instrument,
or other document that in any manner affect such executory contract or
unexpired lease and (b) all executory contracts or unexpired leases
appurtenant to the premises, including all easements, licenses, permits,
rights, privileges, immunities, options, rights of first refusal, powers,
uses, usufructs, reciprocal easement agreements, vaults, tunnel or bridge
agreements or franchises, and any other interests in real estate or rights
in rem related to such premises, unless any of the foregoing agreements has
been rejected pursuant to an order of the Bankruptcy Court.
B. Payments Related To Assumption Of Contracts And Leases
Any monetary amounts by which any executory contract and unexpired
lease to be assumed under this Plan is in default shall be satisfied, under
section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor party
to the contract or lease or its assignee, by Cure. If there is a dispute
regarding (i) the nature or amount of any Cure, (ii) the ability of a
Reorganized Debtor or any assignee to provide "adequate assurance of future
performance" (within the meaning of section 365 of the Bankruptcy Code)
under the contract or lease to be assumed, or (iii) any other matter
pertaining to assumption, Cure shall occur following the entry of a Final
Order of the Bankruptcy Court resolving the dispute and approving the
assumption or assumption and assignment, as the case may be.
C. Rejected Contracts And Leases
Except as otherwise provided in this Plan or in any contract,
instrument, release, indenture, or other agreement or document entered into
in connection with this Plan, none of the executory contracts and unexpired
leases to which a Debtor is a party shall be rejected under this Plan;
provided, however, that the Debtors reserve the right, at any time prior to
the Confirmation Date, to seek to reject any executory contract or
unexpired lease to which any Debtor is a party.
D. Claims Based On Rejection Of Executory Contracts Or Unexpired Leases
If the rejection by a Debtor, pursuant to this Plan or otherwise, of
an executory contract or unexpired lease results in a Claim for damages,
then such Claim shall be forever barred and shall not be enforceable
against any Debtor or Reorganized Debtor, or the properties of any of them,
unless a proof of Claim is filed with the clerk of the Bankruptcy Court and
served on counsel for the Debtors within thirty (30) days after service of
the earlier of (i) notice of entry of the Confirmation Order or (ii) other
notice that the executory contract or unexpired lease has been rejected.
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E. Compensation And Benefit Plans
1. Except and to the extent previously assumed by an order of the
Bankruptcy Court on or before the Confirmation Date, subject to the
occurrence of the Effective Date, all employee compensation and benefit
plans of the Debtors, including programs subject to sections 1114 and
1129(a)(13) of the Bankruptcy Code, entered into before or after the
Petition Date and not since terminated, shall be deemed to be, and shall be
treated as if they were, executory contracts that are assumed under Article
VIII.A hereof, and the Debtors' obligations under such programs to Persons
shall survive confirmation of this Plan, except for (i) executory contracts
or employee benefit plans specifically rejected pursuant to this Plan (to
the extent such rejection does not violate sections 1114 and 1129(a)(13) of
the Bankruptcy Code), (ii) all employee equity or equity-based incentive
plans, and (iii) such executory contracts or employee benefit plans as have
previously been rejected, are the subject of a motion to reject as of the
Confirmation Date, or have been specifically waived by the beneficiaries of
any employee benefit plan or contract; provided, however, that the Debtors'
obligations, if any, to pay all "retiree benefits" as defined in section
1114(a) of the Bankruptcy Code shall continue.
2. Notwithstanding the foregoing, the Employment Agreements to be
entered into with the Key Employees on the Effective Date shall amend and
supersede any other employment agreements and severance plans with or for
the benefit of the Key Employees, and, as amended, shall be assumed
pursuant to this Plan.
ARTICLE IX.
PROCEDURES FOR RESOLVING DISPUTED,
CONTINGENT, AND UNLIQUIDATED CLAIMS
A. Objections To Claims; Disputed Claims
Except as otherwise provided in this Plan, holders of Claims and
Interests shall not be required to, and no parties should, file proofs of
Claim or proofs of Interest with the Bankruptcy Court. If and to the extent
that proofs of Claim or proofs of Interest are filed, then as soon as
practicable, but in no event later than 120 days after the Effective Date
(unless extended by an order of the Bankruptcy Court), the Debtors or
Reorganized Debtors, as the case may be, shall file objections to such
proofs of Claim or proofs of Interest with the Bankruptcy Court and serve
such objections on the holders of each of the Claims or Interests to which
objections are made; provided, however, that the Debtors and Reorganized
Debtors shall not object to Claims or Interests that are Allowed Claims or
Interests pursuant to this Plan. Nothing contained herein, however, shall
limit the Debtors' or Reorganized Debtors' right to object to proofs of
Claim or Interest, if any, that are not Allowed under this Plan or that are
filed or amended more than 120 days after the Effective Date. The Debtors
and Reorganized Debtors shall be authorized to, and shall, resolve all
Disputed Claims or Interests by withdrawing or settling any objections
thereto, or by litigating to judgment in the Bankruptcy Court or such other
court having jurisdiction over the validity, nature, and/or amount thereof.
B. No Distribution Pending Allowance
Notwithstanding any other provision hereof, if any portion of a Claim
or Interest is a Disputed Claim or Interest, no payment or distribution
provided hereunder shall be made on account of such Claim or Interest
unless and until such Disputed Claim or Interest becomes Allowed.
C. Distributions After Allowance
To the extent that a Disputed Claim or Interest ultimately becomes an
Allowed Claim or Interest, a distribution shall be made to the holder of
such Allowed Claim or Interest in accordance with the provisions of this
Plan. As soon as reasonably practicable after the date that the order or
judgment of the Bankruptcy Court or other applicable court of competent
jurisdiction allowing any Disputed Claim or Interest becomes a Final Order,
the Disbursing Agent shall provide to the holder of such Claim or Interest
the distribution to which such holder is entitled under this Plan. After a
Final Order has been entered, or other final resolution has been reached,
with respect to each Disputed Claim and
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Interest (i) any New Securities held in the Distribution Reserve shall be
distributed Pro Rata to holders of Allowed Claims or Interests entitled
thereto under the terms of this Plan and (ii) any Cash or other property
remaining in the Distribution Reserve shall become property of the
Reorganized Debtors. All distributions made under this Article IX.C on
account of an Allowed Claim or Interest shall be made together with any
dividends, payments, or other distributions made on account of, as well as
any obligations arising from, the distributed property, as if such Allowed
Claim or Interest had been an Allowed Claim or Interest on the Distribution
Date. Notwithstanding the foregoing, the Disbursing Agent shall not be
required to make distributions under this Article IX.C more frequently than
once every 90 days or to make any individual payments in an amount less
than $25.00.
ARTICLE X.
CONDITIONS PRECEDENT TO CONFIRMATION AND
CONSUMMATION OF THE PLAN
A. Conditions To Confirmation
The following are conditions precedent to confirmation of this Plan
that must be (i) satisfied or (ii) waived in accordance with Article X.C
below:
1. The Bankruptcy Court shall have entered an order, in form and
substance reasonably acceptable to the Debtors and the Creditors'
Committee, approving the Disclosure Statement with respect to this Plan as
containing adequate information within the meaning of section 1125 of the
Bankruptcy Code.
2. The proposed Confirmation Order shall be in form and substance
reasonably acceptable to the Debtors and the Creditors' Committee.
B. Conditions To Effective Date
The following are conditions precedent to the occurrence of the
Effective Date that must be (i) satisfied or (ii) waived in accordance with
Article X.C below:
1. The Confirmation Date shall have occurred and the Confirmation
Order, in form and substance reasonably acceptable to the Debtors and the
Creditors' Committee, confirming the Plan, as the same may have been
modified, supplemented, or amended, shall have been entered by the
Bankruptcy Court.
2. The Confirmation Order shall have become a Final Order.
3. No request for revocation of the Confirmation Order under section
1144 of the Bankruptcy Code shall have been made, or, if made, shall remain
pending.
4. All authorizations, consents, and regulatory approvals required, if
any, in connection with the consummation of this Plan shall have been
obtained and not revoked.
5. The following agreements, in form and on terms reasonably
satisfactory to the Debtors and the Creditors' Committee shall have been
executed and delivered, and all conditions precedent thereto shall have
been satisfied:
a. Amended And Restated Certificate Of Incorporation And By-laws
Of NTL Inc.;
b. Amended And Restated Certificate Of Incorporation And By-laws
Of NTL CC;
c. Registration Rights Agreements;
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d. Series A Warrant Agreement;
e. Certificate of Designation for Euroco Preferred Stock (which
shall be included in the Amended and Restated Certificate of
Incorporation of NTL Inc.);
f. New NTL Management Incentive Plan;
g. Euroco Management Incentive Plan; and
h. New NTL Exit Facility or any alternative financing in a minimum
amount of $500 million.
6. The Debtors or Reorganized Debtors shall have executed and
delivered all documents necessary to effectuate the issuance of the New
Securities.
7. All other actions, documents, and agreements necessary to implement
this Plan shall have been effected or executed.
8. France Telecom shall have delivered a letter containing the
representations and warranties described in Article XIV.B above.
9. There must be no material debt of the Debtors other than Debt
Securities that are Reinstated under the Plan, guarantees under the Working
Capital Facility, the guarantee by Diamond Cable of the Diamond Holdings
Notes, and the New NTL Exit Facility.
10. The Senior Credit Facility and Working Capital Facility shall have
been amended and restated on terms acceptable to the Debtors and the
Creditors' Committee, and shall not have been terminated.
11. The Diamond Administration Orders shall have been discharged or
shall be discharged substantially contemporaneously with the Effective
Date.
C. Waiver Of Conditions
Each of the conditions set forth in Article X.A and X.B above, other
than those set forth in Articles X.A.1 and X.B.1, may be waived in whole or
in part by the Debtors (with the prior consent of the Creditors'
Committee), without any notice to parties in interest or the Bankruptcy
Court and without a hearing. The failure to satisfy or waive any condition
to the Effective Date may be asserted by the Debtors regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by the Debtors or any of them). The
failure of the Debtors to exercise any of the foregoing rights shall not be
deemed a waiver of any other rights, and each such right shall be deemed an
ongoing right that may be asserted at any time.
D. Effects Of Failure Of Conditions
If the conditions to occurrence of the Effective Date have not been
satisfied or waived in accordance with Articles X.B or X.C above on or
before the first Business Day that is more than 179 days after the
Confirmation Date, or by such later date as is approved by the Bankruptcy
Court after notice and a hearing, then on motion by the Debtors made prior
to the time that all of the conditions have been satisfied or waived, the
Confirmation Order shall be vacated by the Bankruptcy Court; provided,
however, that notwithstanding the filing of such a motion, the Confirmation
Order shall not be vacated if all of the conditions to the occurrence of
the Effective Date set forth in Article X.B above are either satisfied or
waived prior to entry by the Bankruptcy Court of an order granting the
relief requested in such motion. If the Confirmation Order is vacated
pursuant to this Article X.D, this Plan shall be null and void in all
respects, and nothing contained in this Plan shall (a) constitute a waiver
or release of any Claims against or Interests in the Debtors or (b)
prejudice in any manner the rights of the holder of any Claim against or
Interest in the Debtors.
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ARTICLE XI.
MODIFICATIONS AND AMENDMENTS
The Debtors may (with the prior consent of the Creditors' Committee)
alter, amend, or modify this Plan or any Exhibits thereto under section
1127(a) of the Bankruptcy Code at any time prior to the Confirmation Date
and may include any such amended Exhibits in the Plan or the Plan
Supplement. After the Confirmation Date and prior to substantial
consummation of this Plan, as defined in section 1101(2) of the Bankruptcy
Code, the Debtors may, under section 1127(b) of the Bankruptcy Code,
institute proceedings in the Bankruptcy Court to remedy any defect or
omission or reconcile any inconsistencies in this Plan, the Disclosure
Statement, or the Confirmation Order, and such matters as may be necessary
to carry out the purposes and effects of this Plan so long as such
proceedings do not materially adversely affect the treatment of holders of
Claims or Interests under this Plan; provided, however, that prior notice
of such proceedings shall be served in accordance with the Bankruptcy Rules
or order of the Bankruptcy Court.
ARTICLE XII.
RETENTION OF JURISDICTION
Under sections 105(a) and 1142 of the Bankruptcy Code, and
notwithstanding entry of the Confirmation Order and occurrence of the
Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction
(except with respect to the purposes described under clause A below, with
respect to which jurisdiction shall not be exclusive) over all matters
arising out of, and related to, the Chapter 11 Cases and this Plan to the
fullest extent permitted by law, including, among other things,
jurisdiction to: over all matters arising out of or related to the Chapter
11 Cases and this Plan, to the fullest extent permitted by law, including
jurisdiction to:
A. Allow, disallow, determine, liquidate, classify, estimate, or
establish the priority or secured or unsecured status of any Claim or
Interest, including the resolution of any request for payment of any
Administrative Claim and the resolution of any objections to the allowance
or priority of Claims or Interests;
B. Hear and determine all applications for compensation and
reimbursement of expenses of Professionals under this Plan or under
sections 330, 331, 503(b), 1103, and 1129(a)(4) of the Bankruptcy Code;
provided, however, that from and after the Effective Date, the payment of
the fees and expenses of the retained professionals of the Reorganized
Debtors shall be made in the ordinary course of business and shall not be
subject to the approval of the Bankruptcy Court;
C. Hear and determine all matters with respect to the assumption or
rejection of any executory contract or unexpired lease to which a Debtor is
a party or with respect to which a Debtor may be liable, including, if
necessary, the nature or amount of any required Cure or the liquidation or
allowance of any Claims arising therefrom;
D. Effectuate performance of and payments under the provisions of this
Plan;
E. Hear and determine any and all adversary proceedings, motions,
applications, and contested or litigated matters arising out of, under, or
related to, the Chapter 11 Cases, including, but not limited to, any and
all motions for approval of asset sales by the Debtors filed by the Debtors
on or before the Effective Date;
F. Hear and determine any and all motions to subordinate Claims or
Interests at any time and on any basis permitted by applicable bankruptcy
or nonbankruptcy law;
G. Enter such orders as may be necessary or appropriate to execute,
implement, or consummate the provisions of this Plan and all contracts,
instruments, releases, and other agreements or documents created in
connection with this Plan, the Disclosure Statement, or the Confirmation
Order;
PLAN-47
H. Hear and determine disputes arising in connection with the
interpretation, implementation, consummation, or enforcement of this Plan,
including disputes arising under agreements, documents, or instruments
executed in connection with this Plan;
I. Consider any modifications of this Plan, cure any defect or
omission, or reconcile any inconsistency in any order of the Bankruptcy
Court, including, without limitation, the Confirmation Order;
J. Issue injunctions, enter and implement other orders, or take such
other actions as may be necessary or appropriate to restrain interference
by any entity with implementation, consummation, or enforcement of this
Plan or the Confirmation Order;
K. Enter and implement such orders as may be necessary or appropriate
if the Confirmation Order is for any reason reversed, stayed, revoked,
modified, or vacated;
L. Hear and determine any matters arising in connection with or
relating to this Plan, the Disclosure Statement, the Confirmation Order, or
any contract, instrument, release, or other agreement or document created
in connection with this Plan, the Disclosure Statement, or the Confirmation
Order;
M. Enforce all orders, judgments, injunctions, releases, exculpations,
indemnifications, and rulings entered in connection with the Chapter 11
Cases;
N. Recover all assets of the Debtors and property of the Debtors'
Estates, wherever located;
O. Hear and determine matters concerning state, local, and federal
taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy
Code;
P. Hear and determine all disputes involving the existence, nature, or
scope of the Debtors' discharge;
Q. Hear and determine such other matters as may be provided in the
Confirmation Order or as may be authorized under, or not inconsistent with,
provisions of the Bankruptcy Code;
R. Hear and determine all matters relating to the delivery and
transfer to New NTL of the Diamond Cable Notes pursuant to the provisions
of this Plan;
S. Hear and determine all disputes as to whether a Person is a New NTL
Grandfathered Distributee or a Euroco Grandfathered Distributee; and
T. Enter one or more final decree(s) closing the Chapter 11 Cases.
ARTICLE XIII.
EFFECTS OF CONFIRMATION
A. Binding Effect
This Plan shall be binding on and inure to the benefit of the Debtors,
all current and former holders of Claims against and Interests in the
Debtors and their respective successors and assigns, including, but not
limited to, the Reorganized Debtors, and all other parties-in-interest in
the Chapter 11 Cases.
PLAN-48
B. Authorization Of Corporate Action
The entry of the Confirmation Order shall constitute a direction to
and authorization for the Debtors and the Reorganized Debtors to take or
cause to be taken any action necessary or appropriate to consummate the
transactions contemplated by this Plan and any related documents or
agreements prior to and through the Effective Date, and all such actions
taken or caused to be taken shall be deemed to have been authorized and
approved by the Bankruptcy Code without the need for any additional
authorizations, approvals, or consents.
C. Discharge Of The Debtors
All consideration distributed under this Plan shall be in exchange
for, and in complete satisfaction, settlement, discharge, and release of,
all Claims against and Interests in the Debtors of any nature whatsoever,
or against any of the Debtors' assets or properties. Subject to the
occurrence of the Effective Date, except as otherwise expressly provided in
this Plan or the Confirmation Order (and regardless of whether or not the
Existing Security forming the basis of Claim is canceled on the Effective
Date), entry of the Confirmation Order shall act as a discharge under
section 1141(d)(1)(A) of the Bankruptcy Code from and of all Claims
against, Liens on, and Interests in each of the Debtors, their assets, and
their properties, arising at any time before the entry of the Confirmation
Order, regardless of whether a proof of Claim or proof of Interest therefor
was filed, whether the Claim or Interest is Allowed, or whether the holder
thereof votes to accept this Plan or is entitled to receive a distribution
hereunder. Upon entry of the Confirmation Order, and subject to the
occurrence of the Effective Date, any holder of such a discharged Claim or
Interest shall be precluded from asserting against the Debtors or any of
their assets or properties any other or further Claim or Interest based on
any document, instrument, act, omission, transaction, or other activity of
any kind or nature that occurred before the date of entry of the
Confirmation Order. The Confirmation Order shall be a judicial
determination of discharge of all liabilities of the Debtors (except as
otherwise expressly provided in the Plan), subject to the occurrence of the
Effective Date. Notwithstanding the foregoing, or any provision to the
contrary contained in this Plan, the Class 6 Diamond Cable Notes Claims
shall not be, and shall not be deemed to be, discharged until after
completion of the delivery, transfer, conveyance, and assignment of the
global bearer notes evidencing the Diamond Cable Notes to New NTL.
D. Injunction
Pursuant to section 524 of the Bankruptcy Code, the discharge provided
by Article XIII.C and section 1141 of the Bankruptcy Code shall act as an
injunction against the commencement or continuation of any action,
employment of process, or act to collect, offset, or recover the Claims and
Interests discharged hereby. Except as otherwise expressly provided in this
Plan or the Confirmation Order, all entities who have held, hold, or may
hold Claims against or Interests in the Debtors will be permanently
enjoined, on and after the Confirmation Date, subject to the occurrence of
the Effective Date, from (i) commencing or continuing in any manner any
action or other proceeding of any kind with respect to any such Claim or
Interest, (ii) the enforcement, attachment, collection, or recovery by any
manner or means of any judgment, award, decree, or order against the
Debtors on account of any such Claim or Interest, (iii) creating,
perfecting, or enforcing any encumbrance of any kind against the Debtors or
against the property or interests in property of the Debtors on account of
any such Claim or Interest, and (iv) asserting any right of setoff,
subrogation, or recoupment of any kind against any obligation due from the
Debtors or against the property or interests in property of the Debtors on
account of any such Claim or Interest. The foregoing injunction will extend
to successors of the Debtors (including, but not limited to, the
Reorganized Debtors) and their respective properties and interests in
property.
E. Releases
1. Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, to the full extent permitted by
applicable law, the Debtors, the Reorganized Debtors, the Noteholders'
Steering Committee, the Diamond Administrators, each holder of Senior Notes
(other than Diamond Holdings Notes), Subordinated Notes, or Old Preferred
Stock, and each of the foregoing's respective current or former officers,
directors, subsidiaries, affiliates, members, managers, shareholders,
partners, representatives, employees, attorneys, financial advisors, and
agents, or any of their respective successors and assigns, and their
respective property, shall be released from any and all claims,
obligations, rights, Causes of Action, demands, suits, proceedings and
PLAN-49
liabilities which the Debtors, the Reorganized Debtors, or any holder of a
Claim against or Interest in the Debtors or Reorganized Debtors may be
entitled to assert, whether for tort, fraud, contract, violations of
federal or state securities laws, or otherwise, whether known or unknown,
foreseen or unforeseen, existing or hereafter arising, contingent or
non-contingent, based in whole or in part on any act or omission,
transaction, state of facts, circumstances or other occurrence taking place
on or before the Confirmation Date in any way relating to the Debtors, the
Reorganized Debtors, the issuance, purchase, or sale of the Senior Notes
(other than Diamond Holdings Notes), Subordinated Notes, or Preferred
Stock, the Chapter 11 Cases, the Diamond Administration Cases, or this
Plan; provided, however, that nothing herein shall release any Person from
any claims, obligations, rights, Causes of Action, demands, suits,
proceedings, or liabilities based on any act or omission arising out of
such Person's gross negligence or willful misconduct; provided further,
however, that the Debtors and Reorganized Debtors shall have the right to
pursue such rights of action, including the rights under section 502(d) of
the Bankruptcy Code, as a defensive measure, including for purposes of
setoff against distributions, if any, due to a holder of a Claim or
Interest pursuant to this Plan, and such rights shall be exercised
exclusively by the Reorganized Debtors; provided further, that with respect
to the Diamond Cable Notes, such release shall be subject to the transfer
of the Diamond Cable Notes to New NTL in accordance with Article III.C.2 of
this Plan and shall not include any claim by or of New NTL in respect of
the Diamond Cable Notes.
2. Effective as of the Confirmation Date, but subject to the
occurrence of the Effective Date, to the fullest extent permitted by
applicable law, all holders of Senior Notes (other than Diamond Holdings
Notes), Subordinated Notes, Old Preferred Stock, and Old Common Stock shall
be deemed to release, and shall be permanently enjoined from bringing,
maintaining, facilitating, or assisting any action, demand, suit or
proceeding against the Debtors or Reorganized Debtors, and their respective
current or former officers, directors, subsidiaries, affiliates, members,
managers, shareholders, partners, representatives, employees, attorneys,
financial advisors, and agents, or any of their respective successors and
assigns, and their respective property, in respect of any claims,
obligations, rights, Causes of Action, demands, suits, proceedings, and
liabilities related to, or arising from, any and all claims or interests
arising under, in connection with, or related to the Senior Notes (other
than Diamond Holdings Notes), Subordinated Notes, Old Preferred Stock, Old
Common Stock, or the issuance, purchase, or sale thereof; provided further,
that with respect to the Diamond Cable Notes, such release shall be subject
to the transfer of the Diamond Cable Notes to New NTL in accordance with
Article III.C.2 of this Plan and shall not include any claim by or of New
NTL in respect of the Diamond Cable Notes.
3. Notwithstanding anything in this Plan to the contrary, no claims by
any Person with respect to any and all commercial and ordinary course of
business relationships shall be deemed to be modified or affected by any of
the release and/or exculpation provisions of this Plan.
4. Nothing in the Plan shall effect a release in favor of any released
party with respect to any claim by the United States government for any
liability arising under the IRC, the environmental laws or any criminal
laws of the United States; nor shall anything in the Plan enjoin the United
States government from bringing any claim, suit, action or other proceeding
against any released party for any liability arising under the IRC, the
environmental laws or any criminal laws of the United States; provided,
however, that this paragraph shall in no way affect or limit the discharge
granted to the Debtors under Chapter 11 of the Bankruptcy Code.
F. Insurance Proceeds
If, and to the extent that, the plaintiffs and putative class in the
Securities Actions possess any rights to the proceeds of NTL Inc.'s
relevant insurance coverage with respect to the claims asserted in the
Securities Actions, such rights shall not be affected by the discharge of
the Debtors under the Plan and any such claims may be pursued solely as
against such proceeds.
PLAN-50
ARTICLE XIV.
COMPROMISES AND SETTLEMENTS
A. Generally
Pursuant to section 1123(b)(3) of the Bankruptcy Code and Fed. R.
Bankr. P. 9019(a), the Debtors may (with the prior consent of the
Creditors' Committee) compromise and settle various Claims against them
and/or claims they may have against other Persons. The Debtors expressly
reserve the right (with Bankruptcy Court approval, following appropriate
notice and opportunity for a hearing) to compromise and settle Claims
against them and claims that they may have against other Persons up to and
including the Effective Date. After the Effective Date, such right shall
pass to the Reorganized Debtors pursuant to Articles IV.E and IV.G hereof.
B. France Telecom Compromise And Settlement
Under the terms of the April 16, 2002 agreement-in-principle, the
Debtors, the Noteholders' Steering Committee, and France Telecom, reached a
full and complete compromise and settlement of a dispute regarding the
ramifications of NTL Inc. failing to redeem shares of Noos Junior Preferred
Stock and the rights and remedies of France Telecom under the Share Account
Pledge Agreement for a failure to redeem such shares. As part of this
compromise and settlement, (1) pursuant to the terms of the Plan and
subject to the occurrence of the Effective Date, the Noos Interest shall be
released to France Telecom pursuant to the Share Account Pledge Agreement
in exchange for (w) the Noos Junior Preferred Stock Interests, (x) the
waiver by France Telecom of its rights to any distribution on account of
its Class 9 NTL Delaware Subordinated Notes Claim and Class 10 NTL Inc.
Subordinated Notes Claim, (y) the release by France Telecom of any
contingent payments due to France Telecom in connection with the initial
transfer of Noos franchises and any other direct or indirect liability to
France Telecom in connection with the transfer of the 1G Franchises to
Debtors or their subsidiaries and by Debtors or their subsidiaries to Noos,
and (z) the France Telecom Payment, which shall be made on the Effective
Date, and (2) France Telecom delivered a ballot to NTL Inc. prior to the
commencement of the Chapter 11 Cases and agreed to support the
restructuring of the Debtors in accordance with the terms of this Plan and
the transactions contemplated by this Plan, including, but not limited to,
any allocation of consideration or payments due in connection therewith.
Following implementation of this compromise and settlement, neither
the Debtors (nor any of them) nor France Telecom shall have any further
liability to the other(s) with respect to Noos, including, but not limited
to, the Noos Junior Preferred Stock, the Share Account Pledge Agreement,
France Telecom's Allowed Class 9 NTL Delaware Subordinated Notes Claim and
Allowed Class 10 NTL Inc. Subordinated Notes Claim, the Noos Shareholders
Agreement, any contingent payments due to France Telecom in connection with
the initial transfer of Noos franchises and any other direct or indirect
liability to France Telecom in connection with the transfer of the 1G
Franchises to Debtors or their subsidiaries and by Debtors or their
subsidiaries to Noos. The implementation of this compromise and settlement
shall not affect the terms and conditions of, or the obligations of Noos
pursuant to, the Noos Note, which shall remain an asset of Euroco from and
after the Effective Date.
In connection with this compromise and settlement, except as
previously disclosed to the Noteholders' Steering Committee, France Telecom
represented and warranted to the Debtors and the Noteholders' Steering
Committee that as of the Petition Date, it was neither marketing nor had
pending agreements, interest or letters of intent, nor had it engaged an
investment banker in connection with the direct or indirect transfer, sale,
or other disposition of its interest in Noos to a third party, nor was it
contemplating or was it aware of any other material transactions in respect
of Noos. Notwithstanding anything to the contrary contained herein, (i) the
Debtors and the Creditors' Committee shall not be entitled to modify or
otherwise change this Plan or the Disclosure Statement with respect to
distributions to be provided to France Telecom under this Plan without the
prior consent of France Telecom, (ii) the Confirmation Order shall contain
customary language with respect to the release of the Noos Interest, and
(iii) nothing in this Plan shall be construed to limit the rights of France
Telecom and its affiliates to receive distributions under this Plan,
including the right to subscribe for Equity Rights (including on an
oversubscription basis), other than in France Telecom's capacity as a
holder of NTL Delaware Subordinated Notes or NTL Inc. Subordinated Notes;
provided, however, that this right
PLAN-51
shall extend only to holdings of Existing Securities by France Telecom and
its affiliates as disclosed on its Schedule 13D on file with the SEC as of
the Petition Date. This right is personal to France Telecom and its
affiliates and is not assignable in whole or in part by France Telecom and
its affiliates.
ARTICLE XV.
MISCELLANEOUS PROVISIONS
A. Bar Dates For Certain Claims
1. Administrative Claims
The Confirmation Order shall establish a bar date (the "Administrative
Claims Bar Date") for filing Administrative Claims (other than Professional
Fee Claims and claims for reimbursement of the expenses of the members of
the Creditors' Committee), which date shall be 30 days after the
Confirmation Date. Holders of asserted Administrative Claims, except for
Professional Fee Claims, United States Trustee fees, or the expenses of the
members of the Creditors' Committee whose claims were not paid prior to the
Confirmation Date, shall submit requests for payment of administrative
expenses on or before such Administrative Claims Bar Date or forever be
barred from doing so. The notice of entry of the Confirmation Order to be
delivered pursuant to Fed. R. Bankr. P. 3020(c) and 2002(f) shall set forth
such date and constitute notice of the Administrative Claims Bar Date. The
Debtors or the Reorganized Debtors, as the case may be, shall have 30 days
(or such longer period as may be allowed by order of the Bankruptcy Court)
following the Administrative Claims Bar Date to review and object to such
Administrative Claims before a hearing for determination of allowance of
such Administrative Claims.
2. Professional Fee Claims; Substantial Contribution Claims
All final requests for compensation or reimbursement of Professional
Fees pursuant to sections 327, 328, 330, 331, 503(b), or 1103 of the
Bankruptcy Code for services rendered to the Debtors or any Committee (if
appointed) prior to the Confirmation Date (including requests under section
503(b)(4) of the Bankruptcy Code by any Professional or other entity for
making a substantial contribution in the Chapter 11 Cases) shall be filed
and served on the Reorganized Debtors and their counsel, as well as those
parties filing notices of appearance in these cases or otherwise requesting
notice of such application, no later than 30 days after the Confirmation
Date, unless otherwise ordered by the Bankruptcy Court. Objections to
applications of such Professionals or other entities for compensation or
reimbursement of expenses shall be filed and served on the Reorganized
Debtors and their counsel and the requesting Professional or other entity
no later than 15 days (or such longer period as may be allowed by order of
the Bankruptcy Court) after the date on which the applicable application
for compensation or reimbursement was served.
B. Payment Of Statutory Fees
All fees payable under section 1930 of title 28 of the United States
Code, as determined by the Bankruptcy Court at the Confirmation Hearing,
shall be paid on or before the Effective Date. All such fees that arise
after the Effective Date but before the closing of the Chapter 11 Cases
shall be paid by the Reorganized Debtors.
C. Severability Of Plan Provisions
If, prior to entry of the Confirmation Order, any term or provision of
this Plan is held by the Bankruptcy Court to be invalid, void, or
unenforceable, the Bankruptcy Court, at the request of the Debtors, with
the approval of their respective boards of directors (having due regard for
their fiduciary duties, after consultation with counsel), and with the
prior consent of the Creditors' Committee, shall have the power to alter
and interpret such term or provision to make it valid or enforceable to the
maximum extent practicable, consistent with the original purpose of the
term or provision held to be invalid, void, or unenforceable, and such term
or provision shall then be applicable as so altered or interpreted.
Notwithstanding any such holding, alteration, or interpretation, the
remainder of the terms and provisions of this Plan
PLAN-52
shall remain in full force and effect and shall in no way be affected,
impaired, or invalidated by such holding, alteration, or interpretation.
The Confirmation Order shall constitute a judicial determination and shall
provide that each term and provision of this Plan, as it may have been
altered or interpreted in accordance with the foregoing, is valid and
enforceable pursuant to its terms.
D. Successors And Assigns
The rights, benefits, and obligations of any Person named or referred
to in this Plan shall be binding on, and shall inure to the benefit of, any
heir, executor, administrator, successor, or assign of that Person.
E. Exculpation And Limitation Of Liability
To the full extent permitted by applicable law, neither the Debtors,
the Reorganized Debtors, the Noteholders' Steering Committee, the
Creditors' Committee, the Diamond Administrators, nor any holder of Senior
Notes, Subordinated Notes, or Old Preferred Stock, or any of their
respective current or former officers, directors, subsidiaries, affiliates,
members, managers, shareholders, partners, representatives, employees,
attorneys, or agents, or any of their respective successors and assigns,
and their respective property, shall have or incur any liability to any
holder of a Claim or an Interest, or any other party in interest, or any of
their respective officers, directors, subsidiaries, affiliates, members,
managers, shareholders, partners, representatives, employees, attorneys, or
agents, or any of their respective successors and assigns, and their
respective property, for any act or omission in connection with, relating
to, or arising out of, the Chapter 11 Cases, the solicitation of
acceptances of this Plan, the pursuit of confirmation of this Plan, the
consummation of this Plan, or the administration of this Plan or the
property to be distributed under this Plan, except for their gross
negligence or willful misconduct, and in all respects shall be entitled to
reasonably rely on the advice of counsel with respect to their duties and
responsibilities under this Plan.
Notwithstanding any other provision of this Plan, no holder of a Claim
or Interest, no other party in interest, none of their respective current
or former officers, directors, subsidiaries, affiliates, members, managers,
shareholders, partners, representatives, employees, attorneys, or agents,
or any of their respective successors and assigns, and their respective
property, shall have any right of action, demand, suit, or proceeding
against the Debtors, the Reorganized Debtors, the Noteholders' Steering
Committee, the Creditors' Committee, the Diamond Administrators, or any
holder of Senior Notes, Subordinated Notes, or Old Preferred Stock, or any
or any of their respective current or former officers, directors,
subsidiaries, affiliates, members, managers, shareholders, partners,
representatives, employees, attorneys, or agents, or any of their
respective successors and assigns, and their respective property, for any
act or omission in connection with, relating to, or arising out of, the
Chapter 11 Cases, the solicitation of acceptances of this Plan, the pursuit
of confirmation of this Plan, the consummation of this Plan, or the
administration of this Plan or the property to be distributed under this
Plan, except for their gross negligence or willful misconduct.
The foregoing exculpation and limitation on liability shall not,
however, limit, abridge, or otherwise affect the rights, if any, of the
Reorganized Debtors to enforce, sue on, settle, or compromise the Causes of
Action retained pursuant to Article IV.H above.
F. Waiver Of Enforcement Of Subordination
All Claims against and Interests in the Debtors and all rights and
claims between or among holders of Claims and Interests relating in any
manner whatsoever to Claims against and Interests in the Debtors, based on
any claimed subordination rights (if any), shall be deemed satisfied by the
distributions under this Plan to holders of Claims and Interests having
such subordination rights, and such subordination rights shall be deemed
waived, released, discharged, and terminated as of the Effective Date, and
all actions related to the enforcement of such subordination rights shall
be permanently enjoined; provided, however, that the foregoing shall not
apply to any subordination provision for the benefit of the lenders under
the Credit Facilities. Distributions to the various Classes of Claims and
Interests hereunder shall not be subject to levy, garnishment, attachment,
or like legal process by any holder of a Claim by reason of any claimed
subordination rights or otherwise, so that each holder of a Claim or
Interest shall have and receive the benefit
PLAN-53
of the distributions in the manner set forth in this Plan; provided,
however, that the foregoing shall not apply to any subordination provision
for the benefit of the lenders under the Credit Facilities.
G. Term Of Injunctions Or Stays
Unless otherwise provided herein or in the Confirmation Order, all
injunctions or stays in effect in the Chapter 11 Cases under sections 105
or 362 of the Bankruptcy Code or any order of the Bankruptcy Court, and
extant on the Confirmation Date (excluding any injunctions or stays
contained in this Plan or the Confirmation Order), shall remain in full
force and effect until the Effective Date. All injunctions or stays
contained in this Plan or the Confirmation Order shall remain in full force
and effect in accordance with their terms.
H. Revocation, Withdrawal, Or Non-Consummation
The Debtors reserve the right (with the prior consent of the
Creditors' Committee) to revoke or withdraw this Plan at any time prior to
the Confirmation Date and to file other plans of reorganization. If the
Debtors revoke or withdraw this Plan, or if Confirmation or consummation of
this Plan does not occur, then (i) this Plan shall be null and void in all
respects, (ii) any settlement or compromise embodied in this Plan
(including the fixing or limiting to an amount any Claim or Interest or
Class of Claims or Interests), assumption or rejection of executory
contracts or leases effected by this Plan, and any document or agreement
executed pursuant to this Plan shall be deemed null and void, and (iii)
nothing contained in this Plan, and no acts taken in preparation for
consummation of this Plan, shall (a) constitute or be deemed to constitute
a waiver or release of any Claims by or against, or any Interests in, the
Debtors or any other Person, (b) prejudice in any manner the rights of the
Debtors or any Person in any further proceedings involving the Debtors, or
(c) constitute an admission of any sort by the Debtors or any other Person.
I. Committees
On the Effective Date, the duties of the Creditors' Committee shall
terminate, except with respect to any appeal of an order in the Chapter 11
Cases and applications for Professional Fees.
J. Plan Supplement
Any and all exhibits, lists, or schedules referred to herein but not
filed with this Plan shall be contained in the Plan Supplement and filed
with the Clerk of the Bankruptcy Court at least fourteen days prior to the
date of the commencement of the Confirmation Hearing. Thereafter, any
Person may examine the Plan Supplement in the office of the Clerk of the
Bankruptcy Court during normal court hours. Holders of Claims or Interests
may obtain a copy of the Plan Supplement on written request to the Debtors
in accordance with Article XV.K above.
K. Notices To Debtors
Any notice, request, or demand required or permitted to be made or
provided to or on a Debtor or a Reorganized Debtor under this Plan shall be
(i) in writing, (ii) served by (a) certified mail, return receipt
requested, (b) hand delivery, (c) overnight delivery service, (d) first
class mail, or (e) facsimile transmission, and (iii) deemed to have been
duly given or made when actually delivered or, in the case of notice by
facsimile transmission, when received and telephonically confirmed,
addressed as follows:
NTL INCORPORATED
110 East 59th Street, 26th Floor
New York, New York 10022
Attention: Richard J. Lubasch, Esq.
Telephone: (212) 906-8440
Facsimile: (212) 752-1157
PLAN-54
with a copy to the Debtors' counsel:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Four Times Square
New York, New York 10036-6552
Attention: Thomas H. Kennedy, Esq.
Kayalyn A. Marafioti, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
and a copy to:
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
One New York Plaza
New York, New York 10004-1980
Attention: Brad Eric Scheler, Esq.
Lawrence A. First, Esq.
Telephone: (212) 859-8000
Facsimile: (212) 859-4000
L. Indemnification Obligations
Except as otherwise specifically limited in this Plan, any obligations
or rights of the Debtors or Reorganized Debtors to defend, indemnify,
reimburse, or limit the liability of the Debtors' current and former
directors, officers, or employees (the "Covered Persons") pursuant to the
Debtors' or Reorganized Debtors' certificates of incorporation, by-laws,
policy of providing employee indemnification, applicable state law, or
specific agreement in respect of any claims, demands, suits, causes of
action, or proceedings against such Covered Persons based on any act or
omission related to such Covered Persons' service with, for, or on behalf
of the Debtors prior to the Effective Date, shall survive Confirmation of
this Plan and remain unaffected thereby, and shall not be discharged,
irrespective of whether such defense, indemnification, reimbursement, or
limitation of liability is owed in connection with an occurrence before or
after the Petition Date
M. Governing Law
Unless a rule of law or procedure is supplied by federal law
(including the Bankruptcy Code and Bankruptcy Rules), the laws of (i) the
State of New York shall govern the construction and implementation of this
Plan and any agreements, documents, and instruments executed in connection
with this Plan and (ii) the laws of the state of incorporation of each
Debtor shall govern corporate governance matters with respect to such
Debtor, in either case without giving effect to the principles of conflicts
of law thereof.
PLAN-55
N. Prepayment
Except as otherwise provided in this Plan or the Confirmation Order,
the Debtors shall have the right to prepay, without penalty, all or any
portion of an Allowed Claim at any time; provided, however, that any such
prepayment shall not be violative of, or otherwise prejudice, the relative
priorities and parities among the Classes of Claims.
Dated: New York, New York
July 15, 2002
NTL INCORPORATED
NTL (DELAWARE), INC.
NTL COMMUNICATIONS CORP.
COMMUNICATIONS CABLE FUNDING CORP.
Debtors and Debtors-in-Possession
By: /s/ Barclay Knapp
----------------------------------------
Barclay Knapp
President and Chief Executive Officer
DIAMOND CABLE COMMUNICATIONS LIMITED
DIAMOND HOLDINGS LIMITED
Debtors and Debtors-in-Possession
By: /s/ Barclay Knapp
---------------------------------------
Barclay Knapp
Director
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
Attorneys for NTL Incorporated, et al.
Debtors and Debtors-in-Possession
By: /s/ Kayalyn A. Marafioti
----------------------------------------------------------------------------
Kayalyn A. Marafioti (KM 9362)
Jay M. Goffman (JG 6722)
Lawrence V. Gelber (LG 9384)
Four Times Square
New York, New York 10036-6522
(212) 735-3000
PLAN-56
EXHIBIT A
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS
OF NTL COMMUNICATIONS CORP.
[TO BE INCLUDED IN PLAN SUPPLEMENT]
PLAN-57
EXHIBIT B
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS
OF NTL INCORPORATED
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT C
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
LIST OF SUBSIDIARIES AS OF JULY 1, 2002
United States
Name State of Incorporation Ownership
- ---- ---------------------- ---------
Bearsden Nominees, Inc. Delaware 100%
Brigadoon Ventures, Inc. Delaware 100%
CableTel Programming, Inc. Delaware 100%
CableTel Ventures Limited Delaware 100%
Communications Cable Funding Corp. Delaware 100%
L.D. Data, Inc. Delaware 100%
NNS UK Holdings 1, Inc. Delaware 100%
NNS UK Holdings 2, Inc. Delaware 100%
North CableComms Holdings, Inc. Delaware 100%
North CableComms LLC Delaware 100%
North CableComms Management, Inc. Delaware 100%
NTL Australia SPV, Inc. Delaware 100%
NTL Bromley Company Delaware 100%
NTL CableComms Group Inc. Delaware 100%
NTL CableComms Group plc. Delaware (& UK (dual)) 100%
NTL Chartwell Holdings, Inc. Delaware 100%
NTL Chartwell Holdings 2, Inc. Delaware 100%
NTL Communications Corp. Delaware 100%
NTL (Delaware), Inc. Delaware 100%
NTL (Delaware One), Inc. Delaware 100%
NTL (Delaware Two), Inc. Delaware 100%
NTL (Delaware Three), Inc. Delaware 100%
NTL Digital (US), Inc. Delaware 100%
NTL France SPV, Inc. Delaware 100%
NTL Funding (NJ), Inc. Delaware 100%
NTL Golden Gate, Inc. Delaware 100%
NTL International Broadcasting, Inc. Delaware 100%
NTL International Services, Inc. Delaware 100%
NTL Investments, Inc. Delaware 100%
NTL North CableComms Holdings Inc. Delaware 100%
NTL North CableComms Management Inc. Delaware 100%
NTL Premium TV Holdings Corp. Delaware 100%
NTL Programming Subsidiary Company Delaware 100%
NTL Solent Company Delaware 100%
NTL South CableComms Holdings Inc. Delaware 100%
NTL South CableComms Management, Inc. Delaware 100%
NTL Surrey Company Delaware 100%
NTL Sussex Company Delaware 100%
NTL Sweden SPV, Inc. Delaware 100%
NTL Switzerland SPV, Inc. Delaware 100%
NTL Switzerland Holdings SPV LLC Delaware 100%
NTL (Triangle) LLC NTL UK CableComms Delaware 100%
Holdings, Inc. NTL (UK) Group, Inc. Delaware 100%
NTL Wessex Company Delaware 100%
NTL Winston Holdings, Inc. Delaware 100%
NTL Wirral Company Delaware 100%
Premium TV Investments LLC Delaware 100%
South CableComms Holdings, Inc. Delaware 100%
South CableComms LLC Delaware 100%
South CableComms Management, Inc. Delaware 100%
Winston Investors LLC Delaware 100%
United Kingdom
Name Ownership
- ---- ---------
Andover Cablevision Limited 100%
Anglia Cable Communications Limited 100%
Berkhamsted Properties & Building Contractors Limited 100%
Bracknell Cable TV Limited 100%
Cable Television Limited 100%
Cable Thames Valley Limited 100%
CableTel Cardiff Limited 100%
CableTel Central Hertfordshire Limited 100%
CableTel Hertfordshire Limited 100%
CableTel Herts and Beds Limited 100%
CableTel Investments Limited 100%
CableTel Limited 100%
CableTel Newport 100%
CableTel North Bedfordshire Limited 100%
CableTel Northern Ireland Limited 100%
CableTel Scotland Limited 100%
CableTel Surrey and Hampshire Limited 100%
CableTel Telecom Supplies Limited 100%
CableTel (UK) Limited 100%
CableTel West Glamorgan Limited 100%
CableTel West Riding Limited 100%
Cambridge Cable Services Limited 100%
Cambridge Holding Company Limited 100%
CCL Corporate Communication Services Limited 100%
Classic Sport Limited 100%
Columbia Management Limited 100%
ComTel Cable Services Limited 100%
ComTel Coventry Limited 100%
Credit-Track Debt Recovery Limited 100%
De Facto 829 Limited 100%
De Facto 877 Limited 100%
De Facto 953 Limited 50%
Diamond Cable Acquisitions Limited 100%
Diamond Cable (Bassetlaw) Limited 100%
Diamond Cable (Burton-upon-Trent) Limited 100%
Diamond Cable (Chesterfield) Limited 100%
Diamond Cable Communications Limited (in administration) 100%
Diamond Cable Construction Limited 100%
Diamond Cable CPE Limited 100%
Diamond Cable (Grantham) Limited 100%
Diamond Cable (Grimclee) Limited 100%
Diamond Cable (Hinckley) Limited 100%
Diamond Cable (Leicester) Limited 100%
Diamond Cable (Lincoln) Limited 100%
Diamond Cable (Lincolnshire) Limited 100%
Diamond Cable (Mansfield) Limited 100%
Diamond Cable (Melton Mowbray) Limited 100%
Diamond Cable (Newark-on-Trent) Limited 100%
Diamond Cable (Ravenshead) Limited 100%
Diamond Cable (Vale of Belvoir) Limited 100%
Diamond Holdings Limited (in administration) 100%
Diamond Visual Communications Limited 100%
Digital One Limited 36.7%
Digital Television Network Limited 100%
DTELS Limited 100%
East Coast Cable Limited 100%
East Midlands Cable Communications Limited 100%
East Midlands Cable Group Limited 100%
East Midlands Cable Holdings Limited 100%
Enablis Limited 100%
FLPTV Limited 50%
Front Row Television Limited 50%
Heartland Cablevision (UK) Limited 100%
Heartland Cablevision II (UK) Limited 100%
Herts Cable Limited 100%
ITN News Channel Limited 35%
Jewel Holdings Limited 100%
Lanbase Limited 100%
Lanbase European Holdings Limited 100%
Lcfc.com Limited 50%
LCL Cable (Holdings) Limited 100%
LCL Telephones Limited 100%
Lichfield Cable Communications Limited 100%
Maza Limited 100%
Metro Hertfordshire Limited 100%
Metro South Wales Limited 100%
mfc.co.uk Limited 50%
Moleseye Limited 75%
National Transcommunications Limited 100%
Northampton Cable Television Limited 100%
NTL Acquisition Company Limited 100%
NTL (Aylesbury and Chiltern) Limited 100%
NTL (B) Limited 100%
NTL Bolton Cablevision Holding Company 100%
NTL (Broadland) Limited 100%
NTL Business Limited 100%
NTL Business (Ireland) Limited 100%
NTL CableComms Bolton 100%
NTL CableComms Bury and Rochdale 100%
NTL CableComms Bromley 100%
NTL CableComms Chesire 100%
NTL CableComms Derby 100%
NTL CableComms East Lancashire 100%
NTL CableComms Greater Manchester 100%
NTL CableComms Group plc. (UK & Delaware (dual)) 100%
NTL CableComms Holdings No 1 Limited 100%
NTL CableComms Holdings No 2 Limited 100%
NTL CableComms Lancashire No 1 100%
NTL CableComms Lancashire No 2 100%
NTL CableComms Limited 100%
NTL CableComms Macclesfield 100%
NTL CableComms Oldham and Tameside 100%
NTL CableComms Manchester Limited 100%
NTL CableComms Solent 100%
NTL CableComms Staffordshire 100%
NTL CableComms Stockport 100%
NTL CableComms Surrey 100%
NTL CableComms Sussex 100%
NTL CableComms Wessex 100%
NTL CableComms Wirral 100%
NTL CableComms West Surrey Limited 100%
NTL Cambridge Limited 100%
NTL Chartwell Holdings Limited 100%
NTL Communications Services Limited 100%
NTL (Chichester) Limited 100%
NTL (City and Westminster) Limited 100%
NTL Communications Limited 100%
NTL (County Durham) Limited 100%
NTL (CRUK) Limited 100%
NTL (CWC) Corporation Limited 100%
NTL (CWC Holdings) 100%
NTL (CWC) Limited 100%
NTL (CWC) Management Limited 100%
NTL (CWC) No 2 Limited 100%
NTL (CWC) No 3 Limited 100%
NTL (CWC) No 4 Limited 100%
NTL (CWC) Programming Limited 100%
NTL (CWC) UK 100%
NTL Darlington Limited 100%
NTL Derby Cablevision Holding Company 100%
NTL Digital Limited 100%
NTL Digital Radio Limited 100%
NTL (Ealing) Limited 100%
NTL (Eastbourne and Hastings) Limited 100%
NTL Equipment No 1 Limited 100%
NTL Equipment No 2 Limited 100%
NTL Fawnspring Limited 100%
NTL (Fenland) Limited 100%
NTL Glasgow 100%
NTL Glasgow Holdings Limited 100%
NTL (Greenwich and Lewisham) Limited 100%
NTL Group Limited 100%
NTL (Hampshire) Limited 100%
NTL (Harrogate) Limited 100%
NTL (Harrow) Limited 100%
NTL Healthcare Plan Trustees Limited 100%
NTL Holdings (Broadland) Limited 100%
NTL Holdings (East London) Limited 100%
NTL Holdings (Fenland) Limited 100%
NTL Holdings (Leeds) Limited 100%
NTL Holdings (Norwich) Limited 100%
NTL Holdings (Peterborough) Limited 100%
NTL Internet Limited 100%
NTL Internet Services Limited 100%
NTL Investment Holdings Limited 100%
NTL (Kent) Limited 100%
NTL Kirklees 100%
NTL Kirklees Holdings Limited 100%
NTL (Lambeth and Southwark) Limited 100%
NTL (Leeds) Limited 100%
NTL Limited 100%
NTL Manchester Cablevision Holding Company 100%
NTL Microclock Services Limited 100%
NTL Midlands Limited 100%
NTL Milton Keynes Limited 100%
NTL Mobile Communications Limited 100%
NTL Mobile Limited 100%
NTL Networks Limited 100%
NTL (Norwich) Limited 100%
NTL Partcheer Company Limited 100%
NTL Pension Trustees Limited 100%
NTL (Peterborough) Limited 100%
NTL Radio Services Limited 75%
NTL Rectangle Limited 100%
NTL Sideoffer Limited 100%
NTL Solent Telephone and Cable TV Company Limited 100%
NTL (Southampton and Eastleigh) Limited 100%
NTL South Central Limited 100%
NTL (South East) Limited 100%
NTL (South Hertfordshire) Limited 33.3%
NTL (South London) Limited 100%
NTL South Wales Limited 100%
NTL Streetunique Projects Limited 100%
NTL Streetunit Projects Limited 100%
NTL Streetusual Services Limited 100%
NTL Streetvision Services Limited 100%
NTL Streetvital Services Limited 100%
NTL Streetwarm Services Limited 100%
NTL Streetwide Services Limited 100%
NTL Strikeagent Trading Limited 100%
NTL Strikeamount Trading Limited 100%
NTL Strikeapart Trading Limited 100%
NTL (Sunderland) Limited 100%
NTL Systems Limited 100%
NTL Technical Support Company Limited 100%
NTL Teesside Limited 100%
NTL Telecom Services Limited 100%
NTL Telephone Equipment Limited 100%
NTL (Thamesmead) Limited 100%
NTL Trustees Limited 100%
NTL TWTV Holdings Limited 100%
NTL UK Telephone and Cable TV Holding Company Limited 100%
NTL (V) Plan Pension Trustees Limited 100%
NTL (V) Limited 100%
NTL (Wandsworth) Limited 100%
NTL (Wearside) Limited 100%
NTL (West London) Limited 100%
NTL Westminster Limited 100%
NTL Winston Holdings Limited 100%
NTL Wirral Telephone and Cable TV Company 100%
NTL (YorCan) Limited 100%
NTL (York) Limited 100%
Oxford Cable Limited 100%
Premium TV Limited 100%
Premium TV (Ventures) Limited 100%
Prospectre Limited 100%
rangers.co.uk Limited 50%
Scanners (Europe) Limited 100%
Scanners Television Outside Broadcasts Limited 100%
SDN Limited 33.3%
Secure Backup Systems Limited 100%
Southern East Anglia Cable Limited 100%
Stafford Communications Limited 100%
Swindon Cable Limited 100%
Tamworth Cable Communications Limited 100%
The Studio Channel Limited 50%
Two Way TV Limited 37.7%
Virgin Net Limited 49%
Vision Networks Services UK Limited 100%
Wessex Cable Limited 100%
Workplace Technologies Trustees Company Limited 100%
XL Debt Recovery Agency Limited 100%
X-Tant Limited 100%
Germany
Name Ownership
- ---- ---------
iesy Holdings GmbH 32.5%
Republic of Ireland
Name Ownership
- ---- ---------
NTL Communications (Galway) Limited 100%
NTL Construction Limited 100%
NTL Communications (Waterford) Limited 100%
NTL Dublin Cablesystems Limited 100%
NTL Communications (Ireland) Limited 100%
Republic of France
Name Ownership
- ---- ---------
NTL Europe S.A.S. 100%
Switzerland
Name Ownership
- ---- ---------
Balcab AG 100%
Boisy TV SA 49.9%
Cablecom GmbH 100%
Cablecom Engineering AG 100%
Coditel Sarl 100%
Digi TV SA 50%
KASAG Kabelfernsehen Steckborn AG 58.5%
NTL Cablecom Holding GmbH 100%
Rediffusion AG 100%
REGAS Spiez AG 30%
Regionalantenne Ermatingen AG 32.5%
Rera Immobiliengesellschaft GmbH 100%
Sitel SA 66.7%
Swiss Online AG 100%
Telecarouge SA 49%
Teledistal AG 58.3%
Telelancy SA 45%
Telelavaux SA 80%
Teleonex SA 48.9%
Video 2000 SA 60%
Other Subsidiaries
Name Jurisdiction Ownership
- ---- ------------ ---------
B2 Bredband AB Sweden 34%
eKabel LP Jersey, Channel Islands 50%
Global Radio Participations SA Luxembourg 34%
Klesch Kabel Partners (II) LP Bermuda 100%
National Transcommunications Spain, S.L. Spain 100%
Nogenta Holding BV Netherlands 100%
Nogenta Swedish Acquisition Holding BV Netherlands 100%
NTL Broadcast Sdn Bhd Malaysia 100%
NTL Broadcast(Thailand) Ltd. Thailand 100%
NTL Insurance Limited Cayman Islands 100%
NTL LanBase, SL Spain 100%
Sun Savings, SL Spain 100%
C-8
EXHIBIT D
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
DESCRIPTION OF NEW NTL COMMON STOCK
Description Of New NTL Common Stock
The principal terms of the New NTL Common Stock to be issued by
New NTL under the Plan shall be as follows:
Authorization: 600 million shares
Initial Issuance: 200 million fully-paid and non-assessable shares (excluding shares
issued in the Offerings and upon exercise of the Series A Warrants and
the New NTL Management Incentive Options)
Par Value: $0.01 per share
Voting Rights: One vote per share held of record on all matters submitted to a vote of
holders of New NTL Common Stock
Dividends: Holders entitled to receive proportionately such dividends as may from
time to time be declared by the board of directors of New NTL in
respect of shares of New NTL Common Stock out of funds legally
available for the payment of dividends
Results On In the event of liquidation, dissolution or winding-up, holders
Liquidation, of shares of New NTL Common Stock would be entitled to share
Dissolution, proportionately in all of New NTL's assets available for
Or Winding-Up: distribution after payment of liabilities and liquidation
preference on any outstanding preferred stock of New NTL
Preemption Rights None
And Redemption:
D-1
EXHIBIT E
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
SERIES A WARRANT AGREEMENT
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT F
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
EQUITY RIGHTS OFFERING PROCEDURES
[TO BE INCLUDED IN THE PLAN SUPPLEMENT]
EXHIBIT G
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
----------
NOTEHOLDER ELECTION OPTION PROCEDURES
[TO BE INCLUDED IN THE PLAN SUPPLEMENT]
EXHIBIT H
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
DESCRIPTION OF EUROCO COMMON STOCK
Description Of Euroco Common Stock
The principal terms of the Euroco Common Stock to be issued by
Euroco under the Plan shall be as follows:
Authorization: 60 million shares
Initial Issuance: 20 million fully-paid and non-assessable shares (excluding shares issued upon
exercise of the Euroco Management Incentive Options)
Par Value: $0.01 per share
Voting Rights: One vote per share held of record on all matters submitted to a vote of holders of
Euroco Common Stock
Dividends: Holders entitled to receive proportionately such dividends as may from time to
time be declared by the board of directors of Euroco in respect of Euroco
Common Stock out of funds legally available for the payment of dividends
Results On In the event of liquidation, dissolution or winding-up, holders
Liquidation, of shares of Euroco Common Stock would be entitled to share
Dissolution, proportionately in all of Euroco's assets available for
Or Winding-Up: distribution after payment of liabilities and liquidation
preference on any outstanding preferred stock of Euroco
Preemption Rights None
And Redemption:
H-1
EXHIBIT I
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
DESCRIPTION OF EUROCO PREFERRED STOCK
Description Of Euroco Preferred Stock
The principal terms of the Euroco Preferred Stock to be issued by
Euroco under the Plan shall be as follows:
Par Value: $0.01 per share
Aggregate Liquidation $250 million plus (i) Aggregate Investments, (ii) Euroco Cash, and (iii)
Preference: accrued and unpaid dividends
Liquidation Preference $1,000, plus accrued and unpaid dividends
Per Share:
Dividend Rate: 10% per annum, payable when, as, and if declared by the board of
directors of Euroco out of funds legally available for the payment of
such dividends and to the extent not declared and paid on a semiannual
dividend payment date, shall accrue on a semiannual basis and be payable
on a redemption date out of funds legally available for the payment of
dividends
Ranking: Senior to the Euroco Common Stock in respect of dividends and amounts
distributable upon liquidation, dissolution and winding up
Optional Redemption At liquidation preference, at any time
Rights:
Mandatory Redemption Twenty years and one week. Subject to earlier redemption, at liquidation
Rights: preference, in whole or part, out of net proceeds from any sale, transfer or
monetization of assets of Euroco, subject to funds legally available for the
payment of such redemption
Immediately after the Effective Date, the board of directors of Euroco
will elect to redeem at least $25 million of Euroco Preferred Stock,
subject to funds legally available for the payment of such redemption
Conversion: None
Preemption: None
I-1
EXHIBIT J
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
----------
TERMS OF SERIES A WARRANTS
Terms Of Series A Warrants
The principal terms of the Series A Warrants to be issued by New
NTL under the Plan shall be as follows:
Issuer: New NTL
Recipients: Series A Warrants (2,996,475) representing 1.13% of fully diluted shares
(exclusive of New NTL Management Incentive Options granted under the New NTL
Management Incentive Plan) issuable to holders of Old Senior Preferred Stock
Interests
Series A Warrants (22,402,468) representing 8.45% of fully diluted shares
(exclusive of New NTL Management Incentive Options granted under the New NTL
Management Incentive Plan) issuable to holders of Old Junior Preferred Stock
Interests
Series A Warrants (9,601,058) representing 3.62% of fully diluted shares
(exclusive of New NTL Management Incentive Options granted under the New NTL
Management Incentive Plan) issuable to holders of Old Common Stock Interests
Series A Warrants (15,000,000) representing 5.66% of fully diluted shares
(exclusive of New NTL Management Incentive Options granted under the New NTL
Management Incentive Plan) potentially issuable pursuant to the Offerings
Exercise Price: $77.47 per share of New NTL Common Stock, which assumes 162.5% recovery by
the holders of the NTL CC Senior Notes, NTL CC Subordinated Notes, and
Diamond Cable Notes
Expiration Date: Eight years from the date of issuance
Adjustments: The number of shares to be received upon exercise of Series A Warrants will
be subject to customary adjustment for stock splits, stock dividends, reverse
stock splits, stock recapitalizations, and distributions of property (other
than cash) to holders of New NTL Common Stock
Change Of Control: Cash Acquisition: In event of the acquisition of New NTL in a
transaction where the consideration payable by the acquiror is all cash,
the following will apply:
(x)(i) If the transaction is announced within one year of the Effective Date
and the recovery of NTL CC Senior Notes, NTL CC Subordinated Notes and
Diamond Cable Notes exceeds 70%; or
(ii) If the transaction is announced within two years of the Effective Date
and the recovery of NTL CC Senior Notes, NTL CC Subordinated Notes and
Diamond Cable Notes exceeds 85%; or
(iii) If the transaction is announced within three years of the Effective
Date and the recovery of NTL CC Senior Notes, NTL CC Subordinated Notes and
Diamond Cable Notes exceeds 100%; and
J-1
(y) the acquiring entity (including any direct or indirect shareholder that
would constitute an "affiliate" (under applicable securities law) of such
acquiring entity, the "Acquiror") is a publicly traded entity, the Series A
Warrants would become warrants ("Acquiror Warrants") of the Acquiror
Acquiror Warrants will (a) have an expiration date identical to the
expiration date of the Series A Warrant, (b) have an exercise price equal to
the adjustment multiple multiplied by the fair market value of the Acquiror's
stock (based on a 25 trading day average), and (c) be exercisable for a
number of shares of the Acquiror's stock equal to the exercise price of the
Series A Warrant divided by the exercise price of the Acquiror Warrant.
"Adjustment multiple" will equal the ratio of the exercise price of the
Series A Warrant to the cash consideration received by the holders of New NTL
Common Stock in the acquisition
If the foregoing criteria are not met and a cash acquisition is announced
within the first three years after the Effective Date, subject to
consummation of such cash acquisition, the exercise price of the Series A
Warrant will be adjusted so as to become equal to 90% of the per share value
offered in the acquisition to holders of New NTL Common Stock and the
acquisition will not be consummated until warrant holders have had at least
20 business days to exercise subsequent to such adjustment
Stock Acquisition: In the event of an acquisition of New NTL for all stock,
the Series A Warrants would remain outstanding (until the Expiration Date)
and would be exercisable into stock of the acquiror at the exchange ratio in
the transaction
Mixed Consideration: The parties will negotiate in good faith to develop an appropriate
methodology for adjustment in these circumstances
Restrictions On Transfers only in compliance with applicable securities laws
Transfer:
Governing Law: New York
J-2
EXHIBIT K
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
NEW NTL REGISTRATION RIGHTS AGREEMENT
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT L
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
EUROCO REGISTRATION RIGHTS AGREEMENT
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT M
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
FORM OF EMPLOYMENT AGREEMENT
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT N
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
----------
NEW NTL RIGHTS AGREEMENT
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT O
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
----------
EUROCO RIGHTS AGREEMENT
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT P
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
EFFECTUATING TRANSACTIONS
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT Q
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
---------
FORM OF NEW NTL MANAGEMENT INCENTIVE PLAN
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT R
TO
SECOND AMENDED JOINT REORGANIZATION PLAN
OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
-----------
FORM OF EUROCO MANAGEMENT INCENTIVE PLAN
[TO BE INCLUDED IN PLAN SUPPLEMENT]
EXHIBIT B
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO SECOND AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
NTL INCORPORATED'S ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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. 0-30673
---------------------
NTL INCORPORATED
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 13-4105887
(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)
</Table>
(212) 906-8440
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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. No [X]
The aggregate market value of the Registrant's voting stock held by
non-affiliates at March 26, 2002, the last day before suspension of trading on
the NYSE of the Registrant's Common Stock, valued in all cases in accordance
with the New York Stock Exchange closing sale price for the Registrant's Common
Stock on such date, was approximately $44,114,400.
Number of shares of Common Stock outstanding as at March 26, 2002:
276,626,476
DOCUMENTS INCORPORATED BY REFERENCE
<Table>
<Caption>
PART OF 10-K IN
DOCUMENT WHICH INCORPORATED
-------- ------------------
Definitive proxy statement for the 2002 Annual
Meeting of the Stockholders of NTL
Incorporated: Part III
</Table>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Annual Report on Form 10-K for the year ended December 31, 2001, at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
Certain statements contained herein constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. When used in this Form 10-K, the words, "believe,"
"anticipate," "should," "intend," "plan," "will," "expects," "estimates,"
"projects," "positioned," "strategy," and similar expressions identify such
forward-looking statements. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Registrant, or industry
results, to be materially different from those contemplated or projected,
forecasted, estimated or budgeted, whether expressed or implied, by such
forward-looking statements. Such factors include, among others, those set
forth under the caption "Risk Factors" in this Form 10-K as well as: the
ability of the Company to continue as a going concern; the ability of the
Company to obtain trade credit and shipments and terms with vendors and
service providers for current orders; the Company's ability to maintain
contracts that are critical to its operations; potential adverse
developments with respect to the Company's liquidity or results of
operations; the ability to fund and execute its business plan; the ability
to attract, retain and compensate key executives and associates; the
ability of the Company to attract and retain customers; general economic
and business conditions; technological developments; 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 impact of restructuring and integration actions,
the impact of new business opportunities requiring significant up-front
investment and interest rate and currency exchange rate fluctuations.
In this Annual Report on Form 10-K, "NTL," the "Company," "we," "us," and
"our" refer to NTL Incorporated and its consolidated subsidiaries except where
we expressly state that we are only referring to NTL Incorporated or the context
otherwise requires that we are referring only to NTL Incorporated.
In this Report on Form 10-K, references to "(pound sterling)" "pounds
sterling," "(pound)," "pence" or "p" are to the lawful currency of the UK,
references to "(euro)" or "Euro" are to the lawful currency of the European
Monetary Union, references to "IR(pounds)" or "Irish punts" are to the
historically lawful currency of the Republic of Ireland, references to "FRF" or
"Francs" are to the lawful currency of France, references to "A$" are to the
lawful currency of Australia, references to "CHF" are to the lawful currency of
Switzerland and references to "U.S. dollars," "dollars," "$" or "(cent)" are to
the lawful currency of the United States. Solely for the convenience of the
reader, this Form 10-K contains translations of some foreign currency amounts
into U.S. dollars and some U.S. dollar amounts into foreign currencies. You
should not construe these transactions as representations that the foreign
currency amounts actually represent such U.S. dollar amounts or vice versa or
could have been or could be or will be converted into U.S. dollars or foreign
currencies, as the case may be, at the rate indicated or at any other rate.
Unless otherwise indicated, the translations of foreign currencies into U.S.
dollars and U.S. dollars into foreign currencies have been made at $1.4543 per
UK (pound) 1.00, $.8901 per (euro) 1.00, $1.1337 per IR (punt) 1.00, $.1357 per
FRF1.00, $.5117 per A$1.00 and $.5828 per CHF1.00, the noon buying rates in the
City of New York for cable transfers as certified for customs purposes by the
Federal Reserve Bank of New York on December 31, 2001. On March 31, 2002, the
Noon Buying Rate was $1.4250 per (pound) 1.00, $.8717 per (euro) 1.00, $1.2539
per IR (punt) 1.00, $.1329 per FRF 1.00, $.5333 per A$1.00 and $.5945 per
CHF1.00.
ii
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PART I
NTL Corporate Structure............................................... 1
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 26
Item 3. Legal Proceedings........................................... 26
Item 4. Submission of Matters to a Vote of Security Holders......... 26
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 27
Item 6. Selected Financial Data..................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 30
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 46
Risk Factors.......................................................... 50
Item 8. Financial Statements and Supplementary Data................. 56
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 57
PART III
Items 10, 11, 12, and 13.............................................. 57
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 57
Exhibit Index......................................................... 58
Signatures............................................................ 66
Index to Consolidated Financial Statements............................ F-1
</Table>
iii
PART I
NTL CORPORATE STRUCTURE
NTL Incorporated, a Delaware corporation, was incorporated in December
1999, to effect a reorganization into a holding company structure under Section
251(g) of the Delaware General Corporation Law. The holding company structure,
which was implemented in May 2000 in connection with the acquisition of the
residential assets of Cable & Wireless Communications plc, was accomplished
through a merger. The stockholders of NTL (Delaware), Inc. (formerly NTL
Incorporated), at the effective time of the merger became stockholders of the
new holding company, and NTL (Delaware), Inc. became a subsidiary of the new
holding company. The new holding company then took the name NTL Incorporated.
NTL's principal executive office is located at 110 East 59th Street, New York,
New York 10022, and its telephone number is (212) 906-8440.
On February 21, 2001, NTL Incorporated contributed the residential
broadband and business cable operations of Cable & Wireless Communications to
NTL Communications Corp., a wholly-owned subsidiary. On February 21, 2001, NTL
(Delaware), Inc. contributed the assets of NTL Business (formerly Workplace
Technologies plc) to NTL Communications Corp. The following chart shows on a
condensed basis the corporate structure of NTL through which our operations are
conducted and investments held, accounting for both contributions. The chart
does not show our operating or other intermediate companies or ownership
interests in those entities. Please note that the following chart does not
reflect the sale of NTL Australia that was completed on April 2, 2002.
NTL INCORPORATED FLOWCHART
1
ITEM 1. BUSINESS.
RECENT DEVELOPMENTS
RECAPITALIZATION PROCESS
On January 31, 2002, we announced that we had appointed Credit Suisse First
Boston, JP Morgan and Morgan Stanley to advise on strategic and recapitalization
alternatives to strengthen our balance sheet, reduce debt and put an appropriate
capital structure in place for our business. Since then, we have been evaluating
various recapitalization alternatives to effect a comprehensive consensual
recapitalization in a timely manner and to minimize negative effects on our
business operations. NTL has been engaged in discussions with an unofficial
committee of bondholders, the members of which hold a majority in principal
amount of the public debt of NTL and its subsidiaries, and France Telecom, which
owns a significant amount of NTL's common and preferred stock. On April 16, we
announced that we had reached an agreement in principle with the unofficial
committee on a comprehensive recapitalization of NTL and its subsidiaries. See
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources" and "Risk Factors" for a more
detailed description of the proposed recapitalization plan and the associated
uncertainties.
The following business description does not address the possible risks or
negative impacts that could result from the recapitalization process and our
liquidity position. Accordingly, this section must be read in conjunction with
Item 7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Risk Factors set forth in that section, and the Financial
Statements and related notes.
SALE OF NTL AUSTRALIA
On April 2, 2002, we announced that we had completed the previously
announced sale of our Australian broadcast business to Macquarie Bank for A$850
million (US$448 million) in an all cash transaction. NTL Australia owned and
operated the most extensive terrestrial broadcast transmission network in
Australia with over 98% population coverage provided from 578 sites located
across metropolitan, regional and rural areas. For the year ended December 31,
2001, NTL Australia's revenues were approximately A$119 million (US$62 million)
generating EBITDA of approximately A$52 million (US$27 million). NTL's
Australian operations also included a 51% share in a joint venture, NTLT, with
two Australian regional broadcasters (WIN Television and Southern Cross
Broadcasting) operating a carrier grade wholesale microwave telecommunications
network along the east coast of Australia.
2
ABOUT NTL
NTL is the leading broadband communications and broadband services company
in the UK and the Republic of Ireland. We also provide telecommunications
services in Switzerland and Australia and have made strategic investments in
broadband operations in France, Germany and Sweden. Unless otherwise indicated,
the following business description is as of December 31, 2001 and includes a
description of NTL's businesses in Australia which were subsequently sold.
We offer services to residential, business and wholesale customers on a
national and international scale.
Our predominant lines of business are:
- CONSUMER SERVICES, including residential telephony, cable television,
Internet access and interactive services;
- BUSINESS SERVICES, including business telephony, national and
international carrier telecommunications, Internet services and radio
communications services; and
- BROADCAST TRANSMISSION AND TOWER SERVICES, including digital and analog
television and radio broadcasting, wireless network management, tower and
site leasing and satellite distribution services.
We believe that our operational success to date has been due largely to our
focus on customer service and the development of services that emphasize value
rather than simply low prices. Our product offerings incorporate our fundamental
proposition of providing our customers with a full range of choices.
Our business is underpinned by the $15.9 billion investment we, and
companies we have acquired, have made in our network infrastructure. We provide
our broad range of services over local, national and international networks.
This network infrastructure consists of:
- BROADBAND COMMUNICATIONS NETWORKS in the UK that currently pass
approximately 8.4 million homes and can be expanded to cover over 11
million homes in our regional UK franchise areas. These high-capacity
two-way local broadband fiber networks serve entire communities
throughout these regional franchise areas. Our fiber optic cables pass a
significant number of businesses in these areas and are connected to
distribution points, or nodes, which are typically within approximately
500 meters of each of the 500 homes typically served by each node. Each
home is then connected by a cable allowing us to deliver telephone, cable
television and Internet services over a single integrated network.
Additionally, we have broadband cable networks in Switzerland and the
Republic of Ireland that currently pass approximately 2.3 million homes.
These primarily analog cable television networks are in the process of
being upgraded to allow for higher capacity signals and a suite of new
products including digital television, cable modem Internet access and
voice telephony.
- A NATIONAL/INTERNATIONAL SYNCHRONOUS DIGITAL HIERARCHY, KNOWN AS SDH,
FIBER OPTIC TELECOMMUNICATIONS NETWORK in the UK which connects all of
the major population centers in the UK to Ireland, continental Europe and
the United States. SDH allows high speed data transmission and redirects
transmissions in the event of a problem to prevent any disruption. This
backbone network utilizes Asynchronous Transfer Mode, known as ATM,
technology, a high speed, high bandwidth technology, and was built with
sufficient duct capacity to accommodate over 2,300 fibers on the majority
of the network. We designed this network to allow us to place the active
components, such as routing devices, close to our customers, allowing us
to offer a broad range of voice and data services.
- NATIONAL BROADCAST TRANSMISSION AND TOWER NETWORK INFRASTRUCTURE IN THE
UK AND AUSTRALIA, which provide national, regional and local broadcast
and wireless communications coverage. We own, lease, manage, or have
access to, over 2,900 multi-user sites, including over 2,300 sites in the
UK and over 575 sites in Australia. Our fixed line and tower networks in
the UK are interconnected at numerous sites.
3
NTL'S BUSINESSES IN THE UK & AUSTRALIA
We spent 2001 integrating our UK operations following several years of
acquisition and growth. Between 1998 and 2000, we expanded our UK operations
significantly, predominantly through acquisitions. Between June 1998 and July
1999, we acquired the UK broadband operations of Comcast UK Cable Partners,
Diamond Cable and ComTel as well as the Westminster and Milton Keynes cable
franchises of British Telecommunications, or BT. In May 2000, we further
increased our UK operations by completing our acquisition of the residential
broadband and business cable operations of Cable & Wireless Communications, also
known as Consumer Co.
In the UK, we provide a broad range of communication services:
- NTL: HOME, delivering broadband services to residential markets
comprising residential telephone, analog and digital cable television,
narrowband and broadband Internet access and interactive services;
- NTL: BUSINESS, comprising business telecommunications, national and
international carrier telecommunications, Internet services and radio
communication services;
- NTL: BROADCAST, delivering digital and analog television and radio
broadcast transmission services, wireless network management, tower site
rental and satellite and media services.
NTL: HOME
We are the largest provider of broadband services in the UK. As of December
31, 2001, we had approximately 2.8 million residential cable television and
telephony customers and over 4.97 million revenue generating units, which we
refer to as RGUs. At such date, our penetration rates were approximately 35%
telephone penetration, 29% cable television penetration and 37% customer
penetration.
Throughout 2001, we worked to streamline our subscriber base, removing a
backlog of approximately 45,000 non-paying and non-profitable customers in the
second half of the year. We are planning to remove an additional 14,000 in the
first quarter of 2002. We remove non-paying and non-profitable customers if our
standard collections procedures do not achieve a satisfactory result. The action
taken to remove non-paying customers provides us with a stronger customer base.
Our average churn rate for the quarter ending December 31, 2001 was 21.3% on an
annualized basis. Our average churn rate for the same period excluding
involuntary disconnects would have been 17.7% on an annualized basis.
We believe the most effective strategy to maximize revenues and penetration
for our residential offerings is to bundle together telephone, cable television
and Internet services. Our product and pricing strategies emphasize choice,
value and quality and are designed to encourage subscription to multiple
services to maximize customer retention and average revenue per customer.
Including capital expenditures made by the companies and businesses
acquired by NTL, we have spent approximately $11.2 billion on our network
infrastructure in the UK.
Our core network consists of optical fiber connected to distribution
points, or nodes, each typically serving up to 500 homes, from which we provide
coaxial cable and two copper pair telephone wires into each home. This cabling
enables the provision of two telephone lines, an analog or digital television
service and a high speed cable modem service to each customer's home.
Our fiber network has the capability to carry telephone services as well as
high speed data services. The fiber network is capable of supporting digital
subscriber lines, or DSL, which consist of a bi-directional 2Mb/s connection
capable of supporting 30 voice channels and enable the provision of higher
capacity services to business customers. We are able to support digital and
interactive services as well as advanced video services over our network through
cable modems that enable Internet access at almost 10 times the speed of
conventional dial up access.
Our cable modem service has been engineered to provide high quality
residential high speed Internet access service. It is therefore able to support
small businesses and people who work from home, including enabling a link to a
company's local area network, or LAN. We have in place the next generation of
network
4
technology using Internet protocol, or IP, over optic fiber cable technology in
our core backbone network. This technology, in which data is broken up into
discrete packets for transmission, enables more efficient use of network
capacity, meeting growth at lower unit cost and positioning NTL to provide high
speed broadband access on a mass scale.
Internet access
In March 2000, we announced a plan to offer our residential customers
throughout the UK free, unlimited Internet access via their personal computers
or, where available, televisions. This Internet service is called "ntlworld" and
became available to some of our customers beginning in April 2000. As of
December 31, 2001, we had approximately 695,000 ntlworld customers within our
local franchises and 29,000 customers who used our service via digital TV
access. We have decided to begin charging our customers for this service;
however, we believe that we remain highly competitive in this segment of the
market.
Since the launch of ntlworld, the trend in UK Internet pricing has been
towards offering unlimited Internet access for a higher fixed charge, as
Internet penetration has grown and Internet usage has increased. In January
2002, we announced our decision to begin charging our customers for service and
the launch of two new packages: "Pay as you go", a metered service at 1p per
minute; and "Unlimited", an unmetered service at L10 per month. All subscribers
to the free ntlworld service will be transferred to either "Pay as you go" or
"Unlimited" during the first half of 2002. Existing ntlworld customers will
benefit from a L5 per month price for Unlimited for a period of time.
In 1999, we were the first communications provider in the UK to launch a
high-speed cable modem Internet service, which links customers of our local
cable franchise networks to the Internet at up to ten times the speed possible
over standard telephone lines. As of December 31, 2001, we had approximately
118,000 cable modem customers. Approximately 80% of our networks are currently
able to provide this service to our customers. Our high-speed Internet service
currently operates at a speed of up to 2.0 Mb/s and is offered at minimum
delivery speeds of 128 Kb/s, 512Kb/s or 1Mb/s. The service is an "always on"
service, removing logging-on delays and the need to log off while using the
telephone. It uses the hybrid fiber coaxial cable portion of our broadband
network, which allows customers who also subscribe to a telephony service to
simultaneously make or receive telephone calls while accessing the Internet. The
128 Kb/s and 512 Kb/s services are currently offered at flat rates of L14.99 and
L24.99 per month, respectively, including the rental of a cable modem. This
compares with the newly announced prices for Freeserve and BTOpenworld 512Kb/s
ADSL services of L29.99 per month plus purchase of the modem. In the first
quarter of 2002, we launched a 1 Mb/s modem offer at a price of L49.99 per
month. We are currently the only provider offering 1 Mb/s service in the UK.
Franchise customers
We first introduced a bundled cable service to our franchise customers in
1996, when we implemented a promotional pricing and packaging structure called
"Choices." Since then, we have continued to refine and enhance our offering. The
packages we currently offer to our UK residential franchise customers, excluding
customers in Milton Keynes and Westminster, where we plan to launch broadband in
2002, and in some former Cable & Wireless Communications franchises which only
offer cable television, comprise:
- telephone service, including a second telephone line for an additional
charge unless the customer decides not to take television (99% of
potential customers are now offered the "3-2-1" simplified telephone rate
plan);
- narrowband Internet access service, if the customer takes a telephone
service (97% of potential customers can subscribe for ntlworld flat rate
narrowband Internet service);
- broadband Internet access service (two thirds of potential customers can
subscribe for 128 Kb/s or 512 Kb/s broadband Internet service);
- all of the current terrestrial television channels and access to
multi-channel television, including pay per view; and
- interactive television services.
5
Our packaging and pricing are designed to encourage our customers to use
multiple services such as dual telephone and broadband, dual telephone and
narrowband, dual telephone and TV, or triple telephone, TV and Internet access.
Only telephone, with its low capital expenditure requirements and high margins,
is available widely as a stand-alone single product. Of our competitors, only
Telewest, which does not offer its services in our franchise areas, is able to
offer the full range of services we provide (see table below).
<Table>
<Caption>
-----------------------------------------------
INTERNET TV TELEPHONE
- ---------------------------------------------------------------------
NTL X X X
- ---------------------------------------------------------------------
BT X X X
- ---------------------------------------------------------------------
BSKYB X X X
- ---------------------------------------------------------------------
TELEWEST X X X
- ---------------------------------------------------------------------
</Table>
Cable television
The selection of analog cable channels that we currently offer to our
franchise customers varies based on the particular franchise area. This
variation is a result of the different channel offerings we have inherited as a
result of our acquisitions of various cable franchises over the past several
years. Variation between franchise areas will increasingly be removed as digital
cable television is rolled out offering the same channels, subject to regional
programming variations. In addition to offering many of the popular channels
available on BSkyB's satellite platform, we also offer to all of our franchise
customers, through our joint venture with Telewest, a cable-only movie, sport
and special events pay per view television service called "Front Row" that we
rolled out to our customers beginning in March 1998. Our joint venture with
Telewest represented the first ever alternative in the UK to BSkyB in the
provision of films and sports events through pay television. Front Row has
signed content output contracts with major Hollywood studios, including Warner
Brothers, Sony Pictures Entertainment (Columbia/Tri-Star), the Walt Disney
Company (Walt Disney Studios, Miramax, Hollywood Pictures and Touchstone),
Dreamworks, MGM and Universal.
Interactive services
We have moved rapidly to take advantage of the convergence between the
Internet and television and the advent of digital cable television. We are
currently aggregating a broad range of interactive content into a service that
can be deployed as part of our interactive television offering to our
residential customers. Our interactive offering comprises a free television
e-mail service, a "walled garden" of partner websites that have been specially
redesigned for television and an online customer service application that allows
select customers to see their NTL bill via the television.
We have established relationships with over 75 content providers to deliver
a wide range of interactive services, including education, shopping and banking,
finance, travel, entertainment, games, news, sports and local content.
Interactive content is organized into channels, including news, sports, travel,
lifestyle, money, entertainment and shopping. Our partners include Sainsburys,
Iceland, QVC, W.H. Smith and Domino's Pizza. The travel channel includes content
partners such as Go Airlines, Thomas Cook Travel Select and Teletext and the
money channel features content partners such as Abbey National, The Halifax and
Bloomberg.
We also offer additional channels providing up to date news and weather
information, games and educational content. Where appropriate, our contracts
with content providers require the payment of tenancy fees as well as
commissions on e-commerce transactions. We also derive revenues from the
advertising opportunities that exist across our interactive service offering.
Telephony
In 1999, we launched the NTL "3-2-1" call plan for our residential
franchise customers where national and local calls cost only three pence per
minute during the day, evening calls cost two pence per minute and
6
weekend calls cost one pence per minute. We are able to offer this plan by using
our national telecommunications and local networks and bypassing a portion of
the wholesale long distance fees which would otherwise be charged by BT and
other carriers for carrying calls to and from our local franchise networks. In
2002, we have begun the roll-out of our 'Talk Unlimited" service, whereby
customers can make unlimited calls on evenings and weekends to local and
national fixed line numbers for a flat fee of L8 per month in addition to their
standard line rental.
Indirect access
On November 7, 2001, we announced our sale of the right to offer services
to approximately 230,000 indirect access telephone customers to Innogy for
approximately L23 million ($33 million) including the collection of certain
future service revenues and existing receivables.
We acquired these indirect access customers as part of the acquisition of
the residential businesses of Cable & Wireless Communications in May 2000.
However, as these customers were not connected to our national backbone network,
they could not benefit from our simplified calling tariffs, cost base or dial-up
Internet service. Rather than risk the substantial churn associated with the
process of migrating the customers to the NTL network and services, we
determined that the sale of the customer base would result in the highest
realizable value of the asset.
As of December 31, 2001, we had approximately 118,000 off-net customers of
which approximately 89,000 are also customers of our ntlworld Internet service.
We do not incur the unfavorable interconnect costs that were related to
servicing the Cable & Wireless indirect access telephony base because these
indirect access customers are served by our national network.
Customer management systems
For most of our franchise areas, we use advanced billing and customer
management systems which enable us to control all aspects of a customer's
account for both telecommunication and television products. We currently operate
a number of billing systems inherited from the different operations we have
acquired. We are in the process of merging these different systems onto a single
platform, which we expect will reduce costs and improve customer satisfaction.
Premium TV
Premium TV Limited, which is a wholly owned subsidiary of NTL, has a joint
venture with Eurosport, the pan-European basic tier sports channel, to develop
British Eurosport, a version of Eurosport tailored to appeal to UK viewers. This
channel is now available to all of NTL's UK pay television homes.
Premium TV has also entered into long-term joint ventures with a number of
UK football (soccer) teams including Rangers, Leicester, Middlesbrough and
Newcastle, as well as the Football League, which represents 76 teams, and has
entered into a five-year operating agreement with Aston Villa. These joint
ventures are intended to develop the football teams' Internet and broadband
rights which may include audio-visual footage of matches on a delayed basis and
live audio coverage of matches.
Premium TV is developing a Classic Sports television channel, and has a
contractual arrangement with the BBC permitting Premium TV to show historical
football (soccer) matches from the BBC's library.
NTL: BUSINESS
The primary objective of our business services division in the UK "ntl:
business" is to provide a comprehensive range of voice, data and application
based communications services for our business customers.
Our existing customer base incorporates both private and public sector
organizations. Within the private sector we focus on the areas of finance,
utilities and travel. Within the public sector we have a substantial share of
the market in emergency services, local government and education
telecommunications requirements.
7
Our business strategy is to fully exploit our superior network capability
and place an increasing emphasis on broadband products and services. Rather than
simply offering our customers a lower price for their existing service, we offer
a package of services designed to address all their communications needs at a
price which offers good value. For our smaller business customers, we are
providing a range of bundled packages based on our standard services and
standard terms and conditions. For our larger customers, we offer services which
are tailored for their specific needs.
ntl: business has developed a diverse portfolio of skills and services
through both product development and a number of significant acquisitions.
Beginning in 2000, we commenced a program to integrate the skills and abilities
of employees from Workplace Technologies, X-tant and ConsumerCo's small business
team with those of the existing business telecom operations, to create a single
integrated portfolio and customer support organization. Another example of this
strategy is our acquisition in the third quarter of 2001 of the UK assets and
contracts of Viatel UK. Viatel was a provider of managed data and voice services
to UK based corporate companies and also provided voice services to resellers,
voice and Internet services to wholesalers and managed data services to other
European managed service providers. In addition, we continue to focus specific
sales and marketing efforts on winning business customers in our franchise areas
and increasing revenue from our existing customers.
Since August 1, 2001, ntl: business has been structured with three key
business units within the overall UK communications market. These business units
are Retail, Managed Network Services (incorporating Mobile, Enterprise, Public
Safety and VISP) and Carrier Services. The segmentation enables us to develop a
deeper understanding of our customers' businesses which enables us to craft
specific solutions and trading alliances appropriate for each specific market.
The discussions below reflect the old structure of ntl: business.
Following our analysis of published OFTEL statistics for telecommunications
services, and Gartner Group statistics for other communications services, we
estimate the size of the market in which we compete to be in excess of L24.5
billion for the year 2002. Of the total communications market, we estimate that
approximately L17.5 billion represents business telecommunications and L7
billion represents carrier telecommunications services.
Our network already passes within 200 meters of more than 570,000 business
premises in the UK. However, as a result of the reach of our national network,
we can serve a substantial portion of the UK's approximately 1.2 million
business premises through means such as indirect access. These premises host
approximately 1.5 million business customers. We believe that the architecture
and reach of our network infrastructure has positioned ntl: business to play a
leading role in the delivery of broadband services to UK businesses going
forward. We plan to exploit demand for broadband services primarily through our
broadband cable modem product which was launched in the second quarter of 2001,
and our E-1 Direct Internet Access Service. We will continue to market our
standard products and services ranging from telephony and Internet access to
data and e-commerce and managed services. These services will be delivered via
copper wire, coaxial cable, fiber and wireless.
Retail and Enterprise
In our local direct markets (retail), our approach is to "think nationally
but act locally." In our business markets, our approach is to enable businesses
to become more efficient and effective. Our focus is on small to medium sized
businesses.
Our business model for dealing with small businesses has changed over the
last twelve months. In October 2000, we opened a new small business call center
which uses telephone account management techniques to sell and service a range
of simple business bundles for smaller businesses across the UK. Under this new
business model, we have developed sophisticated marketing programs for our
target customer base. In the second quarter of 2001, we added broadband services
to the business bundle. In December 2001 we launched our new web site allowing
customers to self provision a range of products and view their bills on-line.
8
Across these market sectors, we plan to utilize our national capabilities
and the expertise of our market focused account management and technical support
teams to target specific business sectors and increase penetration.
As of December 31, 2001, we had approximately 76,000 business customers
with an average of 5.1 lines per customer for a total of approximately 380,000
retail business telephony lines installed in the UK.
We offer the following business products and services to our business
customers:
- ACCESS SERVICES that connect our customers to us for inbound and outbound
voice and data calls. These access services include additional analog
business exchange lines, or BELs, and digital business exchange lines, or
DELs. DEL services include basic rate access, also known as ISDN2, and
primary rate access, also known as ISDN30. We believe these and other
direct and indirect access services are priced competitively and are
often in competition with similar services provided by a number of other
direct and indirect suppliers. In the second quarter of 2001, we launched
a business cable modem service that enables the delivery of broadband
services to our business customers.
- MANAGED VOICE SERVICES/VIRTUAL PRIVATE NETWORKS that are best illustrated
by our central exchange "Centrex" service. Through this service we
provide our customers with business exchange lines configured as a
"virtual PABX," where we provide the services normally associated with a
traditional PABX located at a customer's premises. We provide these
services on a rental basis which allows our customers to avoid the
expense associated with an outright capital purchase and maintenance
costs.
- MANAGED DATA SERVICES that include point to point private circuits at
speeds of multiples of 64 Kb/s and individually tailored 100 Mb/s and 155
Mb/s services. Other services include the provision of inter-site data
services with particular transmission protocols, such as Internet
Protocol also known as TCP/IP, Frame Relay and ATM.
- MANAGED LOCAL AREA NETWORKS (LANS), in order to support the developing
needs of our business market, we have established significant
capabilities that enable us to fully manage LANs or to design, project
manage and integrate new LAN platforms for our customers.
- 08XX SERVICES that include free local and national call services together
with a range of other routing features based on our network. These
services enable our customers to manage inbound calls and establish
varying tariffs for their customers to contact them.
- INTERNET SERVICES, in order to provide our customers with the tools they
require to build their e-business services including dedicated,
high-speed Internet access services, web hosting services, and specific
individually tailored applications securing and protecting their
e-businesses. The range of services we provide also includes the
provision of simple, inexpensive software to enable our customers to
begin doing business over the Internet.
We have a variety of alternative methods to carry our national
telecommunications network over the "last mile" to the premises of those
customers which are located outside of our franchise area:
- Obtaining permits to construct telecommunications networks, and building
out our network to reach our customers. Although this is often the most
costly means of reaching a customer, the expense can be justified in the
case of larger customers or where a significant level of traffic is
obtained from a customer. For example, we have extended our fiber optic
network within London to reach and support CNN's facilities.
- Leasing circuits on the local networks of other service providers to
connect to our customer's premises. Although this may reduce the
operating margin on a particular account, it requires significantly less
capital expenditure than a direct connection, can often be put in place
relatively quickly and can be replaced at a later date if traffic volumes
justify it.
- Connecting customers to our national telecommunications network by
implementing microwave radio links which utilize our significant tower
infrastructure to connect our network to our customers, using digital
point to point microwave radio links. Alternatively, we believe our
license to operate radio fixed
9
access services on a national basis throughout the UK at the 10 Ghz
frequency, could enable us to use "wireless local loop" technology to
connect our network to our customers, although we are not currently
utilizing this approach. Either of these two methods requires the
installation of a mini-tower site on the roof of the customer's premises
to receive and broadcast data. "Wireless local loop" connectivity would
enable a radial transmission to a number of sites surrounding the
mini-tower whereas point to point connectivity enables transmission
between two points only.
Public Safety
In addition to meeting the traditional voice and data requirements of
businesses throughout the UK, our Radcomms business offers a full range of
communications services, including the design and operation of radio networks
and the provision of support, maintenance and facility management services to
customers who provide public safety services to the community. Our customers
include primary providers such as police, fire and ambulance and secondary
providers such as H.M. Prison Service, the Coast Guard and the Royal National
Lifeboat Association. We have been servicing a substantial portion of the radio
installation and maintenance market for public safety in the UK for many years
and our public safety customers provide us with a relatively steady source of
revenue.
We intend to position ourselves to increase our activities in the public
safety sector from facilities and maintenance activities into complete
outsourcing arrangements. We believe we are at the forefront of managed
communication services in the public safety sector, and we believe that the
majority of the British Public Safety Services will move from their current
service arrangements into outsourcing and the provision of fully managed
services. We believe we have already established a strong position in
outsourcing services and facility management for these mission critical
customers, and plan to continue to build on our existing relationships with
current customers. An example is the Metropolitan Police Authority (New Scotland
Yard), for which we manage communications services for over 25,000 police
officers.
Wholesale (Carrier Services, Mobile and VISP)
Our wholesale markets group's main focus is the supply of UK infrastructure
and bandwidth to national and international telecommunications operators. Our
national and local networks are used to interconnect these carriers to cities in
the UK and Ireland. NTL wholesale has seen continued growth over the last five
years, and has successfully positioned itself as a key supplier of wholesale
services. We expect to continue to serve the wholesale marketplace through our
strategy of providing high quality and competitively priced services which can
be customized where necessary.
Our customers include fixed wire line and mobile telecommunications
operators and Internet service providers, or ISPs, such as AOL, COLT, Worldcom,
other cable operators, and various information technology and facilities
management companies. A dedicated team addresses the needs of the UK mobile
operators, and we are a major supplier to Vodafone and Orange. We have developed
a successful business supplying core interswitch network capacity to UK mobile
operators and have commercial relationships with the four incumbent mobile
operators.
We have been instrumental in developing a new commercial and technical
model for the supply of networks to the mobile operators. These developments
culminated in our being awarded, in April 2000, a five-year L150 million
contract by Orange. A key element of the contract, by which Orange outsources
the maintenance and provisioning of that network, is the extension of our
existing core network. All five third generation mobile operators in the UK will
need to implement network and services to support 3G services, and we will work
to define and co-ordinate our strategy for supporting 3G services.
A growing area of our wholesale business is selling voice termination
services to a wider mix of operators, and using these relationships to reduce
the cost-base for our telephony traffic by:
- creating a self sustaining revenue stream,
- establishing commercial relationships with wholesale customers thus
enabling us to cross-sell and up-sell other products, and
10
- generating revenue and cost reduction opportunities for other parts of
NTL.
The growth in the number of international operators building and operating
submarine cable systems in recent years has been substantial, with many of the
cables crossing the UK. We have considerably increased physical connectivity to
UK international cable landing stations and developed products to address the
needs of the international cable operators for carrier services between the
cable landing sites and the major UK international nodes such as Telehouse,
London, which services are also known as "backhaul" services.
Utilizing our ATM national network, we have developed Frame Relay and ATM
wholesale products to meet demand for high-speed data connectivity.
Additionally, our core data network, local loop infrastructure and connectivity
to the main international nodes, will allow us to address the needs of
international operators for the termination of UK-bound and origination of
UK-generated data traffic.
In addition to wholesale telecommunications and data services, we also
offer wholesale Internet access solutions including network services, call
center operations and customer provisioning and billing to UK ISPs and other
corporate customers that would like to expand their Internet presence. This
service was launched in 1995.
NTL: BROADCAST
On April 2, 2002 we announced that we had completed the previously
announced sale of our Australian broadcast business to Macquarie Bank for A$850
million (US$448 million) in an all cash transaction. At that time, the business'
bank debt outstanding, which was subsequently extinguished, totaled A$227
million (US$118 million).
NTL Australia owned and operated the most extensive terrestrial broadcast
transmission network in Australia with over 98% population coverage provided
from 578 sites located across metropolitan, regional and rural areas. For the
year ended December 31, 2001, NTL Australia's revenues were approximately A$119
million (US$62 million) generating EBITDA of approximately A$52 million (US$27
million). NTL's Australian operations also include a 51% share in a joint
venture, NTLT, with two Australian regional broadcasters (WIN Television and
Southern Cross Broadcasting) operating a carrier grade wholesale microwave
telecommunications network along the east coast of Australia.
We own and operate wireless communication and broadcast transmission
infrastructure in the UK and, until the completion of the sale on April 2, 2002,
in Australia. We provide our customers with enhanced products and services
through our broadcast network, state of the art equipment, and innovative
facilities management expertise. Our customer base includes over 1,000
companies, including all of the leading UK mobile wireless operators and all
major commercial television and radio broadcasters.
We have a proven history of developing new products and services to meet
the needs of our customers and drive the growth of our business. These
developments include the implementation of Teletext, a text based data service
transmitted with the analog television signal, the implementation of NICAM in
the 1980s enabling the transmission of digital stereo and Dolby audio over
analog television transmissions, and most recently the design and implementation
of the world's first digital terrestrial television and digital audio
broadcasting networks and services for our UK and Australian broadcast
customers.
We provide products and services to three distinct market areas:
- SITE LEASING AND SERVICES. We operate the second largest independent
portfolio of wireless towers and sites available for lease in the UK and
one of the largest towers and sites portfolios in Australia. In total, we
operate over 2,900 multi-user sites (approximately 2,370 of which were in
the UK as of December 31, 2001), up from approximately 600 sites in May
1996. As of December 31, 2001, we leased space on our towers to over
4,200 lessees including all of the major wireless operators in the UK and
also offer unique services such as "In-Building" a wireless connectivity
that can enhance their wireless coverage in high-traffic areas such as
shopping malls, office buildings and conference centers.
- BROADCAST TRANSMISSION AND SERVICES. We own and operate one of two
television broadcasting infrastructure networks in the UK as well as the
only national broadcasting infrastructure network in
11
Australia. Additionally, we have national, regional, and local radio
broadcast infrastructure networks in both the UK and Australia. We
developed the first commercial digital terrestrial television service in
1998 and the first commercial digital radio station in 1999. Because,
unlike broadcasters in the United States, we own and operate not only the
towers but also the broadcast transmission infrastructure, our broadcast
customers rely on our network and package of integrated turn-key services
to distribute and broadcast their content.
- SATELLITE AND MEDIA SERVICES. We provide satellite and media services in
the UK and value-added services such as playout, fixed and mobile
satellite up-linking, and a wide range of occasional & outside broadcast
services to generate incremental revenue. Our ability to offer a full
range of services from content gathering, distribution & transmission is
unique in the UK market.
Our broadcast and wireless customers generally hold long term licenses and
enter into service agreements with us that typically last 10 to 15 years.
Site Leasing and Services.
We operate a UK wireless infrastructure network of approximately 2,370
multi-user sites as of December 31, 2001. We own, lease or manage approximately
1,570 UK sites and have access to approximately 800 undeveloped sites. Our
primary business is the leasing of antenna space on our sites to a diverse range
of wireless service providers, including providers of mobile telephony, paging,
specialized mobile radio, or SMR, and wireless local loop services. We have also
developed a range of complementary services that utilizes our tower expertise,
including infrastructure services, site selection and acquisition, design and
construction, antenna installation, network planning and management, and tower
maintenance.
Our network in the UK is national in scope and includes most of the major
population centers and highways. Our wireless customers currently include all of
the UK mobile telephony operators, including Vodafone AirTouch, mmO(2) (formerly
known as BT Cellnet UK), Orange, One2One and Hutchison 3G, all the major paging
companies, and many of the UK's largest wireless telephony carriers, including
BT, Cable & Wireless, and Thus plc. We also serve several utility companies and
emergency service organizations including British Gas, London Ambulance and Her
Majesty's Customs and Excise.
Second generation wireless services have been the major driver of our
growth to date, but the advent of third generation wireless services is expected
to drive further revenue growth. During 2000, the UK government awarded five
national Universal Mobile Telecommunications System, or 3G, licenses each for a
duration of 20 years, commencing January 2002. These licenses have been awarded
to four existing operators, all of whom are existing wireless customers of ours,
and to one new entrant. Under the terms of these licenses, each operator will
provide services to at least 80% of the UK population by December 2007.
Construction of these networks has commenced in 2001 and is expected to generate
significant further demand for suitable existing & new sites over the next few
years. The increased demand for suitable sites is driven by the greater
bandwidth and different range characteristics of 3G technology, inherently
requiring a greater number of sites than 2G technology.
The dramatic growth of wireless communications necessitates good cellular
coverage in all commercial areas, leading to a requirement for reliable wireless
communications infrastructure inside buildings. We believe this creates a new
type of radio site which, unlike towers, will exist within commercial buildings,
transport hubs, shopping malls and other large buildings. Our analysis shows
that there are approximately 2,000 of these types of commercial properties in
the UK. As at December 31, 2001, we had built shared coverage systems in 26
large buildings including Bluewater, Britain's largest shopping complex and
Canada Square, part of London's Canary Wharf complex.
Building on the technology we developed for In-Building services, we are
exploring with UK mobile operators ways of using our fiber network to solve the
distance, coverage and power problems associated with 3G rollout in urban areas.
Although in an early stage of development, we believe that a solution utilizing
small low-profile antennas, positioned on buildings and other street level
infrastructure and connected via our fiber
12
network to remote base stations, could improve coverage and service quality
compared to more traditional rooftop sites for 3G technology.
Broadcast Transmission and Services
We have been involved in broadcast television since the 1950s when we
designed and built the television transmission system for the UK's first
independent commercial television network. Through our national infrastructure
of owned and shared transmission sites and our owned network of transmitters in
the UK and Australia, we provide broadcast signals for the three commercial
national television channels in the UK (ITV1, Channel 4, Channel 5), the two
publicly-owned national broadcasters in Australia (ABC, SBS), a number of more
recently established commercial channels through the UK Digital Broadcast
multiplexes, and many of the UK's independent local, regional and national radio
broadcasters.
An attractive feature of our broadcast contracts is our ownership of both
towers and transmission equipment responsible for generating the broadcast
signal. As a result, the contracts increasingly have become end to end solutions
including all technical and service aspects of providing the transmission for
the broadcaster. In essence, TV and radio station owners are programmers and we
are the broadcaster. We have used this as an opportunity to develop strong
relationships with our customers, which in turn has helped us to better
understand their needs and customize new services for them.
Television broadcasting. We provide digital and analog broadcast
transmission services for national and regional television broadcasters. The
analog network provides coverage to 99.8% of the UK population, with
approximately 3,500 broadcast transmitters. Our extensive television broadcast
customer base includes all of the UK commercial terrestrial television broadcast
companies consisting of the ITV national network of 15 affiliated stations, the
national services of Channel 4 and Channel 5, as well as the regional service
S4C in the UK. In addition, we provide transmission and site services to both of
Australia's publicly-owned national broadcasters, ABC and SBS.
We provide digital terrestrial broadcast transmission for two of the three
commercial national digital television services in the UK. These services carry
up to 12 separate channels, including the ITV network, Channel 4, Channel 5 and
a range of new digital channels and services such as pay per view. As of
December 2001, we were operating 80 digital terrestrial television transmitting
stations reaching approximately 88% of the UK population.
Digital broadcast systems require a more complex engineering design than
their analog predecessors. We have exploited this by extending our range of
services to include tower leasing and transmission services (as with analog)
plus "end-to-end" system integration and service ranging from studio playout
centers to terrestrial transmission. This has the twin benefits of enlarging the
total market available from broadcasting and further differentiating us as a
unique provider able to offer towers, transmission and system integration
services for digital television.
Radio broadcasting. We are one of two major companies providing
transmission sites and services to the radio industry in the UK. We offer a
range of services to radio broadcasters including: target service area planning;
site location; installation and commissioning; and equipment selection,
procurement, operation, monitoring and maintenance. We believe that we are a
supplier of transmission services to a substantial portion of the addressable
market. Our radio broadcast customer base includes two of the three national
commercial stations: Classic FM and Talk Radio, over 200 metropolitan, regional
and local stations and the first all digital radio station, Digital One, of
which we are a founding equity partner with a 37% equity interest. We have a
contract for the transmission of Digital One with a lifetime value in excess of
$75 million. The UK government has embarked on a program of licensing a number
of new regional and local digital radio multiplexes. As of December 31, 2001 we
have secured contracts to build transmission and supporting network for 24 of
the 27 licenses awarded so far.
13
Satellite and media services
We own and operate satellite up-linking facilities consisting of over 30
fixed satellite up-link dishes able to access over 50 satellites with global
coverage, a network of mobile and transportable up-links, management and control
systems and all associated operations and maintenance. We provide our satellite
customers with program and content distribution services for over 160 full-time
channels via satellite and fiber. In addition, we have facilities for playout
services, remote satellite news gathering, and full outside broadcast. Through
an alliance with Williams Vyvx, a Williams Co. company, our customers also have
access to 48 cities in the United States.
We have expanded our service offerings over time to meet the growing needs
of our customer base as new technologies create new broadcast markets. As a way
to add incremental revenue, we have begun to integrate backwards with our
existing customers by offering value added services. Such service developments
include:
- establishment of playout services, which enable us to take ownership of
the customer's transmission needs from the point that it delivers the
program or content and needs a channel to be created. We then are
responsible for all the operational issues related to the broadcast of
that content. We have a state of the art playout facility outside of
London designed to meet the rising demand from broadcasters across
Europe.
- offering a range of occasional use broadcast services that allow media
content providers to outsource their off-site broadcasting needs, whether
it be for breaking news, sports events or music concerts, and still
deliver the desired content to their customers via our mobile equipment.
Our Satellite and Media customers include programmers who own and operate
packages of content or channels, news agencies, sports broadcasters and
production companies. Our customer list includes such market leaders as AOL/Time
Warner (CNN, Turner, Cartoon Network), BBC, Discovery Channel, QVC, Reuters, the
Associated Press and British Sky Broadcasting.
NTL'S BUSINESSES AND INVESTMENTS IN CONTINENTAL EUROPE & THE REPUBLIC OF IRELAND
EUROPEAN BUSINESSES AND INVESTMENTS
Prior to 2001, we made several strategic investments in leading European
markets. In July 1999, we acquired Cablelink in the Republic of Ireland, which
then had over 400,000 franchise homes in Dublin, Galway and Waterford. In two
steps during August 1999 and December 1999, we acquired the "1G" Networks in
France, our first acquisition in Continental Europe, acquiring approximately
266,000 franchise homes in the Greater Paris area. In March 2000, we completed
the purchase of the cable assets of the Cablecom Group, Switzerland's largest
cable company. Also in March 2000, we acquired a 25% interest in Svenska
Bredbandsbolaget A.B., or "B2", a company based in Sweden, which is deploying
fiber directly to the home in Scandinavia. Finally, in August 2000, we acquired
a 50% interest in eKabel InvestCo, which owns 65% of eKabel L.P., the cable
network in the Hessen province of Germany.
In May 2001, we completed the purchase of a 27% minority investment in Noos
S.A., the market leading French broadband company. We subsequently merged 1G
Networks into Noos in November 2001. In September 2001, we increased our
minority interest in B2 to 34%.
Our European strategy has three key components:
- continue upgrade of network infrastructure in Switzerland and France and
begin upgrade in Germany for delivery of advanced broadband solutions to
consumers and businesses,
- replicate our success with bundled services in the UK in order to drive
penetration of new products and maximize profitability per subscriber,
and
- realize the benefits of economies of scale through continued integration
while maintaining a regional focus on customer operations.
14
We have a premier footprint across Europe, including:
- Europe's three largest financial centers -- London, Paris and Frankfurt;
- Europe's wealthiest population -- Switzerland; and
- Europe's most advanced broadband market -- Sweden;
As of December 31, 2001 we had access to 20.3 million franchise homes
across the UK, Ireland and Continental Europe, and served approximately 7.1
million customers (assuming 100% ownership of our minority interests).
Across Europe we continue to focus on capital efficient upgrades of these
cable networks for the delivery of bundled high-speed Internet, digital cable
television and telephony services to the consumer market and advanced broadband
services to the business community.
In 2001, we benefitted from the significant demand for broadband services.
Significant progress in focused network upgrades and a commitment to market to
the most attractive demographic areas first have been the focus for achieving
meaningful penetration and return on investment. Evidence of the success of this
strategy has been our broadband penetration. By December 31, 2001, we achieved
20% penetration of marketable homes in Switzerland, and 34% in Sweden. We
reinforced our position as a broadband leader in Western Europe, with more than
229,000 broadband customers in continental Europe (assuming 100% ownership of
our minority interests).
SWITZERLAND
Cablecom GMBH
In March 2000, we acquired the business and assets of Cablecom GMBH,
Switzerland's largest cable operator. Cablecom is Switzerland's largest cable
operator with approximately 53% of the Swiss cable television market as of
December 31, 2001. As of December 31, 2001, Cablecom delivered products and
services to 1.4 million subscribers in 100% ownership service areas, reflecting
a penetration rate of approximately 91%. Cablecom also delivers signals via its
national fiber backbone to other cable operators who serve another 490,000
subscribers, including third party wholesale and partial ownership of signal.
Over 90% of television broadcasting in Switzerland is delivered over cable
networks. As of December 31, 2001, Cablecom also had over 67,000 broadband
Internet and 48,000 digital television customers.
Cablecom also owns SwissOnline, one of the largest Internet service
providers in Switzerland with approximately 161,000 dial-up customers as of
December 31, 2001. Cablecom already has a telecommunications license to provide
voice, data and other value added services in Switzerland, and expects to
commercially launch its Voice over Internet Protocol, or VoIP, telephony product
in 2002.
Cablecom is the largest alternative fiber link telecommunications operator
in the Swiss telecommunications market.
Cablecom's business extends beyond basic television services. Our objective
is for Cablecom to become the premier provider of communications services for
Switzerland's residential and business markets.
During the third and fourth quarter of 2001, our European management team
took an active role in managing the business in Switzerland. We reorganized
Cablecom's management and organizational structure to a customer focused
organization -- marketing the product for the consumer and realizing Cablecom's
unique business to business opportunity. In 2001, we integrated several business
units and legal entities, reducing the number of departments from 13 to 7,
thereby reducing multiple interfaces to the customer.
As part of the reorganization, in October 2001, Rudolf Fischer joined the
European management team as the new Chief Operating Officer of Cablecom. We have
also hired Cablecom's first Chief Marketing Officer, and through internal
candidates, Cablecom's Chief Financial Officer and Head of Consumer Services. As
part of the effort to streamline Cablecom and reduce costs, we also implemented
a redundancy plan in 2001, reducing headcount by 260 out of 1,960 full-time
equivalent employees.
15
Core elements of our strategy for Cablecom include:
- introducing value added services, including high speed Internet, digital
television, pay-TV, video- and audio-on-demand, and telephony,
- installing superior customer care operations in order to support growth
in the number of direct customer relationships and the rollout of new
products and services, and
- increasing capacity in major cities and suburban areas and increase
bi-directionality beyond the current one million homes.
Cablecom currently operates in the following five business areas:
- Fully Owned Cable Networks. Residential cable television is Cablecom's
largest business and comprises 28 different cable networks of which six
are wholly-owned by Cablecom. This accounts for approximately 90% of
total managed subscribers. As of December 31, 2001, Cablecom had 53%
market share in Switzerland and a penetration rate of over 90% of homes
passed, 82% of homes passed have been converted to digital and 53% of
homes passed had bi-directional capability. Approximately 48,000 digital
television customers and 67,000 broadband Internet subscribers were
connected at year-end. Approximately 82% of Cablecom's subscribers are in
the German speaking region of Switzerland, 10% in the French speaking
region and the remainder in the Italian speaking region.
- SwissOnline. SwissOnline, a wholly owned Cablecom subsidiary, is one of
Switzerland's largest Internet service providers and one of the leading
portals in the country. As of December 31, 2001, SwissOnline had
approximately 161,000 subscribers. As part of the Cablecom reorganization
in 2001, SwissOnline was integrated with Cablecom's high speed Internet
product management and customer operations.
- Cablecom Business. Cablecom Business, formerly know as Carriers
Solutions or National Telecoms, was launched in January 1999 to offer
advanced data services to the Swiss business segment. With one of two
national fiber backbones, Cablecom Business provides voice and data
services to the small, medium and multi-site national segments. Current
products include leased lines, virtual private networks, connectivity,
and carriers' carrier services. Cablecom intends to intensify the
roll-out of its national telecommunication and data services in 2002.
Cablecom believes that it is well positioned to connect business
customers within its service areas as it estimates that most business
customers are within 50 to 100 meters of Cablecom's existing network
infrastructure.
- Rediffusion. Rediffusion, Cablecom's consumer electronics retail chain,
sells consumer electronics products and accessories. It also has rental,
maintenance and service and repair operations. Historically, Rediffusion
has been run independently of Cablecom's cable operations. As part of the
company's reorganization, Cablecom is currently integrating Rediffusion
to leverage the retailer's extensive national network to distribute
Cablecom's broadband multi-service offering, including digital cable
television, high-speed Internet and telephony services and to bundle
those with Rediffusion's products and services, including installation
and maintenance.
- Engineering. Cablecom Engineering AG, a wholly owned subsidiary of
Cablecom, provides cable television engineering services to Cablecom and
third parties. Cablecom Engineering AG is the leader in Swiss cable
television engineering with a market share of 75%. Services include
third-party cable television systems and network infrastructure planning
and design, project management, and network measurement and maintenance.
As part of the company's reorganization, Cablecom Engineering was
integrated into the Cablecom network division in 2001.
NETWORK UPGRADE. Cablecom is currently upgrading its nationwide network,
which consists of three interconnected segments:
- Fiber optic backbone
- Hybrid-fiber coaxial or "HFC" network
16
- In-house installations
Through our network upgrade program, over 82% of homes passed were upgraded
at the end of 2001. Moreover, as HFC networks in each area are upgraded,
Cablecom upgrades in-house installations at the request of subscribers wishing
to subscribe to new services, including digital cable television, high-speed
Internet and telephony services.
CABLE TELEVISION SERVICES. In November 1999, Cablecom launched digital
services under the SwissFun brand name in German-speaking regions. Using a
purchased or leased set-top-box, Cablecom subscribers can access an additional
30 digital channels for free, as part of their basic television subscription
offering. The subscribers can then subscribe to over 20 additional channels in
pay packages. Cablecom continued the roll-out of its SwissFun digital television
offering during 2001, concurrent with the upgrade of its regional networks.
In addition to increasing the number of channels that can be broadcast, the
introduction of digital broadcasting allows Cablecom to address each set-top-box
individually, providing Cablecom with the necessary flexibility to bundle
expanded basic and pay channels into more attractive pay packages. This
customization of content and the potential to differentiate substantially from
the basic television offering is expected to make pay television much more
attractive than its current form. In 2002, Cablecom plans to offer additional
pay packages and pay-per-view services over its network.
INTERNET SERVICES. Cablecom will continue to roll out high-speed Internet
access services throughout its service areas as its networks are upgraded to
bi-directionality through 2004. To maximize the return on capital expenditure,
Cablecom is first upgrading subscriber areas where demand is the highest. As of
December 31, 2001, Cablecom provided cable modem services to 67,000 subscribers.
In its franchise areas, Cablecom offers both residential customers and
businesses Internet access services connecting users to SwissOnline's portal via
Cablecom's network, and thus retain all usage related revenues for dial-up
services and all access revenues for all types of subscription-based Internet
services such as pay dial-up and high-speed Internet services.
TELECOMMUNICATION SERVICES. Apart from Swisscom, Cablecom is the only
company with a nationwide footprint and a local loop infrastructure. Cablecom
expects to be able to provide broadband local loop infrastructure access to
nearly 50% of Swiss households. Cablecom's local loop networks cover all major
Swiss cities, except Lausanne and Geneva, where Cablecom has a 12.2% stake in
022 Telegeneve, a company which provides such coverage.
In December 2001, lab testing and field trials of the Cablecom VoIP
telephony product proved successful. Cablecom plans the commercial launch of its
telephony product in mid-2002.
IRELAND
In July 1999, we acquired Cablelink Ltd. in the Republic of Ireland, which
then had over 400,000 franchise homes in Dublin, Galway and Waterford.
This company provides cable television services in Dublin, Galway and
Waterford to over 370,000 subscribers. As of December 31, 2001, the company had
an 83.4% penetration rate over its broadband cable network, which passes over
440,000 homes. The company holds licenses to provide analog and digital
television services in its franchises for the next 12 years with exclusive
rights for the next two years. It also has a full service license allowing it to
provide public telephony, Internet and other value-added services throughout
Ireland.
Among our 2001 highlights, Cablelink:
- developed and successfully rolled out our digital television service in
Dublin, Galway and Waterford;
- met all of our regulatory milestones for the provision of digital
television;
17
- integrated our residential and business to business divisions in Ireland
to create a single operating entity -- thus deriving extra operational
efficiencies and synergies;
- migrated 95% of our customer base onto a new customer relationship
management system; and
- made all systems fully Euro compliant for the introduction of the Euro.
FRANCE
1G Networks and Noos S.A.
We acquired France Telecom's 1G Networks in two steps in August 1999 and
December 1999. Pursuant to our purchase agreement, we held exclusive licenses to
provide analog and digital television services over 1G Networks. 1G Networks has
launched a pilot version of its digital platform, increasing the number of
channels available to customers as well as providing high-speed Internet access.
On August 7, 2000, we announced that we had signed an agreement in
partnership with Morgan Stanley Dean Witter Private Equity to purchase France
Telecom's 49.9% stake in Noos S.A. We closed the transaction in May 2001 and
acquired 27% of Noos for approximately $594 million in liquidation preference of
our preferred stock, based on an enterprise value of Noos of Euro 2.7 billion
($2.45 billion). In November 2001, to capitalize on network synergies and
customer proximity, we merged our 1G operations in France with Noos.
The combined Noos/1G is the market leading French broadband company,
offering analog and digital cable television, high-speed Internet and telephony
services to a total of 939,000 customers as of December 31, 2001. As of December
31, 2001, its network passed 2,811,000 homes and businesses. As of December 31,
2001 there were an estimated 3,447,000 homes and businesses in Noos's and 1G's
combined franchise areas. Noos currently provides high-speed Internet access to
over 92,000 homes and businesses in France.
Noos operates a fully digital hybrid fiber coaxial network comprising over
16,000 km of coaxial and approximately 4,000 km of fiber cable. This network
provides Noos with a unique platform to implement a broadband strategy in
France. In addition, Noos has secured long term access rights to underground
ducts for future network upgrade.
Our investment in Noos provides us access to metropolitan Paris and
Strasbourg and other major cities in France. Noos offers significant
efficiencies with our core business of bundled digital cable television, high
speed Internet and telephony services.
GERMANY
iesy Hessen GmbH (formerly eKabel Hessen GmbH)
In August 2000, we completed a 50% investment in eKabel Investco, which
owns 65% of iesy Holdings GmbH, the Hessen cable network in Germany. iesy Hessen
GmbH owns and operates the largest cable television network in the German
province of Hessen, which includes Frankfurt, the second largest financial
center in Europe. iesy currently broadcasts up to 33 analog channels, 13 digital
channels and 36 radio channels.
There are approximately 2.8 million homes in Hessen, of which 66% or 1.8
million homes were passed by iesy's network as of December 31, 2001. Of the 1.8
million homes passed, 72%, or 1.3 million homes, are connected to iesy's
network. For the year ended December 31, 2001, iesy Hessen GmbH generated a
total revenue of Euro 115.8 million. iesy has a historical annual churn rate of
less than 6%, which compares favorably to other European and U.S. cable
providers. This loyalty of its customer base provides a solid platform on which
to offer iesy branded products, such as "iesynet" and "iesyphone."
In October 2001, iesy successfully completed network upgrade technology
trials. iesy is currently upgrading its network and expects to upgrade 300,000
homes in 2002. The network upgrade plan will focus first on areas which offer
attractive demographics for return on iesy's investment. This upgraded network
will
18
allow iesy to offer a wider array of broadband products and services, including
the "triple-play" of digital cable television, high-speed Internet and telephony
services.
iesy's high speed Internet product, iesynet, has seen high demand in a
pilot program in Frankfurt. Commercial launch of iesynet is targeted for
mid-2002. Also in 2001, iesy was granted a class 4 voice telephony
telecommunications license, and expects to offer VoIP telephony over its network
in 2003.
SWEDEN
Bredbandsbolaget ("B2")
As a result of a series of transactions from March 2000 through September
2001, we have acquired a 34% interest in B2. B2 is a rapidly growing broadband
communications company providing 10 Mb/s network access and broadband services
to residential and small-to-medium business customers. In 2001, B2 concentrated
its efforts on rapidly growing the business in Sweden by stopping its expansion
efforts in Norway and Denmark. During 2001, B2 reduced the number of its
permanent and temporary employees from approximately 600 to 210 people, and grew
its subscriber base from 18,700 to over 69,700 customers. In September 2001, B2
raised SEK 2.4 Billion ($224 million) in a private placement.
B2 provides "always on," low-cost access to a high-capacity broadband
network that provides transmission, both to and from the customer, at the same
speed and at the same time. B2's 10 Mb/s network access speed is substantially
faster than typical connections offered by existing cable television and
telecommunications operators and is upgradeable to 100 Mb/s without significant
expense. In addition to broadband access, B2 intends to provide telephony and
video access to its customers through a personalized, interactive interface.
Similar to Cablecom and iesy, B2 has already successfully tested its VoIP
telephony product.
19
The following table illustrates our holdings in Western Europe, including
that in the UK:
WESTERN EUROPE CUSTOMER STATISTICS AS OF DECEMBER 31, 2001
<Table>
<Caption>
NTL NTL CABLECOM NOOS EKABEL B2
(UK) (IRELAND) (SWISS) (FRANCE) (GERMANY) (SWEDEN) EQUITY GROSS
-------- --------- -------- -------- --------- -------- -------- --------
(SUBSCRIBER TOTALS IN THOUSANDS)
RESIDENTIAL
Ownership Interest......... 100% 100% 100%(1) 27.0% 32.5% 34.0%
Homes in Franchise......... 11,411.2 443.8 1,902.7 3,447.0 2,800.0 299.0 15,513.4 20,303.7
Homes passed............... 8,404.1 443.8 1,902.7 2,811.5 1,828.0 217.0 11,990.9 15,607.1
Homes marketed (Telco)..... 7,506.4 20.0 -- 10.0 -- -- 7,529.1 7,536.4
Homes marketed (CATV)...... 7,729.8 443.2 1,734.8 2,758.4 1,828.0 205.1 11,155.0 14,699.3
Customers.................. 2,840.0 369.8 1,583.0 939.6 1,299.7 69.7 5,339.5 7,101.8
Dual/Triple RGU.......... 2,038.2 5.3 67.3 76.0 -- -- 2,130.7 2,186.8
Single RGU............... 801.8 364.5 1,515.7 863.6 1,299.7 69.7 3,208.8 4,915.0
Cable Television (CATV).... 2,261.9 369.8 1,583.0 920.7 1,299.7 -- 4,732.7 6,435.1
Digital................ 1,253.5 7.7 48.4 323.9 -- -- 1,394.6 1,633.5
Analog................. 1,008.4 340.6 1,534.6 238.5 1,299.7 -- 3,219.9 4,421.8
Antenna................ -- 21.5 -- 358.3 -- -- 118.2 379.8
Telephone.................. 2,589.3 5.3 -- 2.2 -- -- 2,595.2 2,596.8
Internet (INT)............. 845.0 1.5 228.3 92.5 -- 69.7 1,122.9 1,237.0
Dial-Up (ntlworld and
other)................. 698.4 1.4 161.0 -- -- -- 860.8 860.8
Digital TV Access........ 28.5 -- -- -- -- -- 28.5 28.5
Broadband (BB)........... 118.1 0.1 67.3 92.5 -- 69.7 233.6 347.7
RGUs (CATV, Telco, BB)..... 4,969.3 375.2 1,650.3 1,015.4 1,299.7 69.7 7,561.5 9,379.6
Service Units (CATV, Telco,
Int)..................... 5,696.2 376.6 1,811.3 1,015.4 1,299.7 69.7 8,450.8 10,268.9
RGUs/Customer.............. 1.75x 1.01x 1.04x 1.08x 1.00x 1.00x 1.42x 1.32x
Service Units/Customer..... 2.01x 1.02x 1.14x 1.08x 1.00x 1.00x 1.58x 1.45x
Penetration:
CATV..................... 29.3% 83.4% 91.2% 33.4% 71.1% 0.0% 42.4% 43.8%
Telephone................ 34.5% 26.5% -- 22.0% -- -- 34.5% 34.5%
Customer................. 36.7% 83.4% 91.2% 34.1% 71.1% 34.0% 47.9% 48.3%
RGU...................... 64.3% 84.7% 95.1% 36.8% 71.1% 34.0% 67.8% 63.8%
Service Unit............. 73.7% 85.0% 104.4% 36.8% 71.1% 34.0% 75.8% 69.9%
Dual / Triple............ 71.8% 1.4% 4.3% 8.1% 0.0% 0.0% 39.9% 30.8%
Quarterly Growth:
Customers................ (41.8) (4.8) 2.9 44.6 5.7 19.2 (24.5) 25.8
RGUs..................... (51.5) (5.8) 15.4 51.7 5.7 19.2 (20.5) 34.7
Off-Net Telephony.......... 118.3 2.8 -- -- -- -- 121.1 121.1
Telephone................ 29.1 -- -- -- -- -- 29.1 29.1
Telephone and Internet... 89.2 2.8 -- -- -- -- 92.0 92.0
BUSINESS DIVISION
Business Customers......... 76.2 0.2 4.3 35.6 -- -- 90.3 116.3
Business Lines............. 389.7 1.9 -- -- -- -- 391.6 391.6
Wholesale Internet
Subscribers.............. 1,210.7 0.2 -- -- -- -- 1,210.9 1,210.9
TOTAL CUSTOMERS............ 4,245.2 373.0 1,587.3 975.2 1,299.7 69.7 6,761.8 8,550.1
TOTAL SERVICE UNITS........ 7,504.1 384.3 1,811.3 1,015.4 1,299.7 69.7 10,266.4 12,084.5
</Table>
- ---------------
(1) Cablecom has equity interests in 28 cable systems in Switzerland. The
following statistics reflect the proportional operating data in which
Cablecom does not maintain an equity interest: 186,700 homes passed, 161,400
homes marketed, 153,100 subscribers, 600 broadband Internet subscribers and
153,600 RGUs.
20
COMPETITION
We face significant competition from established and new competitors in the
areas of residential telephony, business telecommunications services, Internet
and cable television.
CONSUMER SERVICES
We compete primarily with BT in providing telephone services to residential
customers in the UK. BT occupies an established market position and manages
fully built networks and has resources substantially greater than ours.
According to the Office of Telecommunications, or OFTEL, in September 2001, BT
serviced 81.29% of UK residential telephone exchange line customers. Our growth
in telecommunications services, therefore, depends upon our ability to convince
BT's customers to switch to our telecommunications services. We believe that
value for money is currently one of the most important factors influencing the
decision of UK customers to switch from BT to a competing telecommunications
service. BT has, however, introduced price reductions in some categories of
calls and, due to regulatory price controls, BT will be making further
reductions in its telecommunications prices. Accordingly, although we intend to
remain competitive, in the future we may be unable to offer residential
telephone services at rates lower than those offered by BT. In this case, we may
not achieve desired penetration rates and may experience a decline in total
revenues. There can be no assurance that any such decline in revenues or
penetration rates will not adversely affect us. In addition to BT, other
telecommunications competitors could prevent us from increasing our share of the
residential telecommunications market. In particular, carrier pre-selection for
all calls (except for some special categories) was launched in 2001 which may
increase the appeal of indirect access operators, whose discounted call charges
may undercut us.
We also compete with mobile networks. This technology may grow to become a
competitive threat to our networks, particularly if call charges are reduced
further on the mobile networks. Our tower services group may enable us to
benefit from the growth in this technology. There can be no assurance, however,
that we will be able to compete successfully with such telecommunications
operators.
We believe that we have a competitive advantage in the residential market
because we offer integrated telephone, cable television, telecommunications
services (including Internet, interactive and on-line services) and
multi-product packages designed to encourage customers to subscribe to multiple
services. However, there can be no assurance that this competitive advantage
will continue. Indeed, BT and all other operators have been permitted to provide
and convey cable television services throughout the UK from January 1, 2001, and
exclusive franchises will no longer be awarded.
British Sky Broadcasting Limited, or BSkyB, currently markets
telecommunications services on an indirect access basis, which requires the
customer to dial additional digits before entering the primary telephone number,
thus diverting calls onto another operator's network.
Our cable television systems compete with direct reception over-the-air
terrestrial broadcast television, DTH satellite services (i.e., BSkyB) and
satellite master antenna systems. In addition, pay television and pay-per-view
services offered by us compete to varying degrees with other communications and
entertainment media, including home video, cinema exhibition of feature films,
live theater and newly emerging multimedia services. We expect that, in the
future, we may face competition from programming provided by video-on-demand
services.
BUSINESS TELECOMMUNICATIONS
BT and Cable & Wireless are our principal competitors in providing business
telecommunications services. In the future, we may compete with additional
entrants to the business telecommunications market. Competition is based on
price, range and quality of services, and we expect price competition to
intensify if existing and other new market entrants compete aggressively. Most
of these competitors have substantial resources and there can be no assurance
that these or other competitors will not expand their businesses in our
21
existing markets or that we will be able to continue to compete successfully
with such competitors in the business telecommunications market.
BROADCAST TRANSMISSION AND TOWER SERVICES
Crown Castle UK Ltd, a subsidiary of Crown Castle International Corp., is
NTL's primary competition in the terrestrial broadcast transmission market in
the UK. Crown provides analog transmission services to the BBC and digital
transmission services to both the BBC and ITVDigital. Crown has diversified from
its core television broadcasting business using its transmission infrastructure
to enter into the radio transmission and telecommunications sectors.
Although Crown is our direct competitor, we each have reciprocal rights to
use each other's sites for broadcast transmission usage in order to enable each
of us to achieve the necessary country-wide coverage. This relationship is
formalized by the site-sharing agreement entered into in 1991 when those towers
were privatized.
Crown also offers site rental on a significant number of its sites (some of
which are managed on behalf of third parties). Like us, Crown offers a full
range of site-related services to its customers, including installation and
maintenance. In November 2000, Crown entered into an agreement with BT to
deliver roof space and grounds at an initial 4,000 BT exchange sites around the
UK. We believe our towers to be at least as well situated as Crown's and that we
will be able to continue expanding our own third-party site-sharing penetration.
All four UK mobile operators own site infrastructure and lease space to
other users. Their openness to sharing with direct competitors varies by
operator. BT Cellnet (now called mm0(2)) and Vodafone have agreed to cut site
costs by jointly developing and acquiring sites in the Scottish Highlands. BT
and Cable & Wireless are both major site-sharing customers but also compete by
leasing their own sites to third parties. BT's position in the market is even
larger when considered in combination with its interest in mm0(2).
Several other companies compete in the market for site rental. These
include British Gas, Racal Network Systems, Aerial Sites Plc, Relcom Aerial
Services and the Royal Automobile Club. Some companies own sites initially
developed for their own networks, while others are developing sites specifically
to exploit this market.
REGULATION
Telecommunications service industries in the UK are governed by legislation
under the Telecommunications Act 1984, the Broadcasting Act 1990, and the
Broadcasting Act 1996. The operator of a full-service telecommunications system
in the UK requires the following two principal non-exclusive licenses:
- a telecommunications license, granted under the Telecommunications Act by
the Secretary of State and supervised by the Department of Trade and
Industry, or DTI, and OFTEL, which authorizes the installation and
operation of the telecommunications network used to provide cable
television and cable telephone services; and
- a cable television license granted under the Broadcasting Act and
supervised by the Secretary of State and the Independent Television
Commission, or ITC, which authorizes the provision of broadcasting
services.
Each type of license described above contains various conditions, and in
the event of the breach of such conditions, the Director General of
Telecommunications (the head of OFTEL) or the ITC, as appropriate, could issue
an enforcement order and ultimately commence proceedings to require compliance
or to revoke such licenses.
PRICE REGULATION
BT is currently subject to controls over the prices it may charge
customers. In particular, BT may not increase charges for certain services by
more than the amount of the percentage change in the retail price
22
index. In Autumn 1999, OFTEL began the process of examining what price controls,
if any, should apply to BT after 2001. In February 2001, OFTEL announced that
current retail price controls would be extended until July 2002 with a roll over
provision for a further year. In January 2002, OFTEL issued a new consultation
setting out proposals for the progressive removal of price controls along with
certain new measures to stimulate further retail competition.
NTL is not subject to the same scrutiny and control by OFTEL of its retail
telephone prices as BT, given its non-dominant status in the market. However,
NTL is subject to prohibitions on undue preference and undue discrimination in
its cable television pricing. NTL is also required to publish its standard
prices, terms and conditions for cable television services.
NUMBER PORTABILITY
The European Union agreed in 1998 to a revision to the Interconnection
Directive that made it a requirement for Member States to mandate number
portability. Implementing regulations came into force on January 19, 2000
requiring that number portability should be provided on request to all customers
switching between different operators and providers of fixed telecommunications
services. NTL has a process in place to comply with its existing obligations and
it is now in the process of negotiating more service establishment arrangements
with other operators.
LOCAL LOOP UNBUNDLING
In November 1999, an OFTEL policy statement mandated the unbundling of BT's
local loop to rival providers, enabling them to offer a range of higher
bandwidth services using Digital Subscriber Line (DSL) technology. On August 8,
2000, conditions in BT's license were brought into force setting out the
requirements under which BT must provide services necessary for local loop
unbundling. OFTEL published the wholesale prices for BT's unbundled local loops
on December 2000 and prices for shared access were published in 2001 although
discussions continue as to the appropriate wholesale charges. In addition, BT is
currently rolling out ADSL over its own network. ADSL will allow consumers
access to high speed information services. In practice, few companies have taken
up the LLU option.
In February 2002, BT announced reductions in its wholesale charges to ISPs
(including its own tied ISP) for wholesale ADSL services. These reductions will
lead to commensurate reductions in retail rates.
INTERCONNECTION
NTL Group Ltd. and National Transcommunications Limited have Annex II
status giving them rights of interconnection at wholesale rates to other
operators with similar status.
OPEN ACCESS TO CABLE INFRASTRUCTURE
In April 2000, OFTEL issued a public consultation document on regulated
access to cable infrastructure ("open access"). The preliminary conclusion
reached by OFTEL was that no case existed for mandating open access to cable
infrastructure at that time.
BSKYB
In December 2000, the Office of Fair Trading (OFT) announced that it was
commencing an investigation under the UK Competition Act into BSkyB's
activities, in particular the wholesale prices offered to rival distributors of
pay television services. This investigation is ongoing. In December 2001, the
OFT announced its preliminary finding that BSkyB had been abusing its market
power through its pricing practices. The OFT also said that it was aiming to
complete the investigation into BSkyB's pricing by summer 2002.
In addition, in February 2002, the OFT announced that it had decided not to
give a decision on whether an agreement entered into by us with BSkyB for the
carriage of programming at discounted rates, notice of which was given to the
OFT in October 2000, was anti-competitive. The OFT's investigation into BSkyB's
behavior continues.
23
COMPETITION ACT 1998
The Competition Act, which came into force in March 2000, introduced a
prohibition on the abuse of a dominant position and on anti-competitive
agreements and introduced third party rights, stronger investigative powers,
interim measures and effective enforcement powers (including fines of up to 10%
of UK turnover). The Competition Act enables third parties to bring enforcement
actions directly against telecommunications operators who are in breach of the
prohibitions and seek damages, rather than have to wait for the Director General
of Telecommunications to make an enforcement order.
In February 2000, OFTEL issued specific guidance on the application of the
Competition Act in the telecommunications sector. This guidance states that
OFTEL would follow closely the general principles of competition law in its
application of the new prohibitions. In addition, the regulators must not reach
decisions which are inconsistent with EC law.
MOBILE PHONE TERMINATION CHARGES
On December 12, 2001, OFTEL announced that it had referred to the
Competition Commission its proposal to impose a cap on the amount mobile phone
operators can charge for receiving calls on their networks. OFTEL's conclusion
was that mobile termination rates were substantially in excess of cost and that
there was little incentive for operators to reduce the charges. Accordingly,
OFTEL has proposed a charge cap on future termination rates of RPI (12)% over
four years.
The Competition Commission has six months to reach a decision, which can be
extended for a further six months.
BROADCAST SERVICES
A portion of our total revenue is attributable to the provision of
television and radio transmission and distribution services. In the UK, the
provision of such services is governed by the Telecommunications Act 1984 and
the Wireless Telegraphy Act 1949.
TELECOMMUNICATIONS ACT AND BROADCASTING ACT LICENSES
NTL's licenses contain conditions and provisions which, among other things:
- require us to publish our 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;
- impose on us an obligation to share our transmission sites with other
transmission operators;
- restrict the prices which we are allowed to charge for the provision of
some services;
- prohibit us from cross-subsidizing the unregulated side of our business;
and
- impose a requirement for separate accounts to be produced in relation to
both the regulated and unregulated parts of our business. However, we are
not obliged to do anything "not reasonably practicable."
PRICE CAP REVIEW
Our regulated business may be divided into two categories: Price Regulated
Business and Applicable Rate Business. Price Regulated Business comprises those
telecommunication services which we are obliged to provide pursuant to our
Transmission License and in respect of which price controls are imposed. Our
Applicable Rate Business comprises those telecommunications services which we
are obliged to provide but which do not fall within the definition of Price
Regulated Business. Charges for Applicable Rate Business are agreed between us
and the relevant customer. If despite all reasonable efforts an agreement cannot
be reached between us and a significant proportion of our customers in respect
of any particular telecommunications service, the charge will be determined by
the Director General.
24
In respect of any services provided by us which are not Price Regulated
Business or Applicable Rate Business, our prices 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 persons
in respect of telecommunications services. Our unregulated income would include,
for example, charges for site rentals to PCN operators.
Our Price Regulated Business consists of 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 of Telecommunications issued the
formal modification to our Telecommunications Act Licenses to effect the price
controls which are to apply to us for the period from January 1, 1997 to
December 31, 2002. The Price Cap Review had two purposes: (1) to establish a new
"P0" (allowable revenues for the first year of the next control period, 1997, in
respect of our 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 assumptions at the time (1996), the new P0 was (UK Pound)
53.4 million and the new X was 4.0%.
EUROPEAN UNION LEGISLATION
Our business is further regulated by the EU under various European
Commission Directives. In February 2002, the European Union Commission adopted a
package of legislative measures which set out a new framework for electronic
communication and ensures that the legislation is more technology neutral. The
proposed new framework consists of five harmonization Directives, including a
framework Directive and four specific Directives on authorization, access and
interconnection, universal service and users' rights, and data protection in
telecommunications services, a Regulation on unbundling the local loop, a draft
liberalization Directive and a decision on Community radio spectrum policy.
COMMUNICATIONS BILL
A White Paper issued in December 2000 -- A New Future for
Communications -- proposed the creation of a new body 'OFCOM' to regulate the
communications industry. This will merge the functions of, among others, OFTEL,
the Radiocommunications Agency and ITC and it is intended that it will provide a
more flexible framework for regulating a converging industry.
Our operations in Switzerland as well as the operations of companies in
which we hold a minority interest in France, Germany and Sweden are also subject
to regulation by the governments of the countries in which they operate.
RESEARCH AND DEVELOPMENT
Our research and development activities involve the analysis of
technological developments affecting our 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
We do not have any material patents or copyrights nor do we believe that
patents play a material role in our business. We are substantially dependent on
the licenses and franchises granted by the legislative agencies which regulate
our respective businesses. The loss of any one or more of our licenses or
franchises could have a material adverse effect on our business and financial
condition.
25
CUSTOMERS
Except for our broadcast services business, no material part of our
business is dependent upon a single customer or a few customers, the loss of any
one or more of which would have a materially adverse effect on us. The broadcast
services business is, however, substantially dependent on the revenues it
receives pursuant to its contracts with the ITV companies, Channel 4/S4C,
Channel 5 in the UK, ABC and SBS in Australia, the loss of one or more of which
may have a material adverse effect on the broadcast services business.
EMPLOYEES
At December 31, 2001, we had approximately 19,200 employees, approximately
16,900 of whom are permanent and approximately 2,300 of whom are temporary or
contract employees. We believe that our relationship with our employees is good.
ITEM 2. PROPERTIES.
UK AND IRELAND
In the UK and Ireland, we own, lease or occupy under license 126 business
unit and regional offices, our corporate head offices in each of Hook and
Dublin, and 9 retail shops. In addition, we own or lease approximately 655
switching centers/head-ends and operational hub-sites together with warehouses
and other non-operational properties, as well as various cable television,
telephone and telecommunications equipment housed on public and private sites.
In addition, in the UK, for the purposes of our site leasing and broadcast
transmission businesses, we own, lease, contract to lease, or occupy under
license approximately 1,370 properties. For these businesses, we also are the
licensee of approximately 680 transmitter sites which are owned by Castle
Transmission and shared between the two organizations pursuant to a site sharing
agreement.
SWITZERLAND
In Switzerland, we own or lease 51 offices, our corporate head-offices in
Zurich, and 43 retail shops. In addition, we own or lease approximately 450
network sites together with warehouses and other non-operational properties, as
well as various cable television, telephone and telecommunications equipment
housed on public and private sites.
OTHER
We maintain offices under lease for our corporate staff in New York City,
as well as offices for our ntl: broadcast staff based in the Far East. We
believe that our facilities are presently adequate for their current use.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in, or have been involved in, certain disputes and
litigation arising in the ordinary course of business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from the construction of our networks and the maintenance and
servicing of our transmission masts, none of which are expected to have a
material adverse effect on our financial position or results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters that were submitted to a vote of NTL stockholders
during the quarter ended December 31, 2001.
26
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
On March 28, 2002, the New York Stock Exchange announced that it was
suspending our common stock from trading on the NYSE and that it intended to
apply to the SEC to delist our common stock following this suspension. This
determination was based upon, among other things, the selling price for our
common stock, which closed at $0.20 on March 26, 2002. The continued listing
standards of the NYSE require maintenance of a minimum share price of $1 over a
30 trading day period and average global market capitalization of $100 million
over a 30 trading day period. Our common stock fell below both of these
continued listing standards. We have a right to a review of the NYSE staff's
decision in a hearing before a Committee of the Board of Directors of the NYSE.
We are pursuing that right but there can be no assurance that we will be
successful. Our common stock is currently quoted on the Over the Counter
Bulletin Board under the symbol "NTLD" and continues to trade on NASDAQ EUROPE
under the symbol "NTLI".
On October 27, 2000, our common stock began trading on the New York Stock
Exchange under the symbol "NLI". Concurrently with the NYSE listing, we withdrew
our listing on the Nasdaq Stock Market's National Market where our common stock
had been trading under the symbol "NTLI". The following table sets forth, for
the periods indicated, the high and low last sale prices as reported on the
Nasdaq Stock Market's National Market until October 26, 2000 and on the NYSE
until March 26, 2002. The information set forth below gives retroactive effect
to the 5-for-4 stock split in February 2000.
<Table>
<Caption>
LAST SALE PRICE
----------------
HIGH LOW
------- ------
2000
First Quarter............................................. $109.10 $82.00
Second Quarter............................................ 91.50 53.00
Third Quarter............................................. 59.88 39.19
Fourth Quarter............................................ 49.25 21.81
2001
First Quarter............................................. 39.20 22.75
Second Quarter............................................ 32.40 11.69
Third Quarter............................................. 13.79 2.00
Fourth Quarter............................................ 4.55 0.62
2002
First Quarter (through March 26, 2002).................... 0.98 0.17
</Table>
On March 26, 2002, the closing sale price for our common stock, as reported
on the NYSE was $0.20. As of March 26, 2002, there were 5,693 record holders of
our common stock. This figure does not reflect beneficial ownership of shares
held in nominee name.
We have never paid cash dividends on our common stock. Currently, we do not
have available surplus under Delaware law. Under Delaware law, a Delaware
corporation cannot, among other things, pay dividends on its capital stock
unless it has available surplus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources". In addition, the certificates of designation governing our preferred
stock limit our ability to pay dividends on our equity securities and there are
legal and contractual restrictions on the ability of our subsidiaries to
transfer funds to us in the form of cash dividends, loans or advances, including
those contained in our subsidiaries' indentures and credit agreements. We do not
currently anticipate paying cash dividends in the foreseeable future on shares
of our capital stock. We anticipate that for the foreseeable future any cash
flow generated from our subsidiaries' operations will be used for debt service.
Any future determination as to the payment of dividends will be at the
discretion of our Board of Directors and will depend upon our operating results,
financial condition and capital requirements,
27
indenture and other contractual restrictions, general business conditions and
such other factors as our Board of Directors deems relevant. There can be no
assurance that we will pay dividends at any time in the future.
SALES OF UNREGISTERED SECURITIES
In addition to the issuance on May 18, 2001 of 47,218 shares of our
Variable Coupon Redeemable Preferred Stock, Series A and 12,194 shares of 6.5%
Fixed Coupon Redeemable Preferred Stock to France Telecom in exchange for a 27%
interest in Noos, we issued the following unregistered securities:
In June 2001, in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act, the Company and NTL (Delaware), Inc., as
co-issuers, issued $100.0 million aggregate principal amount of 5 3/4%
Convertible Subordinated Notes due June 22, 2011 to GE Capital and received
proceeds of approximately $95.9 million. Interest is payable quarterly in cash
at a rate of 5 3/4% per annum beginning on October 15, 2001. These notes are
convertible into shares of our common stock at the option of the holder at an
initial conversion price of $35.00 per share, subject to adjustment. After
December 22, 2007, the notes are redeemable, in whole or from time to time in
part, at NTL (Delaware), Inc.'s or our option. Proceeds raised from the issuance
were used to reduce commitments under the UK working capital facility, finance
construction, capital expenditure, working capital requirements and for general
corporate purposes.
In May 2001, in reliance on the exemptions from registration provided by
Section 4(2) and Rule 144A of the Securities Act, NTL Communications, our wholly
owned indirect subsidiary, issued $1,150.0 million aggregate principal amount of
6 3/4% Convertible Senior Notes due May 15, 2008 to qualified institutional
buyers. NTL Communications received proceeds of approximately $1,114.8 million
after placement agents' commissions and other fees. Interest is payable
semiannually in cash at a rate of 6 3/4% per annum beginning on November 15,
2001. These notes are convertible into shares of our common stock at the option
of the holder after August 13, 2001 at a conversion price of $32.728 per share.
After May 20, 2004, the notes are redeemable, in whole or from time to time in
part, at NTL Communications' and our option. We are a co-obligor of the notes on
a subordinated basis. Proceeds raised from the issuance were used to reduce
commitments under the UK working capital facility, finance construction, capital
expenditure, working capital requirements and for general corporate purposes.
On September 12, 2001, in reliance on the exemption from registration
provided by Section 3(a)(9) of the Securities Act, we issued 1,850,000 shares of
our Cumulative Convertible Preferred Stock, Series A in exchange for the
1,850,000 issued and outstanding shares of our 5% Cumulative Preferred Stock
held by France Telecom and others. The Convertible Preferred Stock has a stated
value and liquidation preference of $1,075.17 per share and is mandatorily
redeemable for cash by us on March 27, 2009. Dividends are payable quarterly in
additional shares of Convertible Preferred Stock, at the following quarterly
dividend rates: (i) from September 12, 2001 through March 26, 2002, $13.44 per
share, (ii) from March 27, 2002 through March 26, 2003, $21.23 per share and
(iii) from March 27, 2003 through March 26, 2004, $26.61 per share. Once the
Convertibility Date (as defined below) is set, the quarterly dividend rate
resets to $16.12 per share and the Convertible Preferred Stock becomes eligible
for conversion into shares of our common stock beginning on a "Convertibility
Date," at which time the conversion price is set at 125% of the immediately
preceding 25 trading day volume-weighted average price of our common stock (the
"Convertibility Base Price"). The Convertibility Date is as follows: March 27,
2002, unless we elect to delay convertibility until March 27, 2003 or,
alternatively, redeem, at our option, all shares of the Convertible Preferred
Stock on March 27, 2002 in cash; if we have delayed, March 27, 2003, unless we
elect again to delay convertibility until March 27, 2004, which we may only do
if the Convertibility Base Price would be less than or equal to $65.00 per share
(as may be adjusted for certain dilutive events); we may also elect, instead, to
redeem all shares of the Convertible Preferred Stock on March 27, 2003 in cash;
if we have delayed, March 27, 2004, unless we elect to redeem all shares of the
Convertible Preferred Stock on March 27, 2004 in cash. In no event will the
Convertibility Date be after March 27, 2004. We elected in March 2002 to delay
convertibility until at least March 27, 2003. Holders of Convertible Preferred
Stock other than any commercial bank or their affiliates may at any time elect,
subject to some conditions, to exchange their Convertible Preferred Stock for up
to 50% interest in an entity holding our Swiss operations.
28
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain financial data for the years ended
December 31, 2001, 2000, 1999, 1998 and 1997. This information should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-K.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2001(1) 2000(2) 1999(3) 1998(4) 1997
---------- --------- -------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Income statement data:
Operating revenues..................... $ 3,699.2 $ 2,840.8 $1,584.1 $ 747.0 $ 491.8
(Loss) before extraordinary item....... (14,241.3) (2,963.7) (732.7) (503.9) (328.6)
Net (loss)............................. (14,241.3) (2,963.7) (735.7) (534.6) (333.1)
Basic and diluted net (loss) per common
share:
(Loss) per common share before
extraordinary item(5)............... (52.78) (14.54) (6.75) (8.12) (6.79)
Net (loss) per common share(5)......... (52.78) (14.54) (6.78) (8.60) (6.88)
Weighted average number of common
shares used in the computation of
basic and diluted net loss per
common share(5)..................... 276.0 217.1 119.4 64.4 50.2
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
--------------------------------------------------------
2001(1) 2000(2) 1999(3) 1998(4) 1997
---------- --------- --------- -------- --------
Working capital (deficiency)........... $(18,510.6) $ (849.1) $ 2,261.4 $ 600.5 $ (52.3)
Fixed assets, net...................... 12,573.3 12,693.0 5,597.7 3,854.4 1,757.0
Total assets........................... 16,834.2 28,383.7 12,211.6 6,194.1 2,421.6
Long-term debt......................... 102.3 15,044.1 8,798.0 5,043.8 2,015.1
Redeemable preferred stock............. 2,773.7 2,083.2 141.8 124.1 108.5
Shareholders' equity (deficiency)...... (6,542.4) 8,367.4 2,136.9 355.2 (61.7)
</Table>
- ---------------
(1) As of December 31, 2001, primarily all of the Company's debt has been
classified as current due to the uncertainties about compliance with the
terms and conditions of the Company's debt that would give the holders of
the debt the right to accelerate payment. In the fourth quarter of 2001, the
Company recorded asset impairments totaling $9,511.3 million including
goodwill of $8,840.5 million, license acquisition costs of $58.8 million,
customer lists of $9.1 million, other intangibles of $14.9 million,
investments in affiliates of $463.7 million and other assets of $124.3
million. In addition, in 2001, the Company recorded restructuring costs of
$209.6 million, integration and consulting costs of $102.1 million and
losses on the 1G transaction and the sale of the ConsumerCo off-net indirect
access customers of $147.4 million.
(2) In March 2000, the Company purchased Cablecom for an aggregate purchase
price of $3,528.7 million, including intangibles of $2,355.3 million. In May
2000, the Company purchased ConsumerCo for an aggregate purchase price of
$13,111.0 million, including intangibles of $8,879.0 million. The net assets
and results of operations of Cablecom and ConsumerCo are included in the
consolidated financial statements from their respective dates of
acquisition.
(3) In March 1999, the Company purchased Diamond for an aggregate purchase price
of $984.6 million, including intangibles aggregating $1,323.0 million. In
April 1999, the Company purchased the Australian National Transmission
Network for an aggregate purchase price of $425.8 million, including
intangibles of $220.6 million. In July 1999, the Company acquired Cablelink
for an aggregate purchase price of $700.5 million, including intangibles of
$669.6 million. In August and December 1999, the Company acquired the 1G
Networks of France Telecom for an aggregate purchase price of $61.9 million,
including intangibles of $64.7 million. In September 1999, the Company
acquired the shares of Workplace Technologies plc, for an aggregate purchase
price of $175.0 million, including intangibles of $176.9 mil-
29
lion. The net assets and results of operations of Diamond, the Australia
National Transmission Network, Cablelink, the 1G Networks and Workplace
Technologies are included in the consolidated financial statements from
their respective dates of acquisition.
(4) In June and September 1998, the Company purchased ComTel for an aggregate
purchase price of $969 million, including intangibles aggregating $224
million. In October 1998, the Company purchased Comcast UK for an aggregate
purchase price of $600 million, including intangibles of $130 million. In
December 1998, the Company purchased EGT for an aggregate purchase price of
$151 million, including intangibles of $45 million. The net assets and
results of operations of ComTel, Comcast UK and EGT are included in the
consolidated financial statements from their respective dates of
acquisition.
(5) After giving retroactive effect to the five-for-four stock split by way of
stock dividend paid in October 1999 and the five-for-four stock split by way
of stock dividend paid in February 2000.
The Company did not declare or pay any cash dividends during the years
indicated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
RECAPITALIZATION PROCESS AND ABILITY TO CONTINUE OPERATIONS
The Company historically incurred operating losses and negative operating
cash flow. In addition, the Company required significant amounts of capital to
finance construction of its networks, connection of customers to the networks,
other capital expenditures and for working capital needs including debt service
requirements. The Company historically met these liquidity requirements through
cash flow from operations, amounts available under its credit facilities, vendor
financing and issuances of high-yield debt securities and convertible debt
securities in the capital markets and convertible preferred stock and common
stock to strategic investors. Both the equity and debt capital markets have
recently experienced periods of significant volatility, particularly for
securities issued by telecommunications and technology companies. The ability of
telecommunications companies to access those markets as well as their ability to
obtain financing provided by bank lenders and equipment suppliers has become
more restricted and financing costs have increased. During some recent periods,
the capital markets have been largely unavailable to new issues of securities by
telecommunications companies. The Company's public equity is no longer trading
on the New York Stock Exchange, and its debt securities are trading at or near
all time lows. These factors, together with the Company's substantial leverage,
means the Company does not currently have access to its historic sources of
capital.
In addition, the Company's UK credit facilities are fully drawn and the
Company's Swiss subsidiaries are currently unable to draw the remaining undrawn
amounts under the Cablecom credit facility. NTL Communications Corp., a
wholly-owned indirect subsidiary of the Company, did not pay cash interest on
certain series of its notes that was due on April 1, 2002 and April 15, 2002.
NTL Incorporated and NTL (Delaware), Inc. also did not pay cash interest and
related fees on a series of their notes that was due on April 15, 2002. As of
December 31, 2001, the Company had approximately $505 million in cash and cash
equivalents on hand and, on April 4, 2002, received approximately $303 million
net cash proceeds from the sale of its Australian business. The Company will
require cash for working capital and capital expenditures in 2002. If the
Company and its subsidiaries make scheduled and overdue interest payments on
their notes, then the Company will not have sufficient cash resources to meet
its liquidity needs through the third quarter of 2002.
These liquidity concerns raise substantial doubt about the Company's
ability to continue as a going concern. As a consequence, the Company needs to
restructure its outstanding debt and/or raise new funds through the issuance of
equity or additional debt.
On January 31, 2002 we announced that we had appointed Credit Suisse First
Boston, JP Morgan and Morgan Stanley to advise on strategic and recapitalization
alternatives to strengthen our balance sheet and reduce debt and put an
appropriate capital structure in place for our business. Since then, we have
been
30
evaluating various recapitalization alternatives to effect a comprehensive
consensual reorganization in a timely manner to minimize negative effects on our
business operations.
On April 16, 2002 the Company announced that the Company and an unofficial
committee of its public bondholders had reached an agreement in principle on a
comprehensive recapitalization of the Company. The members of the committee hold
in the aggregate over 50% of the face value of NTL and its subsidiaries' public
bonds. The recapitalization would result in a conversion of approximately $10.6
billion in debt into equity.
During the recapitalization process, it is anticipated that NTL's
operations will continue uninterrupted, customer service will be unaffected,
suppliers will be paid in the ordinary course and NTL's management will remain
in place.
To implement the proposed recapitalization, NTL Incorporated, NTL
(Delaware), Inc., NTL Communications Corp., Diamond Cable Communications Limited
and Diamond Holdings Limited would file a pre-negotiated recapitalization plan
in a Chapter 11 case under the U.S. Bankruptcy Code. NTL's operating
subsidiaries would not be included in the Chapter 11 filing. The agreement in
principle is subject to various conditions, including mutually acceptable terms
with the Company's bank lenders. The recapitalization transaction contemplates
that the bank debt will remain in place as part of the recapitalization.
To facilitate the recapitalization, certain members of the unofficial
committee of bondholders would commit to provide up to $500 million of new debt
financing to the Company's UK and Ireland operations during the Chapter 11
process and for the post-recapitalized Company. The new financing will ensure
that the Company's business operations have access to sufficient liquidity to
continue ordinary operations.
Under the agreement in principle, NTL would be split into two companies,
one tentatively called NTL UK and Ireland and holding all of its UK and Ireland
assets, and one tentatively called NTL Euroco and holding certain of its
continental European and other assets.
Holders of notes of NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp. and Diamond Cable Communications Limited would in the
aggregate receive 100% of the initial common stock of NTL UK and Ireland and
approximately 86.5% of the initial common stock of NTL Euroco. NTL (Delaware),
Inc. bondholders would have the option to reinvest all or a portion of NTL
(Delaware), Inc. cash in additional shares of NTL common stock, or to receive
such cash in the recapitalization. Notes of the Company's subsidiaries Diamond
Holdings Limited and NTL (Triangle) LLC would remain outstanding and will be
kept current in interest payments. Current preferred and common stockholders,
including France Telecom, would participate in a package of rights (to be priced
at a $10.5 billion enterprise value) and warrants entitling them to purchase
primary common stock of NTL UK and Ireland at the consummation of the proposed
plan, in the case of the rights, and for the duration of the eight-year warrants
at prescribed prices. If fully exercised, those rights and warrants would
entitle the current preferred stockholders to acquire approximately 23.6% and
the current common stockholders to acquire approximately 8.9% of the entity's
primary common stock.
Current preferred stockholders other than France Telecom, would receive
approximately 3.2% and current common stockholders, other than France Telecom,
would receive approximately 10.3% of the primary equity of NTL Euroco. It is
contemplated that, subject to the consummation of the recapitalization, France
Telecom would also receive our 27% interest in Noos, pursuant to a pledge of
such interests to France Telecom given at the time of its acquisition.
During the recapitalization process, the Company has maintained normal and
regular trade terms with its suppliers and customers. There can be no assurance
that the Company's suppliers will continue to provide normal trade credit or
credit on acceptable terms, if at all, or that customers will continue to do
business or enter into new business with the Company. See also "Risk Factors"
for a summary of risks related to the Company's business in general and the
recapitalization process in particular.
31
BANK WAIVERS
Before the Company could commence negotiations with the unofficial
committee of bondholders, it was necessary to obtain waivers from the lenders
under our credit facilities. Effective March 8, 2002, these lenders granted
waivers which, until March 29, 2002, provided that the commencement of
negotiations with bondholders with a view to rescheduling its debt would not
constitute an event of default under the credit facilities.
But for the initial waivers, the commencement of negotiations with
bondholders would have been an event of default under the credit facilities. If
an event of default were to occur, it would entitle the lenders under the credit
facilities to declare the principal amount of the outstanding debt immediately
due and payable. If this right was exercised, it would result in an event of
default under all of the Company's outstanding notes, except for those issued by
Diamond Cable Communications, Diamond Holdings and NTL Triangle, entitling the
trustee or 25% of the holders of a series to accelerate the repayment of that
series of notes. We do not have sufficient cash resources to repay our
outstanding indebtedness if it is declared immediately due and payable.
In connection with the granting of the initial waivers, the Company agreed:
- to provide the lenders with a 13 week rolling cash flow projection
(updated every two weeks);
- to keep the lenders informed of, and to provide documents in connection
with, negotiations with bondholders or strategic investors or concerning
proposed asset dispositions;
- not to repurchase NTL notes; and
- not to make an exchange offer for NTL notes or enter into an agreement
with NTL bondholders, subject to some exceptions, without the consent of
the lenders.
Effective March 28, 2002, the lenders under the credit facilities agreed to
amend the initial waivers. The amendments to the initial waivers extend the
duration of the initial waivers to April 30, 2002 in the case of the UK credit
facilities or May 14, 2002 in the case of the Cablecom facility, unless the
missed interest payments on April 1, 2002 are remedied or a sufficient number of
bondholders agree to forbear in respect of such non-payment, in which case, the
UK credit facilities waivers will be extended to May 14, 2002. As a condition to
the waivers continuing effectiveness, the UK lenders required NTL Delaware to
loan L90 million to NTL (UK) Group, Inc. following receipt of the proceeds from
the sale of NTL Australia. This loan is structurally senior to the outstanding
public notes issued by NTL Communications Corp. but contractually subordinated
to the UK credit facilities. In connection with the amendments to the waivers,
we affirmed the provisions of the initial waivers and in addition, we agreed,
among other things, to:
- provide the bank lenders a timeline setting forth the steps proposed to
be taken in connection with the recapitalization and the dates by which
such steps are to be taken;
- use reasonable endeavors to consider with the lenders under the Cablecom
credit facility possible means of credit enhancement;
- provide the lenders under the Cablecom credit facility, by April 12,
2002, with an updated structure chart of NTL as well as a contingency
business plan for Cablecom in the event that sufficient additional
funding for Cablecom is not obtained; and
- pay legal, accounting and other advisory fees of the agent or
coordinators of the Cablecom credit facility.
The amended waivers prevent us from making an exchange offer with respect
to our outstanding notes or from entering into an agreement with bondholders
without the consent of the lenders under each of the credit facilities. The
amended waivers also prohibit us from commencing voluntary dissolution
proceedings, including proceedings under Chapter 11 of the U.S. bankruptcy code,
without the consent of these lenders. Copies of the waivers are filed as
exhibits to this Form 10-K.
32
As a consequence, we cannot enter into a binding agreement with the
unofficial bondholder committee or implement the proposed plan without the
consent of our bank lenders.
Cablecom GmbH is the principal trading company of our Swiss group. There
are a number of technical defaults under the Swiss credit facility made
available to Cablecom and various of its subsidiaries. In addition, as of
December 31, 2001, Cablecom's and various of its subsidiaries' liabilities
exceeded their respective assets. As a consequence, under Swiss law, those
entities were deemed to be "overindebted". This also constituted an event of
default under the Cablecom credit facility which entitles the lenders to
accelerate repayment. Such an acceleration would result in an event of default
under NTL Incorporated's and NTL Delaware's 5.75% convertible subordinated notes
due 2011 and 5.75% convertible subordinated notes due 2009 entitling the trustee
or the holders of 25% of each series of notes to accelerate repayment. Under
Swiss law, unless the overindebtedness is rectified those entities would be
required to commence an insolvency proceeding in Switzerland. A plan has been
formulated to rectify this overindebtedness. Implementation of this plan prior
to April 30, 2002 will mean those entities will not be required to commence an
insolvency proceeding. Those proceedings would likely either be a court
supervised moratorium in which an independent administrator, or commissioner,
would be appointed to supervise the running of each company during a
restructuring or, if there is no viable restructuring plan, a bankruptcy. The
commencement of those insolvency proceedings would also constitute an immediate
event of default and acceleration of the maturity of the convertible
subordinated notes referred to above.
We are currently in discussions with the lenders under the Swiss credit
facility regarding proposals to resolve the overindebtedness issue as well as
requesting that they waive various additional covenant breaches under the credit
facility. There can be no assurance that we will reach agreement on the
resolution of the overindebtedness issue within the time period required or
obtain the requested waivers.
INTEREST PAYMENTS ON PUBLIC NOTES
The Company and its subsidiaries have substantial interest payment
obligations under their existing indebtedness. NTL Communications Corp. did not
make scheduled interest payments due April 1, 2002, in the aggregate amount of
$74.3 million, in respect of its 9 1/2% notes due 2008, 11 1/2% notes due 2008
and 11 7/8% notes due 2010. In addition, NTL Communications did not make
interest payments falling due on April 15, 2002, totaling $20.2 million, in
respect of the 12 3/4% Senior Deferred Coupon Notes due 2005 and NTL
Incorporated and NTL Delaware did not make interest payments and payment of
related fees falling due on April 15, 2002 in respect of their 5 3/4%
Convertible Subordinated Notes due 2011. Those payments were not made after
consideration by the Company of requests by the unofficial bondholder committee
not to make those payments. Interest payments of $18.9 million were made, when
due, on April 2, 2002 in respect of Diamond Cable Communications 13.25% senior
discount notes due 2004. On May 15, 2002, interest totaling $94.0 million is due
on outstanding notes of NTL Triangle and NTL Communications.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires (on April 30, 2002 in the case of the missed interest
payments due April 1, 2002), there is an event of default under the indenture in
respect of the notes on which the interest is due and unpaid. An event of
default entitles the trustee under the indenture or the holders of 25% of the
outstanding notes to declare the principal amount of those notes to be
immediately due and payable. Even if the maturity of those notes is not
accelerated after April 30, 2002, such an event of default would also result in
an event of default in respect of other debt (commonly called cross defaults)
under all of our other notes, except for those issued by NTL Triangle, Diamond
Cable Communications or Diamond Holdings. As a result, upon the expiration of
the grace period, on April 30, 2002, events of default for failure to pay
interest would occur under the relevant indentures at NTL Communications and,
contemporaneously, cross defaults would occur under the Company's other
indentures at NTL Communications, NTL Delaware, NTL Incorporated and under our
Senior Credit Facility and Working Capital Facility and could occur under the
Cablecom Facility. This would give holders of the outstanding series of debt at
these entities the right to accelerate repayment of those debts by declaring the
principal amount of the debts to be immediately due and payable unless we obtain
waivers or forbearance agreements from sufficient percentages of our creditors.
If that right to accelerate was exercised, we would not have sufficient cash
resources to repay those debts, which could ultimately lead to voluntary or
involuntary
33
bankruptcy proceedings relating to the entities so affected. In addition, the
lenders under the Company's UK credit facilities have security over the assets
of the Company's UK operating subsidiaries, except for the Diamond and Triangle
groups of companies. In the event that there was an event of default under those
facilities, the lenders could seek to take control of those assets under
applicable UK insolvency law.
INABILITY TO PAY DIVIDENDS ON OR REDEEM PREFERRED STOCK
On February 4, 2002, the Company announced that it would not declare or pay
dividends on its 13% Senior Redeemable Exchangeable Preferred Stock. The Company
did not make the dividend payments due on February 15, 2002 of $6.0 million in
respect of the 13% preferred stock. In addition, the Company did not pay
dividends on its 5% cumulative participating convertible preferred stock held by
France Telecom on December 31, 2001 of $37.0 million and March 31, 2002 of $37.5
million, or on its cumulative convertible preferred stock held by France Telecom
and a group of commercial banks on December 31, 2001 of $24.9 million and March
26, 2002 of $24.1 million. Historically, payment of dividends has been made in
additional shares of preferred stock in the case of the 13% preferred stock, the
5% cumulative participating preferred stock and the cumulative convertible
preferred stock. The Company did not pay these dividends due to a lack of
available surplus under Delaware law. Under Delaware law, the Company cannot pay
dividends on or redeem its capital stock, including its preferred stock, unless
it has available surplus.
Pursuant to the terms of the 13% preferred stock, the unpaid dividends will
continue to accrue without interest until declared and paid. Pursuant to the
terms of the 5% cumulative convertible preferred stock and the cumulative
convertible preferred stock, the unpaid dividends will continue to accrue
without interest until declared and paid, together with an additional cash
dividend on the amount so unpaid at a rate of 2% per quarter for as long as the
dividends remain unpaid. The failure to declare these dividends is not a default
under any of the Company's existing agreements. With respect to the 13%
preferred stock and 5% cumulative convertible preferred stock, if dividends
remain unpaid for six quarters, the holders of each such series shall have the
right to vote separately as a class on all matters voted on by NTL Incorporated
shareholders and shall have the right, along with other holders of preferred
stock with similar default voting rights, to elect two directors to the
Company's board.
In addition, the lack of surplus means that the Company does not expect to
be able to redeem its Variable Coupon Redeemable Preferred Stock, Series A,
which is referred to as the Noos One Year Preferred, which is held by France
Telecom, when it becomes mandatorily redeemable, to the extent funds are
available, on May 18, 2002. If we fail to redeem the Noos preferred stock on May
18, 2002 as we expect, the holders of such Noos preferred stock will have the
right, along with other holders of preferred stock with similar default voting
rights, to elect two directors to our board and shall have the right to vote
separately as a class, on all matters brought to NTL Incorporated shareholders.
At the time of issuance of the Noos One Year Preferred, the Company pledged
its shares of Noos to France Telecom to secure the mandatory redemption
obligation under the Noos One Year Preferred and the 6.5% Redeemable Preferred
Stock.
CREDIT RATING DOWNGRADES
On April 3, 2002, credit rating agency Standard & Poor's lowered the
Company's long-term corporate credit rating to D from CCC-, citing the Company's
failure to make a bond interest payment due on April 1, 2002.
SALE OF NTL AUSTRALIA
On April 2, 2002, the Company announced that it had completed the
previously announced sale of its Australian broadcast business to Macquarie Bank
for A$850 million (US$448 million) in an all cash transaction. The net proceeds
from the sale were approximately A$574 million (US$303 million). At that time,
the business' bank debt outstanding totaled A$227 million (US$119 million).
On April 7, 2002, NTL Delaware loaned L90 million to NTL (UK) Group
Limited, which loan was funded by the proceeds of the sale of NTL Australia.
This loan is subordinated to the Company's UK credit
34
facilities. The remaining proceeds of the sale of NTL Australia remain at NTL
Delaware and it is currently anticipated that such proceeds will form a portion
of the consideration to be offered to bondholders of NTL Delaware and NTL
Incorporated in satisfaction of their claims against NTL Delaware as part of the
proposed plan of reorganization.
DESCRIPTION OF OUTSTANDING NOTES, CREDIT FACILITIES AND REDEEMABLE PREFERRED
STOCK
The following summarizes the terms of the significant notes, credit
facilities and redeemable preferred stock issued by the Company and its
subsidiaries as of December 31, 2001, except for the NTL Australia bank credit
facility due to the sale of NTL Australia in April 2002.
NTL Incorporated:
(1) Senior Redeemable Exchangeable Preferred Stock due February 15,
2009, liquidation preference of $186.8 million, dividends accrue at 13% per
annum payable quarterly in arrears, at the Company's option, until February
15, 2004, dividends may be paid in cash, by the issuance of additional
shares or in any combination of the foregoing, redeemable at the Company's
option on or after February 15, 2002, and, on any dividend payment date,
the Company may exchange all of the outstanding shares for 13% debentures
due 2009;
(2) Convertible Preferred Stock due March 27, 2009, liquidation
preference of $2,029.1 million, dividends are payable quarterly in arrears
in additional shares, at the following quarterly dividend rates: (i) from
September 12, 2001 through March 26, 2002, $13.44 per share, (ii) from
March 27, 2002 through March 26, 2003, $21.23 per share, and (iii) from
March 27, 2003 through March 26, 2004, $26.61 per share; once the
"Convertibility Date" (which may be March 27, 2003 or March 27, 2004) is
set, the quarterly dividend rate resets to $16.12 per share and the
Convertible Preferred Stock becomes eligible for conversion into shares of
the Company's common stock beginning on such Convertibility Date, at which
time the conversion price is set at 125% of the immediately preceding 25
trading day volume-weighted average price of the Company's common stock,
subject to the Company's election to delay convertibility or redeem all
issued and outstanding shares of Convertible Preferred Stock. Holders of
Convertible Preferred Stock other than any commercial bank or their
affiliates may at any time elect, subject to some conditions, to exchange
their Convertible Preferred Stock for up to a 50% interest in an entity
holding our Swiss operations;
(3) Variable Coupon Redeemable Preferred Stock, liquidation
preference of $491.7 million, dividends are payable quarterly at the
Company's option in cash or additional shares of Variable Coupon Redeemable
Preferred Stock, quarterly dividend rate based on the EURIBOR Rate plus
2.5%, quarterly dividend rate of 6.16% at December 31, 2001, mandatory
redemption in cash on May 18, 2002. The Company's 27% interest in Noos is
pledged to France Telecom to secure the mandatory redemption obligation
under its Variable Coupon Redeemable Preferred Stock and its 6.5% Fixed
Coupon Redeemable Preferred Stock;
(4) 6.5% Fixed Coupon Redeemable Preferred Stock, liquidation
preference of $126.9 million, dividends are cumulative and are payable in
cash upon redemption, mandatory redemption in cash on May 18, 2007;
(5) 5 3/4% Convertible Subordinated Notes due June 22, 2011,
principal amount at maturity of $100.0 million, interest of 5 3/4% per
annum is payable quarterly beginning on October 15, 2001, redeemable at the
option of the Company on or after December 22, 2007, convertible into
shares of the Company's common stock at a conversion price of $35.00 per
share, subject to adjustment based on the Company's stock price and
adjustment to the conversion price of some series of our preferred stock;
NTL Delaware:
(6) 5 3/4% Convertible Subordinated Notes due December 15, 2009,
principal amount at maturity of $1,200.0 million, interest payable
semiannually from June 15, 2000, redeemable at the Company's
35
option on or after December 18, 2002, convertible into shares of the
Company's stock at a conversion price of $108.18 per share;
NTLCL:
(7) Working Capital Facility, originally for L1,300.0 million
($1,890.6 million); following the issuance of new debt beginning in October
2000, the commitment has been reduced by L882.5 million ($1,283.4 million),
of which L100.0 million ($145.4 million) was outstanding as of December 31,
2001. Interest payable at least every six months at LIBOR plus a margin
rate of 5.50% per annum, which is subject to adjustment; effective interest
rate of 9.57% at December 31, 2001; the unused portion of the commitment is
subject to a commitment fee of 0.75% payable quarterly; principal is due in
full on March 31, 2006; in January and February 2002 the remaining amounts
available under this agreement were borrowed;
(8) Senior Credit Facility, of which L2,784.8 million ($4,050.0
million) was outstanding as of December 31, 2001; originally for L2,500.0
million ($3,635.8 million), dated 30 May 2000; interest payable at least
every six months at LIBOR plus a margin rate of 2.00% per annum, which is
subject to adjustment; effective interest rate of 6.73% at December 31,
2001; the unused portion of the commitment is subject to a commitment fee
of 0.75% payable quarterly, which is reduced to 0.50% when over 50% of the
commitment is utilized; principal is due in six quarterly installments
beginning on June 30, 2004; as amended and restated pursuant to a
Restatement Amendment Agreement dated 26 September 2001 which, inter alia,
amended such Senior Credit Facility to make available a L200.0 million
($290.9 million) Term Facility (interest payable on such Term Facility at
least every six months at LIBOR plus a margin rate of 3.50% per annum,
effective interest rate of 8.06 % at December 31, 2001, principal is due in
eight quarterly installments beginning on June 30, 2006) and increase the
availability of funds under the Senior Credit Facility by L84.8 million
($123.3 million);
Cablecom:
(9) Term Loan Facility, of which CHF 2,700.0 million ($1,626.8
million) was outstanding as of December 31, 2001, interest payable at least
every six months at Swiss LIBOR plus a margin rate of 2.5% per annum, which
is subject to adjustment, effective interest rate of 5.27% at December 31,
2001, principal is due over six years in quarterly installments beginning
on March 31, 2004;
(10) Revolving Facility of CHF 1,400.0 million ($843.5 million), of
which CHF 875.0 million ($527.2 million) was outstanding as of December 31,
2001, interest payable at least every six months at Swiss LIBOR plus a
margin rate of 2.50% per annum, which is subject to adjustment, effective
interest rate of 5.49% at December 31, 2001, the unused portion of the
commitment is available until May 2003 and is subject to a commitment fee
of 0.75% payable quarterly, which is reduced to 0.50% when over 50% of the
commitment is utilized, principal is due over six years in quarterly
installments beginning on March 31, 2004; our Swiss subsidiaries are unable
to draw the remaining undrawn amounts under this facility because, as of
December 31, 2001, Cablecom's liabilities exceeded its assets, which
constituted an event of default under the facility;
NTL Communications:
(11) 12 3/4% Senior Deferred Coupon Notes due April 15, 2005,
principal amount at maturity of $277.8 million, interest payable
semiannually from October 15, 2000, redeemable at the Company's option on
or after April 15, 2000;
(12) 11 1/2% Senior Deferred Coupon Notes due February 1, 2006,
principal amount at maturity of $1,050.0 million, interest payable
semiannually from August 1, 2001, redeemable at the Company's option on or
after February 1, 2001;
36
(13) 10% Senior Notes due February 15, 2007, principal amount at
maturity of $400.0 million, interest payable semiannually from August 15,
1997, redeemable at the Company's option on or after February 15, 2002;
(14) 9 1/2% Senior Sterling Notes due April 1, 2008, principal amount
at maturity of L125.0 million ($181.8 million), interest payable
semiannually from October 1, 1998, redeemable at the Company's option on or
after April 1, 2003;
(15) 10 3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008,
principal amount at maturity of L300.0 million ($436.3 million), interest
payable semiannually beginning on October 1, 2003, redeemable at the
Company's option on or after April 1, 2003;
(16) 9 3/4% Senior Deferred Coupon Notes due April 1, 2008, principal
amount at maturity of $1,300.0 million, interest payable semiannually
beginning on October 1, 2003, redeemable at the Company's option on or
after April 1, 2003;
(17) 9 3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009,
principal amount at maturity of L330.0 million ($479.9 million), interest
payable semiannually beginning on October 15, 2004, redeemable at the
Company's option on or after April 15, 2004;
(18) 11 1/2% Senior Notes due October 1, 2008, principal amount at
maturity of $625.0 million, interest payable semiannually from April 1,
1999, redeemable at the Company's option on or after October 1, 2003;
(19) 12 3/8% Senior Deferred Coupon Notes due October 1, 2008,
principal amount at maturity of $450.0 million, interest payable
semiannually beginning on April 1, 2004, redeemable at the Company's option
on or after October 1, 2003;
(20) 7% Convertible Subordinated Notes due December 15, 2008,
principal amount at maturity of $489.8 million, interest payable
semiannually from June 15, 1999, convertible into shares of the Company's
common stock at a conversion price of $39.20 per share, redeemable at the
Company's option on or after December 15, 2001;
(21) 9 1/4% Senior Euro Notes due November 15, 2006, principal amount
at maturity of E250.0 million ($222.5 million), interest payable
semiannually from May 15, 2000;
(22) 9 7/8% Senior Euro Notes due November 15, 2009, principal amount
at maturity of E350.0 million ($311.5 million), interest payable
semiannually from May 15, 2000, redeemable at the Company's option on or
after November 15, 2004;
(23) 11 1/2% Senior Deferred Coupon Euro Notes due November 15, 2009,
principal amount at maturity of E210.0 million ($186.9 million), interest
payable semiannually beginning on May 15, 2005, redeemable at the Company's
option on or after November 15, 2004;
(24) 11 7/8% Senior Notes due October 1, 2010, principal amount at
maturity of $500.0 million, interest payable semiannually from April 1,
2001, redeemable at the Company's option on or after October 1, 2005;
(25) 12 3/8% Senior Euro Notes due February 1, 2008; principal amount
at maturity of E300.0 million ($267.0 million), interest payable
semiannually from August 1, 2001;
(26) 6 3/4% Convertible Senior Notes due May 15, 2008, principal
amount at maturity of $1,150.0 million, interest payable semiannually from
November 15, 2001, convertible into shares of the Company's common stock at
a conversion price of $32.728 per share, redeemable at the Company's option
on or after May 21, 2004;
37
NTL Triangle:
(27) 11.2% Senior Discount Debentures due November 15, 2007,
principal amount at maturity of $517.3 million, interest payable
semiannually from May 15, 2001, redeemable at NTL Triangle's option after
November 15, 2000;
Diamond:
(28) 13 1/4% Senior Discount Notes due September 30, 2004, principal
amount at maturity of $285.1 million, interest payable semiannually from
March 31, 2000, redeemable at Diamond's option after September 30, 1999;
(29) 11 3/4% Senior Discount Notes due December 15, 2005, principal
amount at maturity of $531.0 million, interest payable semiannually from
June 15, 2001, redeemable at Diamond's option on or after December 15,
2000;
(30) 10 3/4% Senior Discount Notes due February 15, 2007, principal
amount at maturity of $420.5 million, interest payable semiannually
beginning on August 15, 2002, redeemable at Diamond's option on or after
December 15, 2002;
(31) 10% Senior Sterling Notes due February 1, 2008, issued by
Diamond Holdings plc, a wholly-owned subsidiary of Diamond, principal
amount at maturity of L135.0 million ($196.3 million), interest payable
semiannually from August 1, 1998, redeemable at Diamond's option on or
after February 1, 2003; and
(32) 9 1/8% Senior Notes due February 1, 2008, issued by Diamond
Holdings plc, principal amount at maturity of $110.0 million, interest
payable semiannually from August 1, 1998, redeemable at Diamond's option on
or after February 1, 2003.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
On January 22, 2002, the Securities and Exchange Commission issued FR-61,
"Commission Statement about Management's Discussion and Analysis of Financial
Condition and Results of Operations." The release sets forth certain views of
the Securities and Exchange Commission regarding disclosure that should be
considered by registrants. The Company's consolidated contractual obligations
and commercial commitments are summarized below, and are fully disclosed in the
Notes to Consolidated Financial Statements.
The following table includes aggregate information about the Company's
contractual obligations as of December 31, 2001 and the periods in which
payments are due. The entire long-term debt and capital lease obligation, except
for NTL Australia's portion of long-term debt, has been classified as current
due to the uncertainties about compliance with the terms and conditions of the
Company's debt that would give the holders of the debt the right to accelerate
repayment.
PAYMENTS DUE BY PERIOD
<Table>
<Caption>
CONTRACTUAL LESS THAN 1-3 4-5 AFTER
OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
- ----------- --------- ----------- ------ -------- ---------
(IN MILLIONS)
Long-Term Debt........................... $18,213.3 $ 5.7 $515.0 $6,457.0 $11,235.6
Capital Lease Obligations................ 192.8 9.3 15.6 12.7 155.2
Operating Leases......................... 563.3 96.7 129.4 86.3 250.9
Unconditional Purchase Obligations....... 1,672.0 434.0 325.0 237.0 676.0
Other Long-Term Obligations.............. none
Total Contractual Cash Obligations....... $20,641.4 $545.7 $985.0 $6,793.0 $12,317.7
</Table>
38
The following table includes aggregate information about the Company's
commercial commitments as of December 31, 2001. Commercial commitments are items
that the Company could be obligated to pay in the future. They are not required
to be included in the consolidated balance sheet.
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
<Table>
<Caption>
OTHER COMMERCIAL TOTAL AMOUNTS LESS THAN 1-3 4-5 OVER
COMMITMENTS COMMITTED 1 YEAR YEARS YEARS 5 YEARS
- ---------------- ------------- ----------- ----- ----- -------
(IN MILLIONS)
Guarantees................................... $ 31.0 $ 3.2 $ 1.4 $11.9 $14.5
Lines of Credit.............................. none
Standby Letters of Credit.................... none
Standby Repurchase Obligations............... none
Other Commercial Commitments................. 73.9 28.8 26.2 18.9 --
Total Commercial Commitments................. $104.9 $32.0 $27.6 $30.8 $14.5
</Table>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $597.8 million and $290.2 million in
the years ended December 31, 2001 and 2000, respectively. Cash paid for interest
exclusive of amounts capitalized in the years ended December 31, 2001 and 2000
was $947.9 million and $495.0 million, respectively. In addition, the change in
cash used in operating activities is also due to changes in working capital as a
result of the timing of receipts and disbursements.
Purchases of fixed assets were $1,946.1 million in 2001 and $2,257.0
million in 2000 as a result of the continuing fixed asset purchases and
construction, including purchases and construction by acquired companies. The
Company expects to further reduce purchases of fixed assets in 2002 in an effort
to conserve cash.
Proceeds from borrowings, net of financing costs, of $3,110.7 million in
2001 include $838.5 million borrowed under the NTLCL senior credit facility,
$431.8 million borrowed under the NTLCL working capital facility, $1,150.0
million from the issuance of NTL Communications 6 3/4% Convertible Senior Notes,
$277.9 million from the issuance of NTL Communications 12 3/8% Senior Euro
Notes, $269.7 million borrowed under the Cablecom revolving facility, $103.4
million borrowed under the NTL Australia credit agreement, and $100.0 million
from the issuance of NTL Incorporated 5 3/4% Convertible Subordinated Notes, net
of aggregate financing costs of $60.6 million.
Principal payments of $489.8 million in 2001 include optional repayments of
$455.1 million under the NTLCL credit agreements and Cablecom revolving facility
and repayments of an aggregate of $34.7 million of other debt.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Company and related financial
information are based on the application of accounting principles generally
accepted in the United States, (referred to as "GAAP"). GAAP requires the use of
estimates, assumptions, judgments and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported, as well as disclosures about contingencies, risk and financial
condition. The following critical accounting policies have the potential to have
a more significant impact on the Company's financial statements, either because
of the significance of the financial statement item to which they relate, or
because they require more judgment and estimation due to the uncertainty
involved in measuring, at a specific point in time, transactions which are
continuous in nature.
- The Company maintains allowances for doubtful accounts and notes
receivable for estimated losses resulting from the potential inability of
its customers or the other parties to make payments. These allowance are
estimated based on the current aging of receivables, prior collection
experience and
39
future expectations of conditions that might impact the collectibility.
If the financial condition of our customers or the other parties were to
deteriorate resulting in an impairment in their ability to make payments,
additions to the allowances may be required.
- The Company's determination of the treatment of contingent liabilities in
the financial statements is based on a view of the expected outcome of
the applicable contingency. Legal counsel is consulted on matters related
to litigation. Experts both within and outside the company are consulted
with respect to other matters that arise in the ordinary course of
business. Examples of such matters that are based on assumptions,
judgments and estimates are the amount to be paid to terminate certain
agreements included in restructuring charges and the amounts to be paid
to settle certain other liabilities, A liability is accrued if the
likelihood of an adverse outcome is probable of occurrence and the amount
is estimable.
- The Company reviews long-lived assets and goodwill for impairment as
described in the Notes to Consolidated Financial Statements. The Company
obtained a valuation to assist with the determination of the fair value
of long-lived assets and goodwill. In analyzing potential impairments,
projections of future cash flows from the asset are used. The projections
are based on assumptions, judgments and estimates of growth rates for the
related business, anticipated future economic, regulatory and political
conditions, the assignment of discount rates relative to risk and
estimates of terminal values. Changes to these variables in the future
may necessitate impairment charges to reduce the carrying value to fair
value.
- Fixed assets and intangible assets are assigned useful lives which impact
the annual depreciation and amortization expense. The assignment of
useful lives involves significant judgments and the use of estimates.
Changes in technology or changes in intended use of these assets may
cause the estimated useful life to change.
- In 2001, restructuring charges were recorded as a result of additional
actions to reorganize, re-size and reduce operating costs and create
greater efficiency in various areas. These charges, for both severance
and exit costs, required the use of estimates. Actual results could
differ from those estimated for restructuring.
- The valuation of the Company's pension plans requires the use of
assumptions and estimates that are used to develop actuarial valuations
of expenses, projected benefit obligations and funding requirements.
These assumptions include, among others, discount rates, investment
returns and projected salary increases. Changes in assumptions and future
investment returns could potentially have a material impact on the
Company's pension expense and funding requirements.
RESULTS OF OPERATIONS
The Company's expects its growth in 2002 to be curtailed by funding
constraints. Although the Company's current business plan includes a reduction
in the number of new customers and an increase in revenue from existing
customers, the Company's cash constraints present many challenges to the
successful execution of the plan. The Company is conserving cash through a
reduction in capital expenditures including expenditures to connect new
customers to the Company's network. In order to maintain revenues and cash from
operations while reducing the number of new customers, the Company must reduce
and limit customer churn. The Company intends to improve its customer service
and increase its service offering to customers in an effort to curtail and
reduce churn. The Company is in the process of integrating its various billing
systems and customer databases in an effort to improve one of the main tools
used to provide customer service.
The plan to reduce churn and to increase average revenue per unit (referred
to as ARPU) includes an increase in broadband services to our existing
customers. The Company believes that its triple play offering of telephony,
broadband access to the Internet and digital television will prove attractive to
its existing customer base, which will result in higher ARPU as revenues per
existing customer increase. However, there is significant competition in our
markets, through digital satellite and digital terrestrial television and
through alternative Internet access media, such as DSL offered by BT. If the
Company is unable to charge the prices
40
for these services that are anticipated in its business plan in response to
competition or if the Company's competition is able to attract the Company's
customers, the Company's ARPU and results of operations will be adversely
affected.
Media speculation regarding the Company's financial condition and potential
outcomes of the recapitalization process could have an adverse effect on parts
of the Company's business. Similarly, negative press about the financial
condition of alternative telecom carriers in general may effect the Company's
reputation. One of the key strategies in the Company's business plan is to
increase its penetration of higher value small to medium size enterprises (or
SMEs) and provide increased retail services of bundled voice, data and Internet
services for SMEs. However, due to the negative publicity surrounding the
Company's financial condition and the effect of that publicity on its brand
name, the Company may find it difficult to convince SMEs to become its
customers. Even if the Company successfully completes the recapitalization
process, there is no assurance that the negative publicity will not adversely
impact the Company's results of operations or have a long-term negative effect
on the Company's brand.
In addition, this uncertainty may adversely affect the Company's
relationships with its suppliers. If suppliers become increasingly concerned
about the Company's financial condition, they may demand faster payments or not
extend normal trade credit, both of which could further adversely affect the
Company's cash conservation measures and its results of operations.
YEARS ENDED DECEMBER 31, 2001 AND 2000
As a result of the completion of the acquisitions of the cable assets of
Cablecom on March 28, 2000 and the consumer cable telephone, Internet and
television operations of Cable & Wireless Communications plc ("ConsumerCo") on
May 30, 2000, the Company consolidated the results of operations of these
businesses from the dates of acquisition.
Consumer telecommunications and television revenues increased to $2,514.6
million from $1,819.8 million as a result of the Cablecom and ConsumerCo
acquisitions, price increases, upselling new services to customers and from
growth in the Company's customer base. The 2001 and 2000 revenue includes
$1,350.1 million and $809.5 million, respectively, from acquired companies.
Upselling to existing customers, new digital and cable modem customers and the
price increases implemented in the first and second quarters of 2001 resulted in
ARPU increases that contributed to the revenue increase. Increase in ARPU in the
future is also expected to be achieved by continuing to provide new services
such as digital television, cable modem and mobile telephone services to
consumer customers.
Business telecommunications revenues increased to $840.6 million from
$702.2 million as a result of acquisitions and from the growth in the Company's
customer base. The acquisition of the assets and contracts of Viatel UK in the
third quarter of 2001 accounted for $65.3 million of the revenue in 2001. The
2001 and 2000 revenue includes $97.4 million and $62.1 million, respectively,
from ConsumerCo. In addition, the Company continues to focus specific sales and
marketing effort on winning business customers in its franchise areas and
increasing revenue from its existing customers.
Broadcast transmission and other revenues increased to $344.0 million from
$318.8 million. The increase reflects increases in the number of broadcast
television and FM radio customers and accounts, which exceeded price cap
reductions in the Company's regulated services, and increases in satellite and
media services used by broadcast and media customers. The Company expects growth
in broadcast services to be driven primarily by contracts related to the
increased demand for tower infrastructure by wireless services operators
expanding and upgrading their networks for wireless broadband, the
digitalization of analog television and radio signals and the further
development of programming for the European markets requiring satellite and
terrestrial distribution services.
In 2000 and 2001, the substantial majority of revenues in all segments were
derived from operations in the UK.
41
Operating expenses (including network expenses) increased to $1,809.3
million from $1,387.6 million as a result of increases in interconnection and
programming costs due to revenue growth. The 2001 and 2000 expense includes
$657.8 million and $388.0 million, respectively, from Cablecom and ConsumerCo.
Selling, general and administrative expenses increased to $1,181.6 million
from $1,109.1 million. The 2001 and 2000 expense includes $407.5 million and
$292.2 million, respectively, from Cablecom and ConsumerCo. Selling, general and
administrative expenses as a percentage of revenues decreased to 31.9% in 2001
from 39.0% in 2000. The percentage decrease reflects various cost savings
efforts.
Asset impairments in 2001 of $9,511.3 million are related to intangible
assets and investments in affiliates. During 1999 and 2000, acquisitions were
made against a background of increasing consolidation and record valuations in
the telecommunications industry. In 2001, the Company performed a review of the
recoverability of its long-lived assets and associated goodwill. This review was
initiated because of the decline in the Company's stock price and significantly
lower valuations for companies within its industry. Additionally, at the time of
the Company's review, the book value of the Company's net assets significantly
exceeded its market capitalization. Accordingly, the fair value of the Company's
assets was determined by discounting the Company's estimates of the expected
future cash flows related to these assets when the non-discounted cash flows
indicated that the long-lived assets would not be recoverable. The Company
recorded a write-down of $9,511.3 million in the fourth quarter of 2001 as a
result of this analysis and review. The total charge included goodwill of
$8,840.5 million, license acquisition costs of $58.8 million, customer lists of
$9.1 million, other intangibles of $14.9 million, investments in affiliates of
$463.7 million and other assets of $124.3 million. The aggregate asset
impairment charge of $9,511.3 million related to the Company's business segments
as follows: $7,388.8 million Consumer, $2,113.0 million Business and $9.5
million Broadcast.
Non-cash compensation of $30.6 million in 2001 was due to modifications to
certain stock options approved by the Compensation and Option Committee of the
Board of Directors in July 2001. The latest possible expiration date of options
to purchase an aggregate of approximately 4.7 million shares of the Company's
common stock with exercise prices from $.17 to $14.76 per share was extended
from July 30, 2001 to October 2004, as applicable, to January 30, 2006. The
Company recognized non-cash compensation expense based on the excess of the
quoted market price of the Company's common stock on the date of the
modification of $12.05 per share over the exercise price per share.
Other charges of $311.7 million in 2001 include restructuring charges of
$209.6 million and costs of $102.1 million incurred primarily to integrate the
acquired companies, mostly related to information technology integration, as
well as costs incurred for business rationalization consulting. Other charges of
$92.7 million in 2000 include restructuring charges of $65.9 million and costs
of $26.8 million incurred primarily to integrate the acquired companies, mostly
related to information technology integration, as well as costs incurred for
business rationalization consulting. The increase in the information technology
integration and consulting costs was the result of an acceleration of a number
of these projects, and the associated fees to the consultants and advisors, in
order to achieve the cost savings earlier than projected.
Restructuring charges of $209.6 million and $65.9 million for the years
ended December 31, 2001 and 2000, respectively, relate to the Company's
announcements in the fourth quarter of 2001 and in November 2000 that it was
taking additional actions to reorganize, re-size and reduce operating costs and
create greater efficiency in various areas of the Company. An aggregate of $57.9
million of the 2001 reorganization costs are for the write-off of equipment and
other assets that are not in use and will not require any future cash outlays.
The employee severance and related costs in 2000 were for approximately 2,300
employees to be terminated, approximately 550 of whom are still employed by the
Company as of December 31, 2001. These costs in 2001 are for approximately 5,400
employees to be terminated, of which approximately 3,000 employees are still
42
employed by the Company as of December 31, 2001. The following table summarizes
the restructuring charges incurred and utilized in 2000 and 2001:
<Table>
<Caption>
EMPLOYEE
SEVERANCE LEASE
AND RELATED EXIT AGREEMENT FIXED
COSTS COSTS MODIFICATIONS ASSETS TOTAL
----------- ----- ------------- ------ ------
(IN MILLIONS)
Charged to expense.................. $ 47.9 $18.0 $ -- $ -- $ 65.9
Utilized............................ -- -- -- -- --
------ ----- ----- ------ ------
Balance, December 31, 2000.......... 47.9 18.0 -- -- 65.9
2000 provision utilized............. (41.3) (9.6) -- -- (50.9)
2000 provision released............. (6.6) (7.3) -- -- (13.9)
Charged to expense.................. 96.5 41.4 27.7 57.9 223.5
2001 provision utilized............. (26.2) -- -- (57.9) (84.1)
------ ----- ----- ------ ------
Balance, December 31, 2001.......... $ 70.3 $42.5 $27.7 $ -- $140.5
====== ===== ===== ====== ======
</Table>
Corporate expenses increased to $66.8 million from $47.5 million primarily
due to the write-off of deferred charges and an allowance for a note receivable
of $9.9 million and costs incurred in 2001 related to efforts to recapitalize
our balance sheet and reduce debt.
Depreciation and amortization expense increased to $3,170.5 million from
$2,122.8 million due to an increase in amortization on acquisition related
intangibles and an increase in depreciation of telecommunications and cable
television equipment. The 2001 and 2000 expense includes $2,012.2 million and
$1,177.4 million, respectively, from Cablecom and ConsumerCo, including
amortization of the acquisition related intangibles.
Interest income and other, net decreased to $51.1 million from $72.5
million as a result of the decline in cash available for investment.
Interest expense increased to $1,440.9 million from $1,036.8 million due to
the issuance of additional debt. The 2001 and 2000 expense includes $393.8
million and $216.0 million, respectively related to Cablecom and ConsumerCo.
Interest of $1,015.6 million and $590.0 million was paid in cash in the years
ended December 31, 2001 and 2000, respectively.
Share of losses from equity investments increased to $244.6 million from
$70.9 million primarily due to the acquisition of the interest in Noos in 2001,
and a full year of ownership of the interests in B2 and eKabel in 2001.
Other losses of $147.4 million in 2001 is comprised of $58.9 million loss
on the 1G transaction in France and $88.5 million loss on the sale of the
ConsumerCo off-net indirect access customers.
Foreign currency transaction losses were $13.7 million in 2001 and $120.6
million in 2000 primarily due to the effect of changes in exchange rates. The
Company and certain of its subsidiaries have cash, cash equivalents and debt
denominated in non-U.S. dollar currencies that are affected by changes in
exchange rates. In addition, foreign subsidiaries of the Company whose
functional currency is not the U.S. dollar hold cash, cash equivalents and debt
denominated in U.S. dollars which are affected by changes in exchange rates.
Income tax expense in 2001 of $63.2 million is primarily the result of an
increase in the deferred tax liability attributable to separate company profits
of a foreign subsidiary offset to some extent by a decrease in net deferred tax
liabilities attributable to operating losses of other foreign subsidiaries. The
increase in deferred tax liabilities includes an adjustment related to 1997
through 2000 of approximately $116.3 million that is primarily attributable to
additional tax depreciation being claimed during 2001 on original and amended
income tax returns.
Premium TV is developing a Classic Sports television channel, and has a
contractual arrangement with the BBC permitting Premium TV to show football
(soccer) matches from the BBC's library. Classic Sport
43
incurred a loss of $35.2 million for the year ended December 31, 2001; this was
principally due to start up costs associated with the new classic sports
channel, which has not yet been launched. In the fourth quarter of 2001, the
Company decided to consolidate the 2001 results of the Classic Sport joint
venture. As a result of the consolidation, the Company recorded the entirety of
Classic Sport's loss for the year in its fourth quarter results. The fourth
quarter portion of the full year loss for Classic Sport amounted to
approximately $7.0 million.
On April 2, 2002, the Company announced that it completed the sale of its
Australian broadcast business to Macquarie Bank for A$850.0 million (US$434.9
million) in an all cash transaction. The net proceeds from the sale after the
repayment of the outstanding bank credit facility and transaction related costs
were approximately A$574.0 million (US$293.7 million). In 2001, revenue from the
Company's broadcast business in Australia was $61.8 million and revenue from the
Company's 1G subsidiary in France was $11.2 million. The combined operating loss
of these entities in 2001 including depreciation and amortization was $26.9
million.
YEARS ENDED DECEMBER 31, 2000 AND 1999
As a result of the completion of the acquisitions of Diamond Cable
Communications Limited ("Diamond") in March 1999, the Australian National
Transmission Network ("NTL Australia") in April 1999, Cablelink Limited
("Cablelink") in July 1999, the "1G Networks" of France Telecom in August and
December 1999, NTL Business Limited (formerly Workplace Technologies plc) ("NTL
Business") in September 1999, the cable assets of Cablecom in March 2000 and the
consumer cable telephone, Internet and television operations of ConsumerCo in
May 2000, the Company consolidated the results of operations of these businesses
from the dates of acquisition.
Consumer telecommunications and television revenues increased to $1,819.8
million from $834.3 million as a result of acquisitions and from customer growth
that increased the Company's current revenue stream. The 2000 and 1999 revenue
includes $1,063.4 million and $167.1 million, respectively, from acquired
companies.
Business telecommunications revenues increased to $702.2 million from
$452.5 million as a result of acquisitions, customer growth and increases in
carrier services revenues. The 2000 and 1999 revenue includes $234.3 million and
$92.8 million, respectively, from acquired companies. Carrier services revenues
increased due to growth in services provided by the Company's wholesale
operation to other telephone companies.
Broadcast transmission and other revenues increased to $318.8 million from
$297.3 million. Included in these amounts are revenues of $55.0 million and
$40.0 million from NTL Australia in 2000 and 1999, respectively. The UK increase
reflects increases in broadcast television and FM radio customers and accounts,
which exceeded price cap reductions in the Company's regulated services, and
increases in satellite and media services used by broadcast and media customers.
Operating expenses (including network expenses) increased to $1,387.6
million from $798.6 million as a result of increases in interconnection and
programming costs due to customer growth. Operating expenses as a percentage of
revenues declined to 48.8% from 50.4%. The 2000 and 1999 expense includes $649.6
million and $171.9 million, respectively, from acquired companies.
Selling, general and administrative expenses increased to $1,109.1 million
from $574.6 million as a result of increases in telecommunications and cable
television sales and marketing costs and increases in additional personnel and
overhead to service the increasing customer base. The 2000 and 1999 expense
includes $483.4 million and $58.7 million, respectively, from acquired
companies.
Pursuant to the terms of various UK licenses, the Company incurred license
fees paid to the Independent Television Commission ("ITC") to operate as the
exclusive service provider in certain of its franchise areas. Upon a request by
the Company in 1999, the ITC converted all of the Company's fee bearing
exclusive licenses to non-exclusive licenses at the end of 1999, and the
Company's liability for license payments ceased upon the conversion. Franchise
fees were $16.5 million in 1999.
44
Other charges of $92.7 million in 2000 include restructuring charges of
$65.9 million and costs of $26.8 million incurred primarily to integrate the
acquired companies, mostly related to information technology integration, as
well as costs incurred for business rationalization consulting. Other charges of
$16.2 million in 1999 were incurred for the cancellation of certain contracts.
Corporate expenses increased to $47.5 million from $29.4 million due to an
increase in various overhead costs.
Depreciation and amortization expense increased to $2,122.8 million from
$791.3 million due to an increase in depreciation of telecommunications and
cable television equipment. The 2000 and 1999 expense includes $1,481.1 million
and $215.9 million, respectively, from acquired companies, including
amortization of acquisition related intangibles.
Interest expense increased to $1,036.8 million from $680.7 million due to
the issuance of additional debt, and the increase in the accretion of original
issue discount on the deferred coupon notes. The 2000 and 1999 expense includes
$380.4 million and $134.5 million, respectively, related to acquisitions.
Interest of $590.0 million and $222.1 million was paid in the years ended
December 31, 2000 and 1999, respectively.
Share of losses from equity investments increased to $70.9 million from
$18.4 million primarily due to increases in the net losses of affiliates
accounted for by the equity method.
Other gains of $493.1 million in 1999 are from the sale of the Company's
investment in Cable London.
Foreign currency transaction (losses) gains decreased to losses of $120.6
million from gains of $12.7 million primarily due to the effect of unfavorable
changes in exchange rates. The Company's results of operations are impacted by
changes in foreign currency exchange rates as follows. The Company and certain
of its subsidiaries have cash, cash equivalents and debt denominated in non-U.S.
dollar currencies that are affected by changes in exchange rates. In addition,
foreign subsidiaries of the Company whose functional currency is not the U.S.
dollar hold cash, cash equivalents and debt denominated in U.S. dollars which
are affected by changes in exchange rates.
The Company recorded an extraordinary loss from the early extinguishment of
debt of $3.0 million in 1999 as a result of the repayment of the bridge loan
incurred in connection with the Cablelink acquisition.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board (referred to as
the FASB) issued Statement of Financial Accounting Standards (referred to as
SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
effective for the Company on January 1, 2002. This Statement supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and other related accounting guidance. The adoption of
this new standard had no significant effect on the results of operations,
financial condition or cash flows of the Company, except that it will require
the Company to treat NTL Australia as a discontinued operation beginning in the
first quarter of 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated asset
retirement costs. The Company is in the process of evaluating the financial
statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually (or more frequently under certain conditions)
for impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flow approach previously
required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-
45
Lived Assets to Be Disposed Of." The Company adopted SFAS No. 142 on January 1,
2002. In light of the significant impairment charge that the Company recorded in
2001, the Company does not expect that the adoption of this new standard will
have a significant effect on the results of operations, financial condition or
cash flows of the Company. Amortization expense in 2001 related to goodwill and
other indefinite lived intangible assets was $1,430.2 million. The Company
expects that amortization expense in 2002 will not be significant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the potential
loss arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company does not enter into derivative
financial instruments for trading or speculative purposes. The Company has
entered into derivative financial instruments to hedge exposure to movements in
the British pound/U.S. dollar exchange rate and the Euro to British pound
exchange rate, and interest rates related to certain of its floating interest
rate debt. The counterparties are major financial institutions.
FOREIGN EXCHANGE CONTRACTS
To the extent the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, the Company will
encounter currency exchange rate risks. Furthermore, the Company's revenues are
generated in foreign currencies while its interest and principal obligations
with respect to most of its existing indebtedness are payable in U.S. dollars.
At December 31, 2001, the Company had cross currency swaps to hedge
exposure to movements in the Euro to British pound exchange rate and a British
pound forward foreign exchange agreement to reduce its exposure to movement in
the British pound/U.S. dollar exchange rate.
In September 2001, the Company entered into a British pound forward foreign
exchange agreement, consisting of twenty-six accumulating forward contracts, to
reduce its exposure to movement in the British pound/U.S. dollar exchange rate
in accordance with its market risk strategies.
INTEREST RATES
The fair market value of long-term fixed interest rate debt and the amount
of future interest payments on floating interest rate debt are subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise.
The Company has entered into zero cost collars to hedge exposure to the
floating interest rate indebtedness incurred under the Cablecom term loan
facility and revolving loan facility. The notional amount of the zero cost
collars was CHF 1,200.0 million at December 31, 2001.
The Company has also entered into interest rate swaps to hedge exposure to
the floating rate indebtedness incurred under the NTLCL L200.0 million Term
Facility. The notional amount of the interest rate swaps was L100.0 million at
December 31, 2001.
The following table provides information about the Company's long-term
fixed and floating interest rate debt and derivative financial instruments that
are sensitive to changes in interest rates and foreign currency exchange rates.
46
NTL INCORPORATED AND SUBSIDIARIES
<Table>
<Caption>
YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING (3)
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 (4) THEREAFTER
----------- ----------- ---------------- ---------------- ---------------- ----------------
LONG-TERM DEBT
INCLUDING CURRENT
PORTION
U.S. Dollar
Fixed Rate........... -- -- $285.1 $808.8 $1,050.0 $7,262.6
Average Interest
Rate............... 13.25% 12.09% 11.50% 9.00%
UK Pound
Fixed Rate........... -- -- -- -- -- L890.0
Average Interest
Rate............... 10.09%
Average Forward
Exchange Rate...... 1.4372
Euro
Fixed Rate........... -- -- -- -- E250.0 E860.0
Average Interest
Rate............... 9.25% 11.14%
Average Forward
Exchange Rate...... .8948 .9090
UK Pound
Variable Rate........ -- -- L90.0 L2,494.8 L100.0 --
Average Interest
Rate............... LIBOR plus 2.0% LIBOR plus 2.0% LIBOR plus 5.5%
Average Forward
Exchange Rate...... 1.4131 1.4150 1.4185
UK Pound
Variable Rate........ L20.0 L180.0
Average Interest
Rate............... LIBOR plus 3.5% LIBOR plus 3.5%
Average Forward
Exchange Rate...... 1.4185 1.4301
CHF
Variable Rate........ -- -- CHF143.0 CHF250.3 CHF536.3 CHF2,645.4
Average Interest
Rate............... Swiss LIBOR plus Swiss LIBOR plus Swiss LIBOR plus Swiss LIBOR plus
2.5% 2.5% 2.5% 2.5%
Average Forward
Exchange Rate...... .6101 .6174 .6249 .6567
Australian Dollar
Variable Rate........ -- -- A$15.0 A$25.0 A$160.0 --
Average Interest
Rate............... A$ Bank Bid Rate A$ Bank Bid Rate A$ Bank Bid Rate
plus 1.85% plus 1.85% plus 1.85%
Average Forward
Exchange Rate...... .5234 .5235 .5236
<Caption>
FAIR VALUE
TOTAL 12/31/01
----------- -----------
LONG-TERM DEBT
INCLUDING CURRENT
PORTION
U.S. Dollar
Fixed Rate........... $9,406.5 $2,671.7
Average Interest
Rate...............
UK Pound
Fixed Rate........... L890.0 L311.2
Average Interest
Rate...............
Average Forward
Exchange Rate......
Euro
Fixed Rate........... E1,110.0 E353.5
Average Interest
Rate...............
Average Forward
Exchange Rate......
UK Pound
Variable Rate........ L2,684.8 L2,684.5
Average Interest
Rate...............
Average Forward
Exchange Rate......
UK Pound
Variable Rate........ L200.0 L200.0
Average Interest
Rate...............
Average Forward
Exchange Rate......
CHF
Variable Rate........ CHF3,575.0 CHF3,575.0
Average Interest
Rate...............
Average Forward
Exchange Rate......
Australian Dollar
Variable Rate........ A$200.0 A$200.0
Average Interest
Rate...............
Average Forward
Exchange Rate......
</Table>
47
NTL INCORPORATED AND SUBSIDIARIES
<Table>
<Caption>
YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
----------- ----------- ----------- ----------- -----------
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS
RELATED TO LONG-TERM DEBT
Interest Rate Swaps
Notional CHF Amount............................... CHF1,200.0 CHF1,200.0 CHF1,200.0 -- --
Average Floor Strike Rate......................... 3.27% 3.27% 3.27%
Average Cap Strike Rate........................... 5.15% 5.15% 5.15%
Interest Rate Swaps
Notional UK Pound Amount.......................... L100.0 L100.0
Fixed Strike Price................................ 4.33% 4.33%
Receipt of UK Pounds
Notional Euro Amount.............................. E76.3 -- -- -- --
Average Contract Rate............................. 6457
<Caption>
(5) FAIR VALUE
(6) THEREAFTER TOTAL 12/31/01
-------------- ---------- ----------
INTEREST RATE DERIVATIVE FINANCIAL INSTRUMENTS
RELATED TO LONG-TERM DEBT
Interest Rate Swaps
Notional CHF Amount............................... -- CHF1,200.0 CHF(25.2)
Average Floor Strike Rate.........................
Average Cap Strike Rate...........................
Interest Rate Swaps
Notional UK Pound Amount.......................... L100.0 L0.2
Fixed Strike Price................................
Receipt of UK Pounds
Notional Euro Amount.............................. -- E76.3 E(4.0)
Average Contract Rate.............................
</Table>
48
RELATED FORWARD CONTRACTS TO SELL FOREIGN CURRENCIES FOR US $
U.K. POUND
<Table>
<Caption>
YEAR ENDING FAIR VALUE
12/31/02* 12/31/01
------------------------- ---------------
Notional amount............................................. Up to $ 47.5 $(0.3)
Average contract rate....................................... 1.45
</Table>
- ---------------
* The last contract ends on May 30, 2002.
49
RISK FACTORS
WE CURRENTLY HAVE LIMITED LIQUIDITY. IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT
A RECAPITALIZATION, THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS
A GOING CONCERN.
We have limited liquidity. We do not currently have access to our historic
sources of liquidity in the capital markets and our credit facilities are either
fully drawn or we are currently unable to access remaining undrawn amounts. If
we make scheduled payments of interest and overdue payments of interest, then we
will not have sufficient cash resources to meet our liquidity needs through the
third quarter of 2002. As a consequence, we need to restructure our outstanding
debt and/or raise new funds. If we cannot restructure our indebtedness or obtain
additional liquidity in a timely manner, we may face the possibility of
insolvency proceedings in the UK, the United States or elsewhere.
THE SUCCESSFUL IMPLEMENTATION OF THE PROPOSED RECAPITALIZATION PLAN WILL REQUIRE
THE SUPPORT OF OUR CREDITORS AND PREFERRED STOCKHOLDERS.
The completion of the proposed recapitalization contemplated by the
agreement in principle with the unofficial bondholder committee will require
support from our creditors and holders of our preferred stock, including France
Telecom. Pursuant to the terms of our credit facilities waivers, the agreement
in principle reached with the unofficial committee is subject to the approval of
the lenders under our credit facilities. The proposed recapitalization plan
would be implemented pursuant to a Chapter 11 bankruptcy proceeding.
Consummation of such a plan will require a favorable vote by impaired classes of
creditors, satisfaction of bankruptcy law requirements and confirmation by the
bankruptcy court, which, as a court of equity, may exercise substantial
discretion and choose not to confirm any plan of reorganization we agree with
our creditors. Even if such a plan received the necessary support from many
classes of our creditors, there can be no assurance that it would be completed.
If a protracted reorganization was to occur, or a liquidation would be
necessary, there is a risk that the value of NTL would be eroded to the
detriment of some or all NTL stakeholders.
WE CANNOT BE CERTAIN THAT OUR BANK LENDERS WILL CONSENT TO THE PROPOSED
RECAPITALIZATION PLAN OR GRANT US ANY NEW WAIVERS WE MAY NEED.
Before we could commence negotiations with the unofficial committee of our
noteholders we needed to obtain waivers from the lenders under our credit
facilities. These lenders granted waivers which, until April 30, 2002 in the
case of the UK credit facilities, or May 14, 2002 in the case of the Cablecom
facility, provide that NTL's commencement of negotiations with bondholders with
a view to rescheduling of its debt will not constitute an event of default under
our credit facilities.
The waivers prohibit us from making an exchange offer with respect to our
outstanding notes or from entering into an agreement with bondholders without
the consent of the lenders under each of the credit facilities. The waivers also
prohibit us from commencing voluntary dissolution proceedings, including
proceedings under Chapter 11 of the U.S. Bankruptcy Code, without the consent of
these lenders. If we are unable to obtain the consent of the lenders, we will
not be able to make a voluntary Chapter 11 filing as contemplated in connection
with the proposed plan.
The UK credit facility waivers, if not extended, will terminate on April
30, 2002, unless the missed interest payments on April 1, 2002 are remedied or a
sufficient number of noteholders have agreed to waive or forbear from exercising
any rights in respect of such non-payment, in which case, the waivers will be
extended to May 14, 2002. If the waivers terminate and we continue to negotiate
with bondholders or the non-payment of interest is not cured, there will be
events of default under our credit facilities that will entitle the lenders to
accelerate repayment. We do not have sufficient cash resources to repay our
outstanding indebtedness if it is declared immediately due and payable. In
addition, the lenders could also seek to take control over the assets over which
they hold security in an insolvency proceeding.
As of December 31, 2001, the liabilities of Cablecom and some of its
subsidiaries exceeded their respective assets. As a consequence, those entities
were deemed to be overindebted under Swiss law. This
50
constitutes an event of default under the Cablecom credit facility which
entitles the lenders to accelerate repayment. We are currently in discussions
with the lenders under the Cablecom facility regarding proposals to resolve the
overindebtedness issues as well as requesting that they waive various other
covenant breaches under the credit facility. If we are unable to resolve the
issue by April 30, 2002, Cablecom and those subsidiaries would be required to
commence an insolvency proceeding in Switzerland. Those proceedings would likely
either be a court supervised moratorium in which an independent administrator,
or commissioner, would be appointed to supervise the running of each company
during a restructuring or, if there is no viable restructuring plan, a
bankruptcy. This could also result in a cross-acceleration of NTL Incorporated's
and NTL Delaware's 5.75% convertible subordinated notes due 2009 and 5.75%
convertible subordinated notes due 2011.
WE DID NOT PAY INTEREST DUE ON SOME OF OUR OUTSTANDING NOTES ON APRIL 1 AND
APRIL 15, 2002; WE MAY NOT CURE THE EXISTING EVENT OF DEFAULT. WE MAY NOT MAKE
FUTURE INTEREST PAYMENTS ON MOST OF OUR OUTSTANDING NOTES.
NTL Incorporated, NTL (Delaware), Inc. and NTL Communications did not make
scheduled interest payments and payments of related fees due April 1 and April
15, 2002.
If we fail to pay interest on these notes after a 30 day grace period
expires (on April 30, 2002 in the case of the missed interest payments due April
1, 2002), events of default for failure to pay interest would occur under the
relevant indentures and, contemporaneously, cross defaults would occur under
other of our indentures at NTL Communications, NTL Delaware, NTL Incorporated
and under the UK credit facilities and could occur under the Cablecom facility.
This would give holders of the outstanding series of debt at these entities the
right to accelerate repayment of those debts by declaring the principal amount
of the debts to be immediately due and payable unless we obtain waivers or
forbearance agreements from sufficient percentages of our creditors. If that
right to accelerate was exercised, we would not have sufficient cash resources
to repay those debts, which could ultimately lead to bankruptcy proceedings
relating to the entities so affected.
WE HAVE NO CURRENT AVAILABILITY TO BORROW UNDER OUR EXISTING CREDIT FACILITIES.
We have no current ability to borrow under our existing UK credit
facilities, as we have borrowed the full amounts available, or to borrow under
the Cablecom credit facility, as the lenders have imposed a drawstop, which
means we currently cannot access the underdrawn amount.
IF WE MAKE A VOLUNTARY BANKRUPTCY FILING IN CONNECTION WITH THE PROPOSED PLAN OF
RECAPITALIZATION, IT IS LIKELY WE WILL LOSE OUR NET OPERATING LOSS CARRYFORWARDS
FOR U.S. INCOME TAX PURPOSES.
We need to restructure our outstanding debt during 2002. A restructuring of
our debt can be expected to give to rise to cancellation of indebtedness
("COD"), which if it occurs in the course of a proceeding pursuant to Chapter 11
of the U.S. Bankruptcy Code, would be non-taxable. If the COD is non-taxable, we
will be required to reduce our net operating loss carryforwards and other
attributes such as tax basis in assets by an amount equal to the non-recognized
COD. As a result, it is likely that as a result of the successful completion of
the proposed plan of recapitalization, we will have no U.S. net operating loss
carryforwards.
UNCERTAINTY OVER OUR FINANCIAL CONDITION MAY HARM OUR BUSINESS AND OUR BRAND
NAME.
Media speculation regarding our financial condition and potential outcomes
of the recapitalization process could have an adverse effect on parts of our
business. Similarly, negative press about the financial condition of alternative
telecom carriers in general may effect our reputation. For example, one of our
key strategies is to increase our penetration of higher value small to medium
size enterprises (or SMEs) and provide increased retail services of bundled
voice, data and Internet services for SMEs. However, due to the negative
publicity surrounding our financial condition and the potential effect of that
publicity on our brand name, we may find it difficult to convince SMEs to take
up our services. Even if we successfully complete the recapitalization process,
there is no assurance that it will not adversely impact our results of
operations or have a long-term effect on our brand.
51
In addition, this uncertainty may adversely affect our relationships with
our suppliers. If suppliers become increasingly concerned about our financial
condition they may demand quicker payment terms or not extend normal trade
credit, both of which could further adversely affect our working capital
position. We may not be successful in obtaining alternative suppliers if the
need arises and this would adversely affect our results of operations.
THE RECAPITALIZATION PROCESS HAS REQUIRED SIGNIFICANT TIME AND RESOURCES OF OUR
DIRECTORS AND SENIOR MANAGERS, WHICH COULD ADVERSELY AFFECT THE OPERATION OF OUR
BUSINESS.
Our senior managers and directors have needed to spend significant amounts
of their time dealing with the negotiations with bondholders, bank lenders and
other stakeholders in connection with the recapitalization process and it is
likely that they will continue to devote significant amounts of their time to
this process for the forseeable future. This has diverted their time and
resources from managing the operations of our business. If our senior managers
and directors continue to spend significant amounts of their time in connection
with the recapitalization process, this may have a negative impact on our
operations.
WE HAVE HISTORICALLY INCURRED LOSSES AND GENERATED NEGATIVE CASH FLOWS AND WE
CANNOT ASSURE YOU THAT WE WILL BE PROFITABLE IN THE FUTURE.
Construction and operating expenditures and interest costs have resulted in
negative cash flow. We also expect to incur substantial additional losses. We
cannot be certain that we will achieve or sustain profitability in the future.
Failure to achieve profitability has and could in the future diminish our
ability to sustain our operations, obtain additional required funds and make
required payments on our indebtedness.
OUR GROWTH HAS BEEN CURTAILED BY FUNDING CONSTRAINTS.
We have significantly decreased the amount we are spending on capital
expenditures due to our liquidity constraints. As a result, we will be unable to
increase our subscriber numbers in the short term and our revenue may be
adversely affected. The decrease in capital expenditure is the result of our
need to divert increasing amounts of our financial resources to service our
debt. The decrease in capital spending is in line with our current strategy of
maximizing revenue from our existing customers rather than increasing our
customer base. In our residential business in the UK, we expect subscriber
numbers to potentially decrease in 2002. The revenue we expect to result from
our capital expenditure is long-term in nature. The reduction in capital
expenditures for connecting new subscribers to our network will likely lead to a
decrease in the rate of revenue growth in the future. Difficulties in obtaining
additional funding will likely hamper our ability to connect new subscribers to
our network and increase our revenue.
ONE OF OUR KEY STRATEGIES IS TO REDUCE CUSTOMER CHURN. HOWEVER THERE CAN BE NO
ASSURANCE THAT WE WILL SUCCESSFULLY ACCOMPLISH THIS OR THAT OUR CHURN RATE WILL
NOT INCREASE.
We have experienced rapid growth and development in a relatively short
period, either through acquisitions or connecting customers to our network. One
of our biggest challenges as we have grown has been to limit our customer churn
and the successful implementation of our business plan depends upon a reduction
in the percentage of our customers that stop using our services. Factors
contributing to increase of churn during 2001 included the continued integration
of our ConsumerCo acquisition, the existence of multiple billing systems, the
introduction of digital television and our decision to disconnect some of our
poor paying customers.
In order to reduce churn in the future, we aim to improve our customer
service. This improvement will be difficult to obtain without an integrated
billing system and a customer database across our entire network. We do not as
yet have an integrated billing and operational platform.
Another part of our strategy leading to reduction in churn is an increased
take up of broadband services by our existing customers. If this increased level
of take up does not materialize we may have difficulties in reducing churn
levels, thereby adversely impacting our results of operations.
52
FAILURE TO SUCCESSFULLY MARKET BROADBAND TO OUR EXISTING RESIDENTIAL CLIENT BASE
WILL ADVERSELY IMPACT OUR REVENUE AND RESULTS OF OPERATIONS.
A significant component of our strategy to increase our average revenue per
unit is to successfully market broadband products to our existing residential
client base. Broadband usage by residential customers is in its infancy.
However, we believe that our triple play offering of telephony, broadband access
to the Internet and digital television will prove attractive to our existing
customer base and allow us to increase our average revenue per user. However, we
face significant competition in these markets, through digital satellite and
digital terrestrial television and through alternative Internet access media,
such as DSL offered by BT and some of our competitors have substantially greater
financial and technical resources than we do. If we are unable to charge prices
for broadband services that are anticipated in our business plan in response to
competition or if our competition delivers a better product to our customers,
our average revenue per unit and our results of operations will be adversely
affected.
WE HAVE GRANTED SUBSTANTIAL GOVERNANCE AND ECONOMIC RIGHTS IN CONNECTION WITH
THE FRANCE TELECOM INVESTMENT AND HAVE ENTERED INTO TRANSACTIONS WITH FRANCE
TELECOM THAT MAY IMPACT US AND A STOCKHOLDER'S INVESTMENT IN US.
We have granted rights to France Telecom, including the right to appoint
directors, preemptive rights and the right to veto some significant corporate
transactions. Exercise by France Telecom of some or all of such rights may
impact us, including our ability to effect a consensual recapitalization, or the
value of our stock held by persons other than France Telecom. France Telecom is
a holder of our cumulative convertible preferred stock, Series A, which allows
the holders other than commercial banks and their affiliates to exchange such
stock for stock of an entity holding up to 50% of Cablecom.
THE COMPANIES IN WHICH WE HOLD MINORITY INVESTMENTS IN CONTINENTAL EUROPE MAY
REQUIRE ADDITIONAL FINANCING TO COMPLETE THEIR NETWORK ROLLOUTS -- THEIR ABILITY
TO OBTAIN SUCH FINANCING WILL DEPEND ON THEIR ABILITY TO ACCESS THE CAPITAL
MARKETS AND THE VALUE OF OUR INVESTMENT COULD BE REDUCED OR DILUTED.
We have minority investments in broadband cable operations in Germany,
France and Sweden. Each of those companies may require substantial amounts of
additional capital to complete their network rollouts and upgrades and their
ability to obtain that financing will depend, in part, on their ability to
access the capital markets. The ability of those companies to access the capital
markets will be subject not only to the performance of their business and
prospects, but to conditions in the capital markets generally. If those
companies cannot complete their planned expansions and upgrades for any reason,
the value of our investments could be reduced. If those companies issue equity
securities, it is likely that we will not be able to participate which could
lead to substantial dilution of the value of these investments to us.
WE ARE DEPENDENT UPON A SMALL NUMBER OF KEY PERSONNEL.
A small number of key executive officers manage our businesses. The loss of
one or more of these executive officers could have a material adverse effect on
us. We believe that our future success will depend in large part on our
continued ability to attract and retain highly skilled and qualified personnel.
We have not entered into written employment contracts or non-compete agreements
with, nor have we obtained life insurance policies covering those key executive
officers.
OUR PRINCIPAL BUSINESSES ARE SUBJECT TO GOVERNMENT REGULATION, INCLUDING PRICING
REGULATION, AND CHANGES IN CURRENT REGULATIONS MAY ADVERSELY AFFECT US.
Our principal business activities in the UK, the Republic of Ireland,
France, Switzerland and Australia and the activities of the companies in which
we have investments in Germany and Sweden are regulated and supervised by
various governmental bodies. Changes in laws, regulations or governmental policy
or the interpretations of those laws or regulations affecting our activities and
those of our competitors, such as licensing requirements, changes in price
regulation and deregulation of interconnection arrangements, could have a
material adverse effect on us.
53
We are also subject to regulatory initiatives of the European Commission.
Changes in EU Directives may reduce our range of programming and increase the
costs of purchasing television programming or require us to provide access to
our cable network infrastructure to other service providers, which could have a
material adverse effect on us.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGES AND WE
CANNOT PREDICT THE EFFECT OF ANY CHANGES ON OUR BUSINESSES.
The telecommunications industry is subject to rapid and significant changes
in technology and the effect of technological changes on our businesses cannot
be predicted. Our core offerings may become outdated due to technological
breakthroughs rendering our products out of date. In addition, our business plan
contemplates the introduction of services using new technologies. Cablecom and
the operations in which we have an interest in France, Germany and Sweden intend
to introduce voice over Internet protocol, or VoIP, voice telephony services
across their networks. Customer demand for this service is uncertain as
customers may not readily switch from their current telephony service,
especially if the quality of the service is not or is perceived not to be
comparable to other telephony services. Similarly, our investments in other new
services such as those related to the 3G mobile network may prove premature and
we may not realize anticipated returns on these new products. The cost of
implementation for emerging and future technologies could be significant, and
our ability to fund such implementation may depend on our ability to obtain
additional financing. We cannot be certain that we would be successful in
obtaining any additional financing required.
WE DO NOT INSURE THE UNDERGROUND PORTION OF OUR CABLE NETWORK.
We obtain insurance of the type and in the amounts that we believe are
customary for similar companies. Consistent with this practice, we do not insure
the underground portion of our cable network. Substantially all of our cable
network is constructed underground. Any catastrophe that affects our underground
cable network could result in substantial uninsured losses.
WE ARE SUBJECT TO CURRENCY RISK BECAUSE WE OBTAIN A SUBSTANTIAL AMOUNT OF
FINANCING IN U.S. DOLLARS AND EURO BUT GENERALLY GENERATE REVENUES AND INCUR
EXPENSES IN OTHER CURRENCIES.
We encounter currency exchange rate risks because we generate revenues and
incur construction and operating expenses in other currencies, primarily in
pounds sterling while we pay interest and principal obligations with respect to
most of our existing indebtedness in U.S. dollars and Euro. We cannot assure you
that the hedging transactions we have entered into or any other hedging
transactions we might enter into will be successful or that shifts in the
currency exchange rates will not have a material adverse effect on us. For
example, to the extent that the pound sterling declines in value against the
U.S. dollar and, to a lesser extent, the Euro, and we have not fully hedged
against such declines, the effective cost of servicing our U.S. dollar and Euro
debt will be higher and we will incur currency losses.
WE CURRENTLY DO NOT HAVE SURPLUS AVAILABLE UNDER DELAWARE LAW TO PAY DIVIDENDS
ON OR TO REDEEM OUR CAPITAL STOCK.
Under Delaware law, unless a corporation has available surplus it cannot
pay dividends on or redeem its capital stock, including its preferred stock. As
of and for the year ended December 31, 2001, we have written down the carrying
value of some of our assets, particularly goodwill. This write down has left us
without available surplus under Delaware law and means that we will be unable to
pay dividends on or redeem any of our capital stock, including our preferred
stock, until such time as we again have available surplus. If dividends remain
unpaid for six quarters on certain series of our preferred stock, then the
holders of each such series shall have the right to vote separately as a class
on all matters voted on by NTL Incorporated shareholders and shall have the
right, along with other holders of preferred stock with similar default voting
rights, to elect two directors to our board. Similarly, if we fail to redeem the
Noos preferred stock on May 18, 2002 as we expect, the holders of such Noos
preferred stock will have the right, along with other holders of preferred stock
with similar default voting rights, to elect two directors to our board and
shall have the right to vote separately as a class, on all matters brought to
NTL Incorporated shareholders.
54
We have never paid cash dividends on our common stock. In addition, the
payment of any dividends by us in the future will be at the discretion of our
board of directors and will depend upon, among other things, future earnings,
operations, capital requirements, our general financial condition and the
general financial condition of our subsidiaries.
Furthermore, the indentures governing NTL Communications Corp.'s
non-convertible senior notes and the indentures governing the outstanding notes
issued by Diamond and NTL Triangle impose limitations on the payment of
dividends to us and consequently limit amounts available for us to pay dividends
on our common stock. Further, the terms of our subsidiaries' senior credit
facilities and working capital facilities restrict, and the terms of other
future indebtedness of our subsidiaries may generally restrict the ability of
some of our subsidiaries to distribute earnings to NTL Incorporated or make
other payments to NTL Incorporated. The terms of Cablecom's credit facilities
also restrict the ability of Cablecom to distribute earnings and make other
payments to NTL Incorporated.
SOME PROVISIONS OF THE AGREEMENTS GOVERNING OUR INDEBTEDNESS AND THE
INDEBTEDNESS OF OUR SUBSIDIARIES AND CERTAIN PROVISIONS OF NTL INCORPORATED'S
CERTIFICATE OF INCORPORATION COULD DELAY OR PREVENT TRANSACTIONS INVOLVING A
CHANGE OF CONTROL OF NTL.
Provisions of the agreements governing our outstanding indebtedness and the
indebtedness of our subsidiaries, which either require such indebtedness to be
repaid or give the holder the option to require repayment, could have the effect
of delaying or preventing transactions involving a change of control of NTL and
its subsidiaries, including transactions in which stockholders might otherwise
receive a substantial premium for their shares over then current market prices,
and may limit the ability of stockholders of NTL Incorporated to approve
transactions that they may deem to be in their best interest.
Our certificate of incorporation contains provisions which may have the
effect, alone or in combination with each other or with the existence of
authorized but unissued common stock and preferred stock, of preventing or
making more difficult transactions involving a change of control of NTL.
Our stockholder rights plan has a significant anti-takeover effect. As a
result, no change of control of NTL Incorporated requiring stockholder approval
is possible without the consent of the owners of that preferred stock.
NTL INCORPORATED, NTL DELAWARE, NTL COMMUNICATIONS CORP., DIAMOND AND NTL
TRIANGLE ARE HOLDING COMPANIES THAT ARE DEPENDENT UPON RECEIPT OF SUFFICIENT
FUNDS FROM THEIR SUBSIDIARIES OR PARENT COMPANIES TO MEET THEIR OBLIGATIONS --
THEIR ABILITY TO ACCESS THAT CASH FLOW MAY BE LIMITED IN SOME CIRCUMSTANCES.
NTL Incorporated, NTL Delaware, NTL Communications Corp., Diamond Cable
Communications and Diamond Holdings and NTL Triangle are holding companies with
no independent operations or significant assets other than investments in and
advances to their respective subsidiaries and affiliated joint ventures. Each of
these companies depends upon the receipt of sufficient funds from their
subsidiaries or their respective parent companies to meet their respective
obligations. The terms of existing and future indebtedness of their respective
subsidiaries and the laws of the jurisdictions under which those subsidiaries
are organized generally limit the payment of dividends, loan repayments and
other distributions to them, subject in some cases to exceptions that allow them
to service indebtedness in the absence of specified defaults.
OUR COMMON STOCK HAS BEEN SUSPENDED FROM THE NEW YORK STOCK EXCHANGE DUE TO THE
FAILURE TO MEET THE $1 AVERAGE CLOSING PRICE REQUIREMENT AND THE MINIMUM MARKET
CAPITALIZATION REQUIREMENTS; THERE MAY NOT BE A LIQUID MARKET FOR OUR COMMON
STOCK AND OUR COMMON STOCK COULD BE A "PENNY STOCK" AS THAT TERM IS DEFINED IN
THE EXCHANGE ACT
On March 28, 2002, our common stock was suspended from trading on the NYSE
pending delisting due to the low trading price and low market capitalization
relative to the NYSE requirements. The stock last traded on the NYSE on March
26, 2002 at a price of $0.20. Our common stock began trading on the over-the-
counter bulletin board effective April 1, 2002 under the symbol "NTLD". However,
there can be no assurance that a liquid market will develop for our common stock
on the OTC bulletin board.
55
Furthermore, as a result of our suspension from the New York Stock
Exchange, our common stock could be a "penny stock" as that term is defined in
the Exchange Act. Brokers effecting transactions in a "penny stock" are subject
to additional customer disclosure and record keeping obligations including
disclosure of the risks associated with low price stocks, stock quote
information and broker compensation. In addition, brokers effecting transactions
in a "penny stock" are also subject to additional sales practice requirements
under Rule 15g-9 of the Exchange Act including making inquiries into the
suitability of "penny stock" investments for each customer or obtaining a prior
written agreement for the specific "penny stock" purchase. Because of these
additional obligations, some brokers will not effect transactions in "penny
stocks", which could have an adverse effect on the liquidity of the security and
make buying or selling it more difficult.
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, 2001 and 2000.
<Table>
<Caption>
2001(1)
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- ------------ -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues...................................... $ 894.8 $ 899.2 $ 928.0 $ 977.2
Operating (loss).............................. (658.3) (682.8) (635.8) (10,405.7)
Net (loss).................................... (1,042.9) (1,029.2) (1,031.5) (11,137.7)
Basic and diluted net (loss) per common
share....................................... (4.04) (4.00) (4.05) (40.61)
</Table>
<Table>
<Caption>
2000(2)
--------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- --------- ------------ -----------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenues...................................... $ 490.9 $ 666.3 $ 830.7 $ 852.9
Operating (loss).............................. (191.1) (330.4) (525.8) (871.6)
Net (loss).................................... (397.7) (616.5) (770.3) (1,179.2)
Basic and diluted net (loss) per common
share....................................... (3.02) (3.57) (3.08) (4.57)
</Table>
(1) In the fourth quarter of 2001, the Company recorded asset impairments
totaling $9,511.3 million including goodwill of $8,840.5 million, license
acquisition costs of $58.8 million, customer lists of $9.1 million, other
intangibles of $14.9 million, investments in affiliates of $463.7 million
and other assets of $124.3 million. In addition, in 2001 the Company
recorded restructuring costs of $209.6 million, integration and consulting
costs of $102.1 million and losses on the 1G transaction and the sale of the
ConsumerCo off-net indirect access customers of $147.4 million.
(2) In March 2000, the Company purchased Cablecom for an aggregate purchase
price of $3,528.7 million, including intangibles of $2,355.3 million. In May
2000, the Company purchased ConsumerCo for an aggregate purchase price of
$13,111.0 million, including intangibles of $8,879.0 million. The net assets
and results of operations of Cablecom and ConsumerCo are included in the
consolidated financial statements from their respective dates of
acquisition.
56
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.
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 57.
(b) During the fourth quarter of 2001, the Company filed the following
Current Reports on Form 8-K:
(i) Report dated October 3, 2001 (filed October 4, 2001) reporting
under Item 5, Other Events, that NTL Incorporated issued a press release
announcing the successful completion of $250 million vendor financing and
$294 million GE Capital facilities.
(ii) Report dated October 29, 2001 (filed October 29, 2001) reporting
under Item 5, Other Events, that NTL Incorporated issued a press release
inviting the general public to its 3rd Quarter 2001 financial results
conference call.
(iii) Report dated November 7, 2001 (filed November 7, 2001) reporting
under Item 5, Other Events, that NTL Incorporated announced financial
results for three and nine months ended September 30, 2001.
(iv) Report dated November 26, 2001 (filed November 26, 2001)
reporting under Item 5, Other Events, that NTL Incorporated issued a press
release announcing the merger of its 1G operations in France with Noos, the
leading French broadband communications company.
(v) Report dated December 10, 2001 (filed December 10, 2001) reporting
under Item 5, Other Events, that NTL Incorporated issued a press release
announcing a series of cost cutting initiatives.
(vi) Report dated December 18, 2001 (filed December 18, 2001)
reporting under Item 5, Other Events, that NTL Incorporated issued a press
release announcing the continuation of strategic discussions regarding its
broadcast and Continental Europe operations.
(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.
57
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NO.
- --------
2.1 Agreement and Plan of Merger, dated as of February 9, 2000,
by and among NTL Incorporated, NTL Communications Corp. and
Holdings Merger Sub Inc. (Incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to the Registration Statement
on Form S-3/A, filed by NTL (Delaware), Inc. and NTL
Incorporated on July 14, 2000, File No. 333-36434)
2.2 Agreement and Plan of Merger, dated as of March 26, 1999, by
and among the Company, NTL Communications and NTL Merger
Inc.(Incorporated by reference to Exhibit 2.1 to Amendment
No. 2 to the Registration Statement on Form S-3/A, filed by
NTL Incorporated and NTL Communications Corp. on June 3,
1999, File No. 333-72335)
2.3 Agreement and Plan of Amalgamation, dated as of February 4,
1998, as amended, by and among the Company, NTL (Bermuda)
Limited, and Comcast UK Cable Partners Limited (Incorporated
by reference to the Registration Statement on Form S-4,
filed by NTL Incorporated on September 30, 1998, File No.
333-64727)
2.4 Amendment No. 1 to Agreement and Plan of Amalgamation, dated
as of May 28, 1998, by and among the Company, NTL (Bermuda)
Limited and Comcast UK Cable Partners Limited (Incorporated
by reference to Annex B to the Registration Statement on
Form S-4, filed by NTL Incorporated on September 30, 1998,
File No. 333-64727)
2.5 Share Exchange Agreement, dated as of June 16, 1998, as
amended, by and among the Company and the shareholders of
Diamond Cable Communications plc (Incorporated by reference
to Annex A to the Proxy Statement, filed by NTL Incorporated
on January 29, 1999, File No. 000-22616)
2.6 Amendment No. 1 to Share Exchange Agreement, dated as of
December 21, 1998, by and among the Company and the
shareholders of Diamond Cable Communications plc
(Incorporated by reference to Exhibit 99.1 to Form 8-K,
filed by NTL Incorporated on December 23, 1998, File No.
000-22616)
2.7 Transaction Agreement, dated as of July 26, 1999, by and
among, Bell Atlantic Corporation, Cable and Wireless PLC,
Cable, Wireless Communications PLC and NTL Incorporated
(Incorporated by reference to Annex J to the Proxy
Statement, filed by NTL Incorporated on February 11, 2000,
File No. 000-25691)
2.8 Investment Agreement, dated as of July 26, 1999, by and
between, NTL Incorporated and France Telecom S.A.
(Incorporated by reference to Annex A the Proxy Statement,
filed by NTL Incorporated on February 11, 2000, File No.
000-25691)
2.8(a) Amendment No. 1 to the Investment Agreement, dated as of
August 6, 1999 by and among NTL Incorporated and France
Telecom S.A.(Incorporated by reference Annex B to the Proxy
Statement, filed by NTL Incorporated on February 11, 2000,
File No. 000-25691)
2.8(b) Amendment No. 2 to the Investment Agreement, dated as of
October 8, 1999 by and among NTL Incorporated and France
Telecom S.A.(Incorporated by reference to Annex C to the
Proxy Statement, filed by NTL Incorporated on February 11,
2000, File No. 000-25691)
2.9 Purchase Agreement, dated as of February 17, 2000, by and
between France Telecom, S.A. and NTL Incorporated
(Incorporated by reference to Exhibit 99.3 to the Form 8-K,
filed by NTL Incorporated on February 22, 2000, File No.
000-25691)
2.10 Transaction Agreement dated as of December 12, 1999 by and
among Cablecom Holding AG and NTL Incorporated and certain
other parties thereto (Incorporated by reference to Exhibit
2.9 to the 1999 Annual Report on Form 10-K, filed by NTL
Incorporated on March 17, 2000, File No. 000-25691)
3.1 Restated Certificate of Incorporation of NTL Incorporated
(Incorporated by reference to Exhibit 3.1 to the 2000 Form
10-K, filed by NTL Incorporated on March 30, 2001, File No.
000-30673)
</Table>
58
<Table>
<Caption>
EXHIBIT
NO.
- --------
3.1(a) Certificate of Designation, filed on May 17, 2001, in
respect of NTL Incorporated's 6.5% Fixed Coupon Redeemable
Preferred Stock, Series A (Incorporated by reference to
Exhibit 3.1 to the Quarterly Report on Form 10-Q, NTL
Incorporated on August 14, 2001, File No. 001-16183)
3.1(b) Certificate of Designation, filed on May 17, 2001, in
respect of NTL Incorporated's Variable Coupon Redeemable
Preferred Stock, Series A (Incorporated by reference to
Exhibit 3.1 the Quarterly Report Form 10-Q, NTL Incorporated
on August 14, 2001, File No. 001-16183)
3.1(c) Certificate of Designation, filed on September 12, 2001, in
respect of NTL Incorporated's Cumulative Convertible
Preferred Stock, Series A (Incorporated by reference to
Exhibit 3.1 to the Quarterly Report on Form 10-Q, filed by
NTL Incorporated on November 14, 2001, File No. 001-16183)
3.1(d) Certificate of Correction, filed on September 28, 2001, in
respect of NTL Incorporated's Cumulative Convertible
Preferred Stock, Series A (Incorporated by reference to
Exhibit 3.2 to the Quarterly Report on Form 10-Q, filed by
NTL Incorporated on November 14, 2001, File No. 001-16183)
3.1(e) Certificate of Elimination, filed November 20, 2001, in
respect of NTL Incorporated's 9.9% Mandatorily Redeemable
Preferred Stock, Series B*
3.1(f) Certificate of Elimination, filed on November 20, 2001, in
respect of NTL Incorporated's 5% Cumulative Preferred Stock,
Series A*
3.1(g) Certificate of Designation, filed on January 2, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series H*
3.1(h) Certificate of Designation, filed on January 2, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series B-3*
3.1(i) Certificate of Designation, filed on April 2, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series I*
3.1(j) Certificate of Designation, filed on April 2, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series B-4*
3.1(k) Certificate of Correction, filed on June 18, 2001, in
respect of NTL Incorporated's Variable Coupon Redeemable
Preferred Stock, Series A*
3.1(l) Certificate of Designation, filed on July 2, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series J*
3.1(m) Certificate of Designation, filed on July 2, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series B-5*
3.1(n) Certificate of Designation, filed on October 1, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series K*
3.1(o) Certificate of Designation, filed on October 1, 2001, in
respect of NTL Incorporated's 5% Cumulative Participating
Convertible Preferred Stock, Series B-6*
3.2 By-Laws of NTL Incorporated (Incorporated by reference to
Exhibit 3.4 to Amendment No. 1 to the Registration Statement
on Form S-3/A, filed by NTL Communications Corp. on June 3,
1999, File No. 333-72335)
4.1 Specimen of Common Stock Certificate (Incorporated by
reference to Exhibit 4.2 to Amendment No. 2 to the
Registration Statement on Form S-1/A, filed by International
Cabletel Inc. on September 9, 1993, File No. 33-63692)
4.2 Form of Indenture, dated as of September 28, 1994, by and
between Diamond Cable Communications plc, and The Bank of
New York as Trustee, with respect to the 13 1/4% Senior
Discount Notes due September 30, 2004 (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on
Form S-1, filed by Diamond Cable Communications plc on
September 6, 1994, File No. 33-83740)
</Table>
59
<Table>
<Caption>
EXHIBIT
NO.
- --------
4.3 First Supplemental Indenture, dated as of May 31, 1996, by
and between Diamond Cable Communications plc and The Bank of
New York as Trustee (Incorporated by reference to Exhibit
4.3 to Post-Effective Amendment No. 4 to the Registration
Statement on Form S-1, filed by Diamond Cable Communications
plc on September 12, 1996, File No. 33-83740)
4.4 Indenture, dated as of April 20, 1995, by and between NTL
Communications Corp. and Chemical Bank as Trustee, with
respect to the 12 3/4% Senior Notes (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on
Form S-4, filed by International CableTel Incorporated on
May 26, 1995, File No. 33-92794)
4.5 First Supplemental Indenture, dated as of January 22, 1996,
by and between NTL Communications Corp. and Chemical Bank,
as Trustee, with respect to the 12 3/4% Senior Notes
(Incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form S-4, filed by International
CabelTel Incorporated on February 5, 1996, File No.
333-1010)
4.6 Indenture, dated as of November 11, 1995, by and between
Comcast UK Cable Partners Limited and Bank of Montreal Trust
Company as Trustee with respect to the 11.20% Senior
Discount Debentures due 2007 (Incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Registration Statement
on Form S-1/A filed by Comcast UK Cable Partners Limited on
November 5, 1995, File No. 33-96932)
4.7 First Supplemental Indenture, dated October 29, 1998, by and
between NTL (Bermuda) Limited (now NTL Triangle) LLC) and
Bank of Montreal Trust Company as Trustee, with respect to
the 11.20% Senior Discount Debentures due 2007 (Incorporated
by reference to Exhibit 4.1 to Form 8-K, filed by NTL
(Triangle) LLC on November 4, 1998, File No. 000-24792)
4.8 Indenture, dated as of December 15, 1995, by and between
Diamond Cable Communications plc, and The Bank of New York
as Trustee, with respect to the 11 3/4% Senior Discount
Notes due December 15, 2005 (Incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Registration Statement
on Form S-1/A, filed by Diamond Cable Communications plc on
December 6, 1995, File No. 33-98374)
4.9 Indenture, dated as of January 30, 1996, by and between NTL
Communications and Chemical Bank as Trustee, with respect to
the 11 1/2% Senior Notes due 2006 (Incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-4,
filed by International CabelTel Incorporated on February 5,
1996, File No. 333-1010)
4.10 Indenture, date as of February 12, 1997, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 10% Senior Notes (Incorporated
by reference to Exhibit 4.9 to the 1996 Annual Report on
Form 10-K, filed by NTL Incorporated on March 28, 1997, File
No. 000-22616)
4.11 Indenture, dated as of February 27, 1997, by and between
Diamond Cable Communications plc and The Bank of New York as
Trustee, with respect to the 10 3/4% Senior Discount Notes
due February 15, 2007 (Incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-4, filed by
Diamond Cable Communications plc on April 15, 1997, File No.
333-25193)
4.12 Indenture, dated as of February 6, 1998, by and among
Diamond Holdings plc, Diamond Cable Communications plc, and
The Bank of New York as Trustee, with respect to the 10%
Senior Notes due February 1, 2008 and 9 1/8% Senior Notes
due February 1, 2008 (Incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-4, filed by
Diamond Cable Communications plc on March 20, 1998, File No.
333-48413)
4.13 Indenture, dated as of March 13, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 9 1/2% Senior Notes
(Incorporated by reference to Exhibit 4.10 to the 1997
Annual Report on Form 10-K filed by NTL Communications (File
No. 0-22616) on March 30, 1998)
</Table>
60
<Table>
<Caption>
EXHIBIT
NO.
- --------
4.14 Indenture, date as of March 13, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 9 3/4% Senior Deferred Coupon
Notes (Incorporated by reference to Exhibit 4.11 to the 1997
Annual Report on Form 10-K, filed by NTL Incorporated on
March 30, 1998, File No. 000-22616)
4.15 Indenture, date as of March 13, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 10 3/4% Senior Deferred Coupon
Notes (Incorporated by reference to Exhibit 4.12 to the 1997
Annual Report on Form 10-K, filed by NTL Incorporated on
March 30, 1998, File No. 000-22616)
4.16 Indenture, date as of November 2, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 11 1/2% Senior Notes due 2008
(Incorporated by reference to Exhibit 4.13 to the 1998
Annual Report on Form 10-K, filed by NTL Incorporated on
March 30, 1999, File No. 000-22616)
4.17 Indenture, date as of November 6, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 12 3/8% Senior Deferred Coupon
Notes due 2008 (Incorporated by reference to Exhibit 4.15 to
the 1998 Annual Report on Form 10-K, filed by NTL
Incorporated on March 30, 1999, File No. 000-22616)
4.18 Indenture, date as of December 16, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 7% Convertible Subordinated
Notes due 2008 (Incorporated by reference to Exhibit 4.17 to
the 1998 Annual Report on Form 10-K, filed by NTL
Incorporated on March 30, 1999, File No. 000-22616)
4.19 First Supplemental Indenture, date as of March 31, 1999, by
and among NTL Incorporated, NTL Communications Corp. and The
Chase Manhattan Bank, as Trustee, with respect to the 7%
Convertible Subordinated Notes due 2008 (Incorporated by
reference to Exhibit 4.4 to Amendment No. 2 to the
Registration Statement on Form S-3/A, filed by NTL
Incorporated and NTL Communications Corp. on June 3, 1999,
File No. 333-72335)
4.20 Second Supplemental Indenture, dated as of March 16, 2000,
by and among NTL Incorporated, NTL Communications Corp.
(formerly NTL Incorporated) and The Chase Manhattan Bank as
Trustee, with respect to the 7% Convertible Subordinated
Notes due 2008 (Incorporated by reference to Exhibit 4.3 to
Amendment No. 1 to the Registration Statement on Form S-3/A
, filed by NTL Incorporated, NTL (Delaware), Inc. and NTL
Communications Corp. on August 30, 2000, File No. 333-42792)
4.21 Third Supplemental Indenture, dated as of May 17, 2000, by
and among NTL Incorporated, NTL Communications Corp.
(formerly NTL Incorporated) and The Chase Manhattan Bank as
Trustee, with respect to the 7% Convertible Subordinated
Notes due 2008 (Incorporated by reference to Exhibit 4.4 to
Amendment No. 1 to the Registration Statement on Form S-3/A,
filed by NTL Incorporated, NTL (Delaware), Inc. and NTL
Communications Corp. on August 30, 2000, File No. 333-42792)
4.22 Indenture, dated as of April 14, 1999, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 9 3/4% Senior Deferred Coupon
Notes due 2009 (Incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-4, filed by NTL
Communications Corp. on May 13, 1999, File No. 333-78405)
4.23 Indenture, dated as of November 24, 1999, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 9 1/4% Senior Notes due 2006
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, filed by NTL
Communications Corp. on January 24, 2000, File No.
333-95267)
4.24 Indenture, dated as of November 24, 1999, by and between NTL
Communication Corp. and The Chase Manhattan Bank as Trustee,
with respect to the 9 7/8% Senior Notes Due 2009
(Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4, filed by NTL
Communication Corp. on January 24, 2000, File No. 333-95267)
</Table>
61
<Table>
<Caption>
EXHIBIT
NO.
- --------
4.25 Indenture, dated as of November 24, 1999, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 11 1/2% Senior Deferred Coupon
Notes due 2009 (Incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-4, filed by NTL
Communications Corp. on January 24, 2000, File No.
333-95267)
4.26 Indenture, dated as of December 22, 1999, by and between NTL
Incorporated and The Chase Manhattan Bank as Trustee, with
respect to the 5 3/4% Convertible Subordinated Notes Due
2009 (Incorporated by reference to Exhibit 4.28 to the 1999
Annual Report on Form 10-K, filed by NTL Incorporated on
March 17, 2000, File No. 000-25691)
4.27 First Supplemental Indenture, dated as of May 17, 2000, by
and between NTL Incorporated and The Chase Manhattan Bank as
Trustee, with respect to the 5 3/4% Convertible Subordinated
Notes due 2009 (Incorporated by reference to Exhibit 4.2 to
Amendment No. 1 to the Registration Statement on Form S-3/A,
filed by NTL (Delaware), Inc. and NTL Incorporated on July
14, 2000, File No. 333-36434)
4.28 Indenture, dated as of October 2, 2000, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 11 7/8% Senior Notes due 2010
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, filed by NTL
Communications Corp. on October 26, 2000, File No.
333-48648)
4.29 Indenture, dated as of January 24, 2001, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 12 3/8% Senior Notes due 2008
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, filed by NTL
Communications Corp. on February 9, 2001, File No.
333-55288)
4.30 Indenture, dated as of May 15, 2001, by and between NTL
Communications Corp., NTL Incorporated and The Chase
Manhattan Bank, as Trustee, with respect to the 6 3/4%
Convertible Senior Notes due 2008 (Incorporated by reference
to Exhibit 4.7 to Amendment No. 1 to the Registration
Statement on Form S-4/A, filed by NTL Communications Corp.
on June 8, 2001, File No. 333-55288)
4.31 Indenture, dated as of June 22, 2001 by and between NTL
Incorporated, NTL (Delaware), Inc. and The Chase Manhattan
Bank, as Trustee, with respect to the 5 3/4% convertible
subordinated notes due 2011**
4.32 First Supplemental Indenture, dated as of July 27, 2001 by
and among NTL Incorporated, NTL (Delaware), Inc. and The
Chase Manhattan Bank, as Trustee, with respect to the 5 3/4%
convertible subordinated notes due 2011**
4.33 Registration Rights Agreement, dated as of February 2, 2000,
by and between NTL Incorporated and Bell Atlantic
Corporation (Incorporated by reference to Annex H to the
Proxy Statement, filed by NTL Incorporated on February 11,
2000, File No. 000-25691)
4.33(a) Amendment No. 1 to the Registration Rights Agreement, dated
as of November 30, 2000 by and between NTL Incorporated and
Verizon Communications Inc. (formerly known as Bell Atlantic
Corporation) (Incorporated by reference to Exhibit 4.30A to
the Registration Statement on Form S-3, filed by NTL
Incorporated and NTL Communications Corp. on July 24, 2001,
File No. 333-65742)
4.33(b) Amendment No. 2 to the Registration Rights Agreement, dated
as of March 31, 2001 by and between NTL Incorporated and
Verizon Communications Inc. (formerly known as Bell Atlantic
Corporation) (Incorporated by reference to Exhibit 4.30B to
the Registration Statement on Form S-3, filed by NTL
Incorporated and NTL Communications Corp. on July 24, 2001,
File No. 333-65742)
4.33(c) Amendment No. 3 to the Registration Rights Agreement, dated
as of June 30, 2001 by and between NTL Incorporated and
Verizon Communications Inc. (formerly known as Bell Atlantic
Corporation) (Incorporated by reference to Exhibit 4.30C to
the Registration Statement on Form S-3, filed by NTL
Incorporated and NTL Communications Corp. on July 24, 2001,
File No. 333-65742)
</Table>
62
<Table>
<Caption>
EXHIBIT
NO.
- --------
4.34 Registration Rights Agreement, dated as of February 2, 2000,
by and between NTL Incorporated and Cable & Wireless plc
(Incorporated by reference to Annex G to the Proxy
Statement, filed by NTL Incorporated on February 11, 2000,
File No. 000-25691)
4.35 Registration Rights Agreement, dated as of May 30, 2000, by
and between NTL Incorporated and France Telecom, with
respect to the 5% Cumulative Participating Convertible
Preferred Stock Series A (Incorporated by reference to
Exhibit 4.33 to the 2000 Annual Report on Form 10-K, filed
by NTL Incorporated on March 30, 2001, File No. 001-16183)
4.36 Registration Rights Agreement dated as of May 15, 2001 by
and among NTL Communications Corp., NTL Incorporated, Morgan
Stanley & Co. Incorporated, J.P. Morgan Securities Inc.,
Credit Suisse First Boston Corporation and Salomon Smith
Barney Inc. with respect to the 6 3/4% Convertible Senior
Notes due 2008 (Incorporated by reference to Exhibit 4.8 to
Amendment No. 1 to the Registration Statement on Form S-4/A,
filed by NTL Communications Corp. on June 8, 2001, File No.
333-55288)
4.37 Registration Rights Agreement dated as of June 22, 2001 by
and among NTL Incorporated, NTL (Delaware), Inc. and SFG VI
Inc. with respect to shares of common stock issuable upon
conversion of the 5 3/4 % Convertible Notes due 2011
(Incorporated by reference to Exhibit 4.40 to the
Registration Statement on Form S-3, filed by NTL
Incorporated on July 24, 2001, File No. 333-65744)
4.38 Form of Preferred Stock (Incorporated by reference to
Exhibit 4.13 to the 1996 Annual Report on Form 10-K, filed
by NTL Incorporated on March 28, 1997, File No. 000-22616)
4.39 Rights Agreement, dated as of September, 1993, by and
between NTL Incorporated and Continental Stock Transfer &
Trust Company (Incorporated by reference to Exhibit 4.2 to
Amendment No. 1 to the Registration Statement of Form S-1,
filed by International CableTel, Inc. on August 11, 1993,
File No. 33-63570)
4.39(a) Amendment No. 1 to the Rights Agreement, dated as of March
31, 1999, by and between NTL Incorporated and Continental
Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form S-8, filed by NTL
Incorporated on April 20, 1999, File No. 333-76601)
4.39(b) Amendment No. 2 to the Rights Agreement, dated as of October
23, 1999, by and between NTL Incorporated and Continental
Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.48B to the 1999
Annual Report on Form 10-K, Incorporated, filed by NTL
Incorporated on March 17, 2000, File No. 000-25691)
4.39(c) Amendment No. 3 to the Rights Agreement, dated as of March
28, 2000, by and between NTL Incorporated and Continental
Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to Exhibit 4.34.C to the 2000
Annual Report on Form 10-K, filed by NTL Incorporated on
March 30, 2001, File No. 001-16183)
4.39(d) Amendment No. 4 to the Rights Agreement, dated as of May 17,
2000, by and between NTL Incorporated and Continental Stock
Transfer & Trust Company, as Rights Agent (Incorporated by
reference to Exhibit 4.34.D to the 2000 Annual Report on
Form 10-K filed by NTL Incorporated on March 30, 2001, File
No. 001-16183)
4.39(e) Amendment No. 5 to the Rights Agreement, dated as of May 25,
2000, by and between Incorporated and Continental Stock
Transfer & Trust Company, as Rights Agent (Incorporated by
reference to Exhibit 4.34.E to the 2000 Annual Report on
Form 10-K, filed by NTL Incorporated on March 30, 2001, File
No. 001-16183)
4.39(f) Amendment to Amendment No. 3 to the Rights Agreement, dated
as of September 12, 2001, by and between NTL Incorporated
and Continental Stock Transfer & Trust Company, as Rights
Agent (Incorporated by reference Exhibit 4.1 to the
Quarterly Report on Form 10-Q, filed by NTL Incorporated on
November 14, 2001, File No. 000-30673)
4.40 Exchange Agreement, dated as of September 12, 2001, by and
among the Company and France Telecom S.A. and the other
parties thereto (Incorporated by reference to Exhibit 4.2 to
the Quarterly Report on Form 10-Q, filed by NTL Incorporated
on November 14, 2001, File No. 001-16183)
</Table>
63
<Table>
<Caption>
EXHIBIT
NO.
- --------
4.41 Deposit Agreement, dated as of June 22, 2001, by and among
NTL Incorporation, NTL (Delaware), Inc. and United States
Trust Company of New York, as depositary (Incorporated by
reference to Exhibit 4.29 to Amendment 1 to the Registration
Statement on Form S-3/A, filed by NTL Incorporated on August
16, 2001, File No. 333-65744)
10.1 Compensation Plan and Agreements, as amended and restated
effective June 3, 1997 (Incorporated by reference to Exhibit
10.1 to the 1997 Annual Report on Form 10-K, filed by NTL
Communications on March 30, 1998, File No. 0-22616)
10.2 Rules of the NTL Sharesave Plan, adopted by NTL Incorporated
on October 28, 1997 (Incorporated by reference to Exhibit
10.2 to the 1998 Annual Report on Form 10-K, filed by NTL
Communications, on March 30, 1999, File No. 0-22616)
10.3 Form of Director and Officer Indemnity Agreement (together
with a schedule of executed Indemnity Agreements)
(Incorporated by reference to Exhibit 10.3 to the 1999
Annual Report on Form 10-K, filed by NTL Incorporated on
March 17, 2000, File No. 000-25691)
10.4 1998 Non-Qualified Stock Option Plan, as Amended and
Restated October 1998 (Incorporated by reference to Exhibit
10.4 to the 1998 Annual Report on Form 10-K, filed by NTL
Communications on March 30, 1999, File No. 0-22616)
10.5 Credit Agreement relating to the acquisition of Cable &
Wireless Communications (Holdings) PLC, dated as of May 30,
2000, by and among NTL Communications Limited, NTL Business
Limited, NTL Communications Corp., Chase Manhattan PLC and
Morgan Stanley Dean Witter Limited, Chase Manhattan
International Limited (Incorporated by reference to Exhibit
10.8 to the 2000 Annual Report on Form 10-K, filed by NTL
Incorporated on March 30, 2001, File No. 001-16183)
10.6 Restatement Amendment Agreement dated as of September 26,
2001 by and among NTL Communications Limited, NTL Investment
Holdings Limited, NTL Communications Corp., J.P. Morgan plc
and Morgan Stanley Dean Witter Bank Limited, Chase Manhattan
International Limited and others, agreeing to amend the
Credit Agreement, dated as of May 30, 2000, between NTL
Communications Corp., NTL (UK) Group, Inc., NTL
Communications Limited, Morgan Stanley Dean Witter Bank
Limited and Chase Manhattan PLC*
10.6(a) Amended and Restated Credit Agreement dated as of September
26, 2001, restating the Credit Agreement dated as of 30 May
2000, as amended or waived pursuant to a letter dated as of
6 June 2000, amendment agreements dated as of 8 June 2000,
30 June 2000 and 4 September 2000, a novation agreement
dated as of 21 February 2001 and letters of consent dated as
of 22 December 2000 and 29 January 2001 by and among NTL
Communications Limited, NTL Investment Holdings Limited, NTL
Communications Corp., J.P. Morgan plc and Morgan Stanley
Dean Witter Bank Limited, Chase Manhattan International
Limited and others*
10.7 Credit Agreement dated 28 March 2000, by and among NTL
Incorporated, NTL Cablecom Holding GmbH, Cablecom
(Ostschweiz) AG and Chase Manhattan plc and Morgan Stanley
Senior Funding, Inc., as Arrangers and Joint Book Managers,
Chase Manhattan International Limited as Agent and Others
Term, comprising a Loan Facility and a Revolving Credit
Facility (Incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-3, filed by NTL
Incorporated and NTL Communications Corp. on July 24, 2001,
File No. 333-65742)
10.8 Investment Agreement, dated July 26, 1999, as amended, by
and between the Company and France telecom S.A (Incorporated
by reference to Annex A to the proxy statement filed by NTL
Incorporated on February 11, 2000, File No. 000-25691)
10.8(a) Amendment, dated as of September 12, 2001, to the Investment
Agreement, dated July 26, 1999, as amended, by and between
the Company and France Telecom S.A. (Incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q, filed by NTL Incorporated on November 14, 2001, File
No. 001-16183)
10.9 Framework Agreement For The Provision Of IT Outsourcing
Services, dated as of May 23, 2001, by and between NTL Group
Limited and IBM United Kingdom Limited*
</Table>
64
<Table>
<Caption>
EXHIBIT
NO.
- --------
10.10 Amendment, dated as of April 5, 2001 to the Framework
Agreement For The Provision of IT Outsourcing Services,
dated as of May 23, 2001, by and between NTL Group Limited
and IBM United Kingdom Limited*
10.11 Consent Letter, dated as of March 8, 2002, in respect of the
Senior Credit Facility by and among NTL Communications
Limited, NTL Investment Holdings Limited, NTL Communications
Corp. and J.P. Morgan Europe Limited, on behalf of the
lenders thereto*
10.12 Consent Letter, dated as of March 8, 2002, in respect of the
Working Capital Facility by and among NTL Communications
Corp., NTL Communications Limited, NTL (UK) Group Inc. and
J.P. Morgan Europe Limited, on behalf of the lenders
thereto*
10.13 Consent Letter, dated as of March 8, 2002, in respect of the
Cablecom Credit Facility by and among NTL (Delaware), Inc.,
NTL Cablecom GmbH and subsidiaries and J.P. Morgan Europe
Limited, on behalf of the lenders thereto*
10.14 Consent Letter, dated as of March 28, 2002, in respect of
the Senior Credit Facility by and among NTL Communications
Limited, NTL Investment Holdings, NTL Communications
Corporation and J.P. Morgan Europe Limited, on behalf of the
lenders thereto*
10.15 Consent Letter, dated March 28, 2002, in respect of the
Working Capital Facility by and among NTL Communications
Corp., NTL Communications Limited, NTL (UK) Group Inc.*
10.16 Consent Letter, dated March 28, 2002, in respect of the
Cablecom Credit Facility by and among NTL (Delaware), Inc.,
Cablecom GmbH and subsidiaries and J.P. Morgan Europe
Limited, on behalf of the lenders thereto*
10.17 Share Sale Agreement, dated February 22, 2002, in respect of
the sale of shares NTL Belgium Sprl Limited, by and among
National Transcommunications Spain S.L., NTL Australia SPV,
Inc., Macquarie Communications Infrastructure Holdings Pty
Limited and NTL Incorporated*
11 Statement Regarding Per Share Earnings of NTL Incorporated*
21 Subsidiaries of the Registrant*
23 Consent of Ernst & Young LLP*
</Table>
- ---------------
* Filed herewith
** We agree to furnish a copy of such agreement to the Commission upon request.
65
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: April 16, 2002
NTL INCORPORATED
By: /s/ BARCLAY KNAPP
------------------------------------
Barclay Knapp
President and Chief Executive
Officer
(Principal Executive Officer)
66
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BARCLAY KNAPP President and Chief Executive April 16, 2002
- ------------------------------------------------ Officer (Principal Executive
Barclay Knapp Officer)
/s/ GEORGE S. BLUMENTHAL Chairman of the Board and April 16, 2002
- ------------------------------------------------ Treasurer
George S. Blumenthal
/s/ JOHN F. GREGG Chief Financial Officer April 16, 2002
- ------------------------------------------------ (Chief Financial Officer)
John F. Gregg
/s/ GREGG N. GORELICK Vice President-Controller April 16, 2002
- ------------------------------------------------ (Principal Accounting Officer)
Gregg N. Gorelick
/s/ SIDNEY R. KNAFEL Director April 16, 2002
- ------------------------------------------------
Sidney R. Knafel
/s/ TED H. MCCOURTNEY Director April 16, 2002
- ------------------------------------------------
Ted H. McCourtney
/s/ ALAN J. PATRICOF Director April 16, 2002
- ------------------------------------------------
Alan J. Patricof
/s/ WARREN POTASH Director April 16, 2002
- ------------------------------------------------
Warren Potash
/s/ MICHAEL S. WILLNER Director April 16, 2002
- ------------------------------------------------
Michael S. Willner
/s/ ROBERT T. GOAD Director April 16, 2002
- ------------------------------------------------
Robert T. Goad
/s/ JEAN-LOUIS VINCIGUERRA Director April 16, 2002
- ------------------------------------------------
Jean-Louis Vinciguerra
/s/ ERIC BOUVIER Director April 16, 2002
- ------------------------------------------------
Eric Bouvier
/s/ BERNARD IZERABLE Director April 16, 2002
- ------------------------------------------------
Bernard Izerable
</Table>
67
FORM 10-K--ITEM 14(A)(1) AND (2)
NTL INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of NTL Incorporated and
Subsidiaries are included in Item 8:
<Table>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- December 31, 2001 and 2000... F-3
Consolidated Statements of Operations --
Years ended December 31, 2001, 2000 and 1999.............. F-4
Consolidated Statement of Shareholders' Equity (Deficiency)
Years ended December 31, 2001, 2000 and 1999.............. F-5
Consolidated Statements of Cash Flows --
Years ended December 31, 2001, 2000 and 1999.............. F-7
Notes to Consolidated Financial Statements.................. F-9
</Table>
The following consolidated financial statement schedules of NTL
Incorporated and Subsidiaries are included in Item 14(d):
<Table>
Schedule I -- Condensed Financial Information of
Registrant................................................ F-45
Schedule II -- Valuation and Qualifying Accounts............ F-50
</Table>
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 and
Subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholders' (deficiency) equity and cash flows for
each of the three years in the period ended December 31, 2001. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
The accompanying financial statements have been prepared assuming that NTL
Incorporated will continue as a going concern. As more fully described in Note
1, the Company has incurred recurring operating losses and negative operating
cash flows, has a working capital deficiency and a deficiency in shareholders'
equity. The Company's substantial leverage, its current debt and equity trading
levels and its non-compliance with certain debt covenants in 2002 have
eliminated access to the Company's historic sources of capital. The Company has
initiated a recapitalization process, the success of which is dependent upon
adequate liquidity to complete the process as well as agreement of the Company's
creditors and preferred stockholders. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ ERNST & YOUNG LLP
New York, New York
April 16, 2002
F-2
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
----------------------
2001 2000
---------- ---------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 504.6 $ 579.4
Marketable securities..................................... -- 60.0
Accounts receivable -- trade, less allowance for doubtful
accounts of $133.8 (2001) and $141.4 (2000)............ 683.3 729.1
Other..................................................... 365.2 422.9
---------- ---------
Total current assets........................................ 1,553.1 1,791.4
Fixed assets, net........................................... 12,573.3 12,693.0
Intangible assets, net...................................... 1,985.6 13,061.0
Investments in and loans to affiliates, net................. 272.4 333.1
Other assets, net of accumulated amortization of $150.3
(2001) and $92.3 (2000)................................... 449.8 505.2
---------- ---------
Total assets................................................ $ 16,834.2 $28,383.7
========== =========
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities:
Accounts payable.......................................... $ 430.0 $ 506.3
Accrued expenses and other................................ 1,013.1 1,280.6
Accrued construction costs................................ 144.8 196.9
Interest payable.......................................... 303.9 151.3
Deferred revenue.......................................... 505.8 492.8
Current portion of long-term debt......................... 17,666.1 12.6
---------- ---------
Total current liabilities................................... 20,063.7 2,640.5
Long-term debt.............................................. 102.3 15,044.1
Other....................................................... 176.0 43.1
Commitments and contingent liabilities
Deferred income taxes....................................... 260.9 205.4
Redeemable preferred stock -- $.01 par value, plus accreted
dividends; liquidation preference $2,834.5; less
unamortized discount of $53.4 (2001) and $2.5 (2000);
issued and outstanding 2.1 (2001) and 2.0 (2000) shares... 2,773.7 2,083.2
Shareholders' (deficiency) equity:
Series preferred stock -- $.01 par value; authorized 10.0
shares; liquidation preference $3,000.0; issued and
outstanding 3.0 (2001) and 2.9 (2000) shares........... -- --
Common stock -- $.01 par value; authorized 800.0 shares;
issued and outstanding 276.6 (2001) and 272.1 (2000)
shares................................................. 2.8 2.7
Additional paid-in capital................................ 13,720.0 13,764.7
Accumulated other comprehensive (loss).................... (1,072.8) (448.9)
(Deficit)................................................. (19,192.4) (4,951.1)
---------- ---------
(6,542.4) 8,367.4
---------- ---------
Total liabilities and shareholders' (deficiency) equity..... $ 16,834.2 $28,383.7
========== =========
</Table>
See accompanying notes.
F-3
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
----------- ---------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
REVENUES
Consumer telecommunications and television.................. $ 2,514.6 $ 1,819.8 $ 834.3
Business telecommunications................................. 840.6 702.2 452.5
Broadcast transmission and other............................ 344.0 318.8 297.3
---------- --------- --------
3,699.2 2,840.8 1,584.1
COSTS AND EXPENSES
Operating expenses.......................................... 1,809.3 1,387.6 798.6
Selling, general and administrative expenses................ 1,181.6 1,109.1 574.6
Asset impairments........................................... 9,511.3 -- --
Franchise fees.............................................. -- -- 16.5
Non-cash compensation....................................... 30.6 -- --
Other charges............................................... 311.7 92.7 16.2
Corporate expenses.......................................... 66.8 47.5 29.4
Depreciation and amortization............................... 3,170.5 2,122.8 791.3
---------- --------- --------
16,081.8 4,759.7 2,226.6
---------- --------- --------
Operating (loss)............................................ (12,382.6) (1,918.9) (642.5)
OTHER INCOME (EXPENSE)
Interest income and other, net.............................. 51.1 72.5 67.8
Interest expense............................................ (1,440.9) (1,036.8) (680.7)
Share of (losses) from equity investments................... (244.6) (70.9) (18.4)
Other (losses) gains........................................ (147.4) -- 493.1
Foreign currency transaction (losses) gains................. (13.7) (120.6) 12.7
---------- --------- --------
(Loss) before income taxes and extraordinary item........... (14,178.1) (3,074.7) (768.0)
Income tax (expense) benefit................................ (63.2) 111.0 35.3
---------- --------- --------
(Loss) before extraordinary item............................ (14,241.3) (2,963.7) (732.7)
Loss from early extinguishment of debt...................... -- -- (3.0)
---------- --------- --------
Net (loss).................................................. (14,241.3) (2,963.7) (735.7)
Preferred stock dividends................................... (325.7) (194.0) (73.7)
---------- --------- --------
Net (loss) available to common shareholders................. $(14,567.0) $(3,157.7) $ (809.4)
========== ========= ========
Basic and diluted net (loss) per common share:
(Loss) before extraordinary item.......................... $ (52.78) $ (14.54) $ (6.75)
Extraordinary item........................................ -- -- (0.03)
---------- --------- --------
Net (loss) per common share............................... $ (52.78) $ (14.54) $ (6.78)
========== ========= ========
Weighted average shares................................... 276.0 217.1 119.4
========== ========= ========
</Table>
See accompanying notes.
F-4
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
<Table>
<Caption>
SERIES PREFERRED
STOCK $.01 PAR COMMON STOCK
VALUE $.01 PAR VALUE
---------------- ---------------
SHARES PAR SHARES PAR
-------- ----- ------- -----
(IN MILLIONS)
Balance, December 31, 1998.................................. 0.2 $-- 60.2 $0.6
Exercise of stock options................................... 1.8 --
Exercise of warrants........................................ 0.1 --
Common stock issued for cash................................ 2.7 --
Preferred stock issued for cash............................. 1.2 --
Warrants issued for cash....................................
Accreted dividends on preferred stock.......................
Accretion of discount on preferred stock....................
Redemption of series preferred stock........................ (0.1) --
Conversion of 7% Convertible Notes.......................... 7.3 0.1
Common stock issued for an acquisition...................... 12.7 0.1
Stock options issued in connection with an acquisition......
Issuance of warrants........................................
Stock splits................................................ 47.6 0.5
Comprehensive loss:
Net loss for the year ended December 31, 1999...............
Currency translation adjustment.............................
Total..................................................
---- -- ----- ----
Balance, December 31, 1999.................................. 1.3 -- 132.4 1.3
Exercise of stock options................................... 2.3 --
Rescission of stock option exercises........................ (0.2)
Exercise of warrants........................................ 1.3 --
Common stock issued for cash................................ 42.2 0.4
Preferred stock issued for cash............................. 2.0
Common stock issued for an acquisition...................... 84.9 0.9
Conversion of series preferred stock........................ (0.5) -- 9.2 0.1
Preferred stock issued for dividends........................
Accreted dividends on preferred stock....................... 0.1 --
Accretion of discount on preferred stock....................
Comprehensive loss:
Net loss for the year ended December 31, 2000...............
Currency translation adjustment.............................
Unrealized net losses on investments........................
Total..................................................
---- -- ----- ----
Balance, December 31, 2000.................................. 2.9 -- 272.1 2.7
Exercise of stock options................................... 1.1
Non-cash compensation.......................................
Accreted dividends on preferred stock....................... 0.1
Accretion of discount on preferred stock....................
Conversion of 7% Convertible Notes.......................... 3.3 0.1
Common stock issued for an acquisition...................... 0.1
Comprehensive loss:
Net loss for the year ended December 31, 2001...............
Currency translation adjustment.............................
Unrealized net losses on investments........................
Unrealized net losses on derivatives........................
Total..................................................
---- -- ----- ----
Balance, December 31, 2001.................................. 3.0 $-- 276.6 $2.8
==== == ===== ====
</Table>
F-5
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY) -- (CONTINUED)
<Table>
<Caption>
ACCUMULATED OTHER
COMPREHENSIVE LOSS
---------------------------------------
UNREALIZED UNREALIZED
ADDITIONAL FOREIGN NET NET
PAID-IN COMPREHENSIVE CURRENCY LOSSES ON LOSSES ON
CAPITAL LOSS TRANSLATION INVESTMENTS DERIVATIVES (DEFICIT)
---------- ------------- ----------- ----------- ----------- ----------
(IN MILLIONS)
Balance, December 31, 1998.................... $ 1,501.6 $ 104.7 $ (1,251.7)
Exercise of stock options..................... 41.3
Exercise of warrants.......................... 0.8
Common stock issued for cash.................. 250.0
Preferred stock issued for cash............... 1,233.8
Warrants issued for cash...................... 16.2
Accreted dividends on preferred stock......... (44.1)
Accretion of discount on preferred stock...... (0.3)
Redemption of series preferred stock.......... (125.3)
Conversion of 7% Convertible Notes............ 269.2
Common stock issued for an acquisition........ 971.3
Stock options issued in connection with an
acquisition................................. 6.6
Issuance of warrants.......................... 4.5
Stock splits.................................. (0.5)
Comprehensive loss:
Net loss for the year ended December 31,
1999........................................ $ (735.7) (735.7)
Currency translation adjustment............... (106.8) (106.8)
----------
Total..................................... $ (842.5)
--------- ---------- --------- ------ ------ ----------
Balance, December 31, 1999.................... 4,125.1 (2.1) (1,987.4)
Exercise of stock options..................... 36.3
Rescission of stock option exercises.......... (1.1)
Exercise of warrants.......................... 9.0
Common stock issued for cash.................. 2,327.2
Preferred stock issued for cash............... 1,862.0
Common stock issued for an acquisition........ 5,487.4
Conversion of series preferred stock.......... 7.5
Preferred stock issued for dividends.......... 9.4
Accreted dividends on preferred stock......... (97.8)
Accretion of discount on preferred stock...... (0.3)
Comprehensive loss:
Net loss for the year ended December 31,
2000........................................ $ (2,963.7) (2,963.7)
Currency translation adjustment............... (432.6) (432.6)
Unrealized net losses on investments.......... (14.2) $(14.2)
----------
Total..................................... $ (3,410.5)
--------- ---------- --------- ------ ------ ----------
Balance, December 31, 2000.................... 13,764.7 (434.7) (14.2) (4,951.1)
Exercise of stock options..................... 13.0
Non-cash compensation......................... 30.6
Accreted dividends on preferred stock......... (195.5)
Accretion of discount on preferred stock...... (25.3)
Conversion of 7% Convertible Notes............ 128.2
Common stock issued for an acquisition........ 4.3
Comprehensive loss:
Net loss for the year ended December 31,
2001........................................ $(14,241.3) (14,241.3)
Currency translation adjustment............... (607.8) (607.8)
Unrealized net losses on investments.......... (1.1) (1.1)
Unrealized net losses on derivatives.......... (15.0) $(15.0)
----------
Total..................................... $(14,865.2)
--------- ---------- --------- ------ ------ ----------
Balance, December 31, 2001.................... $13,720.0 $(1,042.5) $(15.3) $(15.0) $(19,192.4)
========= ========== ========= ====== ====== ==========
</Table>
See accompanying notes.
F-6
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- --------- ---------
(IN MILLIONS)
OPERATING ACTIVITIES
Net loss................................................... $(14,241.3) $(2,963.7) $ (735.7)
Adjustment to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization............................ 3,170.5 2,122.8 791.3
Non-cash compensation.................................... 30.6 -- --
Non-cash restructuring charge............................ 57.9 -- --
Asset impairments........................................ 9,511.3 -- --
Equity in net losses of unconsolidated subsidiaries...... 244.6 70.9 18.4
Loss from early extinguishment of debt................... -- -- 3.0
(Gain) loss on sale of assets............................ 147.4 -- (493.1)
Provision for losses on receivables...................... 97.9 98.9 46.2
Deferred income taxes.................................... 61.1 (112.1) (37.3)
Amortization of original issue discount.................. 284.9 473.4 451.4
Other.................................................... 46.9 (69.5) (29.0)
Changes in operating assets and liabilities, net of
effect from business acquisitions and dispositions:
Accounts receivable................................... (45.9) (366.6) (139.4)
Other current assets.................................. 56.4 (69.5) (38.9)
Other assets.......................................... 59.6 43.2 (4.9)
Accounts payable...................................... (34.5) (83.7) 43.8
Accrued expenses and other............................ (73.2) 379.3 126.2
Deferred revenue...................................... 28.0 186.4 71.9
---------- --------- ---------
Net cash (used in) provided by operating activities........ (597.8) (290.2) 73.9
INVESTING ACTIVITIES
Acquisitions, net of cash acquired......................... (26.2) (10,940.0) (1,128.3)
Payment of deferred purchase price......................... -- (2.9) --
Purchase of fixed assets................................... (1,946.1) (2,257.0) (1,211.3)
Investment in and loans to affiliates...................... (137.8) (393.4) (20.8)
Increase in other assets................................... (80.6) (129.1) (58.8)
Proceeds from sales of assets.............................. 45.5 -- 692.5
Due from CoreComm Limited.................................. (15.0) -- --
Purchase of marketable securities.......................... (9.9) (158.4) (747.4)
Proceeds from sales of marketable securities............... 70.3 452.6 676.6
---------- --------- ---------
Net cash (used in) investing activities.................... (2,099.8) (13,428.2) (1,797.5)
</Table>
F-7
NTL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- --------- ---------
(IN MILLIONS)
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing costs........... 3,110.7 6,870.1 3,019.4
Proceeds from issuance of preferred stock and warrants..... -- 1,862.0 1,250.0
Proceeds from issuance of common stock..................... -- 2,327.6 250.0
Proceeds from issuance of redeemable preferred stock....... -- 1,850.0 --
Redemption of preferred stock.............................. -- -- (125.3)
Principal payments......................................... (489.8) (1,303.0) (758.2)
Cash released from (placed in) escrow for debt repayment... -- 77.5 (87.0)
Proceeds from exercise of stock options and warrants....... 13.0 44.2 42.1
---------- --------- ---------
Net cash provided by financing activities.................. 2,633.9 11,728.4 3,591.0
Effect of exchange rate changes on cash.................... (11.1) (27.8) (6.5)
---------- --------- ---------
(Decrease) increase in cash and cash equivalents........... (74.8) (2,017.8) 1,860.9
Cash and cash equivalents at beginning of year............. 579.4 2,597.2 736.3
---------- --------- ---------
Cash and cash equivalents at end of year................... $ 504.6 $ 579.4 $ 2,597.2
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest exclusive of amounts
capitalized.............................................. $ 947.9 $ 495.0 $ 180.3
Income taxes paid.......................................... 13.5 6.7 2.4
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock..... $ 220.8 $ 98.1 $ 44.4
Conversion of Convertible Notes, net of unamortized
deferred financing costs................................. 128.3 -- 269.3
Common stock and stock options issued for acquisitions..... 4.3 5,488.3 978.0
Redeemable preferred stock issued for investment in
affiliates............................................... 518.0 -- --
Conversion of series preferred stock....................... -- 7.6 --
</Table>
See accompanying notes.
F-8
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE RESTRUCTURING AND BUSINESS
CORPORATE RESTRUCTURING
On May 18, 2000, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The formation of the holding company was
part of NTL Incorporated's acquisition of certain assets of Cable & Wireless
Communications plc ("CWC"). The holding company restructuring was accomplished
through a merger so that all the stockholders of NTL Incorporated at the
effective time of the merger became stockholders of the new holding company, and
NTL Incorporated became a subsidiary of the new holding company. The new holding
company has taken the name NTL Incorporated (and together with its subsidiaries,
the "Company") and the holding company's subsidiary simultaneously changed its
name to NTL (Delaware), Inc. (and together with its subsidiaries, "NTL
Delaware").
BUSINESS
The Company, through its subsidiaries, owns and operates broadband
communications networks for telephone, cable television and Internet services in
the UK, Ireland, and Switzerland, and transmission networks for television and
radio broadcasting in the UK. The Company's wholly-owned subsidiary that
operates in France was merged into an equity investee in November 2001. The
Company's television and radio broadcasting business in Australia was sold in
April 2002. Based on revenues and identifiable assets, the Company's predominant
lines of business are consumer services, business services and broadcast
transmission and related services in the UK. Consumer services include
telephony, cable television, Internet access and interactive services. Business
services include telephony, national and international wholesale carrier
telecommunications, and radio communications services for the emergency services
community. Broadcast transmission and related services include digital and
analog television and radio broadcasting, rental of antenna space on the
Company's owned and leased towers and sites and associated services, and
satellite and media services.
RECAPITALIZATION PROCESS AND ABILITY TO CONTINUE OPERATIONS
The Company historically incurred operating losses and negative operating
cash flow. In addition, the Company required significant amounts of capital to
finance construction of its networks, connection of customers to the networks,
other capital expenditures and for working capital needs including debt service
requirements. The Company historically met these liquidity requirements through
cash flow from operations, amounts available under its credit facilities, vendor
financing and issuances of high-yield debt securities and convertible debt
securities in the capital markets and convertible preferred stock and common
stock to strategic investors. Both the equity and debt capital markets have
recently experienced periods of significant volatility, particularly for
securities issued by telecommunications and technology companies. The ability of
telecommunications companies to access those markets as well as their ability to
obtain financing provided by bank lenders and equipment suppliers has become
more restricted and financing costs have increased. During some recent periods,
the capital markets have been largely unavailable to new issues of securities by
telecommunications companies. The Company's public equity is no longer trading
on the New York Stock Exchange, and its debt securities are trading at or near
all time lows. These factors, together with the Company's substantial leverage,
means the Company does not currently have access to its historic sources of
capital.
In addition, the Company's UK credit facilities are fully drawn and the
Company's Swiss subsidiaries are currently unable to draw the remaining undrawn
amounts under the Cablecom credit facility. NTL Communications Corp., a
wholly-owned indirect subsidiary of the Company, did not pay cash interest on
certain series of its notes that was due on April 1, 2002 and April 15, 2002.
NTL Incorporated and NTL (Delaware), Inc. also did not pay cash interest and
related fees on a series of their notes that was due on April 15, 2002. As of
December 31, 2001, the Company had approximately $505 million in cash and cash
equivalents on hand and, on April 4, 2002, received approximately $303 million
net cash proceeds from the
F-9
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sale of its Australian business. The Company will require cash for working
capital and capital expenditures in 2002. If the Company and its subsidiaries
make scheduled and overdue interest payments on their notes, then the Company
will not have sufficient cash resources to meet its liquidity needs through the
third quarter of 2002.
These liquidity concerns raise substantial doubt about the Company's
ability to continue as a going concern. As a consequence, the Company needs to
restructure its outstanding debt and/or raise new funds through the issuance of
equity or additional debt.
On January 31, 2002 the Company announced that it had appointed Credit
Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic and
recapitalization alternatives to strengthen our balance sheet and reduce debt
and put an appropriate capital structure in place for our business. Since then,
the Company has been evaluating various recapitalization alternatives to effect
a comprehensive consensual reorganization in a timely manner to minimize
negative effects on its business operations.
On April 16, 2002 the Company announced that the Company and an unofficial
committee of its public bondholders had reached an agreement in principle on a
comprehensive recapitalization of the Company. The Members of the committee hold
in the aggregate over 50% of the face value of NTL and its subsidiaries' public
bonds. The recapitalization would result in a conversion of approximately $10.6
billion in debt into equity.
During the recapitalization process, NTL's operations will continue
uninterrupted, customer service will be unaffected, suppliers will be paid in
the ordinary course and NTL's management will remain in place.
To implement the proposed recapitalization, NTL Incorporated, NTL
(Delaware), Inc., NTL Communications Corp., Diamond Cable Communications Limited
and Diamond Holdings Limited would file a pre-negotiated recapitalization plan
in a Chapter 11 case under the U.S. Bankruptcy Code. NTL's operating
subsidiaries would not be included in the Chapter 11 filing. The agreement in
principle is subject to various conditions, including mutually acceptable terms
with the Company's bank lenders. The recapitalization transaction contemplates
that the bank debt will remain in place as part of the recapitalization.
To facilitate the recapitalization, certain members of the unofficial
committee would commit to provide up to $500 million of new debt financing to
the Company's UK and Ireland operations during the Chapter 11 process and for
the post-recapitalized Company. The new financing will ensure that the Company's
business operations have access to sufficient liquidity to continue ordinary
operations.
Under the agreement in principle, NTL would be split into two companies,
one tentatively called NTL UK and Ireland and holding all of its UK and Ireland
assets, and one tentatively called NTL Euroco and holding certain of its
continental European and other assets. NTL's current management would remain in
place in both companies.
Holders of notes of NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp. and Diamond Cable Communications Ltd would in the aggregate
receive 100% of the initial common stock of NTL UK and Ireland and approximately
86.5% of the initial common stock of NTL Euroco. NTL (Delaware), Inc.
bondholders would have the option to reinvest all or a portion of NTL
(Delaware), Inc. cash in additional shares of NTL common stock, or to receive
such cash in the recapitalization. Notes of the Company's subsidiaries Diamond
Holdings Ltd and NTL (Triangle) LLC would remain outstanding and will be kept
current in interest payments. Current preferred and common stockholders,
including France Telecom, would participate in a package of rights (to be priced
at a $10.5 billion enterprise value) and warrants entitling them to purchase
primary common stock of NTL UK and Ireland at the consummation of the proposed
plan, in the case of the rights, and for the duration of the eight-year warrants
at prescribed prices. If fully exercised, those rights and warrants would
entitle the current preferred stockholders to acquire approximately 23.6% and
the current common stockholders to acquire approximately 8.9% of the entity's
primary common stock.
F-10
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Current preferred stockholders other than France Telecom, would receive
approximately 3.2% and current common stockholders, other than France Telecom,
would receive approximately 10.3% of the primary equity of NTL Euroco. It is
contemplated that, subject to the consummation of the recapitalization, France
Telecom would also receive our 27% interest in Noos, pursuant to a pledge of
such interests to France Telecom given at the time of its acquisition. During
the recapitalization process, the Company has attempted to maintain normal and
regular trade terms with its suppliers and customers. There can be no assurance
that the Company's suppliers will continue to provide normal trade credit or
credit on acceptable terms, if at all, or that customers will continue to do
business or enter into new business with the Company. See also "Risk Factors"
for a summary of risks related to the Company's business in general and the
recapitalization process in particular.
BANK WAIVERS
Before the Company could commence negotiations with the unofficial
committee of bondholders, it was necessary to obtain waivers from the lenders
under our credit facilities. Effective March 8, 2002, these lenders granted
waivers which, until March 29, 2002, provided that the commencement of
negotiations with bondholders with a view to rescheduling its debt would not
constitute an event of default under the credit facilities.
But for the initial waivers, the commencement of negotiations with
bondholders would have been an event of default under the credit facilities. If
an event of default were to occur, it would entitle the lenders under the credit
facilities to declare the principal amount of the outstanding debt immediately
due and payable. If this right was exercised, it would result in an event of
default under all of the Company's outstanding notes, except for those issued by
Diamond Cable Communications, Diamond Holdings and NTL Triangle, entitling the
trustee or 25% of the holders of a series to accelerate the repayment of that
series of notes. The Company does not have sufficient cash resources to repay
our outstanding indebtedness if it is declared immediately due and payable.
In connection with the granting of the initial waivers, the Company agreed:
- to provide the lenders with a 13 week rolling cash flow projection
(updated every two weeks);
- to keep the lenders informed of, and to provide documents in connection
with, negotiations with bondholders or strategic investors or concerning
proposed asset dispositions;
- not to repurchase NTL notes; and
- not to make an exchange offer for NTL notes or enter into an agreement
with NTL bondholders, subject to some exceptions, without the consent of
the lenders.
Effective March 28, 2002, the lenders under the credit facilities agreed to
amend the initial waivers. The amendments to the initial waivers extend the
duration of the initial waivers to April 30, 2002 in the case of the UK credit
facilities or May 14 in the case of the Cablecom facility, unless the missed
interest payments on April 1, 2002 are remedied or a sufficient number of
bondholders agree to forbear in respect of such non-payment, in which case, the
UK credit facilities waivers will be extended to May 14, 2002. As a condition to
the waivers continuing effectiveness, the UK lenders required NTL Delaware to
loan L90 million to NTL (UK) Group, Inc. following receipt of the proceeds from
the sale of NTL Australia. This loan is structurally senior to the outstanding
public notes issued by NTL Communications Corp. but contractually subordinated
F-11
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the UK credit facilities. In connection with the amendments to the waivers,
the Company affirmed the provisions of the initial waivers and in addition, the
Company agreed, among other things, to:
- provide the bank lenders a timeline setting forth the steps proposed to
be taken in connection with the recapitalization and the dates by which
such steps are to be taken;
- use reasonable endeavors to consider with the lenders under the Cablecom
credit facility possible means of credit enhancement;
- provide the lenders under the Cablecom credit facility, by April 12,
2002, with an updated structure chart of NTL as well as a contingency
business plan for Cablecom in the event that sufficient additional
funding for Cablecom is not obtained; and
- pay legal, accounting and other advisory fees of the agent or
coordinators of the Cablecom credit facility.
The amended waivers prevent the Company from making an exchange offer with
respect to its outstanding notes or from entering into an agreement with
bondholders without the consent of the lenders under each of the credit
facilities. The amended waivers also prohibit the Company from commencing
voluntary dissolution proceedings, including proceedings under Chapter 11 of the
U.S. bankruptcy code, without the consent of these lenders. Copies of the
waivers are filed as exhibits to this Form 10-K.
As a consequence, the Company cannot enter into a binding agreement with
the unofficial bondholder committee or implement the proposed plan without the
consent of its bank lenders.
Cablecom GmbH is the principal trading company of our Swiss group. There
are a number of technical defaults under the Swiss credit facility made
available to Cablecom and various of its subsidiaries. In addition, as of
December 31, 2001, Cablecom's and various of its subsidiaries' liabilities
exceeded their respective assets. As a consequence, under Swiss law, those
entities were deemed to be "overindebted". This also constituted an event of
default under the Cablecom credit facility which entitles the lenders to
accelerate repayment. Such an acceleration would result in an event of default
under NTL Incorporated's and NTL Delaware's 5.75% convertible subordinated notes
due 2011 5.75% convertible subordinated notes due 2009 entitling the trustee or
the holders of 25% of each series of notes to accelerate repayment. Under Swiss
law, unless the overindebtedness is rectified those entities would be required
to commence an insolvency proceeding in Switzerland. A plan has been formulated
to rectify this overindebtedness. Implementation of this plan prior to April 30,
2002 will mean those entities will not be required to commence an insolvency
proceeding. Those proceedings would likely either be a court supervised
moratorium in which an independent administrator, or commissioner, would be
appointed to supervise the running of each company during a restructuring or, if
there is no viable restructuring plan, a bankruptcy. The commencement of those
insolvency proceedings would also constitute an immediate event of default and
acceleration of the maturity of the convertible subordinated notes referred to
above.
The Company is currently in discussions with the lenders under the Swiss
credit facility regarding proposals to resolve the overindebtedness issue as
well as requesting that they waive various additional covenant breaches under
the credit facility. There can be no assurance that it will reach agreement on
the resolution of the overindebtedness issue within the time period required or
obtain the requested waivers.
INTEREST PAYMENTS ON PUBLIC NOTES
The Company and its subsidiaries have substantial interest payment
obligations under their existing indebtedness. NTL Communications Corp. did not
make scheduled interest payments due April 1, 2002, in the aggregate amount of
$74.3 million, in respect of its 9 1/2% notes due 2008, 11 1/2% notes due 2008
and 11 7/8% notes due 2010. In addition, NTL Communications did not make
interest payments falling due on April 15, 2002, totaling $20.2 million, in
respect of the 12 3/4% Senior Deferred Coupon Notes due 2005 and NTL
F-12
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Incorporated and NTL Delaware did not make interest payments falling due on
April 15, 2002 in respect of their 5 3/4% Convertible Subordinated Notes due
2011. Those payments were not made after consideration by the Company of
requests by the unofficial bondholder committee not to make those payments.
Interest payments of $18.9 million were made, when due, on April 2, 2002 in
respect of Diamond Cable Communications 13.25% senior discount notes due 2004.
On May 15, 2002, interest totaling $94.0 million is due on outstanding notes of
NTL Triangle and NTL Communications.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires (on April 30, 2002 in the case of the missed interest
payments due April 1, 2002), there is an event of default under the indenture in
respect of the notes on which the interest is due and unpaid. An event of
default entitles the trustee under the indenture or the holders of 25% of the
outstanding notes to declare the principal amount of those notes to be
immediately due and payable. Even if the maturity of those notes is not
accelerated after April 30, 2002, such an event of default would also result in
an event of default for payment defaults in respect of other debt (commonly
called cross defaults) under all of our other notes, except for those issued by
NTL Triangle, Diamond Cable Communications or Diamond Holdings. As a result,
upon the expiration of the grace period, on April 30, 2002, events of default
for failure to pay interest would occur under the relevant indentures at NTL
Communications and, contemporaneously, cross defaults would occur under the
Company's other indentures at NTL Communications, NTL Delaware, NTL Incorporated
and under our Senior Credit Facility and Working Capital Facility and could
occur under the Cablecom Facility. This would give holders of the outstanding
series of debt at these entities the right to accelerate repayment of those
debts by declaring the principal amount of the debts to be immediately due and
payable unless we obtain waivers or forbearance agreements from sufficient
percentages of our creditors. If that right to accelerate was exercised, the
Company would not have sufficient cash resources to repay those debts, which
could ultimately lead to voluntary or involuntary bankruptcy proceedings
relating to the entities so affected. In addition, the lenders under the
Company's UK credit facilities have security over the assets of the Company's UK
operating subsidiaries, except for the Diamond and Triangle groups of companies.
In the event that there was an event of default under those facilities, the
lenders could seek to take control of those assets under applicable UK
insolvency law.
INABILITY TO PAY DIVIDENDS ON OR REDEEM PREFERRED STOCK
On February 4, 2002, the Company announced that it would not declare or pay
dividends on its 13% Senior Redeemable Exchangeable Preferred Stock. The Company
did not make the dividend payments due on February 15, 2002 of $6.0 million in
respect of the 13% preferred stock. In addition, the Company did not pay
dividends on its 5% cumulative participating convertible preferred stock held by
France Telecom on December 31, 2001 of $37.0 million and March 31, 2002 of $37.5
million, or on its cumulative convertible preferred stock held by France Telecom
and a group of commercial banks on December 31, 2001 of $24.9 million and March
26, 2002 of $24.1 million. Historically, payment of dividends has been made in
additional shares of preferred stock in the case of the 13% preferred stock, the
5% cumulative participating preferred stock and the cumulative convertible
preferred stock. The Company did not pay these dividends due to a lack of
available surplus under Delaware law. Under Delaware law, the Company cannot pay
dividends on or redeem its capital stock, including its preferred stock, unless
it has available surplus.
Pursuant to the terms of the 13% preferred stock, the unpaid dividends will
continue to accrue without interest until declared and paid. Pursuant to the
terms of the 5% cumulative convertible preferred stock and the cumulative
convertible preferred stock, the unpaid dividends will continue to accrue
without interest until declared and paid, together with an additional cash
dividend on the amount so unpaid at a rate of 2% per quarter for as long as the
dividends remain unpaid. The failure to declare these dividends is not a default
under any of the Company's existing agreements. With respect to the 13%
preferred stock and 5% cumulative convertible preferred stock, if dividends
remain unpaid for six quarters, the holders of each such series shall have the
right to vote separately as a class on all matters voted on by NTL Incorporated
shareholders and shall
F-13
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have the right, along with other holders of preferred stock with similar default
voting rights, to elect two directors to the Company's board.
In addition, the lack of surplus means that the Company does not expect to
be able to redeem its Variable Coupon Redeemable Preferred Stock, Series A,
which is held by France Telecom, when it becomes mandatorily redeemable, to the
extent funds are available, on May 18, 2002. If the Company fails to redeem this
preferred stock on May 18, 2002 as we expect, the holders of such preferred
stock will have the right, along with other holders of preferred stock with
similar default voting rights, to elect two directors to our board and shall
have the right to vote separately as a class, on all matters brought to NTL
Incorporated shareholders.
At the time of issuance of the Variable Coupon Redeemable Preferred Stock,
the Company pledged its shares of Noos to France Telecom to secure the mandatory
redemption obligation.
CREDIT RATING DOWNGRADES
On April 3, 2002, credit rating agency Standard & Poor's lowered the
Company's long-term corporate credit rating to D from CCC-, citing the Company's
failure to make a bond interest payment due on April 1, 2002.
SALE OF NTL AUSTRALIA
On April 2, 2002, the Company announced that it had completed the
previously announced sale of its Australian broadcast business to Macquarie Bank
for A$850 million (US$448 million) in an all cash transaction. The net proceeds
from the sale were approximately A$574 million (US$303 million). At that time,
the business' bank debt outstanding totaled A$227 million (US$119 million).
On April 7, 2002, NTL Delaware loaned L90 million to NTL (UK) Group
Limited, which loan was funded by the proceeds of the sale of NTL Australia.
This loan is subordinated to the Company's UK credit facilities. The remaining
proceeds of the sale of NTL Australia remain at NTL Delaware and it is currently
anticipated that such proceeds will form a portion of the consideration to be
offered to bondholders of NTL Delaware and NTL Incorporated in satisfaction of
their claims against NTL Delaware as part of the proposed plan of
reorganization.
UNCERTAINTY RELATED TO SUPPLIERS
The uncertainty over the Company's financial condition may adversely affect
its relationships with its suppliers. If the Company's suppliers become
increasingly concerned about its financial condition they may demand quicker
payment terms or not extend normal trade credit, both of which could further
adversely affect its results of operations, financial condition and cash flows.
BASIS OF PRESENTATION
As indicated above, substantial doubt exists about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as going concern. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability of assets or classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Due to uncertainties about compliance with the terms and conditions of the
Company's debt that would give the holders of the debt the right to accelerate
repayment, primarily all of the Company's long-term debt has been classified as
current.
F-14
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions impact, among
others, the following: the amount of uncollectible accounts and notes
receivable, the amount to be paid to terminate certain agreements included in
restructuring costs, the amount to be paid for other liabilities, the Company's
pension expense and pension funding requirements and estimates related to the
value of investments, long-lived assets and goodwill. 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.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NET (LOSS) PER SHARE
The Company reports its basic and diluted net (loss) per share in
accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", as
adjusted for stock splits. Stock options, warrants and convertible securities
are excluded from the calculation of net loss per common share as their effect
would be antidilutive.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with 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 translation gains or losses resulting from the change in exchange
rates have been reported as a component of accumulated other comprehensive
(loss). Foreign currency transaction gains and losses are included in the
results of operations as incurred.
To the extent that the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, it will encounter
currency exchange rate risks. In addition, the Company's revenues are generated
in foreign currencies while its interest and principal obligations with respect
to approximately half of the Company's existing indebtedness are payable in U.S.
dollars.
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $343.7 million and
$256.2 million at December 31, 2001 and 2000, respectively, which consisted
primarily of U.S. Treasury bills (2000 only), bank time deposits and corporate
commercial paper. At December 31, 2001 and 2000, $190.2 million and $68.5
million, respectively, of the cash equivalents were denominated in foreign
currencies.
MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale, which are
carried at fair value. Unrealized holding gains and losses on securities, net of
tax, are carried as a component of accumulated other
F-15
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive (loss). The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other than temporary will be included in interest
income. The cost of securities sold or matured is based on the specific
identification method. Interest on securities is included in interest income.
Marketable securities at December 31, 2000 consisted of corporate
commercial paper. During the years ended December 31, 2001, 2000 and 1999, there
were no realized gains or losses on sales of securities. All of the marketable
securities as of December 31, 2000 had a contractual maturity of less than one
year.
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 40 years.
INTANGIBLE ASSETS
Intangible assets include goodwill, license acquisition costs, customer
lists and other intangibles. 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 of 3, 10, 15 or 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
lives of the licenses at acquisition, which vary from approximately two years to
23 years. Customer lists represent the portion of the purchase price allocated
to the value of the customer base. Customer lists are amortized on a
straight-line basis over 3 or 5 years. Other intangibles include the portion of
the purchase price allocated to the value of transmission and services contracts
and the value of workforce in place. Transmission and service contracts are
amortized on a straight-line basis over the period benefited of 8 years or 12
years. Workforce in place is amortized over the period benefited of four 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
other long-lived assets.
VALUATION OF 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.
EQUITY METHOD INVESTMENTS
All investments in which the Company has the ability to exercise
significant influence over the investee, but less than a controlling voting
interest, are accounted for using the equity method. Equity method investments
are recorded at original cost and adjusted periodically to recognize the
Company's proportionate share of the investees' net income or losses after the
date of investment, additional contributions made and dividends received. The
difference between the Company's recorded investment and its proportionate
interest in the book value of the investees' net assets are being amortized on a
straight-line basis over 10 years. The Company evaluates the carrying value of
its equity method investments and tests for impairment in accordance with APB
Opinion No. 18.
F-16
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs are incurred in connection with the issuance of
debt and are amortized over the term of the related debt.
CAPITALIZED INTEREST
Interest is capitalized as a component of the cost of fixed assets
constructed. In 2001, 2000 and 1999, total interest incurred was $1,508.6
million, $1,131.9 million and $722.5 million, respectively, of which interest of
$67.7 million, $95.1 million and $41.8 million, respectively, was capitalized.
REVENUE RECOGNITION
Revenues are recognized at the time the service is rendered to the customer
or the performance of the service has been completed. Charges for services that
are billed in advance are deferred and recognized when earned. Rental revenues
are recognized when earned on a monthly basis. Installation and maintenance
service revenues are recognized when the performance of the service has been
completed.
CABLE TELEVISION SYSTEM COSTS, EXPENSES AND REVENUES
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its broadband communications networks in
accordance with SFAS No. 51, "Financial Reporting by Cable Television
Companies."
ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred.
Advertising costs were $91.0 million, $113.0 million and $35.9 million in 2001,
2000 and 1999, respectively.
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 stock option plans.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses financial instruments to hedge a portion, but not all, of
its exposure from floating interest rate debt and from movements in foreign
exchange rates. Gains and losses on these instruments are deferred and
recognized in the statement of operations when the related hedged transactions
are recognized. To date, premiums paid for these contracts have not been
material. The Company does not use derivative financial instruments for trading
or speculative purposes.
The Company sometimes uses British pound forward foreign exchange contracts
to reduce its exposure to foreign currency risk. A forward foreign exchange
contract obligates the Company to exchange predetermined amounts of specified
foreign currencies at specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such exchange. These
contracts do not qualify for hedge accounting under SFAS No. 133 (as amended).
Any changes in fair value are recorded in results of operations.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for the Company on
January 1, 2002. This Statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
F-17
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other related accounting guidance. The adoption of this new standard had no
significant effect on the results of operations, financial condition or cash
flows of the Company, except that it will require the Company to treat NTL
Australia as a discontinued operation beginning in the first quarter of 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated asset
retirement costs. The Company is in the process of evaluating the financial
statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually (or more frequently under certain conditions)
for impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flow approach previously
required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Company adopted SFAS No. 142
on January 1, 2002. In light of the significant impairment charge that the
Company recorded in 2001, the Company does not expect that the adoption of this
new standard will have a significant effect on the results of operations,
financial condition or cash flows of the Company. Amortization expense in 2001
related to goodwill and other indefinite lived intangible assets was $1,430.2
million. The Company expects that amortization expense in 2002 will not be
significant.
4. ASSET IMPAIRMENTS
As of December 31, 2001, the Company performed an analysis of the carrying
values of its long-lived assets including goodwill. During 1999 and 2000,
acquisitions were made against a background of increasing consolidation and
record valuations in the telecommunications industry. This analysis was
initiated because of the decline in the Company's stock price and significantly
lower valuations for companies within its industry. Additionally, at the time of
the Company's analysis, the book value of the Company's net assets significantly
exceeded its market capitalization. Accordingly, the Company performed an
analysis of the recoverability of its long-lived assets and associated goodwill.
The fair value of the Company's assets was determined by discounting the
Company's estimates of the expected future cash flows related to these assets
when the non-discounted cash flows indicated that the long-lived assets would
not be recoverable. The Company recorded a write-down of $9,511.3 million in the
fourth quarter of 2001 as a result of this analysis and review. The total charge
included goodwill of $8,840.5 million, license acquisition costs of $58.8
million, customer lists of $9.1 million, other intangibles of $14.9 million,
investments in affiliates of $463.7 million and other assets of $124.3 million.
The aggregate asset impairment charge of $9,511.3 million related to the
Company's business segments as follows: $7,388.8 million Consumer, $2,113.0
million Business and $9.5 million Broadcast.
5. ACQUISITIONS
On March 28, 2000, the Company acquired the cable assets of the Cablecom
Group ("Cablecom") in Switzerland. On May 30, 2000, the Company acquired the
consumer cable telephone, Internet and television operations of CWC in the UK
("ConsumerCo"). The acquisitions were accounted for as purchases, and
accordingly, the net assets and results of operations of the acquired businesses
have been included in the consolidated financial statements from the dates of
acquisition.
In March 1999, the Company purchased Diamond Communications Plc ("Diamond")
for an aggregate purchase price of $984.6 million, including intangibles
aggregating $1,323.0 million. In April 1999, a
F-18
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
subsidiary of the Company purchased the Australian National Transmission Network
for an aggregate purchase price of $425.8 million, including intangibles of
$220.6 million. In July 1999, the Company acquired Cablelink Limited
("Cablelink") for an aggregate purchase price of $700.5 million, including
intangibles of $669.6 million. In August and December 1999, the Company acquired
the 1G Networks of France Telecom for an aggregate purchase price of $61.9
million, including intangibles of $64.7 million. In September 1999, the Company
acquired the shares of Workplace Technologies plc, for an aggregate purchase
price of $175.0 million, including intangibles of $176.9 million. The net assets
and results of operations of Diamond, the Australian National Transmission
Network, Cablelink, the 1G Networks and Workplace Technologies plc are included
in the consolidated financial statements from their respective dates of
acquisition.
A significant component of the pro forma results is associated with the
acquisition of ConsumerCo. The historical results of ConsumerCo reflect certain
intercompany costs and expenses as they were prior to the separation of
ConsumerCo, which was completed in the second quarter of 2000. These costs and
expenses do not necessarily reflect the costs and expenses that would have been
incurred had ConsumerCo reported as a separate entity for these periods.
Therefore the historical results of ConsumerCo which are included in the pro
forma results below are not reflective of results on a going forward basis.
The pro forma unaudited consolidated results of operations for the years
ended December 31, 2000 and 1999 assuming consummation of these transactions as
of January 1, 1999 is as follows (in millions, except per share data).
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Total revenue............................................... $ 3,403.3 $ 3,295.8
(Loss) before extraordinary item............................ (3,653.1) (2,803.1)
Net (loss).................................................. (3,653.1) (2,806.1)
Basic and diluted net loss per common share:
(Loss) before extraordinary item............................ (14.53) (12.46)
Net (loss).................................................. (14.53) (12.47)
</Table>
In November 2001, the Company sold a portion of the indirect access
customers acquired from CWC for L10.2 million ($14.8 million) which does not
include contingent payments for the collection of certain future service
revenues and existing receivables. The Company recognized a loss on this sale of
$88.5 million, after deducting $102.0 million of unamortized intangibles.
6. FIXED ASSETS
Fixed assets consist of:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
Operating equipment......................................... $13,626.2 $11,753.2
Other equipment............................................. 911.4 1,145.2
Construction-in-progress.................................... 1,326.2 1,611.1
--------- ---------
15,863.8 14,509.5
Accumulated depreciation.................................... (3,290.5) (1,816.5)
--------- ---------
$12,573.3 $12,693.0
========= =========
</Table>
F-19
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense (including amortization of assets held under capital
leases) for the years ended December 31, 2001, 2000 and 1999 was $1,549.7
million, $996.6 million and $490.3 million, respectively.
7. INTANGIBLE ASSETS
Intangible assets consist of:
<Table>
<Caption>
DECEMBER 31,
--------------------
2001 2000
-------- ---------
(IN MILLIONS)
Goodwill, net of accumulated amortization of $81.7 (2001)
and $1,103.6 (2000)....................................... $1,715.5 $12,523.0
License acquisition costs, net of accumulated Amortization
of $125.2 (2001) and $215.8 (2000)........................ 54.7 139.2
Customer lists, net of accumulated amortization of $169.3
(2001) and $110.7 (2000).................................. 168.8 318.2
Other intangibles, net of accumulated amortization of $17.3
(2001) and $13.8 (2000)................................... 46.6 80.6
-------- ---------
$1,985.6 $13,061.0
======== =========
</Table>
Amortization of intangible and other assets charged to expense for the
years ended December 31, 2001, 2000 and 1999 was $1,620.8 million, $1,126.2
million and $301.0 million, respectively.
8. INVESTMENTS IN AND LOANS TO AFFILIATES
On May 18, 2001, in partnership with Morgan Stanley Dean Witter Private
Equity, the Company completed its acquisition of France Telecom's 49.9% stake in
Suez-Lyonnaise Telecom, the operator of the Noos broadband network in France.
Pursuant to the acquisition agreement, the Company acquired 27% of Noos in
exchange for shares of preferred stock. The preferred stock was valued at $518.0
million, the fair value at the date of acquisition. An additional E17.7 million
($15.8 million) purchase consideration is due to France Telecom on transfer to
Noos of specified networks following receipt of regulatory approvals, which
would be payable in May 2002. The Company's 27% interest in Noos is pledged to
France Telecom to secure the mandatory redemption obligation under its Variable
Coupon Redeemable Preferred Stock, Series A.
On November 23, 2001, the Company's indirect wholly-owned subsidiary that
owned the Company's cable business in France was merged into Noos. The Company
received E72.6 million ($63.7 million) including a note for E37.5 million ($32.9
million) which is due on November 23, 2006. The Company recorded a loss on this
transaction of $58.9 million, which is included in other losses.
The Company has investments in various companies and joint ventures which
are accounted for under either the equity method or the cost method. The
Company's significant equity investments include its 27% interest in Noos S.A.,
the market leading French broadband company, which offers analog and digital
cable television, high speed Internet and telephone services, its 34.01%
interest in Svenska Bredbandsbolaget ("B2"), a company based in Sweden, which
provides "always on," low cost access to a high-capacity broadband network that
provides transmission, both to and from the customer, at the same speed and at
the same time, and its 50% interest in eKabel InvestCo, which owns 65% of eKabel
L.P., the largest cable television network in the German province of Hessen. The
Company recorded a write-down of $463.7 million
F-20
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related to its investments in and loans to affiliates in the fourth quarter of
2001. The Company's investments in and loans to affiliates are as follows:
<Table>
<Caption>
DECEMBER 31,
-----------------------------------------
2001 2000
------------------- -------------------
OWNERSHIP BALANCE OWNERSHIP BALANCE
--------- ------- --------- -------
(DOLLARS IN MILLIONS)
Noos........................................... 27.00% $ 47.0 $ --
B2............................................. 34.01% 92.5 25.15% 134.7
eKabel......................................... 32.50% 73.0 32.50% 140.2
Others......................................... 52.8 34.3
------ ------
Total equity investments....................... 265.3 309.2
Total cost investments......................... 7.1 23.9
------ ------
Total.......................................... $272.4 $333.1
====== ======
</Table>
A summary of combined financial information as reported by the Company's
equity investees is set forth below:
<Table>
<Caption>
DECEMBER 31,
-------------------
2001 2000
-------- --------
(IN MILLIONS)
Current assets.............................................. $ 495.5 $ 267.1
Fixed assets, net........................................... 910.9 353.8
Other assets................................................ 2,690.0 842.1
-------- --------
Total assets................................................ $4,096.4 $1,463.0
======== ========
Current liabilities......................................... $ 366.3 $ 229.6
Non current liabilities..................................... 1,445.4 705.0
Total shareholders' equity.................................. 2,284.7 528.4
-------- --------
Total liabilities and shareholders' equity.................. $4,096.4 $1,463.0
======== ========
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------
2001 2000 1999
------- ------- ------
(IN MILLIONS)
Revenues................................................. $ 437.4 $ 195.3 $ 57.5
Operating (loss)......................................... (445.3) (257.6) (43.5)
Net (loss)............................................... (606.8) (348.1) (50.7)
</Table>
NTL (Triangle) LLC ("NTL Triangle"), an indirect wholly-owned subsidiary of
the Company, owned a 50% interest in Cable London PLC ("Cable London"). Pursuant
to an agreement with Telewest Communications plc ("Telewest") relating to NTL
Triangle's and Telewest's respective 50% ownership interests in Cable London, in
November 1999 Telewest purchased all of NTL Triangle's shares of Cable London
for L428.0 million ($692.5 million) in cash. The Company recorded a gain of
$493.1 million on the sale. The sale of the Cable London interest was an "Asset
Sale" for purposes of the Company's Indentures for certain of its notes. The
Company used an amount equal to the proceeds from the sale to invest in
"Replacement Assets" by November 2000.
F-21
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
NTL Incorporated:
5 3/4% Convertible Subordinated Notes..................... (a) $ 100.0 $ --
NTL Delaware:
5 3/4% Convertible Subordinated Notes..................... (b) 1,200.0 1,200.0
ConsumerCo:
Term Loan Facility and other.............................. -- 21.7
NTL Business:
Credit Agreement.......................................... (y) -- 3,030.3
Cablecom:
Term Loan Facility........................................ (z) 1,626.8 1,666.4
Revolving Facility........................................ (z) 527.2 320.9
Other..................................................... 6.2 15.3
NTL Australia:
Credit Agreement.......................................... (aa) 102.3 --
NTL Communications:
12 3/4% Senior Deferred Coupon Notes...................... (c) 277.8 277.8
11 1/2% Senior Deferred Coupon Notes...................... (d) 1,050.0 1,040.5
10% Senior Notes.......................................... (e) 400.0 400.0
9 1/2% Senior Sterling Notes, less unamortized discount... (f) 181.4 186.5
10 3/4% Senior Deferred Coupon Sterling Notes............. (g) 382.3 353.6
9 3/4% Senior Deferred Coupon Notes....................... (h) 1,153.8 1,048.5
9 3/4% Senior Deferred Coupon Sterling Notes.............. (i) 385.9 360.8
11 1/2% Senior Notes...................................... (j) 625.0 625.0
12 3/8% Senior Deferred Coupon Notes...................... (k) 364.9 323.6
7% Convertible Subordinated Notes......................... (l) 489.8 599.3
9 1/4% Senior Euro Notes.................................. (m) 222.5 234.7
9 7/8% Senior Euro Notes.................................. (n) 311.5 328.6
11 1/2% Senior Deferred Coupon Euro Notes................. (o) 135.6 127.9
11 7/8% Senior Notes, less unamortized discount........... (p) 490.7 489.6
12 3/8% Senior Euro Notes, plus unamortized premium....... (q) 267.8 --
6 3/4% Convertible Senior Notes........................... (r) 1,150.0 --
NTL Communications Limited:
Credit Agreement.......................................... (y) 3,759.1 375.3
Working Capital Agreement................................. (y) 145.4 --
Senior Secured Financing.................................. (y) 290.9 --
Other..................................................... 58.6 --
NTL Triangle:
11.2% Senior Discount Debentures.......................... (s) 517.3 517.3
Other..................................................... 4.5 5.2
Diamond:
13 1/4% Senior Discount Notes............................. (t) 285.1 285.1
11 3/4% Senior Discount Notes............................. (u) 531.0 531.0
10 3/4% Senior Discount Notes............................. (v) 415.1 373.9
10% Senior Sterling Notes................................. (w) 196.3 201.9
9 1/8% Senior Notes....................................... (x) 110.0 110.0
Other..................................................... 3.6 6.0
--------- ---------
17,768.4 15,056.7
</Table>
F-22
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
Less current portion........................................ 17,666.1 12.6
--------- ---------
$ 102.3 $15,044.1
========= =========
</Table>
- ---------------
(a) 5 3/4% Convertible Subordinated Notes due June 22, 2011, issued in June
2001, principal amount at maturity of $100.0 million, interest payable
quarterly from October 15, 2001, redeemable at the Company's option on or
after December 22, 2007, convertible into shares of the Company's common
stock at a conversion price of $35.00 per share (there are approximately
2.9 million shares of the Company's common stock reserved for issuance upon
conversion);
(b) 5 3/4% Convertible Notes due December 15, 2009, principal amount at
maturity of $1,200.0 million, interest payable semiannually from June 15,
2000, redeemable at the Company's option on or after December 18, 2002,
convertible into shares of the Company's common stock at a conversion price
of $108.18 per share (there are approximately 11.1 million shares of the
Company's common stock reserved for issuance upon conversion);
(c) 12 3/4% Notes due April 15, 2005, principal amount at maturity of $277.8
million, interest payable semiannually from October 15, 2000, redeemable at
the Company's option on or after April 15, 2000;
(d) 11 1/2% Notes due February 1, 2006, principal amount at maturity of
$1,050.0 million, interest payable semiannually from August 1, 2001,
redeemable at the Company's option on or after February 1, 2001;
(e) 10% Notes due February 15, 2007, principal amount at maturity of $400.0
million, interest payable semiannually from August 15, 1997, redeemable at
the Company's option on or after February 15, 2002;
(f) 9 1/2% Sterling Notes due April 1, 2008, principal amount at maturity of
L125.0 million ($181.8 million), interest payable semiannually from October
1, 1998, redeemable at the Company's option on or after April 1, 2003;
(g) 10 3/4% Sterling Notes due April 1, 2008, principal amount at maturity of
L300.0 million ($436.3 million), interest payable semiannually beginning on
October 1, 2003, redeemable at the Company's option on or after April 1,
2003;
(h) 9 3/4% Notes due April 1, 2008, principal amount at maturity of $1,300.0
million, interest payable semiannually beginning on October 1, 2003,
redeemable at the Company's option on or after April 1, 2003;
(i) 9 3/4% Sterling Notes due April 15, 2009, principal amount at maturity of
L330.0 million ($479.9 million), interest payable semiannually beginning on
October 15, 2004, redeemable at the Company's option on or after April 15,
2004;
(j) 11 1/2% Notes due October 1, 2008, principal amount at maturity of $625.0
million, interest payable semiannually from April 1, 1999, redeemable at
the Company's option on or after October 1, 2003;
(k) 12 3/8% Notes due October 1, 2008, principal amount at maturity of $450.0
million, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
(l) 7% Convertible Notes due December 15, 2008, principal amount at maturity of
$489.8 million, interest payable semiannually from June 15, 1999,
redeemable at the Company's option on or after December 15, 2001,
convertible into shares of the Company's common stock at a conversion price
of $39.20 per share (there are approximately 12.5 million shares of the
Company's common stock reserved for issuance upon conversion);
(m) 9 1/4% Euro Notes due November 15, 2006, principal amount at maturity of
E250.0 million ($222.5 million), interest payable semiannually from May 15,
2000;
(n) 9 7/8% Euro Notes due November 15, 2009, principal amount at maturity of
E350.0 million ($311.5 million), interest payable semiannually from May 15,
2000, redeemable at the Company's option on or after November 15, 2004;
F-23
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(o) 11 1/2% Deferred Euro Notes due November 15, 2009, principal amount at
maturity of E210.0 million ($186.9 million), interest payable semiannually
beginning on May 15, 2005, redeemable at the Company's option on or after
November 15, 2004;
(p) 11 7/8% Notes due October 1, 2010, principal amount at maturity of $500.0
million, interest payable semiannually from April 1, 2001, redeemable at
the Company's option on or after October 1, 2005;
(q) 12 3/8% Senior Euro Notes due February 1, 2008, issued in January and
February 2001, principal amount at maturity of E300.0 million ($267.0
million), interest payable semiannually from August 1, 2001;
(r) 6 3/4% Convertible Senior Notes due May 15, 2008, issued in May 2001,
principal amount at maturity of $1,150.0 million, interest payable
semiannually from November 15, 2001, redeemable at the Company's option on
or after May 21, 2004, convertible into shares of the Company's common
stock at a conversion price of $32.728 per share (there are approximately
35.1 million shares of the Company's common stock reserved for issuance
upon conversion);
(s) 11.2% Debentures due November 15, 2007, principal amount at maturity of
$517.3 million, interest payable semiannually from May 15, 2001, redeemable
at NTL Triangle's option after November 15, 2000;
(t) 13 1/4% Notes due September 30, 2004, principal amount at maturity of
$285.1 million, interest payable semiannually from March 31, 2000,
redeemable at Diamond's option after September 30, 1999;
(u) 11 3/4% Notes due December 15, 2005, principal amount at maturity of $531.0
million, interest payable semiannually from June 15, 2001, redeemable at
Diamond's option on or after December 15, 2000;
(v) 10 3/4% Notes due February 15, 2007, principal amount at maturity of $420.5
million, interest payable semiannually beginning on August 15, 2002,
redeemable at Diamond's option on or after December 15, 2002;
(w) 10% Sterling Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount at maturity of L135.0 million ($196.3 million), interest
payable semiannually from August 1, 1998, redeemable at Diamond's option on
or after February 1, 2003; and
(x) 9 1/8% Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount of $110.0 million, interest payable semiannually from
August 1, 1998, redeemable at Diamond's option on or after February 1,
2003.
See Note 1 for discussion of the uncertainties about compliance with the
terms and conditions of the Company's debt that would give the holders of the
debt the right to accelerate repayment, which has caused primarily all of the
Company's long-term debt to be classified as current.
The indentures governing the notes contain 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. The Company, NTL Delaware and NTL
Communications did not make interest payments and payments of related fees when
due on April 1 and April 15, 2002.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires (on April 30, 2002 in the case of the missed interest
payments due April 1, 2002), there is an event of default under the indenture in
respect of the notes on which the interest is due and unpaid. An event of
default entitles the trustee under the indenture or the holders of 25% of the
outstanding notes to declare the principal amount of those notes to be
immediately due and payable. Even if the maturity of those notes is not
accelerated after April 30, 2002, such an event of default would also result in
an event of default for payment defaults in respect of other debt (commonly
called cross defaults) under all of our other notes, except for those issued by
NTL Triangle, Diamond Cable Communications or Diamond Holdings. As a result,
upon the expiration of the grace period, on April 30, 2002, events of default
for failure to pay interest would occur under the relevant indentures at NTL
Communications and, contemporaneously, cross defaults would occur under the
Company's other indentures at NTL Communications, NTL Delaware, NTL Incorporated
and under our bank credit facilities in the United Kingdom and could occur under
the Cablecom Facility. This would give holders of the outstanding series of debt
at these entities the right to accelerate repayment of those debts by declaring
the principal amount of the debts to be immediately due and payable unless we
obtain waivers or forbearance agreements from sufficient percentages of our
creditors.
F-24
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 2001, 2000 and 1999, the Company recognized $284.9 million, $473.4
million and $451.4 million, respectively, of original issue discount as interest
expense.
In addition to the notes described above, subsidiaries of the Company have
the following bank credit agreements outstanding:
(y) In May 2000, NTL Business Limited ("NTL Business") and NTL
Communications Limited ("NTLCL"), wholly-owned indirect subsidiaries
of the Company, entered into a L2,500.0 million ($3,635.8 million)
credit agreement in connection with the ConsumerCo acquisition. On
February 21, 2001, as required by the NTL Business and NTLCL credit
agreement, NTL Communications Corp. ("NTL Communications"), a
wholly-owned indirect subsidiary of the Company, completed a
transaction whereby it acquired the entire issued share capital of NTL
(CWC Holdings) Limited (the entity that owns ConsumerCo) from the
Company and the entire issued share capital of NTL Business from NTL
Delaware in exchange for shares of its common stock. As a result of
this transaction, ConsumerCo and NTL Business became subsidiaries of
NTL Communications, and NTL Business' rights and obligations under the
L2,500.0 million credit agreement were assigned to a subsidiary of
NTLCL. In October 2001, NTLCL completed L169.6 million ($246.6
million) of vendor financing as an addition to NTLCL's L2,500.0
million credit agreement with the same terms and conditions. The
Company borrowed L84.8 million ($123.3 million) of the vendor
financing in October 2001. The commitment for the remaining L84.8
million has expired. Interest is payable at least every six months at
LIBOR plus a margin rate of 2.00% per annum, which is subject to
adjustment based on the ratio of EBITDA to finance charges of the UK
Group.
For purposes of this credit agreement, Diamond Cable Communications
Limited and subsidiaries, NTL (Triangle) LLC and subsidiaries and
certain other entities are excluded from the UK Group. The unused
portion of the commitment is subject to a commitment fee of 0.75%
payable quarterly, which is reduced to 0.50% when over 50% of the
commitment is utilized. Principal is due in six quarterly installments
beginning on June 30, 2004. The credit agreement contains various
financial and other covenants with respect to the UK Group, and
restrictions on dividends and distributions by the UK Group. As of
December 31, 2001, there was L2,584.8 million ($3,759.1 million)
outstanding under this credit agreement. The effective interest rate
was 6.73% and 8.283% as of December 31, 2001 and 2000, respectively.
In October 2001, NTLCL completed L200.0 million ($290.9 million) of GE
Capital senior secured financing. Interest on the GE Capital senior
secured financing is payable at least every six months at LIBOR plus a
margin rate of 3.50% per annum. The senior secured financing is
repayable in eight quarterly installments beginning on June 30, 2006.
The effective interest rate at December 31, 2001 was 8.06%.
NTLCL has a L1,300.0 million ($1,890.6 million) credit agreement with
a group of banks, which is available to finance working capital
requirements of the UK Group (as defined above). Pursuant to the
credit agreement, in connection with the issuance of new debt
beginning in October 2000, the commitment has been reduced by L882.5
million ($1,283.4 million). Interest is payable at least every six
months at LIBOR plus a margin rate of 5.50% per annum. The margin rate
shall increase by 0.50% on the three month anniversary of the initial
advance and by an additional 0.50% on each subsequent three month
anniversary, up to a maximum total interest rate of 16.00% per annum.
The unused portion of the commitment is subject to a commitment fee of
0.75% payable quarterly. Principal is due in full on March 31, 2006.
The credit agreement contains various financial and other covenants
with respect to the UK Group, and restrictions on dividends and
distributions by the UK Group. As of December 31, 2001, L100.0 million
($145.4 million) was outstanding under
F-25
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this credit agreement with an effective interest rate of 9.57%. In
January and February 2002, the Company borrowed the remaining amounts
available under this agreement.
(z) In March 2000, a subsidiary of the Company borrowed CHF 2,700.0
million ($1,626.8 million) under its term loan facility in connection
with the acquisition of Cablecom. Interest is payable at least every
six months at Swiss LIBOR plus a margin rate of 2.50% per annum, which
is subject to adjustment after March 2001 based on Cablecom's ratio of
senior debt to EBITDA. The effective rate of interest at December 31,
2001 and 2000 was 5.27% and 6.03%, respectively. Principal is due over
six years in quarterly installments beginning on March 31, 2004.
Cablecom had the option to draw on a revolving loan facility up to an
additional CHF 1,400.0 million ($843.5 million). The revolving
facility is intended to finance operating expenses, working capital
and other capital expenditures of Cablecom and subsidiaries and for
their general corporate financing requirements. As of December 31,
2001, Cablecom had borrowed CHF 875.0 million ($527.2 million) under
the revolving loan facility. The effective rate of interest as of
December 31, 2001 and 2000 was 5.49% and 6.02%, respectively. The
revolving facility is available until May 2003, although Cablecom is
currently unable to draw the remaining undrawn amounts under this
facility because, as of December 31, 2001, its liabilities exceeded
its assets, which constituted an event of default under the facility.
The interest rate, interest payment requirements and principal
payments for the revolving facility are the same as for the term loan
facility. The revolving facility includes a commitment fee of 0.75%
payable quarterly on the unused portion of the revolving facility
commitment, which is reduced to 0.50% when over 50% of the commitment
is utilized. The term loan facility and the revolving facility contain
various financial and other covenants with respect to Cablecom and
subsidiaries, and restrictions on dividends and distributions by
Cablecom subsidiaries.
(aa) In March 2001, NTL Australia Pty Limited ("NTL Australia"), a
wholly-owned indirect subsidiary of the Company, entered into a
A$350.0 million ($179.1 million) credit agreement with a group of
banks. As of December 31, 2001, NTL Australia had borrowed A$200.0
million ($102.3 million) under this credit agreement. NTL Australia
may use the proceeds under this credit agreement to repay NTL Delaware
for part of its original investment as well as funding general capital
expenditures, working capital and corporate purposes. As of December
31, 2001, NTL Australia repaid A$200.0 million ($102.3 million) to NTL
Delaware. Interest is payable at least every six months at the A$ Bank
Bill Bid Rate plus a margin of 1.85% per annum, which is subject to
adjustment based on the ratio of senior debt to EBITDA of NTL
Australia. The effective interest rate at December 31, 2001 was 6.98%.
The unused portion of the commitment is subject to a commitment fee of
0.60%, which is subject to adjustment based on the ratio of senior
debt to EBITDA of NTL Australia. Principal is due in four semiannual
installments beginning on June 30, 2004 of a maximum of A$7.5 million,
A$7.5 million, A$12.5 million and A$12.5 million. The balance is due
in full on March 30, 2006. The credit agreement contains various
financial and other covenants with respect to NTL Australia and
restrictions on dividends and distributions by NTL Australia.
In February 2001, $109.5 million principal amount of 7% Convertible
Subordinated Notes due December 15, 2008 were converted into 2.8 million shares
of the Company's common stock at the applicable conversion price of $39.20 per
share. The Company issued as a premium on the conversion an additional 0.5
million shares which were valued at the Company's closing common stock price on
the dates of conversion. The premium, which amounted to $17.6 million, is
included in interest expense. Additionally accrued and unpaid interest of $1.2
million at the time of the conversion was waived by the holders of the
convertible notes.
In connection with the Cablelink acquisition, the Company issued $704.6
million principal amount Senior Increasing Rate Notes due 2000. In November
1999, the Company received net proceeds of
F-26
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$720.7 million from the issuance of the 9 1/4% Euro Notes, the 9 7/8% Euro Notes
and the 11 1/2% Deferred Euro Notes, of which $716.5 million was used to repay
the Senior Increasing Rate Notes plus accrued interest. The Company recorded an
extraordinary loss from the early extinguishment of the notes of $3.0 million in
1999.
Primarily all of the notes issued by NTL Communications, as well as the
bank credit facilities, restrict the payment of cash dividends and loans to the
Company.
Long-term debt repayments are due as follows (in millions). The table
reflects the Company's contractual obligations, but the entire obligation,
except for NTL Australia's long term portion has been classified as current.
<Table>
<Caption>
YEAR ENDING DECEMBER 31:
- ------------------------
2002...................................................... $ 5.7
2003...................................................... 2.8
2004...................................................... 512.2
2005...................................................... 4,602.9
2006...................................................... 1,854.1
Thereafter................................................ 11,235.6
----------
Total debt repayments....................................... 18,213.3
Less: current portion....................................... (18,111.0)
----------
$ 102.3
==========
</Table>
10. REDEEMABLE PREFERRED STOCK
On September 12, 2001, the Company issued 1,850,000 shares of its
Cumulative Convertible Preferred Stock, Series A ("Convertible Preferred Stock")
in exchange for the 1,850,000 issued and outstanding shares of its 5% Cumulative
Preferred Stock held by France Telecom and others. The Convertible Preferred
Stock has a stated value and liquidation preference of $1,075.17 per share and
is mandatorily redeemable for cash by the Company on March 27, 2009. Dividends
are payable quarterly in additional shares of Convertible Preferred Stock, at
the following quarterly dividend rates: (i) from September 12, 2001 through
March 26, 2002, $13.44 per share, (ii) from March 27, 2002 through March 26,
2003, $21.23 per share and (iii) from March 27, 2003 through March 26, 2004,
$26.61 per share. Once the Convertibility Date (as defined below) is set, the
quarterly dividend rate resets to $16.12 per share and the Convertible Preferred
Stock becomes eligible for conversion into shares of the Company's common stock
beginning on a "Convertibility Date," at which time the conversion price is set
at 125% of the immediately preceding 25 trading day volume-weighted average
price of the Company's common stock (the "Convertibility Base Price"). The
Convertibility Date is as follows: March 27, 2002, unless the Company elects to
delay convertibility until March 27, 2003 or, alternatively, redeems, at its
option, all shares of the Convertible Preferred Stock on March 27, 2002 in cash;
if the Company has delayed, March 27, 2003, unless the Company elects again to
delay convertibility until March 27, 2004, which it may only do if the
Convertibility Base Price would be less than or equal to $65.00 per share (as
may be adjusted for certain antidilutive events); the Company may also elect,
instead, to redeem all shares of the Convertible Preferred Stock on March 27,
2003 in cash; if the Company has delayed, March 27, 2004, unless the Company
elects to redeem all shares of the Convertible Preferred Stock on March 27, 2004
in cash. In no event will the Convertibility Date be after March 27, 2004. In
March 2002, the Company elected to delay the Convertibility Date until at least
March 27, 2003. Holders of Convertible Preferred Stock other than any commercial
bank or their affiliates may at any time elect, subject to some conditions, to
exchange their Convertible Preferred Stock for up to a 50% interest in an entity
holding the Company's Swiss operations.
F-27
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On May 18, 2001, the Company issued 47,000 shares of its Variable Coupon
Redeemable Preferred Stock, Series A ("Variable Coupon Redeemable Preferred
Stock") and 12,000 shares of its 6.5% Fixed Coupon Redeemable Preferred Stock,
Series A ("6.5% Redeemable Preferred Stock") to France Telecom in exchange for a
27% interest in Noos. The Variable Coupon Redeemable Preferred Stock has a
stated value and liquidation preference of $10,000 per share and is mandatorily
redeemable for cash by the Company on May 18, 2002. Dividends are payable
quarterly at the Company's option in cash or additional shares of Variable
Coupon Redeemable Preferred Stock, at a quarterly rate based on a quotient of
(x) the sum of (1) the EURIBOR Rate in effect on the first day of every dividend
period plus (2) 2.5% over (y) four, per share. The Company's 27% interest in
Noos is pledged to France Telecom to secure the mandatory redemption obligation
under its Variable Coupon Redeemable Preferred Stock and the 6.5% Redeemable
Preferred Stock. The 6.5% Redeemable Preferred Stock has a stated value and
liquidation preference of $10,000 per share and is mandatorily redeemable for
cash by the Company on May 18, 2007. Dividends at a rate of 6.5% per annum are
cumulative and are payable in cash upon redemption.
In March 2000, the Company received $1,850.0 million in cash from France
Telecom and a group of commercial banks in exchange for 1,850,000 shares of its
redeemable 5% Cumulative Preferred Stock. As described above, in May 2001, the
Company issued 1,850,000 shares of its Convertible Preferred Stock in exchange
for the 1,850,000 issued and outstanding shares of its 5% Cumulative Preferred
Stock.
In February 1997, the Company issued 100,000 shares of its 13% Senior
Redeemable Exchangeable Preferred Stock (the "Redeemable Preferred Stock"). The
Company received net proceeds of $96.6 million after discounts and commissions
from the issuance of the Redeemable Preferred Stock. Discounts, commissions and
other fees incurred of $3.7 million were recorded as unamortized discount at
issuance. Dividends accrue at 13% per annum ($130 per share) and are payable
quarterly in arrears. 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. As of
December 31, 2001, the Company has accrued $86.8 million for dividends and has
issued approximately 84,000 shares for $83.8 million of such accrued dividends.
The Redeemable Preferred Stock 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 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, if issued, 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 option, 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-28
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The changes in the number of shares of Redeemable Preferred Stock were as
follows:
<Table>
<Caption>
13% 5% VARIABLE 6.5% CONVERTIBLE
-------- ----------- -------- ------- -----------
Shares at December 31, 1998... 125,000 -- -- -- --
Issued for dividends.......... 17,000 -- -- -- --
-------- ----------- ------- ------- ----------
Shares at December 31, 1999... 142,000 -- -- -- --
Issued for cash............... -- 1,850,000 -- -- --
Issued for dividends.......... 20,000 -- -- -- --
-------- ----------- ------- ------- ----------
Shares at December 31, 2000... 162,000 1,850,000 -- -- --
Issued for investment in
Noos........................ -- -- 47,000 12,000 --
Issued for dividends.......... 22,000 -- 1,000 -- --
Exchange...................... -- (1,850,000) -- -- 1,850,000
-------- ----------- ------- ------- ----------
Shares at December 31, 2001... 184,000 -- 48,000 12,000 1,850,000
======== =========== ======= ======= ==========
Liquidation preference at
December 31, 2001 (in
millions)................... $ 186.8 $ -- $ 491.7 $ 126.9 $ 2,029.1
======== =========== ======= ======= ==========
</Table>
11. DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137
and 138. The new accounting standard requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in the results of operations or in other
comprehensive income (loss), depending on whether a derivative is designated as
a fair value or cash flow hedge. The ineffective portion of all hedges is
recognized in the results of operations. Beginning October 1, 2001, the Company
has recorded the change in the fair value of derivatives related to changes in
time value each period in other comprehensive income for certain qualifying cash
flow hedges.
On January 1, 2001, the Company recorded all of its outstanding derivative
instruments at their fair value. The outstanding derivative instruments were
comprised of cross currency swaps to hedge exposure to movements in the British
pound/U.S. dollar exchange rate, and a number of zero cost collars to hedge
exposure to floating interest rates on certain of its debt. The aggregate fair
value on January 1, 2001 was a liability of $9.0 million, of which $6.8 million
was recorded as an expense and $2.2 million was recorded as other comprehensive
loss. In 2001, the Company entered into cross currency swaps to hedge exposure
to movements in the Euro/British pound exchange rate. In the year ended December
31, 2001, the Company recorded income of $3.4 million and other comprehensive
loss of $12.8 million as a result of changes in the fair values. The aggregate
fair value at December 31, 2001 was a net liability of $18.4 million.
In September 2001, the Company entered into a British pound forward foreign
exchange agreement, consisting of twenty-six accumulating forward contracts, to
reduce its exposure to movement in the British pound/U.S. dollar exchange rate
in accordance with its market risk strategies. As of December 31, 2001, the fair
value of this instrument was a liability of $0.3 million.
12. NON-CASH COMPENSATION
In July 2001, the Compensation and Option Committee of the Board of
Directors (the "Compensation Committee") approved modifications to certain stock
options. The latest possible expiration date of options to purchase an aggregate
of approximately 4.7 million shares of the Company's common stock with exercise
F-29
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prices from $.17 to $14.76 per share was extended from July 30, 2001 to October
2004, as applicable, to January 30, 2006. The Company recognized non-cash
compensation expense of $30.6 million based on the excess of the quoted market
price of the Company's common stock on the date of the modification of $12.05
per share over the exercise price per share.
In September 2000, the Board of Directors approved modifications to certain
stock options granted to employees in November 1999 through May 2000. Options to
purchase an aggregate of approximately 16.5 million shares of the Company's
common stock with a weighted average exercise price of $64.39 per share were
modified such that the exercise price was reduced to $44.50 per share and the
vesting schedule was delayed and/or lengthened. The Company is accounting for
these options as a variable plan beginning in September 2000. The Company will
recognize non-cash compensation expense for the difference between the quoted
market price of the Company's common stock and the exercise price of the vested
options while the options remain outstanding.
The Compensation Committee has taken the actions described above to
continue to provide the appropriate performance incentives to those affected.
13. OTHER CHARGES INCLUDING RESTRUCTURING CHARGES
Other charges of $311.6 million in 2001 include restructuring charges of
$209.6 million and costs of $102.1 million incurred primarily to integrate the
acquired companies, mostly related to information technology integration, as
well as costs incurred for business rationalization consulting. Other charges of
$92.7 million in 2000 include restructuring charges of $65.9 million and costs
of $26.8 million incurred primarily to integrate the acquired companies, mostly
related to information technology integration, as well as costs incurred for
business rationalization consulting. Other charges of $16.2 million in 1999 were
incurred for the cancellation of certain contracts.
Restructuring charges of $209.6 million and $65.9 million for the years
ended December 31, 2001 and 2000, respectively, relate to the Company's
announcements in the fourth quarter of 2001 and in November 2000 that it was
taking additional actions to reorganize, re-size and reduce operating costs and
create greater efficiency in various areas of the Company. An aggregate of $57.9
million of the 2001 restructuring charges are for the write-off of equipment and
other assets that are not in use and will not require any future cash outlays.
The employee severance and related costs in 2000 were for approximately 2,300
employees to be terminated, approximately 550 of whom are still employed by the
Company as of December 31, 2001. These charges in 2001 are for approximately
5,400 employees to be terminated, of which approximately 3,000 employees are
still employed by the Company as of December 31, 2001.
F-30
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the restructuring charges incurred and
utilized in 2000 and 2001:
<Table>
<Caption>
EMPLOYEE
SEVERANCE LEASE
AND RELATED EXIT AGREEMENT FIXED
COSTS COSTS MODIFICATIONS ASSETS TOTAL
----------- ----- ------------- ------ ------
(IN MILLIONS)
Charged to expense.................. $ 47.9 $18.0 $ -- $ -- $ 65.9
Utilized............................ -- -- -- -- --
------ ----- ----- ------ ------
Balance, December 31, 2000.......... 47.9 18.0 -- -- 65.9
2000 provision utilized............. (41.3) (9.6) -- -- (50.9)
2000 provision released............. (6.6) (7.3) -- -- (13.9)
Charged to expense.................. 96.5 41.4 27.7 57.9 223.5
2001 provision utilized............. (26.2) -- -- (57.9) (84.1)
------ ----- ----- ------ ------
Balance, December 31, 2001.......... $ 70.3 $42.5 $27.7 $ -- $140.5
====== ===== ===== ====== ======
</Table>
14. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------
2001 2000 1999
----- ------- ------
(IN MILLIONS)
Current:
Federal.................................................. $ -- $ -- $ 1.0
State and local.......................................... 1.2 0.2 1.0
Foreign.................................................. 0.9 0.9 --
----- ------- ------
Total current.............................................. 2.1 1.1 2.0
----- ------- ------
Deferred:
Foreign.................................................. $61.1 $(112.1) $(37.3)
----- ------- ------
Total deferred............................................. 61.1 (112.1) (37.3)
----- ------- ------
$63.2 $(111.0) $(35.3)
===== ======= ======
</Table>
The Company's tax provision relates primarily to an increase in the
deferred tax liability attributable to separate company profits of a foreign
subsidiary offset to some extent by a decrease in net deferred tax liabilities
attributable to operating losses of other foreign subsidiaries. The increase in
deferred tax liabilities includes an adjustment related to 1997 through 2000 of
approximately $116.3 million that is primarily attributable to additional tax
depreciation being claimed during 2001 on original and amended income tax
returns.
F-31
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
Deferred tax liabilities:
Intangibles............................................... $ 68.9 $ 113.3
Depreciation and amortization............................. 467.5 667.0
--------- ---------
Total deferred tax liabilities.............................. 536.4 780.3
Deferred tax assets:
Net operating losses...................................... 2,154.6 1,582.4
Net deferred interest expense............................. 239.9 198.5
Fixed assets.............................................. 370.2 277.9
Equity investments........................................ 52.5 --
Inventory................................................. 13.7 16.4
Purchase accounting liabilities........................... 16.5 158.5
Other..................................................... 59.8 34.0
--------- ---------
Total deferred tax assets................................... 2,907.2 2,267.7
--------- ---------
Valuation allowance for deferred tax assets................. (2,631.7) (1,692.8)
--------- ---------
Net deferred tax assets..................................... 275.5 574.9
--------- ---------
Net deferred tax liabilities................................ $ 260.9 $ 205.4
========= =========
</Table>
At December 31, 2001, the Company had a valuation allowance against its
deferred tax assets to the extent it was not more likely than not that such
assets would be realized in the future. At December 31, 2001, the valuation
allowance includes approximately $535.0 million, which, if realized, would be
accounted for as a reduction to goodwill or an increase in additional paid-in
capital.
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $1,300.0 million for U.S. federal income tax purposes that expire
in varying amounts commencing in 2009. This excludes net operating loss
carryforwards of companies that are resident in both the U.S. and the UK. The
Company also has UK net operating loss carryforwards of approximately $5,250.0
million that have no expiration date. Pursuant to UK law, these net operating
losses are only available to offset income of the separate entity that generated
the loss. A portion of the UK net operating loss carryforward relates to dual
resident companies, of which the U.S. net operating loss carryforward amount is
approximately $1,100.0 million.
As discussed in Note 1, the Company needs to restructure its outstanding
debt during 2002. A restructuring of the Company's debt can be expected to give
to rise to cancellation of indebtedness ("COD"), which if it occurs in the
course of a proceeding pursuant to Chapter 11 of the U.S. Bankruptcy Code, would
be non-taxable. If the COD is non-taxable, the Company will be required to
reduce its U.S. net operating loss carryforwards and other attributes such as
tax basis in assets by an amount equal to the non-recognized COD. Therefore, it
is likely that as a result of the successful completion of the proposed plan of
recapitalization, the Company will have no U.S. net operating loss carryforward.
In 2000, the Internal Revenue Service completed its federal income tax
audit of the Company for the years 1993, 1994 and 1995. The audit resulted in a
reduction in U.S. net operating loss carryforwards that had no material impact
on the Company. The Company is currently undergoing a U.S. federal income tax
audit
F-32
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for the years 1996, 1997 and 1998. The Company does not expect that the audit
adjustments will have a material adverse effect on its financial position,
results of operations or cash flows.
The reconciliation of income taxes computed at U.S. federal statutory rates
to income tax expense is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------
2001 2000 1999
--------- --------- -------
(IN MILLIONS)
(Benefit) at federal statutory rate (35%)............ $(4,962.3) $(1,076.1) $(269.9)
Add:
Non-deductible asset impairments................... 3,329.0 -- --
Foreign losses with no benefit..................... 1,135.8 815.7 110.2
U.S. losses with no benefit........................ 443.6 149.3 123.7
Prior year accelerated depreciation................ 116.3 -- --
State and local income tax, net of federal
benefit......................................... 0.8 0.1 0.7
--------- --------- -------
$ 63.2 $ (111.0) $ (35.3)
========= ========= =======
</Table>
15. 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: The carrying amounts reported in the
consolidated balance sheets approximate fair value.
Long-term debt: The carrying amounts of the bank credit facilities
and the senior secured financing approximate their fair values. The fair
values of the Company's other debt in the following table are based on the
quoted market prices.
Redeemable Preferred Stock: The fair value of the 13% redeemable
preferred stock is based on the quoted market price. As of December 31,
2001, the remaining redeemable preferred stock is estimated by reference to
the fair value of the 13% redeemable preferred stock. As of December 31,
2000, the fair value of the 5% preferred stock is estimated using
discounted cash flow analyses based on the Company's current borrowing rate
for similar types of arrangements.
F-33
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<Table>
<Caption>
DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
Cash and cash equivalents................... $ 504.6 $ 504.6 $ 579.4 $ 579.4
Long-term debt:
5 3/4% Convertible Notes.................. 1,200.0 132.0 1,200.0 582.0
5 3/4% Convertible Notes.................. 100.0 29.0 -- --
Credit Agreements......................... 3,861.4 3,861.4 3,405.6 3,405.6
Term Loan and Revolving Facilities........ 2,154.0 2,154.0 1,987.3 1,987.3
12 3/4% Notes............................. 277.8 91.7 277.8 255.6
11 1/2% Notes............................. 1,050.0 336.0 1,040.5 913.5
10% Notes................................. 400.0 120.0 400.0 348.0
9 1/2% Sterling Senior Notes.............. 181.4 60.1 186.5 154.2
10 3/4% Sterling Notes.................... 382.3 124.3 353.6 242.3
9 3/4% Notes.............................. 1,153.8 338.0 1,048.5 715.0
9 3/4% Sterling Notes..................... 385.9 124.8 360.8 214.7
11 1/2% Notes............................. 625.0 200.0 625.0 556.3
12 3/8% Notes............................. 364.9 108.0 323.6 252.0
7% Convertible Notes...................... 489.8 53.9 599.3 470.5
9 1/4% Euro Notes......................... 222.5 74.6 234.7 207.7
9 7/8% Euro Notes......................... 311.5 104.4 328.6 269.4
11 1/2% Euro Deferred Notes............... 135.6 44.9 127.9 99.6
11 7/8% Senior Notes...................... 490.7 160.0 489.6 445.0
12 3/8% Euro Notes........................ 267.8 90.8 -- --
6 3/4% Convertible Notes.................. 1,150.0 353.6 -- --
Working Capital Agreement................. 145.4 145.4 -- --
Senior Secured Financing.................. 290.9 290.9 -- --
11.2% Debentures.......................... 517.3 367.3 517.3 439.7
13 1/4% Notes............................. 285.1 77.0 285.1 270.8
11 3/4% Notes............................. 531.0 132.8 531.0 467.3
10 3/4% Notes............................. 415.1 100.9 373.9 281.7
10% Sterling Notes........................ 196.3 143.4 201.9 161.5
9 1/8% Notes.............................. 110.0 71.5 110.0 89.7
Redeemable Preferred Stock:
13% Redeemable Preferred Stock............ 184.6 3.7 161.9 121.3
5% Preferred Stock........................ -- -- 1,921.3 1,781.8
Variable Coupon Preferred Stock........... 477.9 7.2 -- --
6.5% Preferred Stock...................... 89.5 1.3 -- --
5% Convertible Preferred Stock............ 2,029.1 30.5 -- --
</Table>
F-34
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. RELATED PARTY TRANSACTIONS
In 1999, the Company provided management, financial, legal and technical
services to Cellular Communications International, Inc. ("CCII") and Cellular
Communications of Puerto Rico, Inc. ("CCPR"). Certain officers and directors of
the Company were officers and directors of CCII and CCPR.
In the fourth quarter of 1999, CoreComm Limited ("CoreComm") (which was
formed in 1998 and has certain common officers and directors with the Company)
began charging the Company a percentage of its office rent and supplies expense
in respect of certain facilities which were shared with the Company. In 1999,
the Company charged CCPR, CCII and CoreComm $0.7 million, $0.4 million and $2.3
million, respectively, for direct costs where identifiable and a fixed
percentage of its corporate overhead, net of CoreComm's charges to the Company.
Charges to CCPR and to CCII ceased in 1999 due to each of them being acquired
and the resulting termination of services. In 2001 and 2000, the Company charged
CoreComm $0.3 million and $0.9 million, respectively, for direct costs where
identifiable and a fixed percentage of its corporate overhead, net of CoreComm's
charges to the Company. These charges reduced corporate expenses in 2001, 2000
and 1999. It is not practicable to determine the amounts of these expenses that
would have been incurred had the Company operated as an unaffiliated entity. In
the opinion of management of the Company, the allocation methods are reasonable.
The Company obtains billing and software development services from
CoreComm. CoreComm billed the Company $3.4 million, $5.9 million and $4.6
million in 2001, 2000 and 1999, respectively, for these services.
In March 2000, the Company and CoreComm announced that they had entered
into an agreement to link their networks in order to create an international
Internet backbone that commenced operations in February 2001. The Company
incurred costs of $0.3 million for network usage in the year ended December 31,
2001.
On April 12, 2001, the Company purchased $15.0 million of an unsecured
convertible note from CoreComm and received warrants to purchase 770,000 shares
of CoreComm common stock at an exercise price of $.01 per share that expire in
April 2011. In addition, concurrently with the note purchase and without
additional compensation, the Company entered into a network and software
agreement with CoreComm. Under the agreement, CoreComm will provide U.S. network
access for Internet traffic from the Company's UK customers for three years, as
well as a royalty free license to use certain billing and provisioning software
and know-how. Interest on the notes is at 10.75% per annum, payable semiannually
beginning on October 15, 2001. The interest is payable in kind by the issuance
of additional notes in such principal amount equal to the interest payment that
is then due. The notes are convertible into CoreComm common stock prior to
maturity at a conversion price of $1.00 per share, subject to adjustment.
Additional notes issued for interest will have an initial conversion price equal
to 120% of the weighted average closing price of CoreComm common stock for a
specified period. The Company and CoreComm have agreed to certain modifications
to the conversion feature in connection with CoreComm's recapitalization in
December 2001.
In 2001, the Company and CoreComm entered into a license agreement whereby
the Company was granted an exclusive, irrevocable, perpetual license to certain
billing software developed by CoreComm for telephony rating, digital television
events rating, fraud management and other tasks. The sales price was cash of
$9.8 million for the development costs expended by CoreComm plus a fixed amount
of $3.0 million representing the one-time perpetual license fee. The billing
software was being used by the Company at the time of this agreement, and was
being maintained and modified by CoreComm under an ongoing software maintenance
and development outsourcing arrangement between the companies.
At December 31, 2001 and 2000, the Company had a receivable from CoreComm
of $1.1 million and a payable to CoreComm of $17.1 million, respectively. The
2000 payable balance primarily related to services and other charges billed in
advance in October and November 2000 of $15.8 million.
F-35
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SHAREHOLDERS' EQUITY
STOCK SPLITS
In September 1999, the Company declared a 5-for-4 stock split by way of a
stock dividend with respect to its common stock. The record date for this
dividend was October 4, 1999 and the payment date was October 7, 1999. In
January 2000, the Company declared a 5-for-4 stock split by way of a stock
dividend with respect to its common stock. The record date for this dividend was
January 31, 2000 and the payment date was February 3, 2000. Common stock amounts
in the notes to consolidated financial statements and all per share data have
been adjusted to reflect the stock splits.
SALES OF PREFERRED STOCK, COMMON STOCK AND WARRANTS
In May 2000, in connection with the ConsumerCo acquisition, France Telecom
paid L1,555.6 million ($2,327.6 million) for 42.2 million shares of the
Company's common stock and L1,244.4 million ($1,862.0 million) for 2.0 million
shares of the Company's 5% Cumulative Participating Convertible Preferred Stock
(the "5% Preferred Stock").
In August 1999, the Company received $1,000.0 million in cash from France
Telecom in exchange for 750,000 shares of the Company's 5% Preferred Stock and
4.2 million shares of the Company's common stock.
In January 1999, the Company received $500.0 million in cash from Microsoft
Corp. ("Microsoft") in exchange for 500,000 shares of the Company's 5.25%
Convertible Preferred Stock (the "5.25% Preferred Stock") and warrants to
purchase 1.9 million shares of the Company's common stock at an exercise price
of $53.76 per share. Dividends were payable quarterly at the Company's option in
cash, common stock or additional shares of preferred stock. The Company issued
approximately 25,000 shares of 5.25% Preferred Stock for dividend payments of
$24.6 million through December 31, 1999. In February 2000, all of the 5.25%
Preferred Stock was converted into 8.3 million shares of the Company's common
stock.
SERIES PREFERRED STOCK
In September 1998, the Company issued 125,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A (the "Series A Preferred
Stock") in connection with an acquisition. Each share of Series A Preferred
Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the
stated value per share. Dividends were payable when and if declared by the Board
of Directors. In December 1999, all of the outstanding shares of the Series A
Preferred Stock were redeemed for cash of $140.8 million, which included $15.5
million for accrued dividends.
In December 1998, the Company issued 52,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series B (the "Series B Preferred
Stock") in connection with an acquisition. Each share of Series B Preferred
Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the
stated value per share. Dividends were payable when and if declared by the Board
of Directors. In June 2000, all of the outstanding shares of the Series B
Preferred Stock were converted into 903,000 shares of the Company's common
stock.
The 5% Preferred Stock has a stated value of $1,000 per share, is
convertible into common stock at a conversion price of $80 per share and is
redeemable ten years from the issue date, at the Company's option, for cash,
shares of common stock or a combination of both. The 5% Preferred Stock may be
redeemed by the Company on the earlier of seven years from the issue date or the
date that is both four years from the issue date and after the Company's common
stock has traded above $96 per share for 25 consecutive trading days. Dividends
are payable quarterly at the Company's option in cash, common stock or
additional shares of 5% Preferred Stock. As of December 31, 2001, the Company
has accrued $250.0 million for dividends and has issued approximately 213,000
shares for $213.0 million of such accrued dividends.
F-36
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2001, the 5% Preferred Stock would have been convertible
into an aggregate of 37.0 million shares of the Company's common stock.
The changes in the number of shares of Series Preferred Stock, excluding
the Redeemable Preferred Stock, were as follows:
<Table>
<Caption>
9.9% 9.9%
SERIES A SERIES B 5.25% 5%
-------- -------- -------- ---------
Balance, December 31, 1998................. 125,000 52,000 -- --
Issued for cash............................ -- -- 500,000 750,000
Issued for dividends....................... -- -- 25,000 5,000
Redemption................................. (125,000) -- -- --
-------- ------- -------- ---------
Balance, December 31, 1999................. -- 52,000 525,000 755,000
Issued for cash............................ -- -- -- 2,000,000
Issued for dividends....................... -- -- 3,000 103,000
Conversion into common stock............... -- (52,000) (528,000) --
-------- ------- -------- ---------
Balance, December 31, 2000................. -- -- -- 2,858,000
Issued for dividends....................... -- -- -- 105,000
-------- ------- -------- ---------
Balance, December 31, 2001................. -- -- -- 2,963,000
======== ======= ======== =========
</Table>
WARRANTS
The Company had the following warrants outstanding as of December 31, 2001:
(a) warrants to purchase an aggregate of 243,000 shares of common stock at
$15.22 per share issued in 1996 that expire in 2006 (256,000 were originally
issued), (b) warrants to purchase an aggregate of 997,000 shares of common stock
at $27.77 per share issued in 1998 that expire in 2008 (1,197,000 were
originally issued) and (c) warrants to purchase an aggregate of 1,875,000 shares
of common stock at $53.76 per share issued in 1999 that expire in 2004
(1,875,000 were originally issued).
SHAREHOLDER RIGHTS PLAN
The Rights Agreement provides that .48 of a 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 208.33 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 208.33 times the payment made
per share of common stock. Each share of Rights Preferred Stock will have 208.33
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
208.33 times the amount received per share of common stock. The Rights are
protected by customary antidilution provisions.
F-37
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
There are 3,848,000 shares and 10,396,000 shares of common stock reserved
for issuance under the 1991 Stock Option Plan and the 1993 Stock Option Plan,
respectively. These plans provide that incentive stock options ("ISOs") be
granted at the fair market value of the Company'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 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. No
additional options will be granted under these plans.
There are 156,000 shares and 500,000 shares of common stock reserved for
issuance under 1991 and 1993 Non-Employee Director Stock Option Plans,
respectively. Under the terms of these plans, options will be granted to members
of the Board of Directors who are not employees of the Company or any of its
affiliates. These plans provide 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. No additional options will be
granted under these plans.
There are 83,438,000 shares of common stock reserved for issuance under the
1998 Non-Qualified Stock Option Plan, and there are 19,684,000 shares available
for issuance at December 31, 2001. The exercise price of a NQSO shall be
determined by the Compensation and Option Committee. Options are generally
exercisable ratably over five to ten years while the optionee remains an
employee of the Company. Options will expire ten years after the date of the
grant.
In December 2000, the Board of Directors approved the rescission of the
exercise of ISOs for 156,000 shares of the Company's common stock, and the
Company returned cash of $1.1 million. The rescission was accounted for as a
modification of the original options that resulted in a new measurement date. On
the new measurement date the Company recognized no compensation expense.
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 2001, 2000 and 1999: risk-free interest rates of 4.47%, 5.30%
and 6.81%, respectively, dividend yield of 0%, volatility factor of the expected
market price of the Company's common stock of .702, .385 and .336, respectively,
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. The effects of
applying SFAS No. 123 on pro forma disclosures of net loss and net loss per
share for the years ended December 31, 2001, 2000 and 1999 are not likely to be
representative of the
F-38
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
pro forma effects on net loss and net loss per share in future years. Following
is the Company's pro forma information:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
------------ ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Pro forma net (loss)................................ $(14,509.6) $(3,220.3) $(822.7)
Basic and diluted pro forma net (loss) per share.... (53.75) (15.73) (7.51)
</Table>
A summary of the Company's stock option activity and related information
for the years ended December 31 follows:
<Table>
<Caption>
2001 2000 1999
------------------------- ------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------- --------- ------------- --------- ------------- ---------
(IN MILLIONS) (IN MILLIONS) (IN MILLIONS)
Outstanding -- beginning
of year................. 61.4 $41.52 29.2 $24.60 25.7 $17.29
Granted................... 14.3 12.55 34.8 54.90 6.4 50.35
Exercised................. (1.1) 11.93 (2.1) 17.13 (2.6) 15.95
Forfeited................. (2.7) 42.46 (0.5) 83.31 (0.3) 24.22
---- ---- ----
Outstanding -- end of
year.................... 71.9 $36.13 61.4 $41.52 29.2 $24.60
==== ==== ====
Exercisable at end of
year.................... 24.7 $27.50 16.3 $21.82 12.2 $14.97
==== ==== ====
</Table>
Weighted-average fair value of options, calculated using the Black-Scholes
option pricing model, granted during 2001, 2000 and 1999 is $5.69, $32.19 and
$30.97 respectively.
The following table summarizes the status of the stock options outstanding
and exercisable at December 31, 2001:
<Table>
<Caption>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ---------------- ------------- ----------- --------- ------------- ---------
(IN MILLIONS) (IN MILLIONS)
$0.35 to $9.36 4.4 4.1 Years $ 5.434 4.4 $ 5.434
$10.00 to $18.40 15.4 5.2 Years $11.153 5.9 $12.972
$19.86 to $27.84 13.5 7.6 Years $23.384 5.7 $23.226
$28.06 to $35.64 0.7 7.3 Years $30.711 0.4 $30.811
$36.12 to $40.19 0.9 8.2 Years $38.601 0.3 $38.650
$42.44 to $47.44 14.5 8.4 Years $44.444 3.1 $44.401
$48.38 to $53.76 4.9 7.6 Years $50.373 2.5 $50.390
$57.60 to $63.63 17.1 7.8 Years $63.416 2.2 $62.587
$68.20 to $75.56 0.1 8.1 Years $75.413 0.1 $75.397
$91.13 to $97.50 0.4 8.1 Years $93.713 0.1 $93.713
---- ----
Total 71.9 24.7
==== ====
</Table>
F-39
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 2001, the Company had 173.6 million shares of its common
stock reserved for issuance upon the exercise of warrants and stock options and
the conversion of debt and preferred stock.
18. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company operate defined benefit pension plans
in the UK and Switzerland. The assets of the Plans are held separately from
those of the Company and are invested in specialized portfolios under the
management of an investment group. The pension cost is calculated using the
attained age method. The Company's policy is to fund amounts to the defined
benefit plans necessary to comply with the funding requirements as prescribed by
the laws and regulations in the UK and Switzerland.
At December 31, 2001, the projected benefit obligations of Cablecom's and
NTL Business' defined benefit pension plans exceeded the fair value of its
respective plan assets by $3.4 million and $3.0 million, respectively.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------
2001 2000
------------- -------------
(IN MILLIONS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................. $324.1 $197.1
Acquisition............................................. -- 116.9
Service cost............................................ 17.3 16.7
Interest cost........................................... 16.8 16.8
Actuarial losses (gains)................................ 5.4 (3.4)
Benefits paid........................................... (9.3) (8.3)
Foreign currency exchange rate changes.................. (8.2) (11.7)
------ ------
Benefit obligation at end of year....................... $346.1 $324.1
------ ------
------ ------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.......... $420.2 $278.4
Acquisition............................................. -- 133.2
Actual return on plan assets............................ (46.0) 15.8
Company contributions................................... 12.4 12.5
Plan participants' contributions........................ 6.5 6.2
Benefits paid........................................... (9.4) (8.3)
Foreign currency exchange rate changes.................. (12.1) (17.6)
------ ------
Fair value of plan assets at end of year................ $371.6 $420.2
------ ------
------ ------
Funded status of the plan............................... $ 25.5 $ 96.1
Unrecognized net actuarial losses (gains)............... 5.4 (79.2)
Unrecognized transition obligation...................... 5.8 6.2
------ ------
Prepaid benefit cost.................................... $ 36.7 $ 23.1
------ ------
------ ------
Actuarial assumptions:
Weighted average discount rate........................ 4.50% - 6.00% 4.50% - 6.00%
Weighted average rate of compensation increase........ 2.00% - 4.00% 2.00% - 4.25%
Expected long-term rate of return on plan assets...... 5.50% - 7.50% 5.50% - 7.75%
</Table>
F-40
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net pension costs are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS)
Service cost............................................... $ 17.3 $ 16.7 $ 12.0
Interest cost.............................................. 16.8 16.8 12.0
Actual return on plan assets............................... 46.0 (15.7) (43.1)
Net amortization and deferral.............................. (79.5) (19.4) 26.8
------ ------ ------
$ 0.6 $ (1.6) $ 7.7
====== ====== ======
</Table>
19. LEASES
Certain of the Company's facilities and equipment are leased under
operating or capital leases.
A summary of assets held under capital lease are as follows (in millions):
<Table>
<Caption>
DECEMBER 31,
---------------
2001 2000
------ ------
Land, buildings and equipment............................... $100.3 $ 95.8
Less: accumulated depreciation.............................. (28.5) (22.2)
------ ------
$ 71.8 $ 73.6
====== ======
</Table>
Future minimum annual payments at December 31, 2001 are as follows (in
millions). The table reflects the Company's contractual obligations, but the
entire obligation has been classified as current.
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
Year ending December 31:
2002...................................................... $ 9.3 $ 96.7
2003...................................................... 8.2 73.9
2004...................................................... 7.4 55.5
2005...................................................... 6.5 44.0
2006...................................................... 6.2 42.3
Thereafter................................................ 155.2 250.9
------- ------
Total minimum lease payments................................ 192.8 $563.3
======
Less: amount representing interest.......................... (129.8)
-------
Present value of net minimum obligations.................... 63.0
Less: current portion....................................... (63.0)
-------
$ --
=======
</Table>
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 2001, 2000 and 1999 under
operating leases was $90.9 million, $56.2 million and $36.7 million,
respectively.
F-41
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 2001, the Company was committed to pay approximately
$1,672.0 million for equipment and services and for investments in and loans to
affiliates. This amount includes approximately $1,238.0 million for operations
and maintenance and other commitments through 2013.
The Company has agreed to provide funds to its unconsolidated affiliates
generally if and when requested to do so and only upon the satisfaction of
certain conditions. The estimated aggregate amount as of December 31, 2001 was
$73.9 million. These unconsolidated affiliates include the media partnerships
with the Football League and with various UK football clubs for Internet
marketing and sponsorships. The Company's wholly-owned indirect subsidiary,
Premium TV Limited, has entered into these football related partnerships.
The Company had certain exclusive local delivery operator licenses for
Northern Ireland and other franchise areas in the UK. Pursuant to these
licenses, various subsidiaries of the Company were required to make monthly cash
payments to the Independent Television Commission ("ITC") during the 15-year
license terms. Upon a request by the Company in 1999, the ITC converted all of
the Company's fee bearing exclusive licenses to non-exclusive licenses by the
end of 1999. In 1999, the Company paid $30.1 million in connection with these
licenses. Since the Company's liability for the license payments ceased upon the
conversion, in 1999 the Company reversed an accrual for franchise fees of $13.6
million.
The Company is involved in certain disputes and litigation arising in the
ordinary course of its business. None of these matters are expected to have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
21. INDUSTRY SEGMENTS
The Company has four reportable segments: Broadcast Services, Consumer
Services, Business Services and Shared Services. The Broadcast Services segment
operates in the UK and Australia and includes digital and analog television and
radio broadcasting, rental of antenna space on the Company's owned and leased
towers and sites and associated services, and satellite and media services.
Consumer Services include telephony, cable television, Internet access and
interactive services in regional franchise areas in the UK, Ireland, France and
Switzerland. The Business Services segment operates primarily in the UK and
includes telephony, national and international wholesale carrier
telecommunications, and radio communications services to the emergency services
community. Shared Services principally include network and information
technology management, finance, human resources and facilities management.
Shared Services also includes assets and related depreciation and amortization
that are not allocated to another segment.
The accounting policies of the segments are the same as those described in
the Significant Accounting Policies note. The Company's management evaluates
segment performance based on various financial and non-financial measurements.
The Company's primary measure of profit or loss is EBITDA. The results of
operations data utilized in financial measurements are revenues and EBITDA,
which is earnings before interest, taxes, depreciation and amortization,
franchise fees, non-cash compensation, other charges, corporate expenses, asset
impairments, share of (losses) from equity investments, other (losses) gains,
foreign currency transactions gains (losses) and extraordinary items. Certain
selling, general and administrative expenses are allocated to segments based on
revenues. Management does not allocate costs of shared services departments and
jointly used assets for purposes of measuring segment performance. The
reportable segments are strategic business units that are managed separately and
offer different services.
F-42
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
BROADCAST CONSUMER BUSINESS SHARED TOTAL
--------- --------- -------- -------- ---------
(IN MILLIONS)
YEAR ENDED DECEMBER 31, 2001
Revenues................................. $ 344.0 $ 2,514.6 $ 840.6 $ -- $ 3,699.2
Depreciation and amortization............ 109.3 2,431.8 587.9 41.5 3,170.5
EBITDA(1)................................ 170.6 774.2 335.2 (571.7) 708.3
Expenditures for long-lived assets....... 145.2 1,373.2 172.1 599.5 2,290.0
Total assets(2).......................... 1,206.8 11,395.9 3,289.7 941.8 16,834.2
YEAR ENDED DECEMBER 31, 2000
Revenues................................. $ 318.8 $ 1,819.8 $ 702.2 $ -- $ 2,840.8
Depreciation and amortization............ 88.3 1,825.6 184.2 24.7 2,122.8
EBITDA(1)................................ 151.9 447.6 226.2 (481.6) 344.1
Expenditures for long-lived assets....... 102.6 1,822.3 724.6 281.5 2,931.0
Total assets(3).......................... 1,219.4 22,672.6 3,746.0 745.7 28,383.7
YEAR ENDED DECEMBER 31, 1999
Revenues................................. $ 297.3 $ 834.3 $ 452.5 $ -- $ 1,584.1
Depreciation and amortization............ 76.8 581.3 104.1 29.1 791.3
EBITDA(1)................................ 150.1 233.5 106.6 (279.3) 210.9
Expenditures for long-lived assets....... 74.5 591.3 356.7 131.8 1,154.3
Total assets(4).......................... 1,167.7 6,783.2 1,319.1 2,941.6 12,211.6
</Table>
- ---------------
(1) Represents earnings before interest, taxes, depreciation and amortization,
franchise fees, non-cash compensation, other charges, corporate expenses,
asset impairments, share of (losses) from equity investments, other (losses)
gains, foreign currency transaction (losses) gains and extraordinary items.
(2) At December 31, 2001, shared assets included $318.0 million of cash and cash
equivalents, $0.1 million of goodwill and $623.7 million of other assets.
(3) At December 31, 2000, shared assets included $487.1 million of cash, cash
equivalents and marketable securities, $0.3 million of goodwill and $258.3
million of other assets.
(4) At December 31, 1999, shared assets included $2,669.4 million of cash, cash
equivalents and marketable securities and $272.2 million in other assets.
F-43
NTL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of segment combined EBITDA to loss before income taxes
and extraordinary item is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---------- --------- -------
(IN MILLIONS)
Segment Combined EBITDA............................. $ 708.3 $ 344.1 $ 210.9
(Add) Deduct:
Franchise fees.................................... -- -- 16.5
Non-cash compensation............................. 30.6 -- --
Other charges..................................... 311.7 92.7 16.2
Corporate expenses................................ 66.8 47.5 29.4
Asset impairments................................. 9,511.3 -- --
Depreciation and amortization..................... 3,170.5 2,122.8 791.3
Interest income and other, net.................... (51.1) (72.5) (67.8)
Interest expense.................................. 1,440.9 1,036.8 680.7
Share of losses from equity investments........... 244.6 70.9 18.4
Other losses (gains).............................. 147.4 -- (493.1)
Foreign currency transaction losses (gains)....... 13.7 120.6 (12.7)
---------- --------- -------
14,886.4 3,418.8 978.9
---------- --------- -------
Loss before income taxes and extraordinary item..... $(14,178.1) $(3,074.7) $(768.0)
========== ========= =======
</Table>
22. GEOGRAPHIC INFORMATION
<Table>
<Caption>
UNITED
STATES UK SWITZERLAND OTHER TOTAL
------ --------- ----------- ------ ---------
(IN MILLIONS)
2001
Revenues.................................... $ -- $ 3,170.3 $ 393.5 $135.4 $ 3,699.2
Long-lived assets........................... 17.3 11,844.8 2,630.9 788.1 15,281.1
2000
Revenues.................................... $ -- $ 2,434.8 $ 277.3 $128.7 $ 2,840.8
Long-lived assets........................... 26.7 21,751.7 3,839.8 974.1 26,592.3
1999
Revenues.................................... $ -- $ 1,508.2 $ -- $ 75.9 $ 1,584.1
Long-lived assets........................... 1.6 8,227.6 -- 663.8 8,893.0
</Table>
23. SUBSEQUENT EVENT
On April 2, 2002, the Company announced that it completed the sale of its
Australian broadcast business to Macquarie Bank for A$850.0 million ($434.9
million) in an all cash transaction. The net proceeds from the sale after the
repayment of the outstanding bank credit facility and transaction related costs
were approximately A$574.0 million ($293.7 million).
F-44
NTL INCORPORATED
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
----------------------
2001 2000
---------- ---------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 124.3 $ 69.2
Marketable securities..................................... - 60.0
Other..................................................... 1.0 0.9
---------- ---------
Total current assets........................................ 125.3 130.1
Investments in and loans to affiliates, net................. -- 10,326.9
Deferred financing costs, net of accumulated amortization of
$0.2 (2001) and none (2000)............................... 3.9 --
Note receivable from CoreComm Limited, net of allowance of
$7.0...................................................... 9.2 --
---------- ---------
Total assets................................................ $ 138.4 $10,457.0
========== =========
LIABILITIES AND SHAREHOLDERS' (DEFICIENCY) EQUITY
Current liabilities......................................... $ 142.3 $ 6.4
Investments in and loans to affiliates, net................. 3,764.8 --
Redeemable preferred stock.................................. 2,773.7 2,083.2
Shareholders' (deficiency) equity:
Series preferred stock.................................... -- --
Common stock.............................................. 2.8 2.7
Additional paid-in capital................................ 13,720.0 13,764.7
Accumulated other comprehensive (loss).................... (1,072.8) (448.9)
(Deficit)................................................. (19,192.4) (4,951.1)
---------- ---------
(6,542.4) 8,367.4
---------- ---------
Total liabilities and shareholders' (deficiency) equity..... $ 138.4 $10,457.0
========== =========
</Table>
See accompanying notes.
F-45
NTL INCORPORATED
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE PERIOD FROM
YEAR ENDED MAY 18, 2000 TO
DECEMBER 31, 2001 DECEMBER 31, 2000
----------------- -------------------
(IN MILLIONS)
COSTS AND EXPENSES
Asset impairments.......................................... $ 426.3 $ --
Corporate expenses......................................... 29.4 9.4
Amortization............................................... 0.2 --
---------- ---------
Operating (loss)........................................... (455.9) (9.4)
OTHER INCOME (EXPENSE)
Interest income and other, net............................. 4.7 10.9
Interest expense........................................... (5.3) --
Foreign currency transaction (losses) gains................ (0.4) 1.9
---------- ---------
(Loss) income before income taxes and equity in net (loss)
of affiliates............................................ (456.9) 3.4
Income tax expense......................................... -- (0.2)
---------- ---------
(Loss) income before equity in net (loss) of affiliates.... (456.9) 3.2
Equity in net (loss) of subsidiaries....................... (13,784.4) (2,966.9)
---------- ---------
Net (loss)................................................. (14,241.3) (2,963.7)
Preferred stock dividend................................... (325.7) (194.0)
---------- ---------
Net (loss) available to common shareholders................ $(14,567.0) $(3,157.7)
========== =========
</Table>
See accompanying notes.
F-46
NTL INCORPORATED
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<Table>
<Caption>
YEAR ENDED FOR THE PERIOD FROM MAY 18, 2000
DECEMBER 31, 2001 TO DECEMBER 31, 2000
----------------- --------------------------------
Net cash (used in) provided by operating
activities...................................... $ (6.2) $ 0.7
INVESTING ACTIVITIES
Purchase of marketable securities................. -- (96.9)
Proceeds from sales of marketable securities...... 60.3 202.6
Contribution to subsidiary........................ -- (4.3)
Due from CoreComm Limited......................... (15.0) --
Decrease in investments in and loans to
affiliates...................................... (92.9) (4,229.3)
------ ---------
Net cash (used in) investing activities........... (47.6) (4,127.9)
FINANCING ACTIVITIES
Proceeds from borrowings, net of financing
costs........................................... 95.9....... --
Proceeds from exercise of stock options and
warrants........................................ -- 6.8
Proceeds from issuance of preferred stock......... -- 1,862.0
Proceeds from issuance of common stock............ 13.0 2,327.6
------ ---------
Net cash provided by financing activities......... 108.9 4,196.4
------ ---------
Increase in cash and cash equivalents............. 55.1 69.2
Cash and cash equivalents at beginning of
period.......................................... 69.2 -
------ ---------
Cash and cash equivalents at end of period........ $124.3 $ 69.2
====== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.......... $ 3.1 $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES
Accretion of dividends and discount on preferred
stock........................................... $220.8 $ 78.1
Conversion of Convertible Notes, net of
unamortized deferred financing costs............ 128.3 --
Common stock and stock options issued for
acquisition..................................... 4.3 --
Redeemable preferred stock issued for investment
in affiliates................................... 518.0 --
</Table>
See accompanying notes.
F-47
NTL INCORPORATED
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CORPORATE RESTRUCTURING
On May 18, 2000, NTL Incorporated completed a corporate restructuring to
create a holding company structure. The holding company restructuring was
accomplished through a merger so that all the stockholders of NTL Incorporated
at the effective time of the merger became stockholders of the new holding
company, and NTL Incorporated became a subsidiary of the new holding company.
The new holding company has taken the name NTL Incorporated (the "Company") and
the holding company's subsidiary simultaneously changed its name to NTL
(Delaware), Inc.
2. BASIS OF PRESENTATION
In the Company's condensed financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in the undistributed earnings of
the subsidiaries. The Company's share of net loss of its subsidiaries is
included in net loss using the equity method of accounting. The condensed
financial statements should be read in conjunction with the Company's
consolidated financial statements.
3. REDEEMABLE PREFERRED STOCK
Dividends on the Variable Coupon Redeemable Preferred Stock, Series A
("Variable Coupon Redeemable Preferred Stock") are payable quarterly at the
Company's option in cash or additional shares of Variable Coupon Redeemable
Preferred Stock at a quarterly rate based on a quotient of (x) the sum of (1)
the EURIBOR Rate in effect on the first day of every dividend period plus (2)
2.5% over (y) four, per share. The Variable Coupon Redeemable Preferred Stock
has a stated value and liquidation preference of $10,000 per share and is
mandatorily redeemable for cash by the Company on May 18, 2002. The Company's
27% interest in Noos is pledged to France Telecom to secure the mandatory
redemption obligation under its Variable Coupon Redeemable Preferred Stock.
Dividends on the 6.5% Fixed Coupon Redeemable Preferred Stock, Series A
("6.5% Redeemable Preferred Stock") are cumulative and are payable in cash upon
redemption. The 6.5% Redeemable Preferred Stock has a stated value and
liquidation preference of $10,000 per share and is mandatorily redeemable for
cash by the Company on May 18, 2007.
Dividends on the Cumulative Convertible Preferred Stock, Series A
("Convertible Preferred Stock") are payable quarterly in additional shares of
Convertible Preferred Stock, at the following quarterly dividend rates: (i) from
September 12, 2001 through March 26, 2002, $13.44 per share, (ii) from March 27,
2002 through March 26, 2003, $21.23 per share and (iii) from March 27, 2003
through March 26, 2004, $26.61 per share. Once the Convertibility Date (as
defined below) is set, the quarterly dividend rate resets to $16.12 per share
and the Convertible Preferred Stock becomes eligible for conversion into shares
of the Company's common stock beginning on a "Convertibility Date," at which
time the conversion price is set at 125% of the immediately preceding 25 trading
day volume-weighted average price of the Company's common stock (the
"Convertibility Base Price"). The Convertibility Date is as follows: March 27,
2002, unless the Company elects to delay convertibility until March 27, 2003 or,
alternatively, redeems, at its option, all shares of the Convertible Preferred
Stock on March 27, 2002 in cash; if the Company has delayed, March 27, 2003,
unless the Company elects again to delay convertibility until March 27, 2004,
which it may only do if the Convertibility Base Price would be less than or
equal to $65.00 per share (as may be adjusted for certain antidilutive events);
the Company may also elect, instead, to redeem all shares of the Convertible
Preferred Stock on March 27, 2003 in cash; if the Company has delayed, March 27,
2004, unless the Company elects to redeem all shares of the Convertible
Preferred Stock on March 27, 2004 in cash. In no event will the Convertibility
Date be after March 27, 2004. In March 2002, the company elected to delay the
Convertibility Date until at least March 27, 2003. The Convertible Preferred
Stock has a stated value and liquidation preference of $1,075.17 per share and
is mandatorily redeemable for cash by the Company on March 27, 2009.
F-48
NTL INCORPORATED
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Holders of Convertible Preferred Stock other than any commercial bank or their
affiliates may at any time elect, subject to some conditions, to exchange their
Convertible Preferred Stock for up to a 50% interest in an entity holding the
Company's Swiss operations.
Dividends on the 13% Senior Redeemable Exchangeable Preferred Stock (the
"Redeemable Preferred Stock") accrue at 13% per annum ($130 per share) and are
payable quarterly in arrears. 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 option, in
whole or in part, at any time 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.
4. NOTE PAYABLE TO NTL COMMUNICATIONS CORP.
On September 28, 2001, NTL Communications Corp., a wholly-owned indirect
subsidiary of the Company, loaned the Company $150.0 million in cash and
received 15.0% Promissory Notes due September 30, 2004. Interest is payable
monthly in cash at a rate of 15.0% per annum beginning on October 31, 2001. The
loan is included in investments in and loans to affiliates.
5. OTHER
No cash dividends were paid to the registrant by subsidiaries for the year
ended December 31, 2001 and for the period from May 18, 2000 to December 31,
2000.
The Company is a joint obligor for the NTL (Delaware), Inc. 5 3/4%
Convertible Subordinated Notes due December 15, 2009 and for the NTL
Communications Corp. 7% Convertible Subordinated Notes due December 15, 2008.
The Company is a co-obligor on a subordinated basis for the NTL Communications
Corp. 6 3/4% Convertible Senior Notes due May 15, 2008.
F-49
NTL INCORPORATED AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------- ------------ ------------------------ ------------- ---------
ADDITIONS
------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER (DEDUCTIONS)/ BALANCE
BEGINNING OF COSTS AND ACCOUNTS -- ADDITIONS AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ----------- ------------ ---------- ----------- ------------- ---------
(IN MILLIONS)
Year ended December 31, 2001
Allowance for doubtful accounts.... $141.4 $60.7 $ -- $(68.3)(a) $133.8
====== ===== ==== ====== ======
Allowance for loans receivable..... $ -- $37.2 $ -- $ -- $ 37.2
====== ===== ==== ====== ======
Year ended December 31, 2000
Allowance for doubtful accounts.... $ 85.6 $98.9 $ -- $(43.1)(b) $141.4
====== ===== ==== ====== ======
Year ended December 31, 1999
Allowance for doubtful accounts.... $ 38.5 $46.2 $ -- $ 0.9(c) $ 85.6
====== ===== ==== ====== ======
</Table>
- ---------------
(a) Uncollectible accounts written-off, net of recoveries of $64.3 million and
$4.0 million foreign currency translation adjustments.
(b) Uncollectible accounts written-off, net of recoveries of $90.4 million and
$5.5 million foreign exchange currency translation adjustments, offset by
$52.8 million allowance for doubtful accounts as of acquisition dates of
purchased subsidiaries.
(c) Uncollectible accounts written-off, net of recoveries of $15.6 million and
$1.2 million foreign exchange currency translation adjustments, offset by
$17.7 million allowance for doubtful accounts as of acquisition dates of
purchased subsidiaries.
F-50
EXHIBIT C
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO SECOND AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
NTL INCORPORATED'S QUARTERLY REPORT ON
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2002
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No 0-30673
NTL INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-4105887
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
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)
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
|_|
The number of shares outstanding of the issuer's common stock as of
March 31, 2002 was 276,626,476.
================================================================================
NTL Incorporated and Subsidiaries
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-March 31, 2002 and December 31, 2001.................................... 2
Condensed Consolidated Statements of Operations-Three months ended March 31, 2002 and 2001.................... 4
Condensed Consolidated Statement of Shareholders' (Deficiency)-Three months ended March 31, 2002.............. 5
Condensed Consolidated Statements of Cash Flows-Three months ended March 31, 2002 and 2001.................... 7
Notes to Condensed Consolidated Financial Statements.......................................................... 8
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition................. 25
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 41
Risk Factors.................................................................................................. 46
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities....................................................................... 53
Item 6. Exhibits and Reports on Form 8-K...................................................................... 56
SIGNATURES.................................................................................................... 57
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions)
March 31, December 31,
2002 2001
---- ----
(unaudited) (see note)
Assets
Current assets:
Cash and cash equivalents .................................................... $ 608.6 $ 481.8
Marketable securities ........................................................ 14.1 --
Accounts receivable-trade, less allowance for doubtful accounts
of $122.5 (2002) and $133.8 (2001) ........................................ 531.4 713.6
Other ....................................................................... 337.6 329.9
NTL Australia assets ........................................................ 405.7 405.0
----------- -----------
Total current assets ........................................................... 1,897.4 1,930.3
Fixed assets, net .............................................................. 11,912.9 12,338.1
Intangible assets, net ......................................................... 1,806.8 1,849.8
Investments in and loans to affiliates, net .................................... 234.5 272.4
Other assets, net of accumulated amortization of $165.4
(2002) and $150.0 (2001) ...................................................... 442.8 447.9
----------- -----------
Total assets .............................................................. $ 16,294.4 $ 16,838.5
=========== ===========
NTL Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets-continued
(in millions)
March 31, December 31,
2002 2001
---- ----
(unaudited) (see note)
Liabilities and shareholders' (deficiency)
Current liabilities:
Accounts payable ............................................................. $ 444.9 $ 431.1
Accrued expenses and other ................................................... 889.5 1,007.9
Accrued construction costs ................................................... 82.4 107.8
Interest payable ............................................................. 365.9 302.5
Deferred revenue ............................................................. 434.9 481.6
Current portion of long-term debt ............................................ 18,017.1 17,666.1
NTL Australia liabilities .................................................... 193.1 182.9
----------- -----------
Total current liabilities ...................................................... 20,427.8 20,179.9
Long-term debt ................................................................. -- --
Other .......................................................................... 125.6 168.1
Commitment and contingent liabilities
Deferred income taxes .......................................................... 231.5 259.2
Redeemable preferred stock-$.01 par value, plus accreted dividends;
liquidation preference $2,884.2; less unamortized discount of $42.9
(2002) and $53.4 (2001); issued and outstanding 2.1 (2002) and 2.1
(2001) shares ................................................................ 2,826.2 2,773.7
Shareholders' (deficiency):
Series preferred stock -$.01 par value; authorized 10.0 shares;
liquidation preference $3,038.2; issued and outstanding 3.0 (2002)
and 3.0 (2001) shares ...................................................... -- --
Common stock - $.01 par value; authorized 800.0 shares; issued and
outstanding 276.6 (2002) and 276.6 (2001) shares ........................... 2.8 2.8
Additional paid-in capital ................................................... 13,621.6 13,720.0
Accumulated other comprehensive (loss) ....................................... (1,148.5) (1,072.8)
(Deficit) .................................................................... (19,792.6) (19,192.4)
----------- -----------
(7,316.7) (6,542.4)
----------- -----------
Total liabilities and shareholders' (deficiency) ............................... $ 16,294.4 $ 16,838.5
=========== ===========
Note: The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date.
See accompanying notes.
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in millions, except per share data)
Three Months Ended
March 31,
2002 2001
---- ----
Revenues
Consumer telecommunications and television ....................... $ 608.4 $ 610.9
Business telecommunications ...................................... 215.6 201.2
Broadcast transmission and other ................................. 70.0 68.1
----------- -----------
894.0 880.2
Costs and expenses
Operating expenses ............................................... 435.8 438.7
Selling, general and administrative expenses ..................... 212.3 322.2
Recapitalization expense ......................................... 45.8 --
Other charges .................................................... 2.6 7.4
Corporate expenses ............................................... 13.6 12.5
Depreciation and amortization .................................... 395.6 755.2
----------- -----------
1,105.7 1,536.0
----------- -----------
Operating (loss) ................................................. (211.7) (655.8)
Other income (expense)
Interest income and other, net ................................... 15.1 9.0
Interest expense ................................................. (371.9) (355.1)
Share of (losses) from equity investments ........................ (48.9) (42.9)
Foreign currency transaction (losses) ............................ (5.0) (13.7)
----------- -----------
(Loss) before income taxes and discontinued operations ........... (622.4) (1,058.5)
Income tax benefit ............................................... 22.0 16.1
----------- -----------
(Loss) from continuing operations ................................ (600.4) (1,042.4)
Discontinued operations:
Loss from operations of NTL Australia .......................... (1.0) (1.9)
Income tax benefit ............................................. 1.2 1.4
----------- -----------
Income (loss) from discontinued operations ....................... 0.2 (0.5)
----------- -----------
Net (loss) ....................................................... (600.2) (1,042.9)
Preferred stock dividends ........................................ (98.4) (65.1)
----------- -----------
Net (loss) available to common shareholders ...................... $ (698.6) $ (1,108.0)
=========== ===========
Basic and diluted net (loss) per common share:
(Loss) from continuing operations .............................. $ (2.53) $ (4.04)
Income (loss) from discontinued operations ..................... -- --
----------- -----------
Net (loss) per common share .................................... $ (2.53) $ (4.04)
============ ============
Weighted average shares ........................................ 276.0 274.5
=========== ============
See accompanying notes.
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' (Deficiency)
(Unaudited)
(in millions)
Series Preferred
Stock $.01 Par Common Stock
Value $.01 Par Value
----- --------------
Shares Par Shares Par
------ --- ------ ---
Balance, December 31, 2001 ........................................ 3.0 $-- 276.6 $ 2.8
Accreted dividends on preferred stock
Accretion of discount on preferred stock
Comprehensive loss:
Net loss for the three months ended March 31, 2002 Currency
translation adjustment Unrealized net losses on investments
Unrealized net losses on derivatives
Total
--- ----- ----- ------
Balance, March 31, 2002 ........................................... 3.0 $-- 276.6 $ 2.8
=== ===== ===== ======
NTL Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders' (Deficiency)
(Unaudited) - continued
(in millions)
Accumulated Other
Comprehensive Loss
------------------
Unrealized Unrealized
Additional Foreign Net Net
Paid-In Comprehensive Currency Losses on Losses on
Capital Loss Translation Investments Derivatives (Deficit)
------- ---- ----------- ----------- ----------- ---------
Balance, December 31, 2001.................. $ 13,720.0 $ (1,042.5) $ (15.3) $ (15.0) $ (19,192.4)
Accreted dividends on preferred stock....... (87.9)
Accretion of discount on preferred stock.... (10.5)
Comprehensive loss:
Net loss for the three months ended
March 31, 2002............................ $ (600.2) (600.2)
Currency translation adjustment............. (74.9) (74.9)
Unrealized net losses on investments........ 0.3 0.3
Unrealized net losses on derivatives........ (1.1) (1.1)
Total..................................... $ (675.9)
---------- --------- ---------- -------- -------- -----------
Balance, March 31, 2002..................... $ 13,621.6 $ (1,117.4) $ (15.0) $ (16.1) $ (19,792.6)
========== ========= ========== ======== ======== ============
See accompanying notes.
NTL Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in millions)
Three Months Ended
March 31,
2002 2001
---- ----
Net cash (used in) operating activities............................................ $ (43.2) $ (78.7)
Investing activities
Purchase of fixed assets........................................................... (231.2) (600.7)
Investment in and loans to affiliates.............................................. (11.2) (75.0)
Increase in other assets........................................................... (6.7) (47.0)
Proceeds from sales of assets...................................................... 8.9 --
Purchase of marketable securities.................................................. (14.1) --
Proceeds from sales of marketable securities....................................... -- 60.3
--------- ---------
Net cash (used in) investing activities............................................ (254.3) (662.4)
Financing activities
Proceeds from borrowings, net of financing costs................................... 430.4 618.1
Principal payments................................................................. (0.9) (82.2)
Proceeds from exercise of stock options and warrants............................... -- 10.1
--------- ---------
Net cash provided by financing activities.......................................... 429.5 546.0
Effect of exchange rate changes on cash............................................ (5.2) (16.3)
-------- ---------
Increase (decrease) in cash and cash equivalents................................... 126.8 (211.4)
Cash and cash equivalents at beginning of period................................... 481.8 579.4
-------- ---------
Cash and cash equivalents at end of period......................................... $ 608.6 $ 368.0
======== =========
Supplemental disclosure of cash flow information
Cash paid during the year for interest exclusive of amounts capitalized............ $ 231.7 $ 203.6
Income taxes paid.................................................................. -- 2.2
Supplemental schedule of noncash financing activities
Accretion of dividends and discount on preferred stock............................. $ 98.4 $ 31.2
Conversion of Convertible Notes.................................................... -- 128.3
See accompanying notes.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2002 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in NTL
Incorporated's Annual Report on Form 10-K for the year ended December 31,
2001.
As indicated below, substantial doubt exists about the Company's
ability to continue as a going concern. The accompanying consolidated
financial statements have been prepared assuming that the Company will
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability of
assets or classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
Certain prior period amounts have been reclassified to conform to
the current presentation.
Stock options, warrants and convertible securities are excluded
from the calculation of net loss per common share as their effect would be
antidilutive. At March 31, 2002 and 2001, the Company had 173.2 million and
124.8 million shares, respectively, issuable upon the exercise of stock
options and warrants and the conversion of debt and preferred stock.
NOTE B - RECAPITALIZATION PROCESS AND ABILITY TO CONTINUE OPERATIONS
On May 8, 2002, NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp., Diamond Cable Communications Limited, Diamond
Holdings Limited and Communications Cable Funding Corp. filed an arranged
joint reorganization plan under Chapter 11 of the United States Bankruptcy
Code (referred to as the proposed recapitalization plan). NTL's operating
subsidiaries were not included in the Chapter 11 filing. Toward the end of
2001, while the Company continued to have sufficient liquidity to meet its
near term obligations, it recognized the negative impact of the collapsing
European and U.S. telecommunications markets on its ability to service its
debt. Accordingly, the Company began to implement a strategy to preserve
and maximize its enterprise value. This strategy included the
implementation of cost-cutting measures and the commencement of discussions
with certain third parties regarding strategic alternatives for NTL's
business.
The Company historically incurred operating losses and negative
operating cash flow. In addition, the Company has required significant
amounts of capital to finance construction of its networks, connection of
customers to the networks, other capital expenditures and for working
capital needs including debt service requirements. The Company historically
met these liquidity requirements through cash flow from operations, amounts
available under its credit facilities, vendor financing and issuances of
high-yield debt securities and convertible debt securities in the capital
markets and convertible preferred stock and common stock to strategic
investors. Both the equity and debt capital markets have recently
experienced periods of significant volatility, particularly for securities
issued by telecommunications and technology companies. The ability of
telecommunications companies to access those markets as well as their
ability to obtain financing provided by bank lenders and equipment
suppliers has become more restricted and financing costs have increased.
During some recent periods, the capital markets have been largely
unavailable to new issues of securities by telecommunications companies.
The Company's public equity is no longer trading on the New York Stock
Exchange, and its debt securities are trading at or near all time lows.
These factors, together with the Company's substantial leverage, means the
Company does not currently have access to its historic sources of capital.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
In addition, the Company's UK credit facilities are fully drawn.
The revolving tranche of the Cablecom credit facility has been capped at
its utilized amount of CHF 1,055.0 million although the availability may be
increased with the consent of the requisite majority of the lenders under
that facility. The term tranche of the Cablecom credit facility is fully
drawn. NTL Communications Corp., a wholly-owned indirect subsidiary of the
Company, did not pay cash interest on certain series of its notes that was
due on April 1, 2002, April 15, 2002 and May 15, 2002. NTL Incorporated and
NTL (Delaware), Inc. also did not pay cash interest and related fees on a
series of their notes that was due on April 15, 2002. In accordance with
the proposed recapitalization plan, NTL does not plan to make future
interest payments on its outstanding publicly traded notes except notes
issued by NTL Triangle and Diamond Holdings Limited.
As of March 31, 2002, the Company had approximately $622.7 million
in cash, cash equivalents and marketable securities on hand and, in April
2002, received approximately $306 million net cash proceeds from the sale
of its Australian business. The Company may require additional cash in the
twelve months from April 1, 2002 to March 31, 2003. The Company expects to
obtain a DIP Facility (as described below) to meet the potential cash
requirements of the Company and its subsidiaries, excluding Cablecom. The
Company also expects that the DIP Facility will be replaced with an exit
facility for NTL Communications Corp. and its subsidiaries upon the
completion of the recapitalization process. The Company believes that cash,
cash equivalents and marketable securities on hand at March 31, 2002, the
cash received from the sale of NTL Australia and the cash expected to be
available from the DIP Facility and the exit facility will be sufficient
for its and its subsidiaries cash requirements during the twelve months
from April 1, 2002 to March 31, 2003.
Beginning in January 2002, NTL was contacted by an unofficial
committee of bondholders regarding the commencement of a comprehensive and
consensual restructuring process. NTL has been informed that the members of
the unofficial steering committee of bondholders currently own, in the
aggregate, more than 50% of the outstanding principal amount of NTL's
notes. In connection with the restructuring process, the steering committee
of the unofficial committee of bondholders retained advisors to facilitate
the negotiations.
On January 31, 2002, NTL announced that it had appointed Credit
Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic
and recapitalization alternatives to strengthen its balance sheet and
reduce debt and put an appropriate capital structure in place for its
business. Subsequently, NTL evaluated various recapitalization
alternatives, and met with a number of strategic investors, to effect a
comprehensive consensual reorganization in a timely manner to minimize
negative effects on its business operations. Discussions with such
strategic investors did not result in a proposal which NTL's board of
directors believed was comparable or superior to the value provided to its
stakeholders by the proposed plan of reorganization.
Liberty Media Corporation, one of such potential strategic
investors, which is also a significant shareholder in Telewest plc, another
British cable and telephone company, has discussed various transactions
with NTL from time to time over the past several years. In March 2002,
Liberty and NTL amended a previously existing confidentiality agreement
between them to cover the restructuring process and to include a
"standstill" agreement which prohibited various acquisitions of, or offers,
for NTL debt or equity securities by Liberty and its subsidiaries until
June 30, 2002.
On April 17, 2002, Liberty sent a proposal to NTL's board of
directors, which proposed a cash tender offer for 30% of the outstanding
bonds of NTL Communications Corp. at a "small premium" to the prevailing
market price and an agreement to vote such acquired bonds in favor of the
proposed plan of reorganization, as well as a "participation" with NTL in a
cash infusion of up to $500 million into Cablecom. After consultation with
NTL's board of directors and the steering committee of bondholders on April
18, 2002, NTL indicated to Liberty that it did not consider the Liberty
proposal to be in the best interests of NTL and that the best course of
action for NTL to maximize its enterprise value was to promptly consummate
the proposed plan of reorganization. Subsequent to April 18, 2002, Liberty
has continued discussions with NTL with respect to Cablecom.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
Promptly upon obtaining the requisite waivers from the lenders
under its credit facilities, in March 2002, NTL commenced negotiations with
the steering committee of the unofficial committee of bondholders and its
legal and financial advisors. The negotiations continued during the latter
part of March and throughout April 2002, and also included France Telecom.
On April 16, 2002, the Company announced that it had reached a
comprehensive agreement in principle with the committee (holding over 50%
of the face value of NTL and its subsidiaries' public bonds) and France
Telecom, a significant holder of the Company's preferred stock, on
implementing a recapitalization plan. On May 2, 2002, a steering committee
of the lending banks under the Company's credit facilities gave their
approval in principle (on a non-legally binding basis) to the Company's
proposed plan of reorganization.
The recapitalization plan, if implemented, would result in the
cancellation of all of NTL Incorporated's outstanding shares of common
stock, preferred stock and redeemable preferred stock, and the cancellation
of all of the publicly held notes of NTL Incorporated, NTL (Delaware), Inc.
and NTL Communications Corp. and the transfer of the publicly held notes of
Diamond Cable Communications Limited to NTL UK and Ireland. In addition,
the Company would be discharged from its obligation to pay dividends
accruing on the canceled preferred stock and interest accruing on the
canceled notes.
To implement the proposed recapitalization, on May 8, 2002, NTL
Incorporated, NTL (Delaware), Inc., NTL Communications Corp., Diamond Cable
Communications Limited, Diamond Holdings Limited and Communications Cable
Funding Corp. filed cases and a pre-arranged joint reorganization plan
under Chapter 11 of the United States Bankruptcy Code. NTL's operating
subsidiaries were not included in the Chapter 11 filing. The reorganization
plan contemplates that the bank debt will remain in place as part of the
recapitalization. On May 24, 2002, NTL and its debtor subsidiaries filed an
amended joint reorganization plan and disclosure statement. The bankruptcy
court has scheduled July 12, 2002 for a hearing to consider approval of the
amended joint reorganization plan and disclosure statement. A copy of the
Amended Joint Reorganization Plan of NTL Incorporated and Certain
Subsidiaries and the related Disclosure Statement are included as exhibits
to NTL Incorporated's Current Report on Form 8-K filed on May 28, 2002.
The filing of the petitions seeking relief filed under Chapter 11
constituted an event of default under the indentures of each of the
entities which filed such Chapter 11 petitions and amounts outstanding
under these indentures became immediately due and payable. The Company's
Chapter 11 petitions also constituted an event of default under the
Company's UK credit facilities and the Cablecom credit facility, allowing
the lenders thereunder to declare amounts outstanding to be immediately
payable.
In connection with the proposed joint reorganization plan, certain
members of the unofficial committee of bondholders have committed to
provide up to $500 million of new debt financing to the Company and certain
of its subsidiaries during the Chapter 11 process and for the
post-recapitalized Company, subject to bankruptcy court approval. The new
financing will ensure that the Company's business operations have access to
sufficient liquidity to continue ordinary operations. The bankruptcy court
has set June 19, 2002 as the date to consider approval of the DIP Facility,
which has been agreed in principle with the Company and the prospective
lenders under the facility.
Recapitalization expense of $45.8 million in 2002 includes $8.8
million for employee retention related to substantially all of our UK
employees and $37.0 million for financial advisor, legal, accounting and
consulting costs. We expect to incur approximately $50.0 million in
additional recapitalization costs until we complete the process.
Proposed Recapitalization Plan
Under the proposed recapitalization plan, NTL would be split into
two companies, one tentatively called NTL UK and Ireland and holding
substantially all of NTL's UK and Ireland assets, and one tentatively
called NTL Euroco and holding substantially all of NTL's continental
European and other assets.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
Holders of notes of NTL Incorporated (other than France Telecom),
NTL (Delaware), Inc. (other than France Telecom), NTL Communications Corp.
and Diamond Cable Communications Limited would in the aggregate receive
100% of the initial common stock of NTL UK and Ireland (excluding shares
issuable in the rights offerings and upon the exercise of warrants
(discussed below) and upon the exercise of options which will be granted to
certain employees of NTL UK and Ireland). Holders of notes of NTL
Incorporated (other than France Telecom), NTL (Delaware), Inc. (other than
France Telecom) and NTL Communications Corp. would in the aggregate receive
(i) 100% of the preferred stock of NTL Euroco and (ii) a certain amount of
cash as specified in the amended joint reorganization plan. Holders of the
subordinated notes of NTL Incorporated (other than France Telecom), NTL
(Delaware), Inc. (other than France Telecom) and NTL Communications Corp.
would in the aggregate receive 86.5% of the initial common stock of NTL
Euroco (excluding shares issuable upon the exercise of options which will
be granted to certain employees of NTL Euroco). Holders of senior notes of
NTL Communications Corp. would receive the value of a specified number of
shares of common stock of NTL Euroco pursuant to the amended joint
reorganization plan. Notes of the Company's subsidiaries Diamond Holdings
Limited and NTL (Triangle) LLC would remain outstanding and interest
payments will be made.
Current preferred and common stockholders of NTL Incorporated,
including France Telecom, would receive warrants to purchase common stock
of NTL UK and Ireland and rights (to be priced at a $10.5 billion
enterprise value of NTL UK and Ireland) entitling them to purchase common
stock of NTL UK and Ireland. For each share of common stock purchase upon
exercise of rights, the person exercising such rights will receive a
warrant to purchase one share of common stock of NTL UK and Ireland. The
rights will be exercisable, on an oversubscription basis, for the
20-business day period after the entry of the confirmation order, as such
period may be extended, and the warrants will be exercisable for a period
of eight years at an exercise price of $77.47 per share, subject to
anti-dilution adjustments. If fully exercised, the rights and warrants
would entitle the current preferred stockholders of NTL Incorporated to
acquire approximately 23.6% and the current common stockholders of NTL
Incorporated to acquire approximately 8.9% of NTL UK and Ireland's primary
common stock on the effective date of the recapitalization. Holders of the
subordinated notes of NTL Incorporated (other than France Telecom), NTL
(Delaware), Inc. (other than France Telecom), and NTL Communications Corp.
would have the right to purchase any shares of NTL UK and Ireland common
stock and warrants not subscribed for in the rights offering by the
preferred and common stockholders of NTL Incorporated.
Current preferred stockholders, other than France Telecom, would
receive approximately 3.2% and current common stockholders, other than
France Telecom, would receive approximately 10.3% of the primary equity of
NTL Euroco. It is contemplated that, subject to the consummation of the
recapitalization, France Telecom would also receive NTL Incorporated's 27%
interest in Noos, pursuant to a pledge of such interest to France Telecom
given at the time of its acquisition.
During the recapitalization process, the Company has maintained
normal and regular trade terms with its suppliers and customers. There can
be no assurance that the Company's suppliers will continue to provide
normal trade credit or credit on acceptable terms, if at all, or that
customers will continue to do business or enter into new business with the
Company. See also "Risk Factors" for a summary of risks related to the
Company's business in general and the recapitalization process in
particular.
Section 1129 of the United States Bankruptcy Code requires, among
other things, a showing that confirmation of the proposed recapitalization
plan will not be followed by liquidation or the need for further financial
reorganization of NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp., Diamond Cable Communications Limited or Diamond
Holdings Limited, and that the value of distributions to dissenting holders
of claims and interests may not be less than the value such holders would
receive in a liquidation under Chapter 7 of the United States Bankruptcy
Code. Although the Company believes that the proposed recapitalization plan
will meet these tests, there can be no assurance that the Bankruptcy Court
will reach the same conclusion.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
The United States Bankruptcy Code also requires that a plan must
provide the same treatment for each claim or interest in a particular
class, unless a holder agrees to a less favorable treatment of its
particular claim or interest. The Company believes that the proposed
recapitalization plan complies with this requirement of the United States
Bankruptcy Code. However, if a member of a class objects to its treatment,
or if the Bankruptcy Court finds that the proposed recapitalization plan
does not comply with the requirements of the United States Bankruptcy Code,
confirmation of the plan could be delayed or prevented. In addition, each
class of impaired claims and interests that will (or may) be entitled to
receive property under the plan will have the opportunity to vote to accept
or reject the plan. If an impaired class of claims or interests rejects the
plan, the Company may request confirmation of the plan pursuant to the
"cramdown" provisions of the United States Bankruptcy Code. Even if the
requirements for "cramdown" are met, the Bankruptcy Court, which, as a
court of equity may exercise substantial discretion, may choose not to
confirm the plan.
Bank Waivers
Before the Company could commence negotiations with the unofficial
committee of bondholders, it was necessary to obtain waivers from the
lenders under the Company's credit facilities. Effective March 8, 2002,
these lenders granted waivers which, until March 29, 2002, provided that
the commencement of negotiations with bondholders with a view to
rescheduling its debt would not constitute an event of default under the
credit facilities. Such initial waivers did not permit NTL to make to any
of its noteholders an exchange or similar offer for NTL's outstanding
public notes or to enter into a legally binding agreement with the
unofficial steering committee of bondholders, subject to some exceptions,
without the consent of the lenders under the credit facilities. But for the
initial waivers, the commencement of negotiations with bondholders would
have been an event of default under the credit facilities.
Effective March 28, 2002, the lenders under the credit facilities
agreed to amend the initial waivers. The amendments to the initial waivers
extended the duration of the initial waivers to April 29, 2002 in the case
of the UK credit facilities or May 14, 2002 in the case of the Cablecom
credit facility, unless the interest payments missed by NTL Communications
Corp. on April 1, 2002 were remedied or a sufficient number of bondholders
agreed to forbear in respect of such non-payment, in which case, the UK
credit facilities waivers were to be extended to May 14, 2002. As a
condition to the amendment to the initial waivers, the UK lenders required
NTL Delaware to loan (pound)90 million to NTL (UK) Group, Inc. following
receipt of the proceeds from the sale of NTL Australia. Such loan was
actually made (with the approval of the lenders under the UK credit
facilities) to NTL (UK) Group, Inc. and then on-lent to certain
subsidiaries of NTL (UK) Group, Inc. This loan, which was made on April 5,
2002, is structurally senior to the outstanding public notes issued by NTL
Communications Corp. and contractually senior to intra-group debt owed by
NTL (UK) Group, Inc. to NTL Communications Corp. but contractually
subordinated to the UK credit facilities. In connection with the amendments
to the waivers, NTL affirmed the provisions of the initial waivers and
agreed, among other things, not to commence voluntary dissolution
proceedings, including proceedings under Chapter 11 of the United States
Bankruptcy Code, without the consent of these lenders.
As of the date of this Form 10-Q, there are no current waivers
from the Company's secured lenders and NTL is therefore in default under
its UK credit facilities and the Cablecom credit facility. In connection
with the proposed recapitalization plan, it is intended that the existing
events of default under the credit facilities will be cured by amendment
with effect from the effective date of the recapitalization, if it is
approved by creditors and the bankruptcy court. On May 2, 2002, a
memorandum was executed by the Company, a steering committee of its lending
banks and the unofficial committee of its public bondholders indicating the
parties' agreement in principle (on a non-legally binding basis) to the
terms of the proposed recapitalization and the terms on which the Company's
UK credit facilities should be amended and restated and with respect to
certain matters relating to the sale of, or investment in, Cablecom.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
Cablecom GmbH is the principal trading company of our Swiss group.
There were a number of technical defaults under the Swiss credit facility
made available to Cablecom and various of its subsidiaries. In addition, as
of December 31, 2001, Cablecom's and various of its subsidiaries'
liabilities exceeded their respective assets. As a consequence, under Swiss
law, those entities were deemed to be "overindebted". This also constituted
an event of default under the Cablecom credit facility which entitled the
lenders to accelerate repayment. Such an acceleration would have resulted
in an event of default under NTL Incorporated's and NTL Delaware's 5.75%
convertible subordinated notes due 2011 and 5.75% convertible subordinated
notes due 2009. Under Swiss law, unless the overindebtedness was rectified
those entities would have been required to commence an insolvency
proceeding in Switzerland.
On April 30, 2002, Cablecom reached an agreement with the lenders
under the Cablecom credit facility which, together with the implementation
of an intra-group transaction, resolved its overindebtedness. The agreement
included a waiver by the lenders of various additional covenant breaches
under the credit facility. Temporary measures have also been put in place
which mean that Cablecom's overindebted subsidiaries do not have to
institute insolvency proceedings. It is intended to permanently resolve the
problem of overindebtedness in certain of the subsidiaries by merging them
into Cablecom or another member of the Cablecom group. Other overindebted
subsidiaries will remain unmerged and it is planned to obviate any
requirement to institute insolvency proceedings in respect of these
companies in another way. If these solutions are not implemented by June
30, 2002, there will be an additional event of default under the Cablecom
credit facility. The Company expects to complete these actions within this
time-frame.
Interest Payments on Public Notes
The Company and its subsidiaries have substantial interest payment
obligations under their existing indebtedness. NTL Communications Corp. did
not make scheduled interest payments due April 1, 2002, in the aggregate
amount of $74.2 million, in respect of its 9 1/2% notes due 2008, 11 1/2%
notes due 2008 and 11 7/8% notes due 2010. NTL Communications Corp. also
did not make interest payments falling due on April 15, 2002, totaling
$17.7 million, in respect of the 12 3/4% Senior Deferred Coupon Notes due
2005 and NTL Incorporated and NTL Delaware did not make interest payments
and payment of related fees falling due on April 15, 2002, totaling $2.5
million, in respect of their 5 3/4% Convertible Subordinated Notes due
2011. In addition, NTL Communications Corp. did not make the scheduled
interest payments due May 15, 2002 in the aggregate amount of $65.0
million, in respect of its 9 1/4% notes due 2006, 6 3/4% notes due 2008 and
9 7/8% notes due 2009. Interest payments of $18.9 million were made, when
due, on April 2, 2002 in respect of Diamond Cable Communications 13.25%
senior discount notes due 2004. In accordance with the proposed
recapitalization plan, NTL does not plan to make future interest payments
on its outstanding publicly traded notes except notes issued by NTL
Triangle and Diamond Holdings Limited.
If the applicable issuer does not pay interest on these notes
after a 30 day grace period expires there is an event of default under the
indenture in respect of the notes on which the interest is due and unpaid.
An event of default entitles the trustee under the indenture or the holders
of 25% of the outstanding notes to declare the principal amount of those
notes to be immediately due and payable. Even if the maturity of those
notes is not accelerated after the 30 day grace period, such an event of
default would also result in an event of default in respect of other debt
(commonly called cross defaults) under most of our other notes. Therefore,
there was an event of default for failure to pay interest on May 1, 2002
under the indentures relating to the missed interest payments due April 1,
2002 and on May 16, 2002, under the indentures relating to the missed
interest payments due April 15, 2002. As a result, cross defaults occurred
under the Company's other indentures at NTL Communications, NTL Delaware,
NTL Incorporated and under our UK credit facilities and under the Cablecom
credit facility. This gave holders of the outstanding series of debt at
these entities the right to accelerate repayment of those debts by
declaring the principal amount of the debts to be immediately due and
payable. As a result of the payment defaults as well as the Company's
voluntary filing under Chapter 11 of the United States Bankruptcy Code on
May 8, 2002, there is an event of default under all of our credit
facilities and the indentures governing all of our publicly traded debt,
other than debt of NTL Triangle. As a result of the Chapter 11 filings, all
of our publicly traded debts, other than the debt of NTL Triangle, became
immediately due and payable, pursuant to the terms of the indentures
governing such debt.
The automatic stay of Section 362
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
of the United States Bankruptcy Code prevents the holders of such debt from
seeking to enforce their collection rights under the indentures, except
within the context of the Chapter 11 cases, and even then only with the
prior approval of the bankruptcy court. However, NTL has received letters
from the agents for the lenders under the UK credit facilities reserving
such lenders' rights to accelerate repayment of the facilities and to
enforce the security granted in respect of the facilities on account of the
defaults thereunder, actions which would not be prohibited by the automatic
stay.
Inability to Pay Dividends On or Redeem Preferred Stock
The Company failed to declare or pay dividends due February 15,
2002 on its 13% Senior Redeemable Exchangeable Preferred Stock in the
amount of $6.0 million. In addition, on May 15, 2002, the Company failed to
declare or pay dividends on its 13% Senior Redeemable Exchangeable
Preferred Stock in the amount of $6.2 million. The Company did not pay
dividends on its 5% cumulative participating convertible preferred stock
held by France Telecom on December 31, 2001 of $37.0 million and March 31,
2002 of $37.5 million, or on its cumulative convertible preferred stock
held by France Telecom and a group of commercial banks on December 31, 2001
of $24.9 million and March 26, 2002 of $24.1 million. Historically, payment
of dividends has been made in additional shares of preferred stock in the
case of the 13% preferred stock, the 5% cumulative participating preferred
stock and the cumulative convertible preferred stock. The Company did not
pay these dividends due to a lack of available surplus under Delaware law.
Under Delaware law, the Company cannot declare or pay dividends on or
redeem its capital stock, including its preferred stock, unless it has
available surplus.
Pursuant to the terms of the 13% preferred stock, the unpaid
dividends will continue to accrue without interest until declared and paid.
Pursuant to the terms of the 5% cumulative convertible preferred stock and
the cumulative convertible preferred stock, the unpaid dividends will
continue to accrue without interest until declared and paid, together with
an additional cash dividend on the amount so unpaid at a rate of 2% per
quarter for as long as the dividends remain unpaid. The failure to declare
these dividends is not a default under any of the Company's existing
agreements. With respect to the 13% preferred stock and 5% cumulative
convertible preferred stock, if dividends remain unpaid for six quarters,
the holders of each such series shall have the right to vote separately as
a class on all matters voted on by NTL Incorporated shareholders and shall
have the right, along with other holders of preferred stock with similar
default voting rights, to elect two additional directors to the Company's
board.
In addition, the lack of surplus meant that the Company was not
able to redeem its Variable Coupon Redeemable Preferred Stock, Series A,
which is referred to as the Noos One Year Preferred, held by France
Telecom, when it became mandatorily redeemable on May 18, 2002. Because the
Company failed to redeem the Noos One Year Preferred on May 18, 2002,
pursuant to the certificate of designation governing the Noos One Year
Preferred, the holders of such preferred stock have the right, along with
other holders of preferred stock with similar default voting rights, to
elect two additional directors to the Company's board and shall have the
right to vote separately as a class, on all matters brought to NTL
Incorporated shareholders.
At the time of issuance of the Noos One Year Preferred, the
Company pledged its shares of Noos to France Telecom to secure the
mandatory redemption obligation under the Noos One Year Preferred and the
6.5% Redeemable Preferred Stock. As part of the amended joint
reorganization plan and pursuant to this pledge, the Company will transfer
its 27% interest in Noos to France Telecom.
Credit Rating Downgrades
On April 3, 2002, credit rating agency Standard & Poor's lowered
the Company's long-term corporate credit rating to D from CCC-, citing the
Company's failure to make a bond interest payment due on April 1, 2002.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
Delisting of NTL Incorporated Common Stock
On March 28, 2002, the New York Stock Exchange ("NYSE") announced
that it was suspending NTL's common stock from trading on the NYSE. This
determination was based upon, among other things, the selling price of
NTL's common stock, which closed at $0.20 on March 26, 2002. The continued
listing standards of the NYSE, which were applicable to NTL, required
maintenance of a minimum share price of $1.00 over a 30 trading day period
and average global market capitalization of $100 million over a 30 trading
day period. NTL's common stock fell below both of these continued listing
standards. In addition, on May 9, 2002, Nasdaq Europe halted trading of the
NTL's common stock pending receipt of information relating to the
restructuring process because of the filing of NTL's Chapter 11 cases. NTL
has complied with this information request, although there can be no
assurance that Nasdaq Europe will (1) not make additional information
requests, (2) remove the trading halt on shares of NTL's common stock or
(3) not delist shares of NTL's common stock. NTL's common stock is
currently quoted on the Over the Counter Bulletin Board under the symbol
"NTLDE". The "E" on the symbol "NTLDE" was appended for failure to timely
file this quarterly report. NTL expects that this designation will be
dropped shortly after filing this report and the symbol will return to
"NTLD".
Sale of NTL Australia
On April 2, 2002, the Company announced that it had completed the
previously announced sale of its Australian broadcast business to Macquarie
Communications Infrastructure Holding Pty Limited for A$850 million (US$448
million) in an all cash transaction. The net proceeds from the sale were
approximately A$581 million (US$306 million). At that time, the business'
bank debt outstanding totaled A$227 million (US$120 million).
On April 5, 2002, NTL Delaware loaned (pound)90 million to NTL
(UK) Group Inc., which loan was funded by the proceeds of the sale of NTL
Australia. This loan is subordinated to the Company's UK credit facilities.
The remaining proceeds of the sale of NTL Australia remain at NTL Delaware,
and the proposed plan of reorganization anticipates that such proceeds will
form a portion of the consideration to be offered to bondholders of NTL
Delaware and NTL Incorporated in satisfaction of their claims against those
companies.
Potential Sale of, or Outside Investment in, Cablecom
It has been agreed to engage UBS Warburg LLC by August 31, 2002 to
advise in connection with an outside investment in, or sale of all or part
of, Cablecom. As part of this process, NTL (Delaware), Inc. and certain of
its subsidiaries have agreed to approve any such outside investment or
sale, which is acceptable to the lenders under the Cablecom credit
facility.
It has also been agreed that if such a sale of all or part of
Cablecom is consummated on or before August 31, 2003, the lenders under the
Cablecom credit facility will be entitled to receive additional interest
equal to 20% of the net proceeds of such a sale after repayment of the
amounts outstanding under the Cablecom credit facility and other expenses
and taxes of the sale. There can be no assurance that any outside
investment in, or sale of all or part of, Cablecom pursuant to the Cablecom
credit facility will be on terms that are favorable to NTL and such
investment or sale could have a material adverse effect on NTL's finances
and business.
In particular, in the current environment, NTL's shareholding in
Cablecom may have little or no value, which may result in NTL receiving
little or no consideration for its equity interest in Cablecom.
Further, if a third party makes an investment in Cablecom there
can be no assurance that NTL will be able to maintain its ability to direct
the management of Cablecom.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
The uncertainty over the Company's financial condition may
adversely affect its relationships with its suppliers. If the Company's
suppliers become increasingly concerned about its financial condition, they
may demand quicker payment terms or not extend normal trade credit, both of
which could further adversely affect its results of operations, financial
condition and cash flows.
NOTE C - SALE OF AUSTRALIA
On April 2, 2002, the Company announced that it had completed the
previously announced sale of its Australian broadcast business to Macquarie
Communications Infrastructure Holding Pty Limited for A$850 million (US$448
million) in an all cash transaction. The net proceeds from the sale after
the repayment of the outstanding bank credit facility and transaction
related costs were approximately A$581 million (US$306 million). The
Company recognized a gain on the sale of approximately US$15 million in
April 2002. NTL Australia is accounted for as a discontinued operation, and
accordingly, NTL Australia is excluded from assets and liabilities of
continuing operations at March 31, 2002 and December 31, 2001 and from
results of continuing operations for the three months ended March 31, 2002
and 2001.
The following is the condensed assets, liabilities and results of
operations of NTL Australia (unaudited except at December 31, 2001):
March 31, December 31,
2002 2001
---- ----
(in millions)
Current assets............................................................................... $ 20.0 $ 32.0
Fixed assets, net............................................................................ 243.2 235.2
Other assets................................................................................. 142.5 137.8
NTL Australia assets...................................................................... $ 405.7 $ 405.0
Current liabilities.......................................................................... $ 57.8 $ 71.0
Non current liabilities...................................................................... 135.3 111.9
NTL Australia liabilities................................................................. $ 193.1 $ 182.9
Three Months Ended
March 31,
---------
2002 2001
---- ----
(in millions)
Revenues..................................................................................... $ 17.4 $ 14.6
Operating income (loss)...................................................................... 0.3 (2.5)
Net income (loss)............................................................................ 0.2 (0.5)
NOTE D - RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," effective
for the Company on January 1, 2002. This Statement superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and other related accounting guidance. The
adoption of this new standard had no significant effect on the results of
operations, financial condition or cash flows of the Company, except that
it required the Company to treat NTL Australia as a discontinued operation
beginning in the first quarter of 2002.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated
asset retirement costs. The Company is in the process of evaluating the
financial statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill
and other intangible assets acquired in a business combination that is
completed after June 30, 2001. SFAS No. 142 ends the amortization of
goodwill and indefinite-lived intangible assets. Instead, these assets must
be reviewed annually (or more frequently under certain conditions) for
impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flow approach
previously required by SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
adopted SFAS No. 142 on January 1, 2002. Primarily due to the significant
impairment charge that the Company recorded in 2001, the adoption of this
new standard did not have a significant effect on the results of
operations, financial condition or cash flows of the Company.
The following table shows the Company's loss from continuing
operations and its basic and diluted loss from continuing operations per
share as adjusted for the adoption of SFAS No. 142, had SFAS No. 142 been
in effect on January 1, 2001 (unaudited) (in millions, except per share
data).
Three Months Ended
March 31,
2002 2001
---- ----
(Loss) from continuing operations - as reported ................................ $ (600.4) $ (1,042.4)
Amortization of:
Goodwill ..................................................................... -- 366.4
License acquisition costs .................................................... -- 18.8
Other ........................................................................ -- 2.7
---------- -----------
-- 387.9
---------- -----------
(Loss) from continuing operations - as adjusted ................................ $ (600.4) $ (654.5)
========== ===========
Basic and diluted net (loss) from continuing operations per share:
As reported .................................................................. $ (2.53) $ (4.04)
Amortization expense reduction ............................................... -- 1.42
---------- ------------
As adjusted .................................................................. $ (2.53) $ (2.62)
========== ============
NOTE E - FIXED ASSETS
Fixed assets consist of:
March 31, December 31,
2002 2001
---- ----
(unaudited)
(in millions)
Operating equipment .................................................. $ 13,060.7 $ 13,312.2
Other equipment ...................................................... 975.1 997.6
Construction-in-progress ............................................. 1,412.3 1,270.4
----------- -----------
15,448.1 15,580.2
Accumulated depreciation ............................................. (3,535.2) (3,242.1)
----------- -----------
$ 11,912.9 $ 12,338.1
=========== ===========
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
Depreciation expense (including amortization of assets held under
capital leases) for the three months ended March 31, 2002 and 2001 was
$362.9 million and $331.3 million, respectively.
NOTE F - INTANGIBLE ASSETS
Intangible assets consist of:
March 31, December 31,
2002 2001
---- ----
(unaudited)
(in millions)
Intangible assets not subject to amortization:
Goodwill, net of accumulated amortization of $60.3 (2002) and $61.1 (2001).............. $ 1,598.8 $ 1,619.4
License acquisition costs, net of accumulated amortization of $122.5 (2002)
and $125.2 (2001).................................................................... 55.2 54.7
Intangible assets subject to amortization:
Customer lists, net of accumulated amortization of $186.5 (2002) and $169.3 (2001)...... 146.1 168.8
Other intangibles, net of accumulated amortization of $4.4 (2002) and $4.5 (2001)....... 6.7 6.9
------------- -------------
$ 1,806.8 $ 1,849.8
============= =============
Amortization of intangible and other assets charged to expense for
the three months ended March 31, 2002 and 2001 was $32.7 million and $423.9
million, respectively.
NOTE G - INVESTMENTS IN AND LOANS TO AFFILIATES
The Company has investments in various companies and joint
ventures which are accounted for under either the equity method or the cost
method. The Company's significant equity investments include its 27%
interest in Noos S.A., the market leading French broadband company, which
offers analog and digital cable television, high speed Internet and
telephone services, its 34.01% interest in Svenska Bredbandsbolaget ("B2"),
a company based in Sweden, which provides "always on," low cost access to a
high-capacity broadband network that provides transmission, both to and
from the customer, at the same speed and at the same time, and its 50%
interest in eKabel InvestCo, which owns 65% of iesy Hessen GmbH ("iesy"),
the largest cable television network in the German province of Hessen.
There can be no assurance that iesy will meet the conditions
precedent to access additional funds under its credit facility or that it
will be in compliance with the covenants under its debt agreements. The
failure of iesy to obtain required funding or a default entitling the
lenders to accelerate repayment of iesy's borrowings would adversely affect
the value of NTL's investment in iesy.
In addition, on April 15, 2002, a funding request for $20 million
was received by NTL under the terms of the investment agreement relating to
NTL's investment in B2. NTL has informed B2 and the other principal
investors that it is not in a position to comply with this request at this
time. The B2 investment agreement provides that if NTL fails to provide
such funding, it may be sued for non-payment and arguably could lose
certain rights under the B2 shareholders' arrangements. Pursuant to the
applicable documents, if this occurs the majority remaining shareholders
may also elect to terminate the shareholder arrangements with respect to
NTL and exercise a contractual right to acquire on a pro rata basis NTL's
interest in B2 at 25% of fair market value. If the remaining shareholders
elected to exercise these rights, NTL could be forced to sell its stake in
B2 at a loss.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
The Company believes, however, that it has certain defenses and
protections of and for NTL's rights under the B2 investment agreement and
in respect of its equity interest in B2 and intends to vigorously enforce
such rights and protections.
Premium TV Limited, a wholly-owned subsidiary of NTL (Delaware),
Inc., is obliged to provide funding of up to approximately (pound)73.1
million ($104.2 million) to fund certain of its joint venture interests. Of
this amount, the payment of approximately (pound)53.5 million ($76.2
million) has been guaranteed by NTL (Delaware), Inc. If Premium TV Limited
fails to provide its committed funding under the relevant shareholder
arrangements relating to these joint ventures, Premium TV Limited and, in
respect of the guaranteed amounts, NTL (Delaware), Inc., may be sued for
non-payment. As a result of the recapitalization process, the relevant
joint venture partners may assert that they can compulsorily acquire
Premium TV Limited's interest in the relevant joint venture at a third
party appraisal valuation. The Company believes, however, that it has
various defenses and protections under the U.S.
NOTE G - INVESTMENTS IN AND LOANS TO AFFILIATES
Bankruptcy Code against such actions and intends to enforce
vigorously its rights and protections.
NTL Incorporated has also guaranteed the obligations of one of its
subsidiaries to provide funding of up to approximately (pound)9.2 million
($13.1 million) to two joint ventures whose businesses are the provision of
programming content. If the relevant subsidiary fails to provide such
funding, under the shareholder arrangements relating to these joint
ventures, such subsidiary may be sued for damages. In addition, under the
shareholder arrangements relating to one of those joint ventures, the
relevant joint venture partner may have the option to compulsorily acquire
the Company's indirect interest in the relevant joint venture at 70% of
fair market value, resulting in the Company selling its indirect interest
at a potential loss. The Company believes that it has various defenses and
protections under the U.S. Bankruptcy Code against such actions and intends
to enforce vigorously its rights and protections.
The Company intends to negotiate with these joint venture partners
to address these issues. There can be no guaranty that these negotiations
will be successful and that the Company will be able to retain its current
interest in these joint venture companies.
The Company's investments in and loans to affiliates are as
follows:
March 31, 2002 December 31, 2001
-------------- -----------------
Ownership Balance Ownership Balance
--------- ------- --------- -------
(unaudited)
(dollars in millions)
Noos................................................. 27.00% $ 32.6 27.00% $ 47.0
B2................................................... 34.01% 78.5 34.01% 92.5
iesy................................................. 32.50% 61.3 32.50% 73.0
Others............................................... 55.2 52.8
---------- ---------
Total equity investments............................. 227.6 265.3
Total cost investments............................... 6.9 7.1
---------- ---------
Total................................................ $ 234.5 $ 272.4
========== =========
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
A summary of combined financial information as reported by the
Company's equity investees is set forth below:
March 31, December 31,
2002 2001
---- ----
(unaudited)
(in millions)
Current assets................................................................. $ 427.2 $ 495.5
Fixed assets, net.............................................................. 885.4 910.9
Other assets................................................................... 2,398.4 2,690.0
----------- -----------
Total assets................................................................... $ 3,711.0 $ 4,096.4
=========== ===========
Current liabilities............................................................ $ 325.6 $ 366.3
Non current liabilities........................................................ 1,418.7 1,445.4
Total shareholders' equity..................................................... 1,966.7 2,284.7
----------- -----------
Total liabilities and shareholders' equity..................................... $ 3,711.0 $ 4,096.4
=========== ===========
Three Months Ended
March 31,
2002 2001
---- ----
(unaudited)
(in millions)
Revenues ..................................................................... $ 121.0 $ 58.9
Operating (loss)............................................................... (91.6) (87.5)
Net (loss)..................................................................... (122.5) (117.8)
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
NOTE H - LONG-TERM DEBT
Long-term debt consists of:
March 31, December 31,
2002 2001
---- ----
(unaudited)
(in millions)
NTL Incorporated:
5 3/4% Convertible Subordinated Notes............................... $ 100.0 $ 100.0
NTL Delaware:
5 3/4% Convertible Subordinated Notes............................... 1,200.0 1,200.0
Cablecom:
Term Loan Facility.................................................. 1,605.2 1,626.8
Revolving Facility.................................................. 520.2 527.2
Other ............................................................. 6.1 6.2
NTL Communications:
12 3/4% Senior Deferred Coupon Notes................................ 277.8 277.8
11 1/2% Senior Deferred Coupon Notes................................ 1,050.0 1,050.0
10% Senior Notes.................................................... 400.0 400.0
9 1/2% Senior Sterling Notes, less unamortized discount............. 177.7 181.4
10 3/4% Senior Deferred Coupon Sterling Notes....................... 384.5 382.3
9 3/4% Senior Deferred Coupon Notes................................. 1,181.4 1,153.8
9 3/4% Senior Deferred Coupon Sterling Notes........................ 387.2 385.9
11 1/2% Senior Notes................................................ 625.0 625.0
12 3/8% Senior Deferred Coupon Notes................................ 375.8 364.9
7% Convertible Subordinated Notes................................... 489.8 489.8
9 1/4% Senior Euro Notes............................................ 217.9 222.5
9 7/8% Senior Euro Notes............................................ 305.1 311.5
11 1/2% Senior Deferred Coupon Euro Notes........................... 136.5 135.6
11 7/8% Senior Notes, less unamortized discount..................... 491.0 490.7
12 3/8% Senior Euro Notes, plus unamortized premium................. 262.2 267.8
6 3/4% Convertible Senior Notes..................................... 1,150.0 1,150.0
NTL Communications Limited:
Senior Credit Facility.............................................. 3,968.4 4,050.0
Working Capital Facility............................................ 581.8 145.4
Other ............................................................. 57.4 58.6
NTL Triangle:
11.2% Senior Discount Debentures.................................... 517.3 517.3
Other ............................................................. 3.8 4.5
Diamond:
13 1/4% Senior Discount Notes....................................... 285.1 285.1
11 3/4% Senior Discount Notes....................................... 531.0 531.0
10 3/4% Senior Discount Notes....................................... 420.5 415.1
10% Senior Sterling Notes........................................... 192.4 196.3
9 1/8% Senior Notes................................................. 110.0 110.0
Other ............................................................. 6.0 3.6
---------- ----------
18,017.1 17,666.1
Less current portion.................................................. 18,017.1 17,666.1
------------ ----------
$ - $ -
============ ==========
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
See Note B for discussion of the events of default and
uncertainties about compliance with the terms and conditions of the
Company's debt. The holders of the debt have the right to accelerate
repayment, or may have such right, which has caused all of the Company's
long-term debt to be classified as current. The automatic stay of Section
362 of the United States Bankruptcy Code prevents the holders of such debt
from seeking to enforce their collection rights under the indentures,
except within the context of the Chapter 11 cases, and even then only with
the prior approval of the bankruptcy court. However, NTL has received
letters from the agents for the lenders under the UK credit facilities
reserving such lenders' rights to accelerate repayment of the facilities
and to enforce the security granted in respect of the facilities on account
of the defaults thereunder, actions which would not be prohibited by the
automatic stay.
The effective interest rates on the Company's variable interest
rate debt were as follows:
March 31, December 31,
2002 2001
---- ----
Cablecom:
Term Loan Facility............................................................. 4.30% 5.27%
Revolving Facility............................................................. 4.25% 5.49%
NTL Communications Limited:
Senior Credit Facility......................................................... 6.16% 6.73%
Term Facility.................................................................. 7.66% 8.06%
Working Capital Facility....................................................... 10.15% 9.57%
On April 30, 2002, the Cablecom Term Loan Facility and Revolving
Facility were restated. In May 2002, Cablecom borrowed an additional CHF
180.0 million ($107.0 million) under the Revolving Facility. The maturity
date for both facilities was changed to April 30, 2003 in the restatement.
The interest and commitment fee provisions were not changed. The Revolving
Facility has been capped at its utilized amount of CHF 1,055.0 million,
although the availability may be increased with the consent of the
requisite majority of the lenders under that facility.
NOTE I - REDEEMABLE PREFERRED STOCK
The changes in the number of shares of Redeemable Preferred Stock
were as follows (unaudited):
13% Variable 6.5% Convertible
--- -------- ---- -----------
Shares at December 31, 2001................................... 184,000 48,000 12,000 1,850,000
Issued for dividends.......................................... - - - -
----------- ----------- ---------- ------------
Shares at March 31, 2002...................................... 184,000 48,000 12,000 1,850,000
=========== =========== ========== ============
Liquidation preference at March 31, 2002 (in millions)........ $ 192.9 $ 498.8 $ 129.0 $ 2,063.5
=========== =========== ========== ============
NOTE J - OTHER CHARGES INCLUDING RESTRUCTURING CHARGES
Other charges of $2.6 million in 2002 include restructuring
charges of $1.6 million and costs incurred for information technology
integration and for business rationalization consulting of $1.0 million.
Other charges of $7.4 million in 2001 were for information technology
integration and for business rationalization consulting.
The Company recorded restructuring charges in the fourth quarter
of 2001 as a result of actions to reorganize, re-size and reduce operating
costs and create greater efficiency in various areas of the Company. These
charges included employee severance and related costs for approximately
5,400 employees to be terminated, of which approximately 600 employees were
still employed by the Company as of March 31, 2002.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
The following table summarizes the restructuring charges incurred
and utilized in 2002 and 2001:
Employee
Severance Lease
and Related Exit Agreement
Costs Costs Modifications Total
----- ----- ------------- -----
(in millions)
Balance, December 31, 2001.................. $ 79.3 $ 33.5 $ 27.7 $ 140.5
Charged to expense.......................... 1.6 - - 1.6
Utilized.................................... (68.5) (5.3) (5.6) (79.4)
----------- ----------- ----------- -----------
Balance, March 31, 2002..................... $ 12.4 $ 28.2 $ 22.1 $ 62.7
=========== =========== =========== ===========
NOTE K - COMPREHENSIVE LOSS
The Company's comprehensive loss for the three months ended March
31, 2002 and 2001 was $675.9 million and $1,330.2 million, respectively.
NOTE L - COMMITMENTS AND CONTINGENT LIABILITIES
At March 31, 2002, the Company was committed to pay approximately
$1,518.2 million for equipment and services and for investments in and
loans to affiliates. This amount includes approximately $1,158.3 million
for operations and maintenance contracts and other commitments from April
1, 2003 to 2013.
The Company has agreed to provide funds to its unconsolidated
affiliates generally if and when requested to do so and only upon the
satisfaction of certain conditions. The estimated aggregate amount as of
March 31, 2002 was $72.4 million. These unconsolidated affiliates include
the media partnerships with the Football League and with various UK
football clubs for Internet marketing and sponsorships. The Company's
wholly-owned indirect subsidiary, Premium TV Limited, has entered into
these football related partnerships.
NTL Incorporated and certain of its officers have been named as
defendants in a number of purported securities class action lawsuits. The
complaints in those cases generally allege that NTL failed to accurately
disclose its financial condition, finances and future prospects in press
releases and other communications with investors prior to filing its
Chapter 11 case in federal court. NTL does not know of any facts that would
support these allegations, and intends to defend the lawsuits vigorously.
The Company is involved in certain other disputes and litigation
arising in the ordinary course of its business. None of these matters are
expected to have a material adverse effect on the Company's financial
position, results of operations or cash flows.
NTL Incorporated and Subsidiaries
Notes to Condensed Financial Statements--(Continued)
NOTE M - SEGMENT DATA
Broadcast Consumer Business Shared Total
--------- -------- -------- ------ -----
(in millions)
Three Months Ended March 31, 2002
Revenues............................... $ 70.0 $ 608.4 $ 215.6 $ - $ 894.0
EBITDA(1).............................. 35.8 217.2 80.7 (87.8) 245.9
Three Months Ended March 31, 2001
Revenues............................... $ 68.1 $ 610.9 $ 201.2 $ - $ 880.2
EBITDA(1).............................. 32.4 135.0 59.8 (107.9) 119.3
Total assets
March 31, 2002(2)...................... $ 1,199.3 $ 10,941.7 $ 3,247.4 $ 906.0 $ 16,294.4
December 31, 2001(3)................... 1,206.8 11,400.2 3,289.7 941.8 16,838.5
(1) Represents earnings before interest, taxes, depreciation and
amortization, recapitalization expense, other charges, corporate
expenses, share of (losses) from equity investments, foreign currency
transaction (losses) and income (loss) from discontinued operations.
Segment EBITDA in 2001 has been reclassified to conform to the current
year presentation.
(2) At March 31, 2002, shared assets included $427.0 million of cash, cash
equivalents and marketable securities, $0.1 million of goodwill and
$478.9 million of other assets.
(3) At December 31, 2001, shared assets included $318.0 million of cash
and cash equivalents, $0.1 million of goodwill and $623.7 million of
other assets.
The reconciliation of segment combined EBITDA to loss before
income taxes and discontinued operations is as follows:
Three Months Ended
March 31,
---------
2002 2001
---- ----
(in millions)
Segment combined EBITDA........................................................ $ 245.9 $ 119.3
(Add) deduct:
Recapitalization expense..................................................... 45.8 -
Other charges................................................................ 2.6 7.4
Corporate expenses........................................................... 13.6 12.5
Depreciation and amortization................................................ 395.6 755.2
Interest income and other, net............................................... (15.1) (9.0)
Interest expense............................................................. 371.9 355.1
Share of losses from equity investments...................................... 48.9 42.9
Foreign currency transaction losses.......................................... 5.0 13.7
----------- -----------
868.3 1,177.8
----------- -----------
Loss before income taxes and discontinued operations........................... $ (622.4) $ (1,058.5)
=========== ===========
NTL Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Recapitalization Process and Ability to Continue Operations
On May 8, 2002, NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp., Diamond Cable Communications Limited, Diamond
Holdings Limited and Communications Cable Funding Corp. filed an arranged
joint reorganization plan under Chapter 11 of the United States Bankruptcy
Code (referred to as the proposed recapitalization plan). NTL's operating
subsidiaries were not included in the Chapter 11 filing. Toward the end of
2001, while the Company continued to have sufficient liquidity to meet its
near term obligations, it recognized the negative impact of the collapsing
European and U.S. telecommunications markets on its ability to service its
debt. Accordingly, the Company began to implement a strategy to preserve
and maximize its enterprise value. This strategy included the
implementation of cost-cutting measures and the commencement of discussions
with certain third parties regarding strategic alternatives for NTL's
business.
The Company historically incurred operating losses and negative
operating cash flow. In addition, the Company has required significant
amounts of capital to finance construction of its networks, connection of
customers to the networks, other capital expenditures and for working
capital needs including debt service requirements. The Company historically
met these liquidity requirements through cash flow from operations, amounts
available under its credit facilities, vendor financing and issuances of
high-yield debt securities and convertible debt securities in the capital
markets and convertible preferred stock and common stock to strategic
investors. Both the equity and debt capital markets have recently
experienced periods of significant volatility, particularly for securities
issued by telecommunications and technology companies. The ability of
telecommunications companies to access those markets as well as their
ability to obtain financing provided by bank lenders and equipment
suppliers has become more restricted and financing costs have increased.
During some recent periods, the capital markets have been largely
unavailable to new issues of securities by telecommunications companies.
The Company's public equity is no longer trading on the New York Stock
Exchange, and its debt securities are trading at or near all time lows.
These factors, together with the Company's substantial leverage, means the
Company does not currently have access to its historic sources of capital.
In addition, the Company's UK credit facilities are fully drawn.
The revolving tranche of the Cablecom credit facility has been capped at
its utilized amount of CHF 1,055.0 million although the availability may be
increased with the consent of the requisite majority of the lenders under
that facility. The term tranche of the Cablecom credit facility is fully
drawn. NTL Communications Corp., a wholly-owned indirect subsidiary of the
Company, did not pay cash interest on certain series of its notes that was
due on April 1, 2002, April 15, 2002 and May 15, 2002. NTL Incorporated and
NTL (Delaware), Inc. also did not pay cash interest and related fees on a
series of their notes that was due on April 15, 2002. In accordance with
the proposed recapitalization plan, NTL does not plan to make future
interest payments on its outstanding publicly traded notes except notes
issued by NTL Triangle and Diamond Holdings Limited.
As of March 31, 2002, the Company had approximately $622.7 million
in cash, cash equivalents and marketable securities on hand and, in April
2002, received approximately $306 million net cash proceeds from the sale
of its Australian business. The Company may require additional cash in the
twelve months from April 1, 2002 to March 31, 2003. The Company expects to
obtain a DIP Facility (as described below) to meet the potential cash
requirements of the Company and its subsidiaries, excluding Cablecom. The
Company also expects that the DIP Facility will be replaced with an exit
facility for NTL Communications Corp. and its subsidiaries upon the
completion of the recapitalization process. The Company believes that cash,
cash equivalents and marketable securities on hand at March 31, 2002, the
cash received from the sale of NTL Australia and the cash expected to be
available from the DIP Facility and the exit facility will be sufficient
for its and its subsidiaries cash requirements during the twelve months
from April 1, 2002 to March 31, 2003.
NTL Incorporated and Subsidiaries
Beginning in January 2002, NTL was contacted by an unofficial
committee of bondholders regarding the commencement of a comprehensive and
consensual restructuring process. NTL has been informed that the members of
the unofficial steering committee of bondholders currently own, in the
aggregate, more than 50% of the outstanding principal amount of NTL's
notes. In connection with the restructuring process, the steering committee
of the unofficial committee of bondholders retained advisors to facilitate
the negotiations.
On January 31, 2002, NTL announced that it had appointed Credit
Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic
and recapitalization alternatives to strengthen its balance sheet and
reduce debt and put an appropriate capital structure in place for its
business. Subsequently, NTL evaluated various recapitalization
alternatives, and met with a number of strategic investors, to effect a
comprehensive consensual reorganization in a timely manner to minimize
negative effects on its business operations. Discussions with such
strategic investors did not result in a proposal which NTL's board of
directors believed was comparable or superior to the value provided to its
stakeholders by the proposed plan of reorganization.
Liberty Media Corporation, one of such potential strategic
investors, which is also a significant shareholder in Telewest plc, another
British cable and telephone company, has discussed various transactions
with NTL from time to time over the past several years. In March 2002,
Liberty and NTL amended a previously existing confidentiality agreement
between them to cover the restructuring process and to include a
"standstill" agreement which prohibited various acquisitions of, or offers,
for NTL debt or equity securities by Liberty and its subsidiaries until
June 30, 2002.
On April 17, 2002, Liberty sent a proposal to NTL's board of
directors, which proposed a cash tender offer for 30% of the outstanding
bonds of NTL Communications Corp. at a "small premium" to the prevailing
market price and an agreement to vote such acquired bonds in favor of the
proposed plan of reorganization, as well as a "participation" with NTL in a
cash infusion of up to $500 million into Cablecom. After consultation with
NTL's board of directors and the steering committee of bondholders on April
18, 2002, NTL indicated to Liberty that it did not consider the Liberty
proposal to be in the best interests of NTL and that the best course of
action for NTL to maximize its enterprise value was to promptly consummate
the proposed plan of reorganization. Subsequent to April 18, 2002, Liberty
has continued discussions with NTL with respect to Cablecom.
Promptly upon obtaining the requisite waivers from the lenders
under its credit facilities, in March 2002, NTL commenced negotiations with
the steering committee of the unofficial committee of bondholders and its
legal and financial advisors. The negotiations continued during the latter
part of March and throughout April 2002, and also included France Telecom.
On April 16, 2002, the Company announced that it had reached a
comprehensive agreement in principle with the committee (holding over 50%
of the face value of NTL and its subsidiaries' public bonds) and France
Telecom, a significant holder of the Company's preferred stock, on
implementing a recapitalization plan. On May 2, 2002, a steering committee
of the lending banks under the Company's credit facilities gave their
approval in principle (on a non-legally binding basis) to the Company's
proposed plan of reorganization.
The recapitalization plan, if implemented, would result in the
cancellation of all of NTL Incorporated's outstanding shares of common
stock, preferred stock and redeemable preferred stock, and the cancellation
of all of the publicly held notes of NTL Incorporated, NTL (Delaware), Inc.
and NTL Communications Corp. and the transfer of the publicly held notes of
Diamond Cable Communications Limited to NTL UK and Ireland. In addition,
the Company would be discharged from its obligation to pay dividends
accruing on the canceled preferred stock and interest accruing on the
canceled notes.
During the recapitalization process, it is anticipated that NTL's
operations will continue uninterrupted, customer service will be
unaffected, suppliers will be paid in the ordinary course and NTL's
management will remain in place.
NTL Incorporated and Subsidiaries
To implement the proposed recapitalization, on May 8, 2002, NTL
Incorporated, NTL (Delaware), Inc., NTL Communications Corp., Diamond Cable
Communications Limited, Diamond Holdings Limited and Communications Cable
Funding Corp. filed cases and a pre-arranged joint reorganization plan
under Chapter 11 of the United States Bankruptcy Code. NTL's operating
subsidiaries were not included in the Chapter 11 filing. The reorganization
plan contemplates that the bank debt will remain in place as part of the
recapitalization. On May 24, 2002, NTL and its debtor subsidiaries filed an
amended joint reorganization plan and disclosure statement. The bankruptcy
court has scheduled July 12, 2002 for a hearing to consider approval of the
amended joint reorganization plan and disclosure statement. A copy of the
Amended Joint Reorganization Plan of NTL Incorporated and Certain
Subsidiaries and the related Disclosure Statement are included as exhibits
to NTL Incorporated's Current Report on Form 8-K filed on May 28, 2002.
The filing of the petitions seeking relief filed under Chapter 11
constituted an event of default under the indentures of each of the
entities which filed such Chapter 11 petitions and amounts outstanding
under these indentures became immediately due and payable. The Company's
Chapter 11 petitions also constituted an event of default under the
Company's UK credit facilities and the Cablecom credit facility, allowing
the lenders thereunder to declare amounts outstanding to be immediately
payable.
In connection with the proposed joint reorganization plan, certain
members of the unofficial committee of bondholders have committed to
provide up to $500 million of new debt financing to the Company and certain
of its subsidiaries during the Chapter 11 process and for the
post-recapitalized Company, subject to bankruptcy court approval. The new
financing will ensure that the Company's business operations have access to
sufficient liquidity to continue ordinary operations. The bankruptcy court
has set June 19, 2002 as the date to consider approval of the DIP Facility,
which has been agreed in principle with the Company and the prospective
lenders under the facility.
Proposed Recapitalization Plan
Under the proposed recapitalization plan, NTL would be split into
two companies, one tentatively called NTL UK and Ireland and holding
substantially all of NTL's UK and Ireland assets, and one tentatively
called NTL Euroco and holding substantially all of NTL's continental
European and other assets.
Holders of notes of NTL Incorporated (other than France Telecom),
NTL (Delaware), Inc. (other than France Telecom), NTL Communications Corp.
and Diamond Cable Communications Limited would in the aggregate receive
100% of the initial common stock of NTL UK and Ireland (excluding shares
issuable in the rights offerings and upon the exercise of warrants
(discussed below) and upon the exercise of options which will be granted to
certain employees of NTL UK and Ireland). Holders of notes of NTL
Incorporated (other than France Telecom), NTL (Delaware), Inc. (other than
France Telecom) and NTL Communications Corp. would in the aggregate receive
(i) 100% of the preferred stock of NTL Euroco and (ii) a certain amount of
cash as specified in the amended joint reorganization plan. Holders of the
subordinated notes of NTL Incorporated (other than France Telecom), NTL
(Delaware), Inc. (other than France Telecom) and NTL Communications Corp.
would in the aggregate receive 86.5% of the initial common stock of NTL
Euroco (excluding shares issuable upon the exercise of options which will
be granted to certain employees of NTL Euroco). Holders of senior notes of
NTL Communications Corp. would receive the value of a specified number of
shares of common stock of NTL Euroco pursuant to the amended joint
reorganization plan. Notes of the Company's subsidiaries Diamond Holdings
Limited and NTL (Triangle) LLC would remain outstanding and interest
payments will be made.
Current preferred and common stockholders of NTL Incorporated,
including France Telecom, would receive warrants to purchase common stock
of NTL UK and Ireland and rights (to be priced at a $10.5 billion
enterprise value of NTL UK and Ireland) entitling them to purchase common
stock of NTL UK and Ireland. For each share of common stock purchase upon
exercise of rights, the person exercising such rights will receive a
warrant to purchase one share of common stock of NTL UK and Ireland. The
rights will be exercisable, on an oversubscription basis, for the
20-business day period after the entry of the confirmation order, as such
period may be extended, and the warrants will be exercisable for a period
of eight years at an exercise price of $77.47 per share, subject to
anti-dilution adjustments. If fully exercised, the rights and
NTL Incorporated and Subsidiaries
warrants would entitle the current preferred stockholders of NTL
Incorporated to acquire approximately 23.6% and the current common
stockholders of NTL Incorporated to acquire approximately 8.9% of NTL UK
and Ireland's primary common stock on the effective date of the
recapitalization. Holders of the subordinated notes of NTL Incorporated
(other than France Telecom), NTL (Delaware), Inc. (other than France
Telecom), and NTL Communications Corp. would have the right to purchase any
shares of NTL UK and Ireland common stock and warrants not subscribed for
in the rights offering by the preferred and common stockholders of NTL
Incorporated.
Current preferred stockholders, other than France Telecom, would
receive approximately 3.2% and current common stockholders, other than
France Telecom, would receive approximately 10.3% of the primary equity of
NTL Euroco. It is contemplated that, subject to the consummation of the
recapitalization, France Telecom would also receive NTL Incorporated's 27%
interest in Noos, pursuant to a pledge of such interest to France Telecom
given at the time of its acquisition.
During the recapitalization process, the Company has maintained
normal and regular trade terms with its suppliers and customers. There can
be no assurance that the Company's suppliers will continue to provide
normal trade credit or credit on acceptable terms, if at all, or that
customers will continue to do business or enter into new business with the
Company. See also "Risk Factors" for a summary of risks related to the
Company's business in general and the recapitalization process in
particular.
Section 1129 of the United States Bankruptcy Code requires, among
other things, a showing that confirmation of the proposed recapitalization
plan will not be followed by liquidation or the need for further financial
reorganization of NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp., Diamond Cable Communications Limited or Diamond
Holdings Limited, and that the value of distributions to dissenting holders
of claims and interests may not be less than the value such holders would
receive in a liquidation under Chapter 7 of the United States Bankruptcy
Code. Although the Company believes that the proposed recapitalization plan
will meet these tests, there can be no assurance that the Bankruptcy Court
will reach the same conclusion.
The United States Bankruptcy Code also requires that a plan must
provide the same treatment for each claim or interest in a particular
class, unless a holder agrees to a less favorable treatment of its
particular claim or interest. The Company believes that the proposed
recapitalization plan complies with this requirement of the United States
Bankruptcy Code. However, if a member of a class objects to its treatment,
or if the Bankruptcy Court finds that the proposed recapitalization plan
does not comply with the requirements of the United States Bankruptcy Code,
confirmation of the plan could be delayed or prevented. In addition, each
class of impaired claims and interests that will (or may) be entitled to
receive property under the plan will have the opportunity to vote to accept
or reject the plan. If an impaired class of claims or interests rejects the
plan, the Company may request confirmation of the plan pursuant to the
"cramdown" provisions of the United States Bankruptcy Code. Even if the
requirements for "cramdown" are met, the Bankruptcy Court, which, as a
court of equity may exercise substantial discretion, may choose not to
confirm the plan.
There can be no assurance that we will successfully complete the
proposed recapitalization plan in a timely manner in order to sustain our
operations.
Bank Waivers
Before the Company could commence negotiations with the unofficial
committee of bondholders, it was necessary to obtain waivers from the
lenders under the Company's credit facilities. Effective March 8, 2002,
these lenders granted waivers which, until March 29, 2002, provided that
the commencement of negotiations with bondholders with a view to
rescheduling its debt would not constitute an event of default under the
credit facilities. Such initial waivers did not permit NTL to make to any
of its noteholders an exchange or similar offer for NTL's outstanding
public notes or to enter into a legally binding agreement with the
unofficial steering committee of bondholders, subject to some exceptions,
without the consent of the lenders under the credit facilities. But for the
initial waivers, the commencement of negotiations with bondholders would
have been an event of default under the credit facilities.
NTL Incorporated and Subsidiaries
Effective March 28, 2002, the lenders under the credit facilities
agreed to amend the initial waivers. The amendments to the initial waivers
extended the duration of the initial waivers to April 29, 2002 in the case
of the UK credit facilities or May 14, 2002 in the case of the Cablecom
credit facility, unless the interest payments missed by NTL Communications
Corp. on April 1, 2002 were remedied or a sufficient number of bondholders
agreed to forbear in respect of such non- payment, in which case, the UK
credit facilities waivers were to be extended to May 14, 2002. As a
condition to the amendment to the initial waivers, the UK lenders required
NTL Delaware to loan (pound)90 million to NTL (UK) Group, Inc. following
receipt of the proceeds from the sale of NTL Australia. Such loan was
actually made (with the approval of the lenders under the UK credit
facilities) to NTL (UK) Group, Inc. and then on-lent to certain
subsidiaries of NTL (UK) Group, Inc. This loan, which was made on April 5,
2002, is structurally senior to the outstanding public notes issued by NTL
Communications Corp. and contractually senior to intra-group debt owed by
NTL (UK) Group, Inc. to NTL Communications Corp. but contractually
subordinated to the UK credit facilities. In connection with the amendments
to the waivers, NTL affirmed the provisions of the initial waivers and
agreed, among other things, not to commence voluntary dissolution
proceedings, including proceedings under Chapter 11 of the United States
Bankruptcy Code, without the consent of these lenders.
As of the date of this Form 10-Q, there are no current waivers
from the Company's secured lenders and NTL is therefore in default under
its UK credit facilities and the Cablecom credit facility. In connection
with the proposed recapitalization plan, it is intended that the existing
events of default under the credit facilities will be cured by amendment
with effect from the effective date of the recapitalization, if it is
approved by creditors and the bankruptcy court. On May 2, 2002, a
memorandum was executed by the Company, a steering committee of its lending
banks and the unofficial committee of its public bondholders indicating the
parties' agreement in principle (on a non-legally binding basis) to the
terms of the proposed recapitalization and the terms on which the Company's
UK credit facilities should be amended and restated and with respect to
certain matters relating to the sale of, or investment in, Cablecom.
Cablecom GmbH is the principal trading company of our Swiss group.
There were a number of technical defaults under the Swiss credit facility
made available to Cablecom and various of its subsidiaries. In addition, as
of December 31, 2001, Cablecom's and various of its subsidiaries'
liabilities exceeded their respective assets. As a consequence, under Swiss
law, those entities were deemed to be "overindebted". This also constituted
an event of default under the Cablecom credit facility which entitled the
lenders to accelerate repayment. Such an acceleration would have resulted
in an event of default under NTL Incorporated's and NTL Delaware's 5.75%
convertible subordinated notes due 2011 and 5.75% convertible subordinated
notes due 2009. Under Swiss law, unless the overindebtedness was rectified
those entities would have been required to commence an insolvency
proceeding in Switzerland.
On April 30, 2002, Cablecom reached an agreement with the lenders
under the Cablecom credit facility which, together with the implementation
of an intra-group transaction, resolved its overindebtedness. The agreement
included a waiver by the lenders of various additional covenant breaches
under the credit facility. Temporary measures have also been put in place
which mean that Cablecom's overindebted subsidiaries do not have to
institute insolvency proceedings. It is intended to permanently resolve the
problem of overindebtedness in certain of the subsidiaries by merging them
into Cablecom or another member of the Cablecom group. Other overindebted
subsidiaries will remain unmerged and it is planned to obviate any
requirement to institute insolvency proceedings in respect of these
companies in another way. If these solutions are not implemented by June
30, 2002, there will be an additional event of default under the Cablecom
credit facility. The Company expects to complete these actions within this
time-frame.
Interest Payments on Public Notes
The Company and its subsidiaries have substantial interest payment
obligations under their existing indebtedness. NTL Communications Corp. did
not make scheduled interest payments due April 1, 2002, in the aggregate
amount of $74.2 million, in respect of its 9 1/2% notes due 2008, 11 1/2%
notes due 2008 and 11 7/8% notes due 2010. NTL Communications also did not
make interest payments falling due on April 15, 2002, totaling $17.7
million, in respect of the 12 3/4% Senior Deferred Coupon Notes due 2005
and NTL Incorporated and NTL Delaware did not make interest payments and
payment of
NTL Incorporated and Subsidiaries
related fees falling due on April 15, 2002, totaling $2.5 million, in
respect of their 5 3/4% Convertible Subordinated Notes due 2011. In
addition, NTL Communications Corp. did not make the scheduled interest
payments due May 15, 2002 in the aggregate amount of $65.0 million, in
respect of its 9 1/4% notes due 2006, 6 3/4% notes due 2008 and 9 7/8%
notes due 2009. Interest payments of $18.9 million were made, when due, on
April 2, 2002 in respect of Diamond Cable Communications 13.25% senior
discount notes due 2004. In accordance with the proposed recapitalization
plan, NTL does not plan to make future interest payments on its outstanding
publicly traded notes except notes issued by NTL Triangle and Diamond
Holdings Limited.
If the applicable issuer does not pay interest on these notes
after a 30 day grace period expires there is an event of default under the
indenture in respect of the notes on which the interest is due and unpaid.
An event of default entitles the trustee under the indenture or the holders
of 25% of the outstanding notes to declare the principal amount of those
notes to be immediately due and payable. Even if the maturity of those
notes is not accelerated after the 30 day grace period, such an event of
default would also result in an event of default in respect of other debt
(commonly called cross defaults) under most of our other notes. Therefore,
there was an event of default for failure to pay interest on May 1, 2002
under the indentures relating to the missed interest payments due April 1,
2002 and on May 16, 2002, under the indentures relating to the missed
interest payments due April 15, 2002. As a result, cross defaults occurred
under the Company's other indentures at NTL Communications, NTL Delaware,
NTL Incorporated and under our UK credit facilities and under the Cablecom
credit facility. This gave holders of the outstanding series of debt at
these entities the right to accelerate repayment of those debts by
declaring the principal amount of the debts to be immediately due and
payable. As a result of the payment defaults as well as the Company's
voluntary filing under Chapter 11 of the United States Bankruptcy Code on
May 8, 2002, there is an event of default under all of our credit
facilities and the indentures governing all of our publicly traded debt,
other than debt of NTL Triangle. As a result of the Chapter 11 filings, all
of our publicly traded debts, other than the debt of NTL Triangle, became
immediately due and payable, pursuant to the terms of the indentures
governing such debt. The automatic stay of Section 362 of the United States
Bankruptcy Code prevents the holders of such debt from seeking to enforce
their collection rights under the indentures, except within the context of
the Chapter 11 cases, and even then only with the prior approval of the
bankruptcy court. However, NTL has received letters from the agents for the
lenders under the UK credit facilities reserving such lenders' rights to
accelerate repayment of the facilities and to enforce the security granted
in respect of the facilities on account of the defaults thereunder, actions
which would not be prohibited by the automatic stay.
Inability to Pay Dividends On or Redeem Preferred Stock
The Company failed to declare or pay dividends due February 15,
2002 on its 13% Senior Redeemable Exchangeable Preferred Stock in the
amount of $6.0 million. In addition, on May 15, 2002, the Company failed to
declare or pay dividends on its 13% Senior Redeemable Exchangeable
Preferred Stock in the amount of $6.2 million. The Company did not pay
dividends on its 5% cumulative participating convertible preferred stock
held by France Telecom on December 31, 2001 of $37.0 million and March 31,
2002 of $37.5 million, or on its cumulative convertible preferred stock
held by France Telecom and a group of commercial banks on December 31, 2001
of $24.9 million and March 26, 2002 of $24.1 million. Historically, payment
of dividends has been made in additional shares of preferred stock in the
case of the 13% preferred stock, the 5% cumulative participating preferred
stock and the cumulative convertible preferred stock. The Company did not
pay these dividends due to a lack of available surplus under Delaware law.
Under Delaware law, the Company cannot declare or pay dividends on or
redeem its capital stock, including its preferred stock, unless it has
available surplus.
Pursuant to the terms of the 13% preferred stock, the unpaid
dividends will continue to accrue without interest until declared and paid.
Pursuant to the terms of the 5% cumulative convertible preferred stock and
the cumulative convertible preferred stock, the unpaid dividends will
continue to accrue without interest until declared and paid, together with
an additional cash dividend on the amount so unpaid at a rate of 2% per
quarter for as long as the dividends remain unpaid. The failure to declare
these dividends is not a default under any of the Company's existing
agreements. With respect to the 13% preferred stock and 5% cumulative
convertible preferred stock, if dividends remain unpaid for six quarters,
the holders of each such series shall have the right to vote separately as
a class on all matters voted on by NTL Incorporated shareholders and shall
have the right, along with other holders of preferred stock with similar
default voting rights, to elect two additional directors to the Company's
board.
NTL Incorporated and Subsidiaries
In addition, the lack of surplus meant that the Company was not
able to redeem its Variable Coupon Redeemable Preferred Stock, Series A,
which is referred to as the Noos One Year Preferred, held by France
Telecom, when it became mandatorily redeemable on May 18, 2002. Because the
Company failed to redeem the Noos One Year Preferred on May 18, 2002,
pursuant to the certificate of designation governing the Noos One Year
Preferred, the holders of such preferred stock have the right, along with
other holders of preferred stock with similar default voting rights, to
elect two additional directors to the Company's board and shall have the
right to vote separately as a class, on all matters brought to NTL
Incorporated shareholders.
At the time of issuance of the Noos One Year Preferred, the
Company pledged its shares of Noos to France Telecom to secure the
mandatory redemption obligation under the Noos One Year Preferred and the
6.5% Redeemable Preferred Stock. As part of the amended joint
reorganization plan and pursuant to this pledge, the Company will transfer
its 27% interest in Noos to France Telecom.
Credit Rating Downgrades
On April 3, 2002, credit rating agency Standard & Poor's lowered
the Company's long-term corporate credit rating to D from CCC-, citing the
Company's failure to make a bond interest payment due on April 1, 2002.
Delisting of NTL Incorporated Common Stock
On March 28, 2002, the New York Stock Exchange ("NYSE") announced
that it was suspending NTL's common stock from trading on the NYSE. This
determination was based upon, among other things, the selling price of
NTL's common stock, which closed at $0.20 on March 26, 2002. The continued
listing standards of the NYSE, which were applicable to NTL, required
maintenance of a minimum share price of $1.00 over a 30 trading day period
and average global market capitalization of $100 million over a 30 trading
day period. NTL's common stock fell below both of these continued listing
standards. In addition, on May 9, 2002, Nasdaq Europe halted trading of
NTL's common stock pending receipt of information relating to the
restructuring process because of the filing of NTL's Chapter 11 cases. NTL
has complied with this information request, although there can be no
assurance that Nasdaq Europe will (1) not make additional information
requests, (2) remove the trading halt on shares of NTL's common stock or
(3) not delist shares of NTL's common stock. NTL's common stock is
currently quoted on the Over the Counter Bulletin Board under the symbol
"NTLDE". The "E" on the symbol "NTLDE" was appended for failure to timely
file this quarterly report. NTL expects that this designation will be
dropped shortly after filing this report and the symbol will return to
"NTLD".
Sale of NTL Australia
On April 2, 2002, the Company announced that it had completed the
previously announced sale of its Australian broadcast business to Macquarie
Communications Infrastructure Holding Pty Limited for A$850 million (US$448
million) in an all cash transaction. The net proceeds from the sale were
approximately A$581 million (US$306 million). At that time, the business'
bank debt outstanding totaled A$227 million (US$120 million).
On April 5, 2002, NTL Delaware loaned (pound)90 million to NTL
(UK) Group, Inc., which loan was funded by the proceeds of the sale of NTL
Australia. This loan is subordinated to the Company's UK credit facilities.
The remaining proceeds of the sale of NTL Australia remain at NTL Delaware
and the proposed plan of reorganization anticipates that such proceeds will
form a portion of the consideration to be offered to bondholders of NTL
Delaware and NTL Incorporated in satisfaction of their claims against those
companies.
NTL Incorporated and Subsidiaries
Potential Sale of, or Outside Investment in, Cablecom
It has been agreed to engage UBS Warburg LLC by August 31, 2002 to
advise in connection with an outside investment in, or sale of all or part
of, Cablecom. As part of this process, NTL (Delaware), Inc. and certain of
its subsidiaries have agreed to approve any such outside investment or
sale, which is acceptable to the lenders under the Cablecom credit
facility.
It has also been agreed that if such a sale of all or part of
Cablecom is consummated on or before August 31, 2003, the lenders under the
Cablecom credit facility will be entitled to receive additional interest
equal to 20% of the net proceeds of such a sale after repayment of the
amounts outstanding under the Cablecom credit facility and other expenses
and taxes of the sale. There can be no assurance that any outside
investment in, or sale of all or part of, Cablecom pursuant to the Cablecom
credit facility will be on terms that are favorable to NTL and such
investment or sale could have a material adverse effect on NTL's finances
and business. In particular, in the current environment, NTL's shareholding
in Cablecom may have little or no value, which may result in NTL receiving
little or no consideration for its equity interest in Cablecom.
Further, if a third party makes an investment in Cablecom there
can be no assurance that NTL will be able to maintain its ability to direct
the management of Cablecom.
Description of Outstanding Notes, Credit Facilities and Redeemable
Preferred Stock
The following summarizes the terms of the significant notes,
credit facilities and redeemable preferred stock issued by the Company and
its subsidiaries as of March 31, 2002, excluding the NTL Australia bank
credit facility due to the sale of NTL Australia on April 2, 2002. The
holders of the debt have the right to accelerate repayment, or may have
such right, which has caused all of the Company's long-term debt to be
classified as current. The automatic stay of Section 362 of the U.S.
Bankruptcy Code prevents the holders of such debt from seeking to enforce
their collection rights under the indentures, except within the context of
the Chapter 11 cases, and even then only with the prior approval of the
bankruptcy court. However, NTL has received letters from the agents for the
lenders under the UK credit facilities reserving such lenders' rights to
accelerate repayment of the facilities and to enforce the security granted
in respect of the facilities on account of the defaults thereunder, actions
which would not be prohibited by the automatic stay.
NTL Incorporated:
(1) Senior Redeemable Exchangeable Preferred Stock due February 15,
2009, liquidation preference of $192.9 million, dividends accrue
at 13% per annum payable quarterly in arrears, at the Company's
option, until February 15, 2004, dividends may be paid in cash, by
the issuance of additional shares or in any combination of the
foregoing, redeemable at the Company's option on or after February
15, 2002, and, on any dividend payment date, the Company may
exchange all of the outstanding shares for 13% debentures due
2009;
(2) Convertible Preferred Stock due March 27, 2009, liquidation
preference of $2,063.5 million, dividends are payable quarterly in
arrears in additional shares, at the following quarterly dividend
rates: (i) from September 12, 2001 through March 26, 2002, $13.44
per share, (ii) from March 27, 2002 through March 26, 2003, $21.23
per share, and (iii) from March 27, 2003 through March 26, 2004,
$26.61 per share; once the "Convertibility Date" (which may be
March 27, 2003 or March 27, 2004) is set, the quarterly dividend
rate resets to $16.12 per share and the Convertible Preferred
Stock becomes eligible for conversion into shares of the Company's
common stock beginning on such Convertibility Date, at which time
the conversion price is set at 125% of the immediately preceding
25 trading day volume-weighted average price of the Company's
common stock, subject to the Company's election to delay
convertibility or redeem all issued and outstanding shares of
Convertible Preferred Stock. Holders of Convertible Preferred
Stock other than any commercial bank or their affiliates may at
any time elect, subject to some conditions, to exchange their
Convertible Preferred Stock for up to a 50% interest in an entity
holding our Swiss operations;
NTL Incorporated and Subsidiaries
(3) Variable Coupon Redeemable Preferred Stock, liquidation preference
of $498.8 million, dividends are payable quarterly at the
Company's option in cash or additional shares of Variable Coupon
Redeemable Preferred Stock, quarterly dividend rate based on the
EURIBOR Rate plus 2.5%, quarterly dividend rate of 5.78% at March
31, 2002, mandatory redemption in cash on May 18, 2002. The
Company's 27% interest in Noos is pledged to France Telecom to
secure the mandatory redemption obligation under its Variable
Coupon Redeemable Preferred Stock and its 6.5% Fixed Coupon
Redeemable Preferred Stock;
(4) 6.5% Fixed Coupon Redeemable Preferred Stock, liquidation
preference of $129.0 million, dividends are cumulative and are
payable in cash upon redemption, mandatory redemption in cash on
May 18, 2007;
(5) 5 3/4% Convertible Subordinated Notes due June 22, 2011, principal
amount at maturity of $100.0 million, interest of 5 3/4% per annum
is payable quarterly from October 15, 2001, redeemable at the
option of the Company on or after December 22, 2007, convertible
into shares of the Company's common stock at a conversion price of
$35.00 per share, subject to adjustment based on the Company's
stock price and adjustment to the conversion price of some series
of our preferred stock;
NTL Delaware:
(6) 5 3/4% Convertible Subordinated Notes due December 15, 2009,
principal amount at maturity of $1,200.0 million, interest payable
semiannually from June 15, 2000, redeemable at the Company's
option on or after December 18, 2002, convertible into shares of
the Company's stock at a conversion price of $108.18 per share;
NTLCL:
(7) Working Capital Facility, originally for (pound)1,300.0 million
($1,852.5 million); following the issuance of new debt beginning
in October 2000, the commitment has been reduced by (pound)882.5
million ($1,257.6 million), of which (pound)408.3 million ($581.8
million) was outstanding as of March 31, 2002. Interest payable at
least every six months at LIBOR plus a margin rate of 6.00% per
annum, which is subject to adjustment; effective interest rate of
10.15% at March 31, 2002; the unused portion of the commitment is
subject to a commitment fee of 0.75% payable quarterly; principal
is due in full on March 31, 2006; no undrawn amounts are available
under this agreement;
(8) Senior Credit Facility, of which (pound)2,784.8 million ($3,968.4
million) was outstanding as of March 31, 2002; originally for
(pound)2,500.0 million ($3,562.5 million), dated May 30, 2000;
interest payable at least every six months at LIBOR plus a margin
rate of 2.00% per annum, which is subject to adjustment; effective
interest rate of 6.16% at March 31, 2002; the unused portion of
the commitment is subject to a commitment fee of 0.75% payable
quarterly, which is reduced to 0.50% when over 50% of the
commitment is utilized; principal is due in six quarterly
installments beginning on June 30, 2004; as amended and restated
pursuant to a Restatement Amendment Agreement dated September 26,
2001 which, inter alia, amended such Senior Credit Facility to
make available a (pound)200.0 million ($285.0 million) Term
Facility (interest payable on such Term Facility at least every
six months at LIBOR plus a margin rate of 3.50% per annum,
effective interest rate of 7.66% at March 31, 2002, principal is
due in eight quarterly installments beginning on June 30, 2006)
and increase the availability of funds under the Senior Credit
Facility by (pound)84.8 million ($120.9 million);
Cablecom:
(9) Term Loan Facility, of which CHF 2,700.0 million ($1,605.2
million) was outstanding as of March 31, 2002, interest payable at
least every six months at Swiss LIBOR plus a margin rate of 2.5%
per annum, which is subject to adjustment, effective interest rate
of 4.30% at March 31, 2002, principal is due on April 30, 2003 ;
NTL Incorporated and Subsidiaries
(10) Revolving Facility of CHF 1,400.0 million ($832.2 million), of
which CHF 875.0 million ($520.2 million) was outstanding as of
March 31, 2002, an additional CHF 180.0 million ($107.0 million)
was borrowed in May 2002, interest payable at least every six
months at Swiss LIBOR plus a margin rate of 2.50% per annum, which
is subject to adjustment, effective interest rate of 4.25% at
March 31, 2002, the unused portion of the commitment is subject to
a commitment fee of 0.75% payable quarterly, which is reduced to
0.50% when over 50% of the commitment is utilized, principal is
due on April 30, 2003 ; the amount available has been capped at
the CHF 1,055.0 million outstanding although the availability may
be increased with the consent of the requisite majority of the
lenders ;
NTL Communications:
(11) 12 3/4% Senior Deferred Coupon Notes due April 15, 2005, principal
amount at maturity of $277.8 million, interest payable
semiannually from October 15, 2000, redeemable at the Company's
option on or after April 15, 2000;
(12) 11 1/2% Senior Deferred Coupon Notes due February 1, 2006,
principal amount at maturity of $1,050.0 million, interest payable
semiannually from August 1, 2001, redeemable at the Company's
option on or after February 1, 2001;
(13) 10% Senior Notes due February 15, 2007, principal amount at
maturity of $400.0 million, interest payable semiannually from
August 15, 1997, redeemable at the Company's option on or after
February 15, 2002;
(14) 9 1/2% Senior Sterling Notes due April 1, 2008, principal amount
at maturity of (pound)125.0 million ($178.1 million), interest
payable semiannually from October 1, 1998, redeemable at the
Company's option on or after April 1, 2003;
(15) 10 3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008,
principal amount at maturity of (pound)300.0 million ($427.5
million), interest payable semiannually beginning on October 1,
2003, redeemable at the Company's option on or after April 1,
2003;
(16) 9 3/4% Senior Deferred Coupon Notes due April 1, 2008, principal
amount at maturity of $1,300.0 million, interest payable
semiannually beginning on October 1, 2003, redeemable at the
Company's option on or after April 1, 2003;
(17) 9 3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009,
principal amount at maturity of (pound)330.0 million ($470.3
million), interest payable semiannually beginning on October 15,
2004, redeemable at the Company's option on or after April 15,
2004;
(18) 11 1/2% Senior Notes due October 1, 2008, principal amount at
maturity of $625.0 million, interest payable semiannually from
April 1, 1999, redeemable at the Company's option on or after
October 1, 2003;
(19) 12 3/8% Senior Deferred Coupon Notes due October 1, 2008,
principal amount at maturity of $450.0 million, interest payable
semiannually beginning on April 1, 2004, redeemable at the
Company's option on or after October 1, 2003;
(20) 7% Convertible Subordinated Notes due December 15, 2008, principal
amount at maturity of $489.8 million, interest payable
semiannually from June 15, 1999, convertible into shares of the
Company's common stock at a conversion price of $39.20 per share,
redeemable at the Company's option on or after December 15, 2001;
(21) 9 1/4% Senior Euro Notes due November 15, 2006, principal amount at
maturity of Eur 250.0 million ($217.9 million), interest payable
semiannually from May 15, 2000;
NTL Incorporated and Subsidiaries
(22) 9 7/8% Senior Euro Notes due November 15, 2009, principal amount
at maturity of Eur 350.0 million ($305.1 million), interest payable
semiannually from May 15, 2000, redeemable at the Company's option
on or after November 15, 2004;
(23) 11 1/2% Senior Deferred Coupon Euro Notes due November 15, 2009,
principal amount at maturity of Eur 210.0 million ($183.1 million),
interest payable semiannually beginning on May 15, 2005,
redeemable at the Company's option on or after November 15, 2004;
(24) 11 7/8% Senior Notes due October 1, 2010, principal amount at
maturity of $500.0 million, interest payable semiannually from
April 1, 2001, redeemable at the Company's option on or after
October 1, 2005;
(25) 12 3/8% Senior Euro Notes due February 1, 2008; principal amount at
maturity of Eur 300.0 million ($261.5 million), interest payable
semiannually from August 1, 2001;
(26) 6 3/4% Convertible Senior Notes due May 15, 2008, principal amount
at maturity of $1,150.0 million, interest payable semiannually
from November 15, 2001, convertible into shares of the Company's
common stock at a conversion price of $32.728 per share,
redeemable at the Company's option on or after May 21, 2004;
NTL Triangle:
(27) 11.2% Senior Discount Debentures due November 15, 2007, principal
amount at maturity of $517.3 million, interest payable
semiannually from May 15, 2001, redeemable at NTL Triangle's
option after November 15, 2000;
Diamond:
(28) 13 1/4% Senior Discount Notes due September 30, 2004, principal
amount at maturity of $285.1 million, interest payable
semiannually from March 31, 2000, redeemable at Diamond's option
after September 30, 1999;
(29) 11 3/4% Senior Discount Notes due December 15, 2005, principal
amount at maturity of $531.0 million, interest payable
semiannually from June 15, 2001, redeemable at Diamond's option on
or after December 15, 2000;
(30) 10 3/4% Senior Discount Notes due February 15, 2007, principal
amount at maturity of $420.5 million, interest payable
semiannually beginning on August 15, 2002, redeemable at Diamond's
option on or after December 15, 2002;
(31) 10% Senior Sterling Notes due February 1, 2008, issued by Diamond
Holdings plc, a wholly-owned subsidiary of Diamond, principal
amount at maturity of (pound)135.0 million ($192.4 million),
interest payable semiannually from August 1, 1998, redeemable at
Diamond's option on or after February 1, 2003; and
(32) 9 1/8% Senior Notes due February 1, 2008, issued by Diamond
Holdings plc, principal amount at maturity of $110.0 million,
interest payable semiannually from August 1, 1998, redeemable at
Diamond's option on or after February 1, 2003.
NTL Incorporated and Subsidiaries
Contractual Obligations and Commercial Commitments
The following table includes aggregate information about the
Company's contractual obligations as of March 31, 2002 and the periods in
which payments are due. The holders of the long-term debt have the right to
accelerate repayment, or may have such right, which has caused all of the
Company's long-term debt to be classified as current. The automatic stay of
Section 362 of the United States Bankruptcy Code prevents the holders of
such debt from seeking to enforce their collection rights under the
indentures, except within the context of the Chapter 11 cases, and even
then only with the prior approval of the bankruptcy court. However, NTL has
received letters from the agents for the lenders under the UK credit
facilities reserving such lenders' rights to accelerate repayment of the
facilities and to enforce the security granted in respect of the facilities
on account of the defaults thereunder, actions which would not be
prohibited by the automatic stay.
Payments Due by Period
Contractual Less than 1-3 4-5 After
Obligations Total 1 Year Years Years 5 Years
----------- ----- ------ ----- ----- -------
(in millions)
Long-Term Debt.......................... $ 18,445.9 $ 7.3 $ 503.6 $ 6,714.1 $ 11,220.9
Capital Lease Obligations (1)........... 190.9 9.2 15.4 12.6 153.7
Operating Leases (1).................... 517.3 96.0 114.7 72.0 234.6
Unconditional Purchase Obligations...... 1,518.2 359.9 385.2 205.6 567.5
Other Long-Term Obligations............ None
Total Contractual Cash Obligations...... $ 20,672.3 $ 472.4 $ 1,018.9 $ 7,004.3 $ 12,176.7
- ----------------
(1) These amounts are as of December 31, 2001 which are not significantly
different from March 31, 2002.
The following table includes aggregate information about the
Company's commercial commitments as of March 31, 2002. Commercial
commitments are items that the Company could be obligated to pay in the
future. They are not required to be included in the consolidated balance
sheet.
Amount of Commitment Expiration Per Period
Other Commercial Total Amounts Less than 1-3 4-5 Over
Commitments Committed 1 Year Years Years 5 Years
----------- --------- ------ ----- ----- -------
(in millions)
Guarantees.............................. $ 28.1 $ 1.0 $ 12.9 $ 0.1 $ 14.1
Lines of Credit......................... None
Standby Letters of Credit............... None
Standby Repurchase Obligations.......... None
Other Commercial Commitments............ 72.4 28.2 25.7 18.5 -
Total Commercial Commitments............ $ 100.5 $ 29.2 $ 38.6 $ 18.6 $ 14.1
Consolidated Statements of Cash Flows
Cash used in operating activities was $43.2 million and $78.7
million in the three months ended March 31, 2002 and 2001, respectively.
Cash paid for interest exclusive of amounts capitalized in the three months
ended March 31, 2002 and 2001 was $231.7 million and $203.6 million,
respectively. In addition, the change in cash used in operating activities
is also due to changes in working capital as a result of the timing of
receipts and disbursements.
NTL Incorporated and Subsidiaries
Purchases of fixed assets were $231.2 million in 2002 and $600.7
million in 2001 as a result of the continuing fixed asset purchases and
construction. The Company expects to further reduce purchases of fixed
assets in 2002 in an effort to conserve cash.
Proceeds from borrowings, net of financing costs, of $430.4
million in 2002 includes $439.6 million borrowed under the NTLCL working
capital facility.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 and 2001
We expect our growth in 2002 to be curtailed by funding
constraints. Although our current business plan includes a reduction in the
number of new customers and an increase in revenue from existing customers,
our cash constraints present many challenges to the successful execution of
the plan. We are conserving cash through a reduction in capital
expenditures including expenditures to connect new customers to our
network. In order to maintain revenues and cash from operations while
reducing the number of new customers, we must reduce and limit customer
churn. We intend to continue to improve our customer service and increase
our service offering to customers in an effort to curtail and reduce churn.
We are in the process of integrating our various billing systems and
customer databases in an effort to improve one of the main tools we use to
provide customer service.
Our plan to reduce churn and to increase ARPU includes an increase
in broadband services to our existing customers. We believe that our triple
play offering of telephony, broadband access to the Internet and digital
television will continue to prove attractive to our existing customer base,
which will result in higher ARPU as revenues per existing customer
increase. However, there is significant competition in our markets, through
digital satellite and digital terrestrial television and through
alternative Internet access media, such as DSL offered by BT. If we are
unable to charge the prices for these services that we anticipate in our
business plan in response to competition or if our competition is able to
attract our customers, our ARPU and results of operations will be adversely
affected.
Media speculation regarding our financial condition and potential
outcomes of the recapitalization process could have an adverse effect on
parts of our business. Similarly, negative press about the financial
condition of alternative telecom carriers in general may effect our
reputation. One of the key strategies in our business plan is to increase
our penetration of higher value small to medium size enterprises (or SMEs)
and provide increased retail services of bundled voice, data and Internet
services for SMEs. However, due to the negative publicity surrounding our
financial condition and the effect of that publicity on our brand name, we
may find it difficult to convince SMEs to become our customers. We believe
our recapitalization process and the general climate for alternative
telecom carriers effected our revenues in the first quarter of 2002 as
prospective customers began deferring orders beginning in the fourth
quarter of 2001. Even if we successfully complete the recapitalization
process, there is no assurance that the negative publicity will not
adversely impact our results of operations or have a long-term negative
effect on our brand.
In addition, this uncertainty may adversely affect our
relationships with suppliers. If suppliers become increasingly concerned
about our financial condition, they may demand faster payments or not
extend normal trade credit, both of which could further adversely affect
our cash conservation measures and our results of operations.
There can be no assurance that we will successfully complete the
proposed recapitalization plan in a timely manner in order to sustain our
operations.
NTL Incorporated and Subsidiaries
On April 2, 2002, we announced the completion of the sale of our
Australian broadcast business to Macquarie Communications Infrastructure
Holding Pty Limited for A$850.0 million (US$448.0 million) in an all cash
transaction. The net proceeds from the sale after the repayment of the
outstanding bank credit facility and transaction related costs were
approximately A$581.0 million (approximately US$306.0 million). We
recognized a gain on the sale of approximately US$15.0 million in April
2002. NTL Australia is accounted for as a discontinued operation, and
accordingly, NTL Australia is excluded from the results of continuing
operations for the three months ended March 31, 2002 and 2001.
Consumer telecommunications and television revenues decreased to
$608.4 million from $610.9 million as a result of changes in foreign
currency exchange rates. These revenues in UK pounds increased
to(pound)426.7 million from(pound)419.0 million. The increase in revenues
was due to price increases and upselling new services to customers. The
increase was partially offset by customer reductions due to the sale of
part of our indirect access telephony business in October 2001, a reduction
in the customer base due to disconnects and a reduction in sales activity.
Business telecommunications revenues increased to $215.6 million
from $201.2 million. In the three months ended March 31, 2002, we
recognized approximately $10.0 million of deferred revenue due to the
termination of a long-term contract. The acquisition of the assets and
contracts of Viatel UK in the third quarter of 2001 accounted for $31.1
million of the revenue in the three months ended March 31, 2002.
Broadcast transmission and other revenues increased to $70.0
million from $68.1 million. The increase reflects increases in the number
of broadcast television and FM radio customers and accounts, which exceeded
price cap reductions in our regulated services, and increases in satellite
and media services used by broadcast and media customers. We expect growth
in broadcast services to be driven primarily by contracts related to the
increased demand for tower infrastructure by wireless services operators
expanding and upgrading their networks for wireless broadband, the
digitalization of analog television and radio signals and the further
development of programming for the European markets requiring satellite and
terrestrial distribution services.
In 2002 and 2001, the substantial majority of revenues in all
segments were derived from operations in the UK.
Operating expenses (including network expenses) decreased to
$435.8 million from $438.7 million as a result of decreases in telephony
interconnection and television programming costs. The acquisition of the
assets and contracts of Viatel UK in the third quarter of 2001 accounted
for $25.5 million of the operating expenses in 2002. Operating expenses as
a percentage of revenues declined to 48.7% in 2002 from 49.8% in 2001.
Selling, general and administrative expenses decreased to $212.3
million from $322.2 million, which reflects various cost savings efforts
including restructurings announced in the fourth quarter of 2001. Selling,
general and administrative expenses as a percentage of revenues decreased
to 23.7% in 2002 from 36.6% in 2001.
Recapitalization expense of $45.8 million in 2002 includes $8.8
million for employee retention related to substantially all of our UK
employees and $37.0 million for financial advisor, legal, accounting and
consulting costs. We expect to incur approximately $50.0 million in
additional recapitalization costs until we complete the process.
Other charges of $2.6 million in 2002 include restructuring
charges of $1.6 million and costs incurred for information technology
integration and for business rationalization consulting of $1.0 million.
Other charges of $7.4 million in 2001 were for information technology
integration and for business rationalization consulting. NTL Ireland
incurred the restructuring charges in 2002 for severance and related
expenses for 55 employees. The other costs were incurred by Cablecom in
2002 and by NTL UK in 2001.
NTL Incorporated and Subsidiaries
Corporate expenses increased to $13.6 million from $12.5 million
primarily due to an increase in legal, accounting, other professional and
employee related costs.
Depreciation and amortization expense decreased to $395.6 million
from $755.2 million due to the adoption of SFAS No. 142 on January 1, 2002
which ended the amortization of goodwill and other indefinite lived
intangible assets. Depreciation and amortization expense in the three
months ended March 31, 2001, after deducting the amortization of goodwill
and other indefinite lived intangible assets of $387.9 million, would have
been $367.3 million. The increase in 2002 as compared to 2001 as adjusted
is primarily due to an increase in depreciation of telecommunications and
cable television equipment.
Interest income and other, net increased to $15.1 million from
$9.0 million primarily as a result of an increase in cash available for
investment.
Interest expense increased to $371.9 million from $355.1 million
due to additional borrowings under credit facilities and the issuance of
additional debt subsequent to March 31, 2001. Interest of $244.3 million
and $225.2 million was paid in cash in the three months ended March 31,
2002 and 2001, respectively.
Share of losses from equity investments increased to $48.9 million
from $42.9 million primarily due to the acquisition of the interest in Noos
in May 2001.
Foreign currency transaction losses decreased to $5.0 million from
$13.7 million primarily due to the effect of changes in exchange rates. We
and certain of our subsidiaries have cash, cash equivalents and debt
denominated in non-U.S. dollar currencies that are affected by changes in
exchange rates. In addition, certain of our foreign subsidiaries whose
functional currency is not the U.S. dollar have cash, cash equivalents and
debt denominated in U.S. dollars which are affected by changes in exchange
rates.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained herein constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. When used herein, the words, "believe," "anticipate,"
"should," "intend," "plan," "will," "expects," "estimates," "projects,"
"positioned," "strategy," and similar expressions identify such
forward-looking statements. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company, or industry
results, to be materially different from those contemplated, projected,
forecasted, estimated or budgeted, whether expressed or implied, by such
forward-looking statements. Such factors include, among others, those set
forth under the caption "Risk Factors" in this Form 10-Q as well as: the
ability of the Company to continue as a going concern, the ability of the
Company to obtain trade credit and shipments and terms with vendors and
service providers for current orders; the Company's ability to maintain
contracts that are critical to its operations; potential adverse
developments with respect to the Company's liquidity or results of
operations; the ability to fund and execute its business plan; the ability
to attract, retain and compensate key executives and associates; the
ability of the Company to attract and retain customers; general economic
and business conditions, technological developments, 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 impact of restructuring and integration actions,
the impact of new business opportunities requiring significant up-front
investment and interest rate and currency exchange rate fluctuations. We
assume no obligation to update the forward-looking statements contained
herein to reflect actual results, changes in assumptions or changes in
factors affecting such statements.
NTL Incorporated and Subsidiaries
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (referred
to as the FASB) issued Statement of Financial Accounting Standards
(referred to as SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," effective for the Company on January 1, 2002. This
Statement superceded SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and other
related accounting guidance. The adoption of this new standard had no
significant effect on the results of operations, financial condition or
cash flows of the Company, except that it required the Company to treat NTL
Australia as a discontinued operation beginning in the first quarter of
2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated
asset retirement costs. The Company is in the process of evaluating the
financial statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill
and other intangible assets acquired in a business combination that is
completed after June 30, 2001. SFAS No. 142 ends the amortization of
goodwill and indefinite-lived intangible assets. Instead, these assets must
be reviewed annually (or more frequently under certain conditions) for
impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flow approach
previously required by SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
adopted SFAS No. 142 on January 1, 2002. Primarily due to the significant
impairment charge that the Company recorded in 2001, the adoption of this
new standard did not have a significant effect on the results of
operations, financial condition or cash flows of the Company.
The following table shows the Company's loss from continuing
operations and its basic and diluted loss from continuing operations per
share as adjusted for the adoption of SFAS No. 142, had SFAS No. 142 been
in effect on January 1, 2001 (unaudited) (in millions, except per share
data).
Three Months Ended
March 31,
2002 2001
---- ----
(Loss) from continuing operations - as reported....................... $ (600.4) $ (1,042.4)
Amortization of:
Goodwill......................................................... -- 366.4
License acquisition costs........................................ -- 18.8
Other............................................................ -- 2.7
-- 387.9
------------ -----------
(Loss) from continuing operations - as adjusted....................... $ (600.4) $ (654.5)
============ ============
Basic and diluted net (loss) from continuing operations per share:
As reported...................................................... $ (2.53) $ (4.04)
Amortization expense reduction................................... -- 1.42
------------ ------------
As adjusted...................................................... $ (2.53) $ (2.62)
============ ============
NTL Incorporated and Subsidiaries
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
The Company is exposed to various market risks, including changes
in foreign currency exchange rates and interest rates. Market risk is the
potential loss arising from adverse changes in market rates and prices,
such as foreign currency exchange and interest rates. The Company does not
enter into derivative financial instruments for trading or speculative
purposes. The Company has entered into derivative financial instruments to
hedge exposure to movements in the British pound/U.S. dollar exchange rate
and the Euro to British pound exchange rate, and interest rates related to
certain of its floating interest rate debt. The counterparties are major
financial institutions.
Foreign Exchange Contracts
To the extent the Company obtains financing in U.S. dollars and
incurs construction and operating costs in various other currencies, the
Company will encounter currency exchange rate risks. Furthermore, the
Company's revenues are generated in foreign currencies while its interest
and principal obligations with respect to most of its existing indebtedness
are payable in U.S. dollars.
In 2001, the Company entered into a British pound forward exchange
agreement consisting of twenty-six accumulating forward contracts to reduce
its exposure to movement in the British pound/U.S. dollar exchange rate in
accordance with its market risk strategies. In March 2002, this agreement
was closed out, and the Company received cash of (pound)0.5 million.
At March 31, 2002, the Company had cross currency swaps to hedge
exposure to movements in the Euro to British pound exchange rate. In May
2002, the Company closed out its cross currency swaps for a cash payment of
$2.0 million, and recognized a loss of $2.0 million.
Interest Rates
The fair market value of long-term fixed interest rate debt and
the amount of future interest payments on floating interest rate debt are
subject to interest rate risk. Generally, the fair market value of fixed
interest rate debt will increase as interest rates fall and decrease as
interest rates rise.
In 2001, the Company entered into interest rate swaps, with a
notional amount of (pound)100.0 million, to hedge exposure to the floating
rate indebtedness incurred under the NTLCL (pound)200.0 Term Facility. In
March 2002, these swaps were sold, and the Company received cash of
(pound)0.2 million.
At March 31, 2002, the Company had zero cost collars, with a
notional amount of CHF 1,200.0 million, to hedge exposure to the floating
interest rate indebtedness incurred under the Cablecom term loan facility
and revolving loan facility.
NTL Incorporated and Subsidiaries
The following table provides information about the Company's
long-term fixed and floating interest rate debt and derivative financial
instruments that are sensitive to changes in interest rates and foreign
currency exchange rates.
Nine
Months Year Year Year Year
Ending Ending Ending Ending Ending
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
-------- -------- -------- -------- --------
Long-term Debt Including Current Portion
U.S. Dollars
Fixed Rate........................................ -- -- $ 285.1 $ 808.8 $ 1,050.0
Average Interest Rate............................. 13.25% 12.09% 11.50%
U.K. Pound
Fixed Rate........................................ -- -- -- -- --
Average Interest Rate
Average Forward Exchange Rate
Euro
Fixed Rate........................................ -- -- -- -- (euro)250.0
Average Interest Rate............................. 9.25%
Average Forward Exchange Rate..................... .8986
U.K. Pound
Variable Rate..................................... -- -- (pound)90.0 (pound)2,494.8 (pound)408.3
LIBOR LIBOR LIBOR
Average Interest Rate............................. Plus 2.0% plus 2.0% plus 6.0%
Average Forward Exchange Rate..................... 1.4133 1.4152 1.4189
U.K. Pound
Variable Rate..................................... -- -- -- -- (pound)20.0
LIBOR
Average Interest Rate................................. plus 3.5%
Average Forward Exchange Rate..................... 1.4189
CHF
Variable Rate..................................... -- -- CHF143.0 CHF250.3 CHF536.3
Swiss LIBOR Swiss LIBOR Swiss LIBOR
Average Interest Rate................................. Plus 2.5% plus 2.5% plus 2.5%
Average Forward Exchange Rate..................... .6109 .6184 .6261
NTL Incorporated and Subsidiaries
Year Fair
Ending Value
12/31/07 Thereafter Total 03/31/02
-------- ---------- ----- --------
Long-term Debt Including Current Portion
U.S. Dollars
Fixed Rate.............................. $820.5 $6,442.1 $9,406.5 $3,090.4
Average Interest Rate................... 10.38% 8.82%
U.K. Pound
Fixed Rate.............................. -- (pound)890.0 (pound)890.0 (pound)319.3
Average Interest Rate................... 10.09%
Average Forward Exchange Rate........... 1.4381
Euro
Fixed Rate.............................. -- (euro)860.0 (euro)1,110.0 (euro)340.6
Average Interest Rate................... 11.14%
Average Forward Exchange Rate........... .9118
U.K. Pound
Variable Rate........................... -- -- (pound)2,993.1 (pound)2,993.1
Average Interest Rate
Average Forward Exchange Rate
U.K. Pound
Variable Rate........................... (pound)40.0 (pound)140.0 (pound)200.0 (pound)200.0
LIBOR LIBOR
Average Interest Rate....................... plus 3.5% plus 3.5%
Average Forward Exchange Rate........... 1.4242 1.4301
CHF
Variable Rate........................... CHF643.5 CHF2,001.9 CHF3,575.0 CHF3,575.0
Swiss LIBOR Swiss LIBOR
Average Interest Rate....................... plus 2.5% plus 2.5%
Average Forward Exchange Rate........... .6340 .6583
NTL Incorporated and Subsidiaries
Nine
Months Year Year Year Year
Ending Ending Ending Ending Ending
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
-------- -------- -------- -------- --------
Interest Rate Derivative Financial
Instruments Related to Long-Term Debt
Interest Rate Swaps
Notional CHF Amount.................... CHF1,200.0 CHF1,200.0 CHF1,200.0 -- --
Average Floor Strike Rate.............. 3.27% 3.27% 3.27%
Average Cap Strike Rate................ 5.15% 5.15% 5.15%
Receipt of UK Pounds
Notional Euro Amount................... (euro)67.0 -- -- -- --
Average Contract Rate.................. .6465
NTL Incorporated and Subsidiaries
Year Fair
Ending Value
12/31/07 Thereafter Total 03/31/02
-------- ---------- ----- --------
Interest Rate Derivative Financial
Instruments Related to
Long-Term Debt
Interest Rate Swaps
Notional CHF Amount............................... -- -- CHF1,200.0 CHF(21.7)
Average Floor Strike Rate
Average Cap Strike Rate
Receipt of UK Pounds
Notional Euro Amount.............................. -- -- (euro)67.0 (euro)(3.7)
Average Contract Rate
NTL Incorporated and Subsidiaries
RISK FACTORS
We currently have limited liquidity. If we are unable to successfully
implement a recapitalization, there is substantial doubt about our ability
to continue as a going concern.
We have limited liquidity. We do not currently have access to our
historic sources of liquidity in the capital markets and our credit
facilities are either fully drawn or we are currently unable to access
remaining undrawn amounts. As a consequence, we need to restructure our
outstanding debt and/or raise new funds. On May 8, 2002 we filed an
arranged joint reorganization plan under Chapter 11 of the United States
Bankruptcy Code. On May 24, 2002, we filed an amended plan, which sets
forth the joint reorganization plan, subject to court approval, to which
the Company, an unofficial committee of its public bondholders and France
Telecom, a significant holder of the our preferred stock, have agreed in
principle. A steering committee of the lending banks under our credit
facilities has given its agreement in principle (on a non-legally binding
basis) to the terms of the proposed plan of reorganization. However, the
proposed plan of reorganization remains subject to a favorable vote of our
impaired creditors and bankruptcy court approval. We may also face the
possibility of insolvency proceedings in the UK or elsewhere.
The successful implementation of the proposed recapitalization plan will
require the support of our creditors and preferred stockholders.
The completion of the proposed recapitalization contemplated by
the agreement in principle with the unofficial bondholder committee will
require support from our creditors and holders of our preferred stock,
including France Telecom. The proposed recapitalization plan will be
implemented pursuant to a Chapter 11 bankruptcy proceeding. Consummation of
the proposed recapitalization plan will require a favorable vote by
impaired classes of creditors, satisfaction of bankruptcy law requirements
and confirmation by the United States bankruptcy court, which, as a court
of equity, may exercise substantial discretion and choose not to confirm
the proposed recapitalization plan. Even if such a plan receives the
necessary support from many classes of our creditors, there can be no
assurance that it will be completed. If a protracted reorganization were to
occur, or a liquidation would be necessary, there is a risk that the value
of NTL would be eroded to the detriment of some or all NTL stakeholders.
We are in default under our credit facilities.
Before we could commence negotiations with the unofficial
committee of our noteholders we needed to obtain waivers from the lenders
under our credit facilities. These lenders granted waivers which, until
April 30, 2002 in the case of the UK credit facilities, or May 14, 2002 in
the case of the Cablecom facility, provided that NTL's commencement of
negotiations with bondholders with a view to rescheduling of its debt would
not constitute an event of default under its credit facilities.
The UK credit facilities waivers terminated on April 29, 2002, as
a result of which, there was an event of default under each of our credit
facilities with respect to the missed interest payments on April 1, 2002.
In addition, our voluntary filing under Chapter 11 of the United States
Bankruptcy Code constituted an event of default under our UK credit
facilities and the Cablecom credit facility. These events of default
entitle the lenders under our credit facilities to accelerate repayment. We
do not have sufficient cash resources to repay our outstanding indebtedness
if it is declared immediately due and payable. In addition, the lenders
could also seek to take control over the assets over which they hold
security.
We did not pay interest due on some of our outstanding notes on April 1,
2002, April 15, 2002 and May 15, 2002, and we do not plan to make future
interest payments on most of our outstanding notes.
NTL Incorporated, NTL (Delaware), Inc. and NTL Communications did
not make scheduled interest payments and payments of related fees due on
April 1, 2002, April 15, 2002 and May 15, 2002. In accordance with the
proposed recapitalization plan, NTL does not plan to make future interest
payments on its outstanding publicly traded notes except notes issued by
NTL Triangle and Diamond Holdings Limited.
NTL Incorporated and Subsidiaries
As a result of these payment defaults and as a result of NTL's
Chapter 11 bankruptcy filings, there is currently an event of default in
respect of all of NTL's publicly traded notes other than the notes issued
by NTL Triangle. As a result of the Chapter 11 filing, this debt is
immediately due and payable.
We have no current availability to borrow under our existing credit
facilities.
We have no current ability to borrow under our existing UK credit
facilities, as we have borrowed the full amounts available. With respect to
the Cablecom credit facility, the term tranche is fully drawn and the
revolving tranche has been capped at its utilized amount of CHF 1,055.0
million although the availability may be increased with the consent of the
requisite percentage of lenders under the facility. If that facility is not
refinanced or Cablecom cannot be sold, the Cablecom credit facility is due
to be repaid on April 30, 2003. Without substantial investment from a third
party or further borrowing, Cablecom would be unable to repay the facility
which would have a material adverse effect on its business.
It is likely we will lose our net operating loss carryforwards for U.S.
income tax purposes in connection with the proposed recapitalization plan.
A restructuring of our debt can be expected to give to rise to
cancellation of indebtedness ("COD"), which if it occurs in the course of a
proceeding pursuant to Chapter 11 of the United States Bankruptcy Code,
would be non-taxable. If the COD is non-taxable, we will be required to
reduce our net operating loss carryforwards and other attributes such as
capital loss carryforwards and tax basis in assets by an amount equal to
the non-recognized COD. As a result, it is likely that as a result of the
successful completion of the proposed plan of recapitalization, we will
have no U.S. net operating loss carryforwards.
Uncertainty over our financial condition may harm our business and our
brand name.
Adverse publicity or news coverage regarding our financial
condition, our Chapter 11 bankruptcy filing and potential outcomes of the
recapitalization process could have an adverse effect on parts of our
business. Similarly, negative press about the financial condition of other
cable and pay television operations and alternative telecom carriers in
general may effect our reputation. For example, one of our key strategies
is to increase our penetration of higher value small to medium size
enterprises, or SMEs, and provide increased retail services of bundled
voice, data and Internet services for SMEs. However, due to the negative
publicity surrounding our financial condition and the potential effect of
that publicity on our brand name, we may find it difficult to convince SMEs
to take up our services. Even if we successfully complete the
recapitalization process, there is no assurance that it will not adversely
impact our results of operations or have a long-term effect on our brand.
In addition, this uncertainty may adversely affect our
relationships with our suppliers. If suppliers become increasingly
concerned about our financial condition they may demand quicker payment
terms or not extend normal trade credit, both of which could further
adversely affect our working capital position. We may not be successful in
obtaining alternative suppliers if the need arises and this would adversely
affect our results of operations.
The recapitalization process has required significant time and resources of
our directors and senior managers, which could adversely affect the
operation of our business.
Our senior managers and directors have needed to spend significant
amounts of their time dealing with the negotiations with bondholders, bank
lenders and other stakeholders in connection with the recapitalization
process and it is likely that they will continue to devote significant
amounts of their time to this process for the foreseeable future. This has
diverted their time and resources from managing the operations of our
business. If our senior managers and directors continue to spend
significant amounts of their time in connection with the recapitalization
process, this may have a negative impact on our operations.
NTL Incorporated and Subsidiaries
We have historically incurred losses and generated negative cash flows and
we cannot assure you that we will be profitable in the future.
Construction and operating expenditures and interest costs have
resulted in negative cash flow. We also expect to incur substantial
additional losses. We cannot be certain that we will achieve or sustain
profitability in the future. Failure to achieve profitability has and could
in the future diminish our ability to sustain our operations, obtain
additional required funds and make required payments on any indebtedness we
have incurred or may incur.
Our growth has been curtailed by funding constraints.
We have significantly decreased the amount we are spending on
capital expenditures due to our liquidity constraints. As a result, we will
be unable to increase our subscriber numbers in the short term and our
revenue may be adversely affected. The decrease in capital expenditure is
the result of our need to divert increasing amounts of our financial
resources to service our debt. The decrease in capital spending is in line
with our current strategy of maximizing revenue from our existing customers
rather than increasing our customer base. In our consumer business in the
UK, we expect subscriber numbers to decrease in 2002. The revenue we expect
to result from our capital expenditure is long-term in nature. The
reduction in capital expenditures for connecting new subscribers to our
network will likely lead to a decrease in the rate of revenue growth in the
future. Difficulties in obtaining additional funding will likely hamper our
ability to connect new subscribers to our network and increase our revenue.
One of our key strategies is to reduce customer churn. However there can be
no assurance that we will successfully accomplish this or that our churn
rate will not increase.
We have experienced rapid growth and development in a relatively
short period, either through acquisitions or connecting customers to our
network. One of our biggest challenges as we have grown has been to limit
our customer churn and the successful implementation of our business plan
depends upon a reduction in the percentage of our customers that stop using
our services. Factors contributing to increase of churn during 2001
included the continued integration of our ConsumerCo acquisition, the
existence of multiple billing systems, the introduction of digital
television and our decision to disconnect some of our poor paying
customers.
In order to reduce churn in the future, we aim to improve our
customer service. This improvement will be difficult to obtain without an
integrated billing system and a customer database across our entire
network. We do not as yet have an integrated billing and operational
platform.
Another part of our strategy leading to reduction in churn is an
increased take up of broadband services by our existing customers. If this
increased level of take up does not materialize we may have difficulties in
reducing churn levels, thereby adversely impacting our results of
operations.
Failure to successfully market broadband to our existing consumer client
base will adversely impact our revenue and results of operations.
A significant component of our strategy to increase our average
revenue per unit is to successfully market broadband products to our
existing consumer client base. However, we believe that our triple play
offering of telephony, broadband access to the Internet and digital
television will prove attractive to our existing customer base and allow us
to increase our average revenue per user. However, we face significant
competition in these markets, through digital satellite and digital
terrestrial television and through alternative Internet access media, such
as DSL offered by BT and some of our competitors have substantially greater
financial and technical resources than we do. If we are unable to charge
prices for broadband services that are anticipated in our business plan in
response to competition or if our competition delivers a better product to
our customers, our average revenue per unit and our results of operations
will be adversely affected.
NTL Incorporated and Subsidiaries
We have granted substantial governance and economic rights in connection
with the France Telecom investment and have entered into transactions with
France Telecom that may impact us and a stockholder's investment in us.
We have granted rights to France Telecom, including the right to
appoint directors, preemptive rights and the right to veto some significant
corporate transactions. Exercise by France Telecom of some or all of such
rights may impact us, including our ability to effect a consensual
recapitalization, or the value of our stock held by persons other than
France Telecom. France Telecom is a holder of our cumulative convertible
preferred stock, Series A, which allows the holders other than commercial
banks and their affiliates to exchange such stock for stock of an entity
holding up to 50% of Cablecom.
The companies in which we hold minority investments in continental Europe
may require additional financing to complete their network rollouts - their
ability to obtain such financing will depend on their ability to access the
capital markets and the value of our investment could be reduced or
diluted.
We have minority investments in broadband cable operations in
Germany, France and Sweden. Each of those companies may require substantial
amounts of additional capital to complete their network rollouts and
upgrades and their ability to obtain that financing will depend, in part,
on their ability to access the capital markets. The ability of those
companies to access the capital markets will be subject not only to the
performance of their business and prospects, but to conditions in the
capital markets generally. If those companies cannot complete their planned
expansions and upgrades for any reason, the value of our investments could
be reduced. If those companies issue equity securities, it is likely that
we will not be able to participate which could lead to substantial dilution
of the value of these investments to us.
There can be no assurance that iesy will meet the conditions
precedent to access additional funds under its credit facility or that it
will be in compliance with the covenants under its debt agreements. The
failure of iesy to obtain required funding or a default entitling the
lenders to accelerate repayment of iesy's borrowings would adversely affect
the value of NTL's investment in iesy.
In addition, on April 15, 2002, a funding request for $20 million
was received by NTL under the terms of the investment agreement relating to
NTL's investment in B2. NTL has informed B2 and the other principal
investors that it is not in a position to comply with this request at this
time. The B2 investment agreement provides that if NTL fails to provide
such funding, it may be sued for non-payment and arguably could lose
certain rights under the B2 shareholders' arrangements. Pursuant to the
applicable documents, if this occurs the majority remaining shareholders
may also elect to terminate the shareholder arrangements with respect to
NTL and exercise a contractual right to acquire on a pro rata basis NTL's
interest in B2 at 25% of fair market value. If the remaining shareholders
elected to exercise these rights, NTL could be forced to sell its stake in
B2 at a loss. NTL believes, however, that it has certain defenses and
protections of and for NTL's rights under the B2 investment agreement and
in respect of its equity interest in B2 and intends to vigorously enforce
such rights and protections.
We are dependent upon a small number of key personnel.
A small number of key executive officers manage our businesses.
The loss of one or more of these executive officers could have a material
adverse effect on us. We believe that our future success will depend in
large part on our continued ability to attract and retain highly skilled
and qualified personnel. We have not entered into written employment
contracts or non-compete agreements with, nor have we obtained life
insurance policies covering those key executive officers.
Our principal businesses are subject to government regulation, including
pricing regulation, and changes in current regulations may adversely affect
us.
Our principal business activities in the UK, the Republic of
Ireland and Switzerland and the activities of the companies in which we
have investments in Germany, France and Sweden are regulated and supervised
by various governmental bodies. Changes in laws, regulations or
governmental policy or the interpretations of those laws or regulations
affecting our activities and those of our competitors, such as licensing
requirements, changes in price regulation and deregulation of
interconnection arrangements, could have a material adverse effect on us.
NTL Incorporated and Subsidiaries
We are also subject to regulatory initiatives of the European
Commission. Changes in EU Directives may reduce our range of programming
and increase the costs of purchasing television programming or require us
to provide access to our cable network infrastructure to other service
providers, which could have a material adverse effect on us.
The telecommunications industry is subject to rapid technological changes
and we cannot predict the effect of any changes on our businesses.
The telecommunications industry is subject to rapid and
significant changes in technology and the effect of technological changes
on our businesses cannot be predicted. Our core offerings may become
outdated due to technological breakthroughs rendering our products out of
date. In addition, our business plan contemplates the introduction of
services using new technologies. Cablecom and the operations in which we
have an interest in France, Germany and Sweden intend to introduce voice
over Internet protocol, or VoIP, voice telephony services across their
networks. Customer demand for this service is uncertain as customers may
not readily switch from their current telephony service, especially if the
quality of the service is not or is perceived not to be comparable to other
telephony services. Similarly, our investments in other new services such
as those related to the 3G mobile network may prove premature and we may
not realize anticipated returns on these new products. The cost of
implementation for emerging and future technologies could be significant,
and our ability to fund such implementation may depend on our ability to
obtain additional financing. We cannot be certain that we would be
successful in obtaining any additional financing required.
We do not insure the underground portion of our cable network.
We obtain insurance of the type and in the amounts that we believe
are customary for similar companies. Consistent with this practice, we do
not insure the underground portion of our cable network. Substantially all
of our cable network is constructed underground. Any catastrophe that
affects our underground cable network could result in substantial uninsured
losses.
We are subject to currency risk because we obtain a substantial amount of
financing in U.S. dollars and Euro but generally generate revenues and
incur expenses in other currencies.
We encounter currency exchange rate risks because we generate
revenues and incur construction and operating expenses in other currencies,
primarily in pounds sterling while we pay interest and principal
obligations with respect to most of our existing indebtedness in U.S.
dollars and Euro. We cannot assure you that the hedging transactions we
have entered into or any other hedging transactions we might enter into
will be successful or that shifts in the currency exchange rates will not
have a material adverse effect on us. For example, to the extent that the
pound sterling declines in value against the U.S. dollar and, to a lesser
extent, the Euro, and we have not fully hedged against such declines, the
effective cost of servicing our U.S. dollar and Euro debt will be higher
and we will incur currency losses.
We currently do not have surplus available under Delaware law to pay
dividends on or to redeem our capital stock.
Under Delaware law, unless a corporation has available surplus it
cannot declare or pay dividends on or redeem its capital stock, including
its preferred stock. As of and for the year ended December 31, 2001, we
have written down the carrying value of some of our assets, particularly
goodwill. This write down has left us without available surplus under
Delaware law and means that we will be unable to declare or pay dividends
on or redeem any of our capital stock, including our preferred stock, until
such time as we again have available surplus. If dividends remain unpaid
for six quarters on certain series of our preferred stock, then the holders
of each such series shall have the right to vote separately as a class on
all matters voted on by NTL Incorporated shareholders and shall have the
right, along with other holders of preferred stock with similar default
voting rights, to elect two additional directors to our board. Similarly,
because we failed to redeem the Noos preferred stock on May 18, 2002,
pursuant to the certificate of designation governing the Noos preferred
stock, the holders of such Noos preferred stock have the right, along with
other holders of preferred stock with similar default voting rights, to
elect two additional directors to our board and have the right to vote
separately as a class, on all matters brought to NTL Incorporated
shareholders.
NTL Incorporated and Subsidiaries
We have never paid cash dividends on our common stock. In
addition, the payment of any dividends by us in the future will be at the
discretion of our board of directors and will depend upon, among other
things, future earnings, operations, capital requirements, our general
financial condition and the general financial condition of our
subsidiaries.
Furthermore, the indentures governing NTL Communications Corp.'s
non-convertible senior notes and the indentures governing the outstanding
notes issued by Diamond Cable Communications Limited, Diamond Holdings
Limited and NTL Triangle impose limitations on the payment of dividends to
us and consequently limit amounts available for us to pay dividends on our
common stock. Further, the terms of our subsidiaries' senior credit
facilities and working capital facilities restrict, and the terms of other
future indebtedness of our subsidiaries may generally restrict the ability
of some of our subsidiaries to distribute earnings to NTL Incorporated or
make other payments to NTL Incorporated. The terms of Cablecom's credit
facilities also restrict the ability of Cablecom to distribute earnings and
make other payments to NTL Incorporated.
Some provisions of the agreements governing our indebtedness and the
indebtedness of our subsidiaries and certain provisions of NTL
Incorporated's certificate of incorporation could delay or prevent
transactions involving a change of control of NTL.
Provisions of the agreements governing our outstanding
indebtedness and the indebtedness of our subsidiaries, which either require
such indebtedness to be repaid or give the holder the option to require
repayment, could have the effect of delaying or preventing transactions
involving a change of control of NTL and its subsidiaries, including
transactions in which stockholders might otherwise receive a substantial
premium for their shares over then current market prices, and may limit the
ability of stockholders of NTL Incorporated to approve transactions that
they may deem to be in their best interest.
Our certificate of incorporation contains provisions which may
have the effect, alone or in combination with each other or with the
existence of authorized but unissued common stock and preferred stock, of
preventing or making more difficult transactions involving a change of
control of NTL.
Our stockholder rights plan has a significant anti-takeover
effect. As a result, no change of control of NTL Incorporated requiring
stockholder approval is possible without the consent of the owners of that
preferred stock.
NTL Incorporated, NTL Delaware, NTL Communications Corp., Diamond and NTL
Triangle are holding companies that are dependent upon receipt of
sufficient funds from their subsidiaries or parent companies to meet their
obligations - their ability to access that cash flow may be limited in some
circumstances.
NTL Incorporated, NTL Delaware, NTL Communications Corp., Diamond
Cable Communications, Diamond Holdings and NTL Triangle are holding
companies with no independent operations or significant assets other than
investments in and advances to their respective subsidiaries and affiliated
joint ventures. Each of these companies depends upon the receipt of
sufficient funds from their subsidiaries or their respective parent
companies to meet their respective obligations. The terms of existing
indebtedness of their respective subsidiaries and the laws of the
jurisdictions under which those subsidiaries are organized generally limit
the payment of dividends, loan repayments and other distributions to them,
subject in some cases to exceptions that allow them to service indebtedness
in the absence of specified defaults.
Our common stock has been suspended from the New York Stock Exchange due to
the failure to meet the $1 average closing price requirement and the
minimum market capitalization requirements; there may not be a liquid
market for our common stock and our common stock could be a "penny stock"
as that term is defined in the Exchange Act
On March 28, 2002, our common stock was suspended from trading on
the NYSE pending delisting due to the low trading price and low market
capitalization relative to the NYSE requirements. The stock last traded on
the NYSE on March 26, 2002 at a price of $0.20. Our common stock began
trading on the over-the-counter bulletin board effective April 1, 2002, and
is currently trading there under the symbol "NTLDE". The "E" on the symbol
"NTLDE" was appended for failure to
NTL Incorporated and Subsidiaries
timely file this quarterly report. NTL expects that this designation will
be dropped shortly after filing this report and the symbol will return to
"NTLD". However, there can be no assurance that a liquid market will
develop for our common stock on the OTC bulletin board.
In addition, on May 9, 2002, Nasdaq Europe halted trading of NTL's
common stock pending receipt of information relating to the restructuring
process because of the filing of NTL's Chapter 11 cases. NTL has complied
with this information request, although there can be no assurance that
Nasdaq Europe will (1) not make additional information requests, (2) remove
the trading halt on shares of NTL's common stock or (3) not delist shares
of NTL's common stock.
Furthermore, as a result of our suspension from the New York Stock
Exchange, our common stock could be a "penny stock" as that term is defined
in the Exchange Act. Brokers effecting transactions in a "penny stock" are
subject to additional customer disclosure and record keeping obligations
including disclosure of the risks associated with low price stocks, stock
quote information and broker compensation. In addition, brokers effecting
transactions in a "penny stock" are also subject to additional sales
practice requirements under Rule 15g-9 of the Exchange Act including making
inquiries into the suitability of "penny stock" investments for each
customer or obtaining a prior written agreement for the specific "penny
stock" purchase. Because of these additional obligations, some brokers will
not effect transactions in "penny stocks", which could have an adverse
effect on the liquidity of the security and make buying or selling it more
difficult.
Defense of putative class action suits filed against NTL Incorporated and
certain of its officers could have a negative impact on NTL's businesses.
The putative class action lawsuits filed against NTL Incorporated
and certain of its officers which were commenced by seven of its purported
shareholders, on behalf of certain purchasers of NTL Incorporated's
securities may have a negative impact on its results of operations and
business. Two of these lawsuits have been voluntarily dismissed with
respect to NTL Incorporated because they were filed subsequent to the
commencement of NTL's Chapter 11 cases. The claims arising out of the
remaining suits against NTL Incorporated will be discharged if the proposed
recapitalization plan is confirmed by the bankruptcy court. The claims
arising out of the suits against the individual officers remain and will
not be discharged under the recapitalization plan. Defense of such suits
may divert such officers' time and resources from managing the operations
of NTL's business. If these officers spend significant amounts of time
defending these lawsuits, there may be a negative impact on results of
operations and business.
NTL Incorporated and Subsidiaries
PART II. OTHER INFORMATION
Item 3. Defaults upon Senior Securities
DEFAULTS UNDER CREDIT AGREEMENTS
Negotiations with Bondholders
Before the Company could commence negotiations with the unofficial
committee of its bondholders, it was necessary to obtain waivers from the
lenders under the UK credit facilities and the Cablecom credit facility.
Effective March 8, 2002, these lenders granted waivers which, until March
29, 2002, provided that the commencement of negotiations with bondholders
with a view to rescheduling its debt would not constitute an event of
default under the credit facilities. But for the initial waivers, the
commencement of negotiations with bondholders would have been an event of
default under the credit facilities. Effective March 28, 2002, these
lenders agreed to amend the initial waivers to extend the duration of the
initial waivers to April 29, 2002 in the case of the UK credit facilities
or May 14, 2002 in the case of the Cablecom credit facility.
In connection with the granting of these waivers, the Company agreed to
various affirmative obligations with respect to the lenders under the
credit facilities and significant restrictions on its conduct. The amended
waivers prevented the Company from making an exchange offer with respect to
its outstanding notes or from entering into an agreement with bondholders
without the consent of the lenders under each of the credit facilities. The
amended waivers also prohibited the Company from commencing voluntary
dissolution proceedings, including proceedings under Chapter 11 of the U.S.
Bankruptcy Code, without the consent of these lenders.
As of the date of this Form 10-Q, there are no current waivers
from the lenders under the credit facilities. As a consequence, the Chapter
11 filings resulted in events of default under NTL's UK credit facilities
and the Cablecom credit facility.
Other Material Defaults in Respect of the Cablecom Credit Facility
During the three months ended March 31, 2002, there were a number
of technical defaults under the Cablecom credit facility. In addition, as
of December 31, 2001, Cablecom's and various of its subsidiaries'
liabilities exceeded their respective assets. As a consequence, under Swiss
law, those entities were deemed to be "overindebted". This also constituted
an event of default under the Cablecom credit facility which entitled the
lenders to accelerate repayment. Under Swiss law, unless the
overindebtedness was rectified, those entities would have been required to
commence an insolvency proceeding in Switzerland.
On April 30, 2002, the Company reached an agreement with the
lenders under the Swiss credit facility to resolve the overindebtedness
issue. As a result of the agreement and steps taken in connection
therewith, those entities are not currently required to commence insolvency
proceedings. The agreement included a waiver by the lenders of various
additional covenant breaches under the credit facility.
Missed Interest Payments on NTL's Public Bonds
As a result of the missed interest payments not cured within the
30 day grace period with respect to certain of NTL's publicly traded bonds
(described below), as of May 1, 2002, there was an event of default under
the UK credit facilities and as of May 16, 2002, there was an event of
default under the Cablecom credit facility.
NTL Incorporated and Subsidiaries
Chapter 11 Bankruptcy Filing
On May 8, 2002, NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp., Diamond Cable Communications Limited, Diamond
Holdings Limited and Communications Cable Funding Corp. filed an arranged
joint reorganization plan under Chapter 11 of the United States Bankruptcy
Code. NTL's operating subsidiaries were not included in the Chapter 11
filing. The Chapter 11 filing constituted an event of default under the
Company's UK credit facilities and the Cablecom credit facility, allowing
the lenders thereunder to declare amounts outstanding to be immediately
payable.
DEFAULTS ON HIGH YIELD AND CONVERTIBLE NOTES
Payment Defaults
NTL Incorporated and NTL Delaware did not make interest payments
and payment of related fees falling due on April 15, 2002, in the aggregate
amount of $2.5 million, in respect of their 5 3/4% Convertible Subordinated
Notes due 2011. NTL Communications Corp. did not make scheduled interest
payments due April 1, 2002, in the aggregate amount of $74.2 million, in
respect of its 9 1/2% notes due 2008, 11 1/2% notes due 2008 and 11 7/8%
notes due 2010. NTL Communications also did not make interest payments
falling due on April 15, 2002, totaling $17.7 million, in respect of its 12
3/4% Senior Deferred Coupon Notes due 2005. In accordance with the proposed
recapitalization plan, NTL does not plan to make future interest payments
on its outstanding publicly traded notes except notes issued by NTL
Triangle and Diamond Holdings Limited.
If the applicable issuer does not pay interest on these notes
after a 30 day grace period expires there is an event of default under the
indenture in respect of the notes on which the interest is due and unpaid.
Therefore, there was an event of default for failure to pay interest on May
1, 2002 under the indentures relating to the missed interest payments due
April 1, 2002 and on May 16, 2002, under the indentures relating to the
missed interest payments due April 15, 2002. As a result, cross defaults
occurred under the Company's other indentures at NTL Communications, NTL
Delaware, NTL Incorporated and under the Company's UK credit facilities and
the Cablecom credit facility.
Chapter 11 Bankruptcy Filing
The Chapter 11 bankruptcy filing constituted an event at default
under the indentures of each of the entities which made the Chapter 11
filing and amounts outstanding under these indentures became immediately
due and payable.
AGGREGATE AMOUNT OF DEFAULTS
Interest
As a result of the events of default described above, as of June
13, 2002:
o NTL Incorporated and NTL Delaware are in default in
respect of $2.5 million of interest payments in respect
of their 5 3/4% notes due 2011, including interest
accrued on such missed interest payment up to May 8,
2002, and
o NTL Communications Corp. is in default in respect of an
aggregate of $157.9 million of interest payments in
respect of its 9 1/2% notes due 2008, 11 1/2% notes due
2008, 11 7/8% notes due 2010, 12 3/4% notes due 2005, 9
1/4% notes due 2006, 6 3/4% notes due 2008 and 9 7/8%
notes due 2009, including interest accrued on the April 1
and April 15, 2002 missed interest payments up to May 8,
2002.
NTL Incorporated and Subsidiaries
Principal
As a consequence of the Chapter 11 filings on May 8, 2002, all
amounts outstanding under the indentures governing the high yield and
convertible debt of the entities having commenced Chapter 11 cases
automatically became immediately due and payable. However, the automatic
stay of Section 362 of the U.S. Bankruptcy Code serves to prevent the
holders of such debt from seeking to enforce their collection rights under
the indentures, except within the context of the Chapter 11 cases, and even
then only with the prior approval of the bankruptcy court. As a result of
the default and acceleration resulting from the Chapter 11 filing, as of
March 31, 2002:
o NTL Incorporated and NTL Delaware are in default in respect
of an aggregate of $100.0 million in principal amount of
debt;
o NTL Delaware is in default in respect of an aggregate of
$1,200.0 million in principal amount of debt;
o NTL Communications Corp. is in default in respect of an
aggregate of $7,911.9 million in principal amount of debt;
and
o Diamond Cable Communications and Diamond Holdings are in
default in respect of an aggregate of $1,539.0 million in
principal amount of debt,
Failure to Pay Dividends on Preferred Stock
On February 4, 2002, NTL Incorporated announced that it would not
declare or pay dividends on its 13% Senior Redeemable Exchangeable
Preferred Stock. NTL Incorporated did not make the dividend payments due on
February 15, 2002 of $6.0 million and May 15, 2002 of $6.2 million in
respect of the 13% preferred stock. In addition, NTL Incorporated did not
pay dividends on its 5% cumulative participating convertible preferred
stock held by France Telecom on December 31, 2001 of $37.0 million and
March 31, 2002 of $37.5 million, or on its cumulative convertible preferred
stock held by France Telecom and a group of commercial banks on December
31, 2001 of $24.9 million and March 26, 2002 of $24.1 million.
Historically, payment of dividends has been made in additional shares of
preferred stock in the case of the 13% preferred stock, the 5% cumulative
participating preferred stock and the cumulative convertible preferred
stock. NTL Incorporated did not pay these dividends due to a lack of
available surplus under Delaware law. Under Delaware law, NTL Incorporated
cannot declare or pay dividends on or redeem its capital stock, including
its preferred stock, unless it has available surplus. As of June 12, 2002,
the aggregate amount of unpaid dividends of NTL Incorporated with respect
to the above mentioned series of preferred stock was $135.7 million.
NTL Incorporated and Subsidiaries
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
During the quarter ended March 31, 2002, the Company
filed a Current Report on Form 8-K dated February 22,
2002 (filed February 22, 2002) reporting under Item 5,
Other Events, that NTL Incorporated announced on February
21, 2002 that it signed an agreement with Macquarie Bank
to sell its Australian broadcast business for A$850
million in an all cash transaction.
No financial statements were filed with this report.
NTL Incorporated and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act o f
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
NTL INCORPORATED
Date: June 13, 2002 By: /s/ BARCLAY KNAPP
----------------------------------------
Barclay Knapp
President and Chief Executive Officer
Date: June 13, 2002 By: /s/ GREGG N. GORELICK
----------------------------------------
Gregg N. Gorelick
Vice President-Controller
(Principal Accounting Officer)
EXHIBIT D
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO SECOND AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
AMENDMENT NO. 1 TO
NTL INCORPORATED'S ANNUAL REPORT ON
FORM 10-K/A FOR FISCAL YEAR ENDED DECEMBER 31, 2001
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
(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, 2001
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. 0-30673
---------------
NTL INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 13-4105887
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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:
Common Stock, par value $.01 per share
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
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. No |X|
The aggregate market value of the Registrant's voting stock held by
non-affiliates at March 26, 2002, the last day before suspension of trading
on the NYSE of the Registrant's common stock, valued in all cases in
accordance with the New York Stock Exchange closing sale price for the
Registrant's common stock on such date, was approximately $44,114,400.
Number of shares of common stock outstanding as at March 26, 2002:
276,626,476
==============================================================================
NTL Incorporated (the "Company" or "NTL") is amending its Form
10-K for the fiscal year ended December 31, 2001 to include Part III.
PART III
Item 10. Directors and Officers of the Registrant
The following table provides information about the Company's
directors and executive officers.
Name Age Title
---- --- -----
George S. Blumenthal 58 Chairman of the Board
Barclay Knapp 45 President and Chief Executive Officer
Eric Bouvier 48 Director
Robert T. Goad 47 Director
Bernard Izerable 45 Director
Sidney R. Knafel 71 Director
Ted H. McCourtney 63 Director
Alan J. Patricof 67 Director
Warren Potash 70 Director
Jean-Louis Vinciguerra 58 Director
Michael S. Willner 50 Director
Richard J. Lubasch 55 Executive Vice President, General Counsel and Secretary
John F. Gregg 37 Chief Financial Officer and Senior Vice President
Stephen A. Carter 38 Senior Vice President and Chief Operating Officer for UK and Ireland
Operations
Bruno Claude 44 Senior Vice President and Chief Operating Officer for NTL Europe
Gregg N. Gorelick 43 Vice President - Controller
Bret Richter 32 Vice President - Corporate Finance and Development
Steven L. Wagner 50 Managing Director - Consumer Services for NTL Europe
George S. Blumenthal has been Chairman, Treasurer and a director
of the Company since its formation. Mr. Blumenthal was also Chief Executive
Officer of the Company until October 1996. Mr. Blumenthal was President of
Blumenthal Securities, Inc. (and its predecessors), a member firm of the
New York Stock Exchange, from 1967 until 1992. Mr. Blumenthal was Chairman,
Treasurer and a director of Cellular Communications, Inc. ("CCI"), which
positions he held since CCI's founding in 1981 until its merger in August
1996 into a subsidiary of AirTouch Communications, Inc. (the "CCI Merger").
Mr. Blumenthal was also Chairman, Treasurer and a director of Cellular
Communications of Puerto Rico, Inc. until the Company's sale in August
1999. Mr. Blumenthal is also Chairman Emeritus and a director of CoreComm
Limited ("CoreComm") and is a director of Sotheby's Holdings, Inc.
Barclay Knapp is President, Chief Executive Officer and a director
of the Company and has held these positions since its formation with the
exception that Mr. Knapp was Chief Operating Officer until October 1996
when he was appointed Chief Executive Officer. In addition, Mr. Knapp was
Executive Vice President and Chief Operating Officer of Cellular
Communications International, Inc. ("CCII") until June 1998. Mr. Knapp was
also President, Chief Executive Officer and a director of Cellular
Communications of Puerto Rico, Inc. ("CCPR") until its sale in August 1999,
with the exception that Mr. Knapp was Chief Operating Officer until March
1998 when he was appointed Chief Executive Officer, and is also Chairman
and a director of CoreComm. Mr. Knapp is also a director of
Bredbandsbolaget, a Swedish company in which NTL holds a 34% interest and
is also a director of Cablecom, a Swiss company in which NTL holds 100%
interest.
Eric Bouvier has been a director of the Company since January
2002. Mr. Bouvier is the Senior Vice President, Head of Mergers and
Acquisitions of France Telecom. Mr. Bouvier joined France Telecom in 1999,
to head the Mergers and Acquisitions group, under the authority of the
Executive Senior Vice President and Chief Financial Officer. Prior to
working at France Telecom Mr. Bouvier was employed at Banque Indosuez. Mr.
Bouvier occupied successively different positions at Banque Indosuez,
culminating at the position of Partner of Financiere Indosuez, the
investment and M&A advisory services subsidiary of Banque Indosuez. Mr.
Bouvier is also member of the Supervisory Board of Mobilcom in Germany, and
of TPSA in Poland.
Robert T. Goad has been a director of the Company since March
1999. Mr. Goad was a director and the Chief Executive Officer of Diamond
Cable Communications Plc from May 1994 to March 8, 1999, and served as
Chief Financial Officer from May 1994 until July 1995. Mr. Goad is a
founder of and principal in ECE Management International, LLC and has been
President of Columbia Management, Inc. since 1984. Mr. Goad is also a
director of B/G Communications, LLC, B/G Enterprises, LLC, B/G Properties,
LLC, Diveo Broadband Networks, Inc. and Grupo Clarin, S.A.
Bernard Izerable has been a director of the Company since May
2000. Mr. Izerable has been International Executive Vice President of
France Telecom since January 2000. From March 1996 until December 1999 Mr.
Izerable was Senior Vice President for Europe within France Telecom's
International Development Division. Prior to March 1996, Mr. Izerable
served in various positions at France Telecom since 1982, other than from
1989 to 1991 when Mr. Izerable worked in the Strategic Planning and Market
Analysis Division of Nynex (USA) as part of a two year exchange program
between the two companies.
Sidney R. Knafel, a director of the Company since its formation,
has been Managing Partner of SRK Management Company, a private investment
company, since 1981. In addition, Mr. Knafel is Chairman of Insight
Communications, Inc. and BioReliance Corporation. Mr. Knafel is also a
director of General American Investors Company, Inc., IGENE Biotechnology,
Inc. and some privately owned companies.
Ted H. McCourtney, a director of the Company since its formation,
retired on June 30, 2000 as a General Partner of Venrock Associates, a
venture capital investment partnership, a position he held since 1970. Mr.
McCourtney also serves as a director of CareMark RX, Inc., and Visual
Networks, Inc.
Alan J. Patricof has been a director of the Company since its
formation. Mr. Patricof is Chairman of APAX Partners, formerly known as
Patricof & Co. Ventures, Inc., a venture capital firm he founded in 1969.
Mr. Patricof serves as a director of CoreComm and Boston Properties, Inc.,
which are publicly held, and Johnny Rockets Group, Inc., which is a
privately held company.
Warren Potash has been a director of the Company since its
formation. Mr. Potash retired in 1991 as President and Chief Executive
Officer of the Radio Advertising Bureau, a trade association, a position he
held since February 1989. Prior to that time and beginning in 1986, he was
President of New Age Communications, Inc., a communications consultancy
firm. Until his retirement in 1986, Mr. Potash was a Vice President of
Capital Cities/ABC Broadcasting, Inc., a position he held since 1970. Mr.
Potash is also a director of CoreComm.
Jean-Louis Vinciguerra has been a director of the Company since
August 1999. Mr. Vinciguerra was an executive officer of BZW from 1995
until 1996 and served as the representative to Asia for Credit Agricole
Indosuez from 1997 until 1998. He has been Senior Executive Vice President
and Chief Financial Officer of France Telecom since 1998.
Michael S. Willner, a director of the Company since October 1993,
is President, CEO, and a Director of Insight Communications, Inc., the
eighth largest cable company in the U.S. He also is a director of C-SPAN
and CableLabs, and is the Chairman and member of the executive committee of
the board of directors of the National Cable Television Association.
Richard J. Lubasch is the Company's Executive Vice President --
General Counsel and Secretary, and has been the Company's Senior Vice
President -- General Counsel and Secretary since its formation. Mr. Lubasch
was also Senior Vice President -- General Counsel and Secretary of CCPR
prior to its sale in August 1999. Mr. Lubasch also held these titles, as
well as Treasurer, at CCII prior to its sale in March 1999.
John F. Gregg has been the Company's Chief Financial Officer and
Senior Vice President since June 1999. Prior to June 1999, Mr. Gregg was
Vice President of Corporate Development since June of 1997. Mr. Gregg
joined the Company in 1994 as Managing Director of Corporate Development.
He is Vice Chairman and a director of Virgin Net, a joint venture between
the Company and Virgin Communications Group, a director of
Bredbandsbolaget, a Swedish company in which NTL holds a 34% interest and a
director of eKabel Hessen GmbH, a German company in which NTL holds a 32.5%
interest. Mr. Gregg is also a director of Two Way TV, an interactive
programming company. Prior to his employment by the Company, Mr. Gregg was
employed by Golder, Thoma & Cressey, a venture capital firm.
Stephen A. Carter is the Company's Senior Vice President and Chief
Operating Officer of its UK and Ireland operations. Before joining NTL in
November 2000, Mr. Carter was with J. Walter Thompson, having been
appointed Managing Director of J. Walter Thompson's London Office in 1994,
and, three years later took overall control as Chief Executive Officer of
J. Walter Thompson's UK and Ireland Group. Mr. Carter is also a
non-Executive Director of Trucost Plc and a Trustee of Raleigh
International, a registered UK charity.
Bruno Claude is the Company's Senior Vice President and the Chief
Operating Officer for NTL Europe. Prior to joining the Company in October
2000, Mr. Claude was Managing Director of CEA Capital Advisor, the
affiliate of CEA responsible for the firm's private equity activities.
Prior to this, Mr. Claude held various positions with Prime Cable, a
company operating Cable Television Systems across the United States. From
1987 to 1991, Mr. Claude was Director of Operations and in 1991, he was
appointed Managing Director of PrimeComm, a company formed by Prime Cable
to acquire interests in businesses involved in the broader
telecommunications arena.
Gregg N. Gorelick has been the Company's Vice President --
Controller since its formation. From 1981 to 1986 he was employed by Ernst
& Whinney (now known as Ernst & Young LLP). Mr. Gorelick is a certified
public accountant and was Vice President -- Controller of CCI from 1986
until the CCI Merger. He is also Senior Vice President - Controller and
Treasurer of CoreComm, and was Vice President -- Controller at CCII prior
to its sale in March 1999 and at CCPR prior to its sale in August 1999.
Bret Richter is the Company's Vice President for Corporate Finance
and Development. Mr. Richter is primarily responsible for the Company's
strategic initiatives, mergers and acquisitions, investor relations and
capital raising activities. Prior to joining NTL in September 1994, Mr.
Richter was a member of the media and telecommunications investment banking
group at Salomon Brothers, where he specialized in mergers and
acquisitions.
Steven L. Wagner is the Managing Director of Consumer Services for
NTL Europe. Mr. Wagner is responsible for managing the Company's consumer
businesses across the European continent. Prior to his current position Mr.
Wagner was the Group Managing Director for Media and Marketing for NTL UK.
Mr. Wagner joined the Company in 1994 with management responsibility for
the Company's consumer business. Mr. Wagner has spent over 15 years in consumer
and business related activities. Prior to joining the Company, Mr. Wagner
served most recently as Vice President, Eastern Region for the Walt Disney
Company's premium television network.
Executive officers of the Company are elected annually by the
Board of Directors and serve until their successors are duly elected and
qualified.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), requires that the Company's directors and executive
officers, and persons who beneficially own more than 10% of a registered
class of the Company's equity securities file with the SEC, and with each
exchange on which the common stock trades, initial reports of ownership and
reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than 10% beneficial owners
are required by the SEC's regulations to furnish the Company with copies of
all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies
of such reports furnished to the Company and written representations that
no other reports were required during the fiscal year ended December 31,
2001, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10% beneficial owners were complied with.
Item 11. Executive Compensation
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
POLICY
The Compensation and Option Committee (the "Compensation
Committee") of the Board of Directors has the responsibility for the design
and implementation of the Company's executive compensation program. The
Compensation Committee is composed entirely of non-employee directors. The
current members of the Compensation Committee are Sidney R. Knafel, Ted H.
McCourtney and Jean-Louis Vinciguerra.
The Company's executive compensation program is designed to be
linked to corporate performance. To this end, the Company has developed an
overall compensation strategy and specific compensation plans that tie a
very significant portion of an executive's aggregate compensation to the
appreciation in the Company's stock price. In addition, executive bonuses
are linked to the achievement of operational goals and therefore relate to
stockholder return. The overall objective of this strategy is to attract
and retain executive talent, to motivate these executives to achieve the
goals inherent in the Company's business strategy and to link executive and
stockholder interests through equity-based compensation, thereby seeking to
enhance the Company's profitability and stockholder value.
Each year the Compensation Committee conducts a review of the
Company's executive compensation program to determine the appropriate level
and forms of compensation. Such review permits an annual evaluation of the
link between the Company's performance and its executive compensation.
In assessing compensation levels for the named executives, the
Compensation Committee recognizes the fact that certain executives have
participated in the development of the Company (and its predecessors) from
its earliest stages. In determining the annual compensation for the Chief
Executive Officer, the Compensation Committee uses the same criteria as it
does for the other named executives.
BASE SALARY AND BONUS
In furtherance of the Company's incentive-oriented compensation
goals set forth above, cash compensation (annual base salary and bonus) is
generally set below levels paid by comparable sized telecommunications
companies and is supplemented by equity-based option grants. With respect
to fiscal year 2001, the aggregate annual base salary paid by the Company
for the named executive officers increased in the aggregate by
approximately $117,000 from 2000 levels. The 2001 base salary for the Chief
Executive Officer increased $33,427 to $277,260.
STOCK OPTIONS
Under the Company's stock option plan, stock options were granted
to certain of the named executive officers during 2001. Information with
respect to such option grants to the named executive officers is set forth
in the table entitled "Option Grants in Last Fiscal Year."
Stock options are designed to align the interests of executives
with those of stockholders. The options generally are granted at an
exercise price equal to the market price of the common stock on the date of
grant and vest over a period of five years.
Accordingly, the executives are provided additional incentive to
create stockholder value over the long term since the full benefit of the
options cannot be realized unless stock price appreciation occurs over a
number of years. In determining individual option grants, the Compensation
Committee takes into consideration the number of options previously granted
to that individual, the amount of time and effort dedicated to the Company
during the preceding year and expected commitment to the Company on a
forward-looking basis. The Compensation Committee also strives to provide
each option recipient with an appropriate incentive to increase stockholder
value, taking into consideration their cash compensation levels.
In 1996, 1997 and 1999, Mr. Knapp did not receive an option grant.
In 1995, Mr. Knapp received an option to purchase 416,668 shares of common
stock with an exercise price of $14.64. In 1998, Mr. Knapp received an
option to purchase 1,484,375 shares of Common Stock with an exercise price
of $23.36. In 2000, Mr. Knapp received an option to purchase 7,250,000
shares of common stock with an exercise price of $63.63. In 2001 Mr. Knapp
received an option to purchase 5,000,000 shares of common stock with an
exercise price of $10.00. Mr. Knapp now owns 459,967 shares of common stock
and holds options to purchase an additional 16,185,250 shares.
COMPENSATION DEDUCTION CAP POLICY
In 1996, the Company's stockholders approved an amendment to the
Company's 1993 Employee Stock Option Plan (the "1993 Plan") to, among other
things, comply with the requirements regarding non-deductibility of
compensation in excess of $1 million under sec.162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). Any compensation realized
from the exercise of such stock options granted pursuant to the 1993 Plan
at fair market value as of the date of grant thus generally would be exempt
from the deduction limitations under sec.162(m) of the Code. Compensation
realized from the exercise of stock options not granted pursuant to a plan
or granted pursuant to the Company's 1998 Non-Qualified Stock Option Plan
would not be exempt from the deduction limitation under sec.162(m) of the
Code. Other annual compensation, such as salary and bonus, is not expected
to exceed $1 million per executive.
THE COMPENSATION AND OPTION COMMITTEE
Sidney R. Knafel
Ted H. McCourtney
Jean-Louis Vinciguerra
GENERAL
The following table discloses compensation received by the Company's
Chief Executive Officer and the four other most highly paid executive
officers for the three years ended December 31, 2001.
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Securities
Restricted Underlying
Other Annual Stock Options/ LTIP All Other
Salary Bonus Compensation Awards(s) SARs Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($)(1)
- --------------------------- ---- --- --- ------ --- --- --- ------
Barclay Knapp.............. 2001 277,260 561,138 -- -- 5,000,000 -- 7,000
President and Chief 2000 243,833 249,813 -- -- 7,250,000 -- 17,200
Executive Officer 1999 273,333 262,500 -- -- -- -- 16,000
George S. Blumenthal....... 2001 277,260 561,138 -- -- 5,000,000 -- 7,000
Chairman and Treasurer 2000 243,833 249,813 -- -- 7,250,000 -- 17,200
1999 273,333 262,500 -- -- -- -- 16,000
Richard J. Lubasch......... 2001 233,692 384,875 -- -- -- -- 7,000
Executive Vice 2000 205,517 178,438 -- -- 500,000 -- 17,200
President--General 1999 235,083 187,500 -- -- 117,188 -- 16,000
Counsel and Secretary
John F. Gregg.............. 2001 240,220 591,250 -- -- -- -- 7,000
Chief Financial Officer and 2000 214,960 228,125 -- -- 1,000,000 -- 17,200
Senior Vice President 1999 201,400 187,500 -- -- 156,250 -- 16,000
Stephen A. Carter........... 2001 431,790 278,112 -- -- -- -- 6,738
Senior Vice President and 2000 60,636 -- -- -- 400,000 -- 38,384
Chief Operating Officer 1999 -- -- -- -- -- -- --
UK and Ireland operations
- --------------
(1) All other compensation reflects the Company's match of employee
contributions to a 401(k) plan or in the case of Stephen Carter,
contributions to Mr. Carter's UK executive pension scheme.
OPTION GRANTS TABLE
The following table provides information on stock option grants
during 2001 to the named executive officers.
Option Grants in Last Fiscal Year(1)
Individual Grants
-----------------
Number of
Securities % of Total Potential Realizable Value
Underlying Options at Assumed Annual Rate
Options Granted to Exercise or of Stock Price Appreciation
Granted Employees in Base Price Expiration for Option Term(3)
Name (#) Fiscal Year ($/Share) Date 5%($) 10%($)
- ---- --- ----------- ---------- ---- ----- ------
Barclay Knapp....................... 5,000,000(2) 38.76% 10.00 11/06/11 0 14,071,800
George G. Blumenthal................ 5,000,000(2) 38.76% 10.00 11/06/11 0 14,071,800
Richard J. Lubasch.................. -- -- -- -- -- --
John F. Gregg....................... -- -- -- -- -- --
Stephen A. Carter................... -- -- -- -- -- --
(1) Upon a change of control of the Company, all unvested options become
fully vested and exercisable.
(2) The options were granted on November 7, 2001 at an exercise price
which was more than twice as high as the closing price of the
common stock on The New York Stock Exchange on such date; 20% were
exercisable upon issuance; an additional 20% became exercisable on
January 1, 2002 and an additional 20% will become exercisable on
each of January 1, 2003, 2004 and 2005.
(3) The amounts shown in these columns are the potential realizable
value of options granted at assumed rates of stock price
appreciation (5% and 10%) specified by the SEC based on the
closing price of our common stock on the grant date which was
$4.94, and have not been discounted to reflect the present value
of such amounts. Our common stock closed at $0.20 on March 26,
2002, the last day our stock traded on the New York Stock Exchange
before suspension. The assumed rates of stock price appreciation
are not intended to forecast the future appreciation of the common
stock.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table provides information on stock option exercises during
2001 by the named executive officers and the value at December 31, 2001 of
unexercised in-the-money options held by each of the named executive
officers.
Aggregated Option Exercises in Last Fiscal Year-End and Fiscal Year-End Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares FY-End(#) FY-End($)*
Acquired on Value Exercisable(E)/ Exercisable(E)/
Name Exercise(#) Realized($) Unexercisable(U) Unexercisable(U)
- ---- ----------- ----------- ---------------- ----------------
Barclay Knapp............................... 91,020 747,411 4,769,625(E) 0 (E)
11,415,625(U) 0 (U)
George S. Blumenthal........................ 156,248 184,807 4,345,481(E) 0 (E)
11,415,625(U) 0 (U)
Richard J. Lubasch.......................... -- -- 816,352(E) 0 (E)
498,438(U) 0 (U)
John F. Gregg............................... -- -- 752,084(E) 0 (E)
1,143,750(U) 0 (U)
Stephen A. Carter........................... -- -- 240,000(E) 0 (E)
160,000(U) 0 (U)
- ------------
o Based on the closing price on the NYSE on December 31, 2001 of $0.94,
there were no in-the-money options.
COMPENSATION OF DIRECTORS
Our non-employee directors are paid $500 for each general meeting
and committee meeting they attend. We reimburse our non-employee directors
for their out-of-pocket costs associated with attending.
EMPLOYMENT CONTRACTS
None of our Chief Executive Officer or named executive officers
are party to employment contracts with the Company other than Stephen A. Carter.
Mr. Carter and the Company entered into an employment agreement on December 6,
2000 for an initial term of two years, which will be extended for successive
12 month terms unless notice is given by either the Company or Mr. Carter at
least 12 months prior to the end of the initial term or the extended term, as
the case may be. The agreement entitles Mr. Carter to a base salary of UK
300,000 per year and variable compensation of between UK 150,000 and UK 300,000
per year, subject to increase at the discretion of the Company's compensation
committee. The agreement also provided for an initial award of 400,000 stock
options, exercisable at the market price on the date of the grant, under the
Company's stock option plan and provides for additional grants of 50,000 share
options, under the Company's then existing stock option plan, at the
commencement of the second year of the initial term and the commencement of any
extended terms. Pursuant to the employment agreement, Mr. Carter is subject to
standard non-competition, non-solicitation and confidentiality provisions.
PERFORMANCE GRAPH
The following graph compares the cumulative return on the common
stock with the Nasdaq Stock Market (U.S.) Index (the "Nasdaq (U.S.)
Index"), the Center for Research in Security Prices Index of Nasdaq
Telecommunications Stocks (the "CRSP Index") and the Peer Group Index. In
the Company's view, the Peer Group Index, which includes British Telecom
plc, Cable and Wireless plc, Telewest Communications plc and United
Pan-Europe Communications N.V. provides a better representation of the
performance of telecommunications companies over the required period than
the broader based CRSP Index.
On October 27, 2000, the Company ceased trading on the Nasdaq and
began trading on the New York Stock Exchange. The Company's common stock
closed at $0.20 on March 26, 2002 the last day the stock was traded on the
NYSE before it was suspended from the NYSE pending delisting.
The graph assumes that $100 was invested on December 31, 1996.
Comparison of NTL Incorporated, the Peer Group Index,
the CRSP Index and the Nasdaq (U.S.) Index
29-Dec-96 31-Dec-97 31-Dec-98 31-Dec-99 31-Dec-00 31-Dec-01
Nasdaq (U.S.) Index 100.00 121.64 169.84 315.20 191.36 151.07
CRSP Index 100.00 142.00 232.00 470.29 214.64 109.60
NTL Incorporated 100.00 110.40 223.51 617.57 148.13 5.82
The Peer Group Index 100.00 109.03 201.61 311.00 141.52 65.67
- --------------------
Note: Stock price performance shown above for the common stock is
historical and not necessarily indicative of future price performance.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the common stock of the Company, as of April 26,
2002 by (i) each executive officer and director of the Company, (ii) all
directors and executive officers as a group and (iii) shareholders holding
5% or more of the common stock.
Amount and Nature of Beneficial Ownership
---------------------------------------------------------
Presently
Exercisable
Options
Warrants,
Convertible
Bonds and
Common Exchangeable Current Percentage
Name of Beneficial Owner Stock Preferred (1) Total Of Class(2)
- ------------------------------------------------- ----------------------------------------------------------
Barclay Knapp 459,967 7,154,000 7,613,967 2.68%
George S. Blumenthal (3) 269,465 6,729,856 6,999,321 2.47%
Richard J. Lubasch (4) 61,249 816,352 877,601 *
Stephen A. Carter 0 240,000 240,000 *
John F. Gregg (5) 1,250 979,635 980,885 *
Gregg N. Gorelick 85,154 188,065 273,219 *
Bret Richter 291 253,387 253,678 *
Steven L. Wagner 0 474,066 474,066 *
Bruno J. Claude 0 225,000 225,000 *
-----------------------------------------------------------
Executive 877,376 16,835,361 17,712,737 6.03%
Officers
Robert T. Goad (6) 1,638,685 150,000 1,788,685 *
Sidney R. Knafel (7) 2,086,042 320,485 2,406,527 *
Ted H. McCourtney (8) 23,993 320,485 344,478 *
Alan J. Patricof (9) 11,263 320,485 331,748 *
Warren Potash (10) 42,170 251,036 293,206 *
Michael S. Willner (11) 694,201 292,449 986,650 *
-----------------------------------------------------------
NTL Directors 4,496,354 727,750 5,224,104 1.87%
Directors and Officers as a group 5,373,730 17,563,111 22,936,841 7.81%
France Telecom S.A. (12) 50,680,752 39,058,641 89,739,393 28.43%
Capital Research and Management Company (13) 32,135,130 0 32,135,130 11.62%
Cable & Wireless plc (14) 28,110,413 0 28,110,413 10.16%
Verizon Communications, Inc. (15) 24,469,861 0 24,469,861 8.85%
AXA Assurances I.A.R.D. Mutuelle (16) 22,405,118 641,412 23,046,530 8.31%
* Represents less than one percent
(1) Includes shares of NTL common stock purchased upon the exercise of
options which are exercisable or become so in the next 60 days
("Presently Exercisable Options"), shares of NTL common stock
issuable upon the conversion of the 7% Convertible Subordinated Notes
due 2008 or 5.75% Convertible Subordinated Notes due 2009 (the
"Convertible Bonds") and shares of common stock issuable upon the
exchange of the Senior Redeemable Exchangeable Preferred Stock which
are exchangeable or become so in the next 60 days (the "Exchangeable
Preferred"). Of the options, warrants, Convertible bonds and
exchangeable preferred shown in the table above: (a) 610,309 options
were assumed by NTL in 1993, having a weighted average exercise price
of $1.08 per share; and (b) 12,163,088 options are employee and
non-employee director options that have been issued by NTL under the
1993 Employee Stock Option Plan, the 1993 Non-Employee Director Stock
Option Plan, the 1998 Non-Qualified Stock Option Plan or certain
other stock option agreements, having a weighted average exercise
price of $16.82 per share.
(2) Includes common stock, Presently Exercisable Options, warrants,
Convertible Bonds and Exchangeable Preferred.
(3) Includes 3,299 shares of common stock owned by trusts for the benefit
of Mr. Blumenthal's children and also includes 152,092 shares of
common stock held by George S. Blumenthal's 1998 Annuity Trust. Also
includes 465,878 options held in Grantor Retained Annuity Trusts.
(4) Includes 174 shares of common stock owned by Mr. Lubasch as custodian
for his child, as to which shares Mr. Lubasch disclaims beneficial
ownership.
(5) Mr. Gregg owns $100,000 of the 7% Convertible Subordinated Notes due
2008, convertible into 2,551 shares of common stock.
(6) Mr. Goad personally owns 30,249 shares of common stock. The remainder
are owned by Columbia Management, Inc., Mr. Goad's wholly-owned
Investment Company.
(7) Includes 25,958 shares of common stock owned by Insight
Communications UK, Inc., Mr. Knafel's wholly-owned Investment
Company. Also includes 73,363 shares of common stock owned by a
foundation of which Mr. Knafel is President, as to which shares Mr.
Knafel disclaims beneficial ownership.
(8) An additional 872 shares of common stock are held by trusts for the
benefit of Mr. McCourtney's children, as to which Shares Mr.
McCourtney disclaims beneficial ownership.
(9) Includes 499 shares of common stock owned by Mr. Patricof's wife, as
to which shares Mr. Patricof disclaims beneficial Ownership.
(10) Mr. Potash owns $500,000 of the 7% Convertible Subordinated Notes due
2008, convertible into 12,755 shares of common stock.
(11) Includes 138,579 shares of common stock held by trust accounts for
the benefit of Mr. Willner's children, as to which Shares Mr. Willner
disclaims beneficial ownership.
(12) Based upon Schedule 13D/A (Amendment No. 9), dated April 26, 2002,
filed by France Telecom S.A. and Compagnie Generale des
Communications (COGECOM) S.A. with the Securities and Exchange
Commission (the "SEC").
(13) Based soley upon Schedule 13G (Amendment No. 4), dated February 11,
2002, filed by Capital Research and Management Company with the
Securities and Exchange Commission (the "SEC").
(14) Based upon Schedule 13-G (Amendment No. 1), dated February 14, 2002,
filed by Cable and Wireless plc, with the Securities and Exchange
Commission (the "SEC").
(15) Based solely upon Schedule 13-G filed on April 9, 2001, by Verizon
Communications, Inc., Bell Atlantic Worldwide Services Group, Inc.,
Bell Atlantic Network Systems Company, and NYNEX Corporation with the
Securities and Exchange Commission (the "SEC").
(16) Based solely upon Schedule 13-G (Amendment No. 3), dated February 12,
2002, filed by AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie
Mutuelle, AXA Conseil Vie Assurance Mutuelle, AXA Courtage Assurance
Mutuelle, AXA and AXA Financial, Inc. with the Securities and
Exchange Commission (the "SEC").
Item 13. Certain Relationships and Related Transactions
In the fourth quarter of 1999, CoreComm Limited ("CoreComm")
(which was formed in 1998) began charging the Company a percentage of its
office rent and supplies expense in respect of certain facilities which
were shared with the Company.
In 2001, the Company charged CoreComm $0.3 million for direct
costs where identifiable and a fixed percentage of its corporate overhead,
net of CoreComm's charges to the Company. These charges reduced corporate
expenses in 2001. It is not practicable to determine the amounts of these
expenses that would have been incurred had the Company operated as an
unaffiliated entity. In the opinion of management of the Company, the
allocation methods are reasonable.
The Company obtains billing and software development services from
CoreComm. CoreComm billed the Company $3.4 in 2001for these services.
In March 2000, the Company and CoreComm announced that they had
entered into an agreement to link their networks in order to create an
international Internet backbone that commenced operations in February 2001.
The Company incurred costs of $0.3 million for network usage in the year
ended December 31, 2001.
On April 12, 2001, the Company purchased $15.0 million of an
unsecured convertible note from CoreComm and received warrants to purchase
770,000 shares of CoreComm common stock at an exercise price of $.01 per
share that expire in April 2011.
Barclay Knapp and Gregg Gorelick are executive officers of both
the Company and CoreComm. In addition, Barclay Knapp, Warren Potash, George
Blumenthal and Alan Patricof are directors of the Company and CoreComm. In
the light of this relationship, the independent directors of the Company
examined the transaction with CoreComm and the Board of Directors of the
Company determined that the transaction was inherently fair to the Company
and provided the Company with benefits that exceeded those that could be
obtained from a third party.
Interest on the notes is at 10.75% per annum, payable semiannually
beginning on October 15, 2001. The interest is payable in kind by the
issuance of additional notes in such principal amount equal to the interest
payment that is then due. The notes are convertible into CoreComm common
stock prior to maturity at a conversion price of $1.00 per share, subject
to adjustment. Additional notes issued for interest will have an initial
conversion price equal to 120% of the weighted average closing price of
CoreComm common stock for a specified period. The Company and CoreComm have
agreed to certain modifications to the conversion feature in connection
with CoreComm's recapitalization in December 2001.
In 2001, the Company and CoreComm entered into a license agreement
whereby the Company was granted an exclusive, irrevocable, perpetual
license to certain billing software developed by CoreComm for telephony
rating, digital television events rating, fraud management and other tasks.
The sales price was cash of $9.8 million for the development costs expended
by CoreComm plus a fixed amount of $3.0 million representing the one-time
perpetual license fee. The billing software was being used by the Company
at the time of this agreement, and was being maintained and modified by
CoreComm under an ongoing software maintenance and development outsourcing
arrangement between the companies.
At December 31, 2001 and December 31, 2000, the Company had a
receivable from CoreComm of $1.1 million and a payable to CoreComm of $17.1
million, respectively. The 2000 payable balance primarily related to
services and other charges billed in advance in October and November 2000
of $15.8 million.
On November 1, 2001, we announced that we had entered into an
agreement dated September 28, 2001, with Orange plc for the provision of a
new mobile phone service, for NTL's existing and prospective residential
customers across the UK. France Telecom, one of our principal holders of
common stock and a holder of our 5% cumulative preferred stock, acquired
Orange plc in August 2001. Prior to France Telecom's acquisition, our
broadcast division provided Orange with sight leasing services and
continues to do so.
Item 14. Exhibits
Exhibit Description
------- -----------
10.1 Employment Agreement, dated December
6, 2000 between NTL Incorporated and
Stephen Carter
10.2 Employment Agreement, dated October
16, 2000, between NTL Incorporated and
Bruno Claude
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 under signed thereunto duly authorized.
Dated: April 30, 2002
NTL INCORPORATED
/s/ Barclay Knapp
----------------------------
By: Barclay Knapp
President and Chief Executive Officer
EXHIBIT INDEX
Exhibit Description
------- -----------
10.1 Employment Agreement, dated December
6, 2000 between NTL Incorporated and
Stephen Carter
10.2 Employment Agreement, dated October
16, 2000, between NTL Incorporated and
Bruno Claude
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement is made as of December 6, 2000 by and between NTL
Incorporated (the "Company"), and Stephen Carter (the "Executive").
1. Duties and Scope of Employment.
(a) Positions; Duties. During the Employment Term (as defined in
Section 2), the Company shall employ Executive as the Company's Senior Vice
President, Chief Operating Officer - UK and Ireland. In such capacity,
Executive shall be located in the UK, and shall serve as the Chief
Operating Officer of the subsidiaries of the Company that are in the
telephone, cable and internet business in the UK and the Republic of
Ireland ("NTL UK"). Executive shall report directly to the Chief Executive
Officer of the Company. Executive shall also perform such duties, which
shall not be inconsistent with the above-described position as are
reasonably assigned to him from time to time by the Chief Executive Officer
of the Company.
(b) Obligations. During the Employment Term, Executive shall
devote substantially all of his business efforts and time to the Company.
Executive agrees, during the Employment Term, not to actively engage in any
other employment, occupation or consulting activity for any direct or
indirect remuneration without the prior approval of the Chief Executive
Officer of the Company; provided, however, that Executive may (i) serve in
any capacity with any professional, community, industry, civic, educational
or charitable organization, (ii) manage his and his family's personal
investments and legal affairs, and (iii) serve on such boards of directors
as are set forth in a list previously furnished to the Chief Executive
Officer of the Company, so long as such activities described in (i), (ii)
and (iii) do not materially interfere with the discharge of Executive's
duties (including, but not limited to, any conflict of interest or
confidentiality matters).
2. Employment Term.
(a) The Company agrees to employ Executive and Executive accepts
employment, in accordance with the terms and conditions set forth in this
Agreement, commencing on and as of the actual commencement date of
Executive's employment hereunder, which shall be November 14, 2000 (the
"Employment Commencement Date") and expiring on November 13, 2002 (such
period being the "Initial Employment Term"), unless earlier terminated as
hereinafter provided.
(b) The Initial Employment Term shall be extended for successive
12 month periods (each an "Extended Employment Term") unless no later than
12 months prior to the end of the Employment Term or an Extended Employment
Term, as the case may be, either the Company or the Executive shall give
notice under this Agreement that the Employment Agreement shall terminate
at the end of the Employment Term or the Extended Employment Term.
(c) As used in this Agreement, the phrase "Employment Term" shall
mean the Initial Employment Term or, if applicable, the Extended Employment
Term, and if the Initial Employment Term or any Extended Employment Term
has been extended for a further 12 month period as provided in paragraph
2(b), shall mean the period ending on the last day of that twelve month
period.
3. There is an obligation on the Company to provide work to the Executive
and the Company shall have no right to put the Executive on garden leave.
4. Compensation/Benefits. During the Employment Term, the Company shall pay
and provide Executive the following:
(a) Cash Compensation. As compensation for his services to the
Company, Executive shall receive a base salary ("Base Salary") and shall be
eligible to receive additional variable compensation. The Executive's
annual Base Salary shall be (pound)300,000, The Executive's annual variable
compensation amount shall be at no less than (pound)150,000 ("Base Annual
Variable Compensation) in addition to which the Executive may receive
further annual variable compensation as the Compensation Committee shall in
its sole discretion determine (on the understanding that such further
annual variable compensation shall be no greater than (pound)150,000).
During the Employment Term, the Compensation Committee of the Board (the
""Compensation Committee") shall with the advice of the Company's Chief
Executive Officer review at least annually Executive's Base Salary and
variable compensation then in effect and shall increase such amounts as the
Compensation Committee may approve. Such Base Salary and, variable
compensation shall be payable in accordance with the Company's normal
payroll practices (which practice includes pro-rata payments of Base Salary
and annual variable compensation for partial years). The annual variable
compensation shall be paid during the month of March following the
Company's financial year end.
(b) Equity Compensation.
(i) Initial Grants. The Compensation Committee of the Board,
which administers the Company's current Stock Option Plan
(the "Plan"), has awarded Executive, as of the Employment
Commencement Date, a non-qualified stock option (the
"Initial Stock Option") under the Company's Plan to purchase
a total of 400,000 shares of Company's common stock (the
"Common Stock"), with a per share exercise price (the
"Exercise Price") equal to 100% of the fair market value of
the Company's Common Stock as of the Employment Commencement
Date (which shall be the issuance date of the Initial Stock
Option). The Initial Stock Option is for a term of 10 years
and shall vest 20% on the date of its issuance and an
additional 20% on each January 1 thereafter, until fully
vested. The other terms and conditions of the Initial Stock
Option are set forth in the standard form of option
agreement that is attached to this Agreement as Exhibit A,
except to the extent that any provision of this Agreement
shall specifically modify such standard form of agreement,
in which case this Agreement shall be controlling.
(ii) Further Grants. On or around the commencement of the second
year of the Initial Employment Term and the commencement of
each Extended Employment Term but in any event prior to 31
December in the relevant year, Executive will be granted an
additional stock option to purchase 50,000 shares of the
Company's Common Stock under the Company's then existing
stock option plan with a per share exercise price equal to
100% of the fair market value of the Company's Common Stock
on the date of grant and on such other terms that are
described in subparagraph (i) of this paragraph 3 including
the provisions for vesting.
(c) Employee Benefits. Executive shall, subject to the rules of
the relevant schemes, be entitled to participate at a level commensurate
with his position in all employee benefit welfare programs provided by the
Company to its senior executives in accordance with the terms as in effect
from time to time.
(d) Business and Entertainment Expenses. Upon submission of
appropriate documentation in accordance with its policies in effect from
time to time, the Company shall pay or reimburse Executive for all business
expenses which Executive incurs in performing his duties under this
Agreement, including, but not limited to, travel, entertainment,
professional dues and subscriptions, and all dues, fees, and expenses
associated with membership in various professional, business, and civic
associations and societies in which Executive participates in accordance
with the Company's policies in effect from time to time.
(e) The Employee shall, subject to the rules of the relevant
schemes, be entitled to receive the Retirement Benefit and Employee
Benefits described on Exhibit A, which Exhibit in the case of duplication
with any other benefit referred to above of similar nature or intent shall
be the benefit afforded to the Executive pursuant to this Agreement.
5. Termination of Employment
(a) Death or Disability. The Company may terminate Executive's
employment for disability in the event Executive has been unable to perform
his material duties under this Agreement for six (6) consecutive months
because of physical or mental incapacity by giving Executive notice of such
termination while such continuing incapacity continues (a "Disability
Termination") provided that no such notice of termination may be served
during a period when the Executive is entitled to payment under a permanent
disability insurance policy unless such policy provides for continuation of
benefit nothwithstanding such termination of employment. Executive's
employment shall automatically terminate on Executive's death. In the event
Executive's employment with the Company terminates during the Employment
Term by reason of Executive's death or a Disability Termination, then upon
the date of such termination (i) the Company shall promptly pay and provide
Executive (or in the event of Executive's death, Executive's estate) (A)
any unpaid Base Salary through the Employment Term and any accrued vacation
through the date of termination, (B) any unpaid variable compensation at
the base targeted level through the Employment Term, with respect to the
fiscal year ending on or preceding the date of termination, (C)
reimbursement for any unreimbursed expenses incurred through the date of
termination ((A), (B) and (C) being "Accrued Benefits") and (D) all other
payments, benefits or fringe benefits to which Executive may be entitled
through the Employment Term.
(b) Termination for Cause. The Company may terminate Executive's
employment for Cause. In the event that Executive's employment with the
Company is terminated during the Employment Term by the Company for Cause,
Executive shall not be entitled to any additional payments or benefits
under this Agreement, other than Accrued Benefits and such rights as shall
appear in the stock option agreements related to those Initial Grants and
Further Grants which shall have vested as at the date of such termination,
subject to the rules of the relevant scheme. For the purposes of this
Agreement, "Cause" shall mean the willful gross misconduct by Executive
with regard to the Company that is materially injurious to the Company. No
act, or failure to act, by Executive shall be "willful" unless committed
without a reasonable belief that the act or omission was in the best
interest of the Company.
(c) Voluntary Termination. Executive may voluntarily terminate his
employment by one week's prior written notice to the Company. In the event
that Executive's employment with the Company is voluntarily terminated
during the Employment Term by Executive, Executive shall not be entitled to
any additional payments or benefits under this Agreement, other than such
rights as shall appear in the stock option agreements related to those
Initial Grants and Further Grants which shall have vested as at the date of
such termination, subject to the rules of the relevant scheme.
(d) By Executive for Good Reason. Executive may terminate his
employment for Good Reason upon written notice to the Company, and in such
event, his employment termination shall be treated as a termination by the
Company under this clause 5. Good Reason shall mean:
(i) A material diminution of Executive's positions or
authority;
(ii) The assignment to Executive of any duties
materially inconsistent with Executive's position;
or
(iii) The failure by the Company to timely make any
payment due hereunder or to comply with any of the
material provisions of this Agreement, provided
that if the Company fails to timely make any such
payment or if the Company fails to comply with any
of the material provisions of this Agreement then
this sub-clause shall have effect only if written
notice of such a breach is served by the Executive
on the Company specifying that it is served under
this sub-clause and the Company shall have failed
to remedy such a breach within 14 days of the
service of such notice.
(e) The Company may, at its sole and absolute discretion,
terminate the Executive's employment forthwith at any time by serving a
notice under this clause stating that this Agreement is being determined in
accordance with this clause 5(e) and undertaking to pay to the Executive by
the next regular scheduled payroll payment date, a payment (subject to tax
and National Insurance) in lieu of the unexpired part of the Employment
Term. Where such termination is other than pursuant to subclause (a), (b)
or (c) of this clause 5, such payment shall be calculated in accordance
with the terms of clause 5(f). For the avoidance of doubt, where the
Company terminates this Agreement in accordance with this clause the terms
of, inter alia, clause 6 and the Confidentiality and Invention Agreement
shall remain in full force and effect.
(f) The payment to which clause 5(e) refers shall be all Base
Salary and Base Annual Variable Compensation (pro-rated for any partial
years) that would have been due under this Agreement had the employee
worked the remainder of the Employment Term. In computing the payment of
Executive's Base Salary and Base Annual Variable Compensation payable to
the Executive pursuant to the preceding sentence, the rate of the
Executive's Base Salary and Base Annual Variable Compensation that is in
existence as of the date of the termination shall be used. In the event of
a termination, Executive shall also be entitled to (i) the immediate
vesting of all Initial Stock Options and Further Grant Options (if any)
notwithstanding any provision to the contrary in the option agreements
relating thereto and (ii) a continuation of his then existing employee
benefits referred to in paragraph 4 (c), (d) and (e) above through the end
of the Employment Term, or such sum as will be necessary to enable the
Executive to acquire like benefits.
6. Non-Compete; Non-Solicit.
(i) In this clause 6 "Group Company" shall mean any undertaking
in or with which the Executive has been involved or
concerned in the 12 months preceding the Termination Date
and which from time to time is:
(a) a subsidiary undertaking of the Company;
(b) a parent undertaking of the Company; or
(c) a subsidiary undertaking of any such parent undertaking;
or any other undertaking:-
(a) in which any of the above holds directly or
indirectly; or
(b) which holds in any of the above directly or
indirectly;
50% or less of the issued share capital or voting rights.
"Subsidiary undertaking" and "parent undertaking" shall
have the meanings attributed to them by the Companies Act
1985.
(ii) The parties hereto recognize that Executive's services
are special and unique and that the level of compensation
and the provisions of this Agreement are partly in
consideration of and conditioned upon Executive's not
competing with any Group Company, and that Executive's
covenant not to compete or solicit as set forth in this
clause 6 during and after employment is essential to
protect the business and goodwill of the Group Companies.
(iii) Executive agrees that during the term of employment with
the Company and for a period of 12 months thereafter (the
"Covenant Period"), Executive shall not render services
for any of six specified organizations, such
organizations to be agreed between the parties and
delivered to Executive (the "Prohibited List"). The
Prohibited List may be changed by the Chief Executive
Officer of the Company from time to time (but there may
never be more than six entities listed) on a reasonable
commercial basis by written notice to Executive, such
notice to be effective only if Executive's commencement
of rendering services for such entity is 90 or more days
after the giving of such notice. The Prohibited List
shall not differ from that which applies to other senior
executives of any Group Company who are similarly
situated as to the scope of their employment and
geographical reach. The Prohibited List shall only
contain the names of companies which directly compete
with the Group Companies.
(iv) The Executive shall not, for a period of 12 months after
the termination of the employment of the Executive under
this Agreement ("the Termination Date")), directly or
indirectly, disrupt, damage or interfere with the
operation or business of the Company or any Group Company
by:
(a) soliciting away from the Company or any Group
Company; or
(b) endeavouring to solicit away from the Company or any
Group Company; or
(c) employing or engaging; or
(d) endeavouring to employ or engage,
any Key Personnel. In this clause "Key Personnel" means
any person who is at the Termination Date or was at any
time during the period of twelve months prior to the
Termination Date employed or engaged as a consultant in
any Group Company in an executive or senior managerial
capacity and with whom the Executive has had dealings
other than in a de minimis way during the said period (or
the term of the Executive's employment under this
Agreement if shorter).
(v) During the Covenant Period and thereafter (without
limitation in time), Executive shall not, without prior
written authorization from the Company, violate the
agreement entered into pursuant to clause 9 hereof.
(vi) Executive agrees that the Company would suffer an
irreparable injury if Executive was to breach the
covenants contained in this paragraph 6, and that the
Company would by reason of such breach or threatened
breach be entitled to seek injunctive relief in a court
of appropriate jurisdiction, as well as such other
remedies as may then be appropriate.
(vii) If any of the restrictions contained in this paragraph 6
shall be deemed to be unenforceable by reason of the
extent, duration or geographical scope or other
provisions thereof, then the parties contemplate that the
court shall reduce such extent, duration, geographical
scope or other provision hereof and enforce this
paragraph 6 in its reduced form for all purposes in the
manner contemplated hereby.
(viii) Notwithstanding the foregoing, the provisions of
paragraph 6(iii) shall not apply if there is a wrongful
termination of the Executive's employment or there is
termination by the Executive under clause 5(d).
7. Notices. All notices, requests, demands and other communications called
for under this Agreement shall be in writing and shall be deemed given if
(i) delivered personally or by facsimile, (ii) one day after being sent by
Federal Express or a similar commercial overnight service, or (iii) four
days after being mailed by registered or certified mail, return receipt
requested, prepaid and addressed to the parties or their successors in
interest at the following addresses, or at such other addresses as the
parties may designate by written notice in the manner aforesaid:
If to the Company: NTL Incorporated
110 E. 59th Street
New York, NY 10022
Attn: General Counsel
If to Executive: at the last residential address known
by the Company, which is currently
22 Melville Road
Barnes
London SW13 9RL
England
8. Severability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision.
9. Proprietary Information. Concurrently with the execution of this
Agreement, Executive shall enter into a confidentiality and proprietary
information agreement with the Company as provided in Exhibit C
("Confidentiality Agreement"), provided, however, that the foregoing shall
not preclude Executive from complying with due legal process or from
removing Company property from the Company's premises in furtherance of his
duties and obligations as provided hereunder.
10. Entire Agreement. This Agreement represents the entire agreement and
understanding between the Company and Executive concerning Executive's
employment relationship with the Company other than for the options being
granted to the Executive, and supersedes and replaces any and all prior
agreements and understandings concerning Executive's employment
relationship with the Company entered into prior to the date hereof but not
any written agreements entered into simultaneous with this Agreement or
thereafter.
11. Governing Law; Jurisdiction.
11.1 Subject to clause 11.2 below
(a) this Agreement shall be governed by the substantive laws of
England and Wales applicable to contracts and agreements made and to
be performed in England and Wales; and
(b) the Executive and the Company expressly consent to the
non-exclusive jurisdiction of the courts located in England and Wales
for any action or proceeding arising from or relating to this
Agreement.
11.2 Notwithstanding clause 11.1 above the terms of the Equity
Compensation referred to in clause 4(b) and Exhibit B shall be
governed by the substantive laws of New York applicable to contracts
and agreements made and to be performed in New York.
12. No Oral Modification, Cancellation or Discharge. This Agreement may
only be amended, canceled or discharged in writing signed by the Executive
and a duly authorized officer of the Company.
IN WITNESS WHEREOF, the undersigned have executed this Agreement.
NTL INCORPORATED
/s/ Barclay Knapp
-------------------------
Barclay Knapp,
Chief Executive Officer
EXECUTIVE
/s/ Stephen Carter
-------------------------
Stephen Carter
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement is made as of October 16, 2000 by and between NTL
Incorporated (the "Company"), and Bruno Claude (the "Executive").
1. Duties and Scope of Employment.
(a) Positions; Duties. During the Employment Term (as defined
in Section 2), the Company shall employ Executive as the
Company's Senior Vice President, Chief Operating Officer
- Europe. In such capacity, Executive shall be located in
Paris, France and shall serve as the Chief Operating
Officer of the Company's telephone, cable and internet
businesses and operations in Continental Europe ("NTL
Europe"). Executive shall report directly to the Chief
Executive Officer of the Company. Executive shall also
provide leadership of and assist in business development
activities in respect of NTL Europe, working in that
respect with the Chief Executive Officer of the Company
and its Chief Financial Officer. Executive shall perform
such duties, which shall not be inconsistent with the
above-described position as Chief Operating Officer of
NTL Europe, as are assigned to him from time to time by
the Chief Executive Officer of the Company.
(b) Obligations. During the Employment Term, Executive shall
devote substantially all of his business efforts and time
to the Company. Executive agrees, during the Employment
Term, not to actively engage in any other employment,
occupation or consulting activity for any direct or
indirect remuneration without the prior approval of the
Chief Executive Officer of the Company; provided,
however, that Executive may (i) serve in any capacity
with any professional, community, industry, civic,
educational or charitable organization; (ii) manage his
and his family's personal investments and legal affairs,
and (iii) serve on such boards of directors as are set
forth in a list previously furnished to the Chief
Executive Officer of the Company, so long as such
activities described in (i), (ii) and (iii) do not
materially interfere with the discharge of Executive's
duties (including, but not limited to, any conflict of
interest or confidentiality matters).
2. Employment Term.
(a) The Company agrees to employ Executive and Executive
accepts employment, in accordance with the terms and
conditions set forth in this Agreement, commencing on and
as of the actual commencement date of Executive's
employment hereunder, which shall be on a date between
September and October 15, 2000 (the "Employment
Commencement Date") and expiring on January 2, 2003 (such
period being the "Initial Employment Term"), unless
earlier terminated as hereinafter provided.
(b) The Initial Employment Term shall be extended for
successive 12 month periods (each an "Extended Employment
Term") unless no later than 12 months prior to the end of
the Employment Term or an Extended Employment Term, as
the case may be, either the Company or the Executive
shall give notice under this Agreement that the
Employment Agreement shall terminate at the end of the
Employment Term or the Extended Employment Term.
(c) As used in this Agreement, the phrase "Employment Term"
shall mean the Initial Employment Term or, if applicable,
the Extended Employment Term, and if the Initial
Employment Term or any Extended Employment Term has been
extended for a further 12 month period as provided in
paragraph 2(b), shall mean the period ending on the last
day of that twelve month period.
3. Compensation/Benefits. During the Employment Term, the Company
shall pay and provide Executive the following:
(a) Cash Compensation. As compensation for his services to
the Company, Executive shall receive a base salary ("Base
Salary") and shall be eligible to receive additional
variable compensation. The Executive's annual Base Salary
shall be EURO293,000, and his annual variable
compensation amount shall be targeted at no less than
EURO186,000 with an opportunity to earn up to at least
EURO373,000 in annual variable compensation. During the
Employment Term, the Compensation Committee of the Board
(the "Compensation Committee") shall with the advice of
the Company's Chief Executive Officer review at least
annually Executive's Base Salary and variable
compensation then in effect and shall increase such
amounts as the Compensation Committee may approve. Such
Base Salary and variable compensation shall be payable in
accordance with the Company's normal payroll practices.
(b) Expatriate Benefits. The Executive shall receive and be
entitled to the Company's presently existing expatriate
package of benefits to expatriates and their families
(with such changes from the present version as shall not
result in a detriment to the Executive or his family) who
are employed by the Company for positions overseas,
including but not limited to a housing and an automobile
allowance (in cash in respect of the automobile
allowance, at the Executive's option) of equivalent
amount to the Chief Operating Officer of the Company's
United Kingdom, Northern Ireland and the Republic of
Ireland operations, tax differentiation adjustments as
provided in Exhibit B, assuming a Florida, U.S.
residency, tuition reimbursement for the pre-college
education of the Executive's children and legal fees to
immigration counsel for the minor legal work required to
maintain the Executive's and his eldest son's now current
residency status in the U.S. In the even this Agreement
is terminated other than for Cause, the Company will pay
for Executive's (and his family's) costs of relocation
back to a location of Executive's choice provided that
the cost of such relocation shall not be in excess of
that of relocating back to the U.S. Notwithstanding any
other Company document to the contrary (i) any
post-employment Company payments to the Executive shall
include the benefits of the foregoing tax differentiation
adjustment and (ii) in addition to the foregoing benefits
the Company will pay for a furnished apartment for
Executive and his family commencing in the last week of
August 2000 until the Employment Commencement Date, at
which time the foregoing benefits shall apply.
(c) Equity Compensation.
(i) Initial Grants. The Compensation Committee of the
Board, which administers the Company's current
Stock Option Plan (the "Plan"), has awarded
Executive, as of the Employment Commencement Date,
a non-qualified stock option (the "Initial Stock
Option") under the Company's Plan to purchase a
total of 375,000 shares of Company's common stock
(the "Common Stock"), with a per share exercise
price (the "Exercise Price") equal to 100% of the
lower of the fair market value of the Company's
Common Stock as of either (i) the date of this
Agreement or (ii) the Employment Commencement Date
(which shall be the issuance date of the Initial
Stock Option). The Initial Stock Option is for a
term of 10 years and shall vest 20% on the date of
its issuance and an additional 20% on each January
1 thereafter, until fully vested. The other terms
and conditions of the Initial Stock Option are set
forth in the standard form of option agreement
that is attached to this Agreement as Exhibit A,
except to the extent that any provision of this
Agreement shall specifically modify such standard
form of agreement, in which case this Agreement
shall be controlling.
(ii) Initial Stock Option Guarantee. At any time in the
period between October 2, 2002 and January 2,
2003, Executive (or a permitted assignee of the
benefit of the option agreement) may notify the
Company of an election to surrender 300,000 of the
initial grant option for a cash payment of
$9,000,000. Payment of this amount may be deferred
by Executive for up to 12 months from the date of
the notice. Such surrender shall be permitted
whether or not an option is then vested, except in
an instance where an option is no longer
exercisable or has not vested as a result of
Executive's termination under this Agreement for
Cause (as defined below). Payment of such amount
shall be made by the Company within seven business
days following (i) receipt of the notice, or (ii)
if payment is deferred, the expiration of the
deferral period.
(iii) Further Grants. During each of the years of the
Initial Employment Term and the Extended
Employment Term, Executive will be granted an
additional stock option to purchase 50,000 shares
of the Company's Common Stock under the Company's
then existing stock option plan with a per share
exercise price equal to 100% of the fair market
value of the Company's Common Stock on the date of
the grant and on such other terms that are
described in subparagraph (i) of this paragraph 3
or are set forth in Exhibit A.
(d) Employee Benefits. Executive shall, to the extent
eligible, be entitled to participate at a level
commensurate with his position in all employee benefit
welfare and retirement plans and programs, provided by
the Company to its senior executives in accordance with
the terms as in effect from time to time.
(e) Business and Entertainment Expenses. Upon submission of
appropriate documentation in accordance with its policies
in effect from time to time, the Company shall pay or
reimburse Executive for all business expenses which
Executive incurs in performing his duties under this
Agreement, including, but not limited to, travel,
entertainment, professional dues and subscriptions, and
all dues, fees, and expenses associated with membership
in various professional, business, and civic associations
and societies in which Executive participates in
accordance with the Company's policies in effect from
time to time.
(f) Vacation. Executive shall be entitled to vacation time in
accordance with the standard written policies of the
Company with regard to senior executives, but in no event
less than four weeks of vacation per calendar year.
(g) Relocation. Executive shall be entitled to relocation
benefits pursuant to the Company's relocation benefit
program applicable to expatriates. For avoidance of
doubt, such relocation benefits to Executive shall
include (but not be limited to) all direct moving
expenses to Paris, France (the situs of Executive's
employment) and indirect expenses such as the cost of
termination of U.S. school agreements, Paris school
application fees, lost deposits in the U.S. and fees of a
corporate relocator.
4. Termination of Employment
(a) Death or Disability. The Company may terminate
Executive's employment for disability in the event
Executive has been unable to perform his material duties
under this Agreement for six (6) consecutive months
because of physical or mental incapacity by giving
Executive notice of such termination while such
continuing incapacity continues (a "Disability
Termination"). Executive's employment shall automatically
terminate on Executive's death. In the event Executive's
employment with the Company terminates during the
Employment Term by reason of Executive's death or a
Disability Termination, then upon the date of such
termination (i) the Company shall promptly pay and
provide Executive (or in the event of Executive's death,
Executive's estate) (A) any unpaid Base Salary through
the Employment Term and any accrued vacation through the
date of termination, (B) any unpaid variable compensation
at the base level through the Employment Term, with
respect to the fiscal year ending on or preceding the
date of termination, (C) reimbursement for any
unreimbursed expenses incurred through the date of
termination ((A), (B) and (C) being "Accrued Benefits")
and (D) all other payments, benefits or fringe benefits
to which Executive may be entitled though the Employment
Term.
(b) Termination for Cause. The Company may terminate
Executive's employment for Cause. In the event that
Executive's employment with the Company is terminated
during the Employment Term by the Company for Cause,
Executive shall not be entitled to any additional
payments or benefits under this Agreement, other than
Accrued Benefits and such rights as shall appear in the
stock option agreements related to the Initial Grants and
the Further Grants. For the purposes of this Agreement,
"Cause" shall mean (i) the willful failure by Executive
to substantially perform his duties with the Company
(other than any such failure resulting from his
incapacity due to physical or mental impairment), unless
any such failure is corrected with thirty days following
written notice by the Chief Executive Officer of the
Company that specifically identifies the manner in which
the Chief Executive Officer of the Company believes
Executive has substantially not materially perform his
duties or (ii) the willful gross misconduct by Executive
with regard to the Company that is materially injurious
to the Company. No act, or failure to ac, by Executive
shall be "willful" unless committed without a reasonable
belief that the act or omission was in the best interest
of the Company.
(c) Voluntary Termination. Executive may voluntarily
terminate his employment at any time by written notice to
the Company. In the event that Executive's employment
with the Company is voluntarily terminated during the
Employment Term by Executive, Executive shall not be
entitled to any additional payments or benefits under
this Agreement, other than such rights as shall appear in
the stock option agreements related to the Initial Grants
and the Further Grants.
(d) By Executive for Good Reason. Executive may terminate his
employment for Good Reason upon written notice to the
Company, and in such event, his employment termination
shall be treated as a Wrongful Termination under this
Section 4. Good Reason shall mean:
(i) A material diminution of Executive's positions or
authority;
(ii) The assignment to Executive of any duties
materially inconsistent with Executive's position;
(iii) The failure by the Company to timely make any
payment due hereunder or to comply with any of the
material provisions of this Agreement;
(iv) A requirement that Executive's employment with the
Company is to be based anywhere other than Paris
and environs, except for required travel for
Company business to an extent substantially
consistent with Executive's prior business travel
obligations while employed by the Company; or
(v) The happening of an Acceleration Date as that term
is defined in Paragraph 5 of Exhibit A.
(e) Wrongful Termination. In the event that an Executive's
employment is terminated other than pursuant to
subparagraph (a), (b) or (c) of this paragraph 4 (a
"Wrongful Termination"), then the Executive shall be
entitled to be paid, in a lump sum by the next regular
scheduled payroll payment date, all Base Salary and
variable compensation (at the base rate thereof and
pro-rated for any partial years) that would have been due
under this Agreement had the Wrongful Termination not
occurred for the remainder of the Employment Term. In
computing the payment of Executive's Base Salary and
variable compensation payable to the Executive pursuant
to the preceding sentence, the rate of the Executive's
Base Salary and base variable compensation that is in
existence as of the date of the Wrongful Termination
shall be used. In the event of a Wrongful Termination,
Executive shall also be entitled to (i) the immediate
vesting of all Initial Stock Options and Further Grant
Options (if any) notwithstanding any provision to the
contrary in the option agreements relating thereto and
(ii) a continuation of his then existing employee
benefits referred to in paragraphs 3(b), (d) and (g)
above through the end of the Employment Term.
5. Non-Compete; Non-Solicit
(i) The parties hereto recognize that Executive's
services are special and unique and that the level
of compensation and the provisions of this
Agreement are partly in consideration of and
conditioned upon Executive's not competing with
the Company, and that Executive's covenant not to
compete or solicit as set forth in this Section 5
during and after employment is essential to
protect the business and good will of the Company.
(ii) Executive agrees that during the term of
employment with the Company and for a period of 12
months thereafter (the "Covenant Period"),
Executive shall not render services for any of the
six organizations designated by the Chief
Executive Officer of the Company in a writing
delivered to Executive within 30 days after the
Employment Commencement Date (the "Prohibited
List"). The Prohibited List may be changed by the
Chief Executive Officer of the Company from time
to rime (but there may never be more than six
entities listed) by written notice to Executive,
such notice to be effective only if Executive's
commencement of rendering services for such entity
is 90 or more days after the giving of such
notice.
(iii) During the Covenant Period, Executive shall not,
directly or indirectly, disrupt, damage or
interfere with the operation or business of the
Company by soliciting or recruiting its employees
for Executive or other, but the foregoing shall
not prevent Executive from giving references.
(iv) During the Covenant Period, Executive shall not,
without prior written authorization from the
Company, violate the agreement entered into
pursuant to paragraph 9 hereof.
(v) Executive agrees that the Company would suffer an
irreparable injury if Executive was to breach the
covenants contained in this paragraph 5, and that
the Company would by reason of such breach or
threatened breach be entitled to seek injunctive
relief in a court of appropriate jurisdiction, as
well as such other remedies as may then be
appropriate.
(vi) If any of the restrictions contained in this
paragraph 5 shall be deemed to be unenforceable by
reason of the extent, duration or geographical
scope or other provisions thereof, then the
parties contemplate that the court shall reduce
such extent, duration, geographical scope or other
provision hereof and enforce this paragraph 5 in
its reduced form for all purposes in the manner
contemplated hereby.
(vii) Notwithstanding the foregoing, the provisions of
paragraphs 5(ii) and 5(iii) shall not apply if
there is a Wrongful Termination of the Executive's
employment, if the Executive's employment is
terminated as a result of a notice from the
Company under paragraph 2(b), or if the Executive
terminates his employment for Good Reason.
6. Assignment. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, beneficiaries, executors and legal
representatives of Executive upon Executive's death and (b) any
successor of the Company, provided that any successor shall within
10 days of such assumption deliver to Executive a written
assumption in a form reasonably acceptable to Executive. Any such
successor of the Company shall be deemed substituted for the
Company under the terms of this Agreement for all purposes, except
that the Company shall not be relieved of any liability to the
Executive under this Agreement. As used in this Agreement,
"successor" shall mean any person, firm, corporation or other
business entity which at any time, whether by purchase, merger or
otherwise, directly or indirectly acquires all or substantially
all of the assets or business of the Company. Notwithstanding such
assignment, the Company shall remain, with such successor, jointly
and severally liable for all of its obligations under this
Agreement. This Agreement may not otherwise be assigned by the
Company. None of the rights of Executive to receive any form of
compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary
disposition or by the laws of descent and distribution upon the
death of Executive. Any attempted assignment, transfer, conveyance
or other disposition (other than as aforesaid) of any interest in
the rights of Executive to receive any form of compensation
hereunder shall be null and void; provided, however, that
notwithstanding the foregoing, Executive shall be allowed to
transfer vested shares subject to the stock option to family
members to the extent permitted under the Company's stock option
plans applicable to the Initial Grant and the Further Grants.
7. Notices. All notices, requests, demands and other communications
called for under this Agreement shall be in writing and shall be
deemed given if (i) delivered personally or by facsimile, (ii) one
day after being sent by Federal Express or a similar commercial
overnight service, or (iii) four days after being mailed by
registered or certified mail, return receipt requested, prepaid
and addressed to the parties or their successors in interest at
the following addresses, or at such other addresses as the parties
may designate by written notice in the manner aforesaid:
If to the Company: NTL Incorporated
110 E. 59th Street
New York, NY 10022
Attn: General Counsel
If to Executive: 48 Allee du Lac Inferieur
78110 Le Vesinet
France
8. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in
full force and effect without said provision.
9. Proprietary Information. Concurrently with the execution of this
Agreement, Executive shall enter into a confidentiality and
proprietary information agreement with the Company as provided in
Exhibit C ("Confidentiality Agreement"), provided, however, that
the foregoing shall not preclude Executive from complying with due
legal process or from removing Company property from the Company's
premises in furtherance of his duties and obligations as provided
hereunder.
10. Entire Agreement. This Agreement represents the entire agreement
and understanding between the Company and Executive concerning
Executive's employment relationship with the Company, and
supersedes and replaces any and all prior agreements and
understandings concerning Executive's employment relationship with
the Company entered into prior to the date hereof but not any
written agreements entered into simultaneous with this Agreement
or thereafter.
11. Governing Law; Jurisdiction. This Agreement shall be governed by
the substantive laws of the State of New York applicable to
contracts and agreements made and to be performed in New York. The
Executive and the Company expressly consent to the personal
jurisdiction of the state and federal courts located in New York
for any action or proceeding arising from or relating to this
Agreement.
12. No Oral Modification, Cancellation or Discharge. This Agreement
may only be amended, cancelled or discharged in writing signed by
the Executive and a duly authorized officer of the Company.
13. Arbitration. The parties agree that any and all disputes that they
have with one another which arise out of the Executive's
employment with the Company or under the terms of this Agreement
(or any other agreement between the parties) shall be resolved
through final and binding arbitration, as specified herein. The
only claims not covered by this Section 13 are (i) claims for
benefits under the workers' compensation laws or claims for
unemployment insurance benefits, which will be resolved pursuant
to those laws, and (ii) the Company's claims for the Executive's
alleged breach of any of the provisions of Section 5 of this
Agreement or of the agreement entered into by Executive pursuant
to Section 9. Binding arbitration will be conducted in New York,
New York in accordance with the rules of the American Arbitration
Association. Each party will bear one half of the cost of the
arbitration filing and hearing fees, and the cost of the
arbitrator. The substantially prevailing party in any such
arbitration shall be entitled to receive such party's attorneys'
fees and arbitration expenses from the other party. The parties
acknowledge and agree that arbitration pursuant to this Section 13
shall be final and binding to the fullest extent permitted by law
and enforceable by any court of competent jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement.
NTL INCORPORATED
/s/ Barclay Knapp
----------------------------
Barclay Knapp,
Chief Executive Officer.
EXECUTIVE
/s/ Bruno Claude
----------------------------
Bruno Claude
EXHIBIT E
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO SECOND AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
NTL COMMUNICATIONS CORP.'S ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
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 COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
<Table>
<Caption>
DELAWARE 52-1822078
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
110 EAST 59TH STREET, 10022
NEW YORK, NEW YORK (Zip Code)
(Address of Principal Executive Offices)
</Table>
(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:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
As of April 12, 2002, there were 12 shares of the Registrant's common stock
outstanding. The Registrant is an indirect wholly-owned subsidiary of NTL
Incorporated, and there is no market for the Registrant's common stock.
The Registrant meets the conditions set forth in General Instructions
I(1)(a) and I(1)(b) of Form 10-K and is filing this form with the reduced
disclosure format pursuant to General Instruction I(2)(b) and I(2)(c).
---------------------
DOCUMENTS INCORPORATED BY REFERENCE
NONE
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PART I
NTL Corporate Structure................................................ 3
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 5
Item 3. Legal Proceedings........................................... 5
Item 4. Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 5
Item 6. Selected Financial Data..................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 7a. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
Risk Factors........................................................... 22
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure.................................... 27
PART III
Items 10, 11, 12, and 13............................................... 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports On Form
8-K......................................................... 27
Signatures............................................................. 34
Index to Consolidated Financial Statements............................. F-1
</Table>
This Annual Report on Form 10-K for the year ended December 31, 2001, at
the time of filing with the Securities and Exchange Commission, modifies and
supersedes all prior documents filed pursuant to Sections 13, 14 and 15(d) of
the Securities Exchange Act of 1934 for purposes of any offers or sales of any
securities after the date of such filing pursuant to any Registration Statement
or Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference this Annual Report.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
Certain statements contained herein constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. When used in this Form 10-K, the words, "believe,"
"anticipate," "should," "intend," "plan," "will," "expects," "estimates,"
"projects," "positioned," "strategy," and similar expressions identify such
forward-looking statements. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Registrant, or industry
results, to be materially different from those contemplated or projected,
forecasted, estimated or budgeted, whether expressed or implied, by such
forward-looking statements. Such factors include, among others, those set
forth under the caption "Risk Factors" in this Form 10-K as well as: the
ability of the Company to continue as a going concern; the ability of the
Company to obtain trade credit and shipments and terms with vendors and
service providers for current orders; the Company's ability to maintain
contracts that are critical to its operations; potential adverse
developments with respect to the Company's liquidity or results of
operations; the ability to fund and execute its business plan; the ability
to attract, retain and compensate key executives and associates; the
ability of the Company to attract and retain customers; general economic
and business conditions; technological developments; the Company's ability
to continue to design networks; install facilities; obtain and maintain any
required governmental licenses or approvals;
1
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
impact of restructuring and integration actions, the impact of new business
opportunities requiring significant up-front investment and interest rate
and currency exchange rate fluctuations.
In this Report on Form 10-K, references to "(pound sterling)" "pounds
sterling," "(pound)," "pence" or "p" are to the lawful currency of the UK,
references to "(euro)" or "Euro" are to the lawful currency of the European
Monetary Union, references to "IR(pounds)" or "Irish punts" are to the
historically lawful currency of the Republic of Ireland, and references to "U.S.
dollars," "dollars," "$" or "(cent)" are to the lawful currency of the United
States. Solely for the convenience of the reader, this Form 10-K contains
translations of some foreign currency amounts into U.S. dollars and some U.S.
dollar amounts into foreign currencies. You should not construe these
transactions as representations that the foreign currency amounts actually
represent such U.S. dollar amounts or vice versa or could have been or could be
or will be converted into U.S. dollars or foreign currencies, as the case may
be, at the rate indicated or at any other rate. Unless otherwise indicated, the
translations of foreign currencies into U.S. dollars and U.S. dollars into
foreign currencies have been made at $1.4543 per UK (pound) 1.00, $.8901 per
(euro) 1.00 and $1.1337 per IR (punt) 1.00, the noon buying rates in the City of
New York for cable transfers as certified for customs purposes by the Federal
Reserve Bank of New York on December 31, 2001. On March 31, 2002, the Noon
Buying Rate was $1.4250 per (pound) 1.00, $.8717 per (euro) 1.00 and $1.2539 per
IR (punt) 1.00.
2
NTL CORPORATE STRUCTURE
NTL INCORPORATED FLOWCHART
3
ITEM 1. BUSINESS.
RECENT DEVELOPMENTS
RECAPITALIZATION PROCESS
On January 31, 2002, NTL Incorporated ("NTL Incorporated" and, together
with its consolidated subsidiaries, "NTL") announced that it had appointed
Credit Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic
and recapitalization alternatives to strengthen its balance sheet, reduce debt
and put an appropriate capital structure in place for its business. Since then,
it has been evaluating various recapitalization alternatives to effect a
comprehensive consensual recapitalization in a timely manner and to minimize
negative effects on its business operations. NTL has been engaged in discussions
with an unofficial committee of bondholders, the members of which hold a
majority in principal amount of the public debt of NTL Incorporated and its
subsidiaries, and France Telecom, which owns a significant amount of NTL
Incorporated's common and preferred stock. On April 16, NTL Incorporated
announced that it and certain of its subsidiaries had reached an agreement in
principle with the unofficial committee on a comprehensive recapitalization of
NTL. See Item 7 "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Risk Factors" for
a more detailed description of the proposed recapitalization plan and the
associated uncertainties.
NTL Communications Corp. ("NTL Communications" or the "Company") is a
leading broadband communications company in the U.K. and the Republic of
Ireland.
The Company's predominant lines of business are:
- CONSUMER SERVICES including residential telephony, cable television,
Internet access and interactive services;
- BUSINESS SERVICES including business telephony, national and
international carrier telecommunications, Internet services and radio
communications services; and
- BROADCAST TRANSMISSION AND TOWER SERVICES including digital and analog
television and radio broadcasting, wireless network management, tower and
site leasing and satellite distribution services.
NTL Incorporated, a Delaware corporation, was incorporated in February
1999, to effect a reorganization into a holding company structure under Section
251(g) of the Delaware General Corporation Law. The holding company structure,
which was implemented to pursue opportunities outside of the U. K. and Ireland,
was accomplished through a merger. The stockholders of NTL Communications
(formerly NTL Incorporated), at the effective time of the merger became
stockholders of the new holding company, and NTL Communications became a
subsidiary of the new holding company. The new holding company took the name NTL
Incorporated.
NTL Incorporated completed a second reorganization in May 2000. A new
holding company structure, which was implemented in connection with the
acquisition of the residential assets of Cable & Wireless Communications plc
("CWC") (the operations acquired from CWC are called "ConsumerCo"), was
accomplished through a merger. The stockholders of NTL (Delaware), Inc.
(formerly NTL Incorporated), at the effective time of the merger became
stockholders of the new holding company, and NTL (Delaware), Inc. became a
subsidiary of the new holding company. The new holding company then took the
name NTL Incorporated.
On February 21, 2001, NTL Incorporated contributed the assets of ConsumerCo
to NTL Communications and NTL (Delaware), Inc. ("NTL Delaware") contributed the
assets of NTL Business Limited ("NTL Business") (formerly Workplace Technologies
plc) to NTL Communications. NTL Group Limited, a wholly-owned indirect
subsidiary of NTL Communications, which was acquired in 1996, has a 30-year
history in the United Kingdom as a provider of reliable communications services.
NTL Communications conducts its operations through direct and indirect
wholly-owned subsidiaries. NTL Communications' principal executive office is
located at 110 East 59th Street, New York, New York 10022, and its telephone
number is (212) 906-8440.
4
ITEM 2. PROPERTIES.
In the UK and Ireland, we own, lease or occupy under license 126 business
unit and regional offices, our corporate head offices in each of Hook and
Dublin, and 9 retail shops. In addition, we own or lease approximately 655
switching centers/head-ends and operational hub-sites together with warehouses
and other non-operational properties, as well as various cable television,
telephone and telecommunications equipment housed on public and private sites.
In addition, in the UK, for the purposes of our site leasing and broadcast
transmission businesses, we own, lease, contract to lease, or occupy under
license approximately 1,370 properties. For these businesses, we also are the
licensee of approximately 680 transmitter sites which are owned by Castle
Transmission and shared between the two organizations pursuant to a site sharing
agreement.
We maintain offices under lease for our corporate staff in New York City.
We believe that our facilities are presently adequate for their current use.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in, or have been involved in, certain disputes and
litigation arising in the ordinary course of business, including claims
involving contractual disputes and claims for damages to property and personal
injury resulting from the construction of our networks and the maintenance and
servicing of our transmission masts, none of which are expected to have a
material adverse effect on our financial position or results of operations or
cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company is an indirect wholly-owned subsidiary of NTL Incorporated and
there is no market for the Company's common stock.
SALES OF UNREGISTERED SECURITIES
In May 2001, in reliance on the exemptions from registration provided by
Section 4(2) and Rule 144A of the Securities Act, we issued $1,150.0 million
aggregate principal amount of 6 3/4% Convertible Senior Notes due May 15, 2008
to qualified institutional buyers. We received proceeds of approximately
$1,114.8 million after placement agents' commission and other fees. Interest is
payable semiannually in cash at a rate of 6 3/4% per annum beginning on November
15, 2001. These notes are convertible into shares of common stock of our parent,
NTL Incorporated, at the option of the holder after August 13, 2001 at a
conversion price of $32.728 per share. After May 20, 2004, the notes are
redeemable, in whole or from time to time in part, at NTL Incorporated's and our
option. NTL Incorporated is a co-obligator of the notes on a subordinated basis.
Proceeds raised from the issuance were used to reduce commitments under the UK
working capital facility, finance construction, capital expenditure, working
capital requirements and for general corporate purposes.
5
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain financial data for the years ended
December 31, 2001, 2000, 1999, 1998 and 1997. This information should be read in
conjunction with the consolidated financial statements and notes thereto
appearing elsewhere in this Form 10-K.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
------------ --------- -------- ------- -------
(1) (2) (3) (4)
(IN MILLIONS)
Income statement data:
Operating revenues............. $ 3,189.6 $ 2,484.2 $1,537.1 $ 747.0 $ 491.8
(Loss) before extraordinary
item......................... (11,837.0) (2,388.1) (713.5) (503.9) (328.6)
Net (loss)..................... (11,837.0) (2,388.1) (716.5) (534.6) (333.1)
</Table>
<Table>
<Caption>
AS OF DECEMBER 31, 2000
--------------------------------------------------------
2001 2000 1999 1998 1997
----------- --------- -------- -------- --------
(1) (2) (3) (4)
(IN MILLIONS)
Balance sheet data:
Working capital (deficiency)... $ (15,073.6) $ (946.3) $ 423.9 $ 600.5 $ (52.3)
Fixed assets, net.............. 10,840.3 10,916.8 5,348.4 3,854.4 1,757.0
Total assets................... 13,026.1 23,146.5 9,733.0 6,194.1 2,421.6
Long-term debt................. -- 11,843.4 7,598.0 5,043.8 2,015.1
Redeemable preferred stock..... -- -- -- 124.1 108.5
Shareholder's (deficiency)
equity....................... (3,179.0) 9,012.2 1,066.0 355.2 (61.7)
</Table>
- ---------------
(1) As of December 31, 2001, all of the Company's debt has been classified as
current due to the uncertainties about compliance with the terms and
conditions of the Company's debt that would give the holders of the debt the
right to accelerate payment. In the fourth quarter of 2001, the Company
recorded asset impairments totaling $8,161.6 million including goodwill of
$8,077.8 million, license acquisition costs of $58.8 million, customer lists
of $9.1 million, other intangibles of $14.9 million and investments in
affiliates of $1.0 million. In addition, in 2001 the Company recorded
restructuring costs of $202.8 million, integration and consulting costs of
$95.1 million and a loss on the sale of the ConsumerCo off-net indirect
access customers of $88.5 million.
(2) In May 2000, NTL Incorporated purchased ConsumerCo for an aggregate purchase
price of $13,111.0 million, including intangibles of $8,879.0 million.
ConsumerCo was subsequently acquired by the Company from NTL Incorporated.
The net assets and results of operations of ConsumerCo are included in the
consolidated financial statements from May 2000, the date of the
acquisition.
(3) In March 1999, the Company purchased Diamond Cable Communications plc
("Diamond") for an aggregate purchase price of $984.6 million, including
intangibles aggregating $1,323.0 million. In July 1999, the Company acquired
Cablelink Limited ("Cablelink") for an aggregate purchase price of $700.5
million, including intangibles of $669.6 million. In September 1999, NTL
Delaware acquired the shares of Workplace Technologies plc, for an aggregate
purchase price of $175.0 million, including intangibles of $176.9 million.
Workplace Technologies was subsequently acquired by the Company from NTL
Delaware. The net assets and results of operations of Diamond, Cablelink and
Workplace Technologies are included in the consolidated financial statements
from March 1999, July 1999 and September 1999, their respective dates of
acquisition.
(4) In June and September 1998, the Company purchased ComTel Limited and
Telecential Communications (collectively "Comtel") for an aggregate purchase
price of $969 million, including intangibles aggregating $224 million. In
October 1998, the Company purchased Comcast U.K. Cable Partners Limited
("Comcast U.K.") for an aggregate purchase price of $600 million, including
intangibles of $130 million. In December 1998, the Company purchased Eastern
Group Telecoms ("EGT") for an
6
aggregate purchase price of $151 million, including intangibles of $45
million. The net assets and results of operations of ComTel, Comcast U.K.
and EGT are included in the consolidated financial statements from their
respective dates of acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
RECAPITALIZATION PROCESS AND ABILITY TO CONTINUE OPERATIONS
The Company required significant amounts of capital to finance construction
of its networks, connection of customers to the networks, other capital
expenditures and for working capital needs including debt service requirements.
The Company historically met these liquidity requirements through issuances of
high-yield debt securities in the capital markets and equity contributions from
NTL Incorporated. Both the equity and debt capital markets have recently
experienced periods of significant volatility, particularly for securities
issued by telecommunications and technology companies. The ability of
telecommunications companies to access those markets as well as their ability to
obtain financing provided by bank lenders and equipment suppliers has become
more restricted and financing costs have increased. During some recent periods,
the capital markets have been largely unavailable to new issues of securities by
telecommunications companies. NTL Incorporated's public equity is no longer
trading on the New York Stock Exchange, and NTL's public debt securities are
trading at or near all time lows. These factors, together with the Company's
substantial leverage, mean the Company does not currently have access to its
historic sources of capital.
In addition, NTL's UK credit facilities are fully drawn and NTL's Swiss
subsidiaries are currently unable to draw the remaining undrawn amounts under
the Cablecom credit facility. The Company did not pay cash interest on certain
series of its notes that was due on April 1, 2002 and April 15, 2002. NTL
Incorporated and NTL Delaware, a wholly-owned subsidiary of NTL Incorporated,
also did not pay cash interest and related fees on a series of their notes that
was due on April 15, 2002. As of December 31, 2001, NTL had approximately $505
million in cash and cash equivalents on hand and, on April 4, 2002, received
approximately $303 million net cash proceeds from the sale of its Australian
business. NTL and the Company will require cash for working capital and capital
expenditures in 2002. If NTL makes scheduled and overdue interest payments on
its notes, then NTL will not have sufficient cash resources to meet its
liquidity needs through the third quarter of 2002.
The Company does not generate sufficient cash flow from operations to fund
its operational expenses and interest payments. The Company has historically met
its cash requirements through equity from NTL Incorporated and issuances of high
yield debt securities. Given NTL Incorporated's liquidity situation, it is
likely that it will not be able to provide the Company with cash at least for
the short-term.
These liquidity concerns raise substantial doubt about the Company's
ability to continue as a going concern. As a consequence, the Company, NTL
Incorporated and certain of its subsidiaries need to restructure their
outstanding debt and/or raise new funds through the issuance of equity or
additional debt.
On January 31, 2002, NTL Incorporated announced that it had appointed
Credit Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic
and recapitalization alternatives to strengthen NTL's balance sheet and reduce
debt and put an appropriate capital structure in place for its business. Since
then, NTL has been evaluating various recapitalization alternatives to effect a
comprehensive consensual reorganization in a timely manner to minimize negative
effects on its business operations.
On April 16, 2002, NTL announced that it and an unofficial committee of its
public bondholders had reached an agreement in principle on a comprehensive
recapitalization of NTL. The members of the committee hold in the aggregate over
50% of the face value of NTL Incorporated's and its subsidiaries' public bonds.
The recapitalization would result in a conversion of approximately $10.6 billion
in debt into equity.
To implement the proposed recapitalization, NTL Incorporated, NTL Delaware,
the Company, Diamond Cable Communications Limited and Diamond Holdings Limited
would file a pre-negotiated recapitalization plan in a Chapter 11 case under the
U.S. Bankruptcy Code. NTL's operating subsidiaries would not be
7
included in the Chapter 11 filing. The agreement in principle is subject to
various conditions, including mutually acceptable terms with NTL's bank lenders.
The recapitalization transaction contemplates that the bank debt will remain in
place as part of the recapitalization.
To facilitate the recapitalization, certain members of the unofficial
committee of bondholders would commit to provide up to $500 million of new debt
financing to NTL's UK and Ireland operations during the Chapter 11 process and
for the post-recapitalized NTL. The new financing will ensure that NTL's
business operations have access to sufficient liquidity to continue ordinary
operations.
Under the agreement in principle, NTL would be split into two companies,
one tentatively called NTL UK and Ireland and holding all of its UK and Ireland
assets, and one tentatively called NTL Euroco and holding certain of its
continental European and other assets.
Holders of notes of NTL Incorporated, NTL (Delaware), Inc., the Company and
Diamond Cable Communications Limited would in the aggregate receive 100% of the
initial common stock of NTL UK and Ireland and approximately 86.5% of the
initial common stock of NTL Euroco. NTL (Delaware), Inc. bondholders would have
the option to reinvest all or a portion of NTL (Delaware), Inc. cash in
additional shares of NTL UK and Ireland common stock, or to receive such cash in
the recapitalization. Notes of Diamond Holdings Limited and NTL Triangle would
remain outstanding and will be kept current in interest payments. Current
preferred and common stockholders, including France Telecom, would participate
in a package of rights (to be priced at a $10.5 billion enterprise value) and
warrants entitling them to purchase primary common stock of NTL UK and Ireland
at the consummation of the proposed plan, in the case of the rights, and for the
duration of the eight-year warrants at prescribed prices. If fully exercised,
those rights and warrants would entitle the current preferred stockholders to
acquire approximately 23.6% and the current common stockholders to acquire
approximately 8.9% of the entity's primary common stock.
Current preferred stockholders other than France Telecom would receive
approximately 3.2% and current common stockholders, other than France Telecom,
would receive approximately 10.3% of the primary equity of NTL Euroco. It is
contemplated that subject to consummation of the recapitalization France Telecom
would also receive NTL Incorporated's 27% interest in Noos, pursuant to a pledge
of such interests to France Telecom given at the time of its acquisition by NTL.
During the recapitalization process, NTL has maintained normal and regular
trade terms with its suppliers and customers. There can be no assurance that
NTL's suppliers will continue to provide normal trade credit or credit on
acceptable terms, if at all, or that customers will continue to do business or
enter into new business with NTL. See also "Risk Factors" for a summary of risks
related to NTL's business in general and the recapitalization process in
particular.
BANK WAIVERS
Before NTL could commence negotiations with the unofficial committee of
bondholders, it was necessary to obtain waivers from the lenders under its
credit facilities. Effective March 8, 2002, these lenders granted waivers which,
until March 29, 2002, provided that the commencement of negotiations with
bondholders with a view to rescheduling its debt would not constitute an event
of default under the credit facilities.
But for the initial waivers, the commencement of negotiations with
bondholders would have been an event of default under the credit facilities. If
an event of default were to occur, it would entitle the lenders under the credit
facilities to declare the principal amount of the outstanding debt immediately
due and payable. If this right was exercised, it would result in an event of
default under all of NTL's outstanding notes, except for those issued by Diamond
Cable Communications, Diamond Holdings and NTL Triangle, entitling the trustee
or 25% of the holders of a series to accelerate the repayment of that series of
notes. NTL does not have sufficient cash resources to repay its outstanding
indebtedness if it is declared immediately due and payable.
8
In connection with the granting of the initial waivers, NTL agreed:
- to provide the lenders with a 13 week rolling cash flow projection
(updated every two weeks);
- to keep the lenders informed of, and to provide documents in connection
with, negotiations with bondholders or strategic investors or concerning
proposed asset dispositions;
- not to repurchase NTL notes; and
- not to make an exchange offer for NTL notes or enter into an agreement
with NTL bondholders, subject to some exceptions, without the consent of
the lenders.
Effective March 28, 2002, the lenders under the credit facilities agreed to
amend the initial waivers. The amendments to the initial waivers extend the
duration of the initial waivers to April 30, 2002 in the case of the UK credit
facilities or May 14 in the case of the Cablecom facility, unless the missed
interest payments on April 1, 2002 are remedied or a sufficient number of
bondholders agree to forbear in respect of such non-payment, in which case, the
UK credit facilities waivers will be extended to May 14, 2002. As a condition to
the waivers' continuing effectiveness, the UK lenders required NTL Delaware to
loan L90 million to NTL (UK) Group, Inc. following receipt of the proceeds from
the sale of NTL Australia. This loan is structurally senior to the outstanding
public notes issued by the Company but contractually subordinated to the UK
credit facilities. In connection with the amendments to the waivers, NTL
affirmed the provisions of the initial waivers and in addition, NTL agreed,
among other things, to:
- provide the bank lenders a timeline setting forth the steps proposed to
be taken in connection with the recapitalization and the dates by which
such steps are to be taken;
- use reasonable endeavors to consider with the lenders under the Cablecom
credit facility possible means of credit enhancement;
- provide the lenders under the Cablecom credit facility, by April 12,
2002, with an updated structure chart of NTL as well as a contingency
business plan for Cablecom in the event that sufficient additional
funding for Cablecom is not obtained; and
- pay legal, accounting and other advisory fees of the agent or
coordinators of the Cablecom credit facility.
The amended waivers prevent NTL from making an exchange offer with respect
to its outstanding notes or from entering into an agreement with bondholders
without the consent of the lenders under each of the credit facilities. The
amended waivers also prohibit NTL from commencing voluntary dissolution
proceedings, including proceedings under Chapter 11 of the U.S. Bankruptcy Code,
without the consent of these lenders.
As a consequence, NTL cannot enter into a binding agreement with the
unofficial bondholder committee or implement the proposed plan without the
consent of its bank lenders.
Cablecom GmbH is the principal trading company of NTL's Swiss group. There
are a number of technical defaults under the Swiss credit facility made
available to Cablecom and various of its subsidiaries. In addition, as of
December 31, 2001, Cablecom's and various of its subsidiaries' liabilities
exceeded their respective assets. As a consequence, under Swiss law, those
entities were deemed to be "overindebted". This also constituted an event of
default under the Cablecom credit facility which entitles the lenders to
accelerate repayment. Such an acceleration would result in an event of default
under NTL Incorporated's and NTL Delaware's 5.75% convertible subordinated notes
due 2011 and 5.75% convertible subordinated notes due 2009, entitling the
trustee or the holders of 25% of each series of notes to accelerate repayment.
Under Swiss law, unless the overindebtedness is rectified, those entities would
be required to commence an insolvency proceeding in Switzerland. A plan has been
formulated to rectify this overindebtedness. Implementation of this plan prior
to April 30, 2002 would mean that those entities would not be required to
commence an insolvency proceeding. Those proceedings would likely either be a
court supervised moratorium in which an independent administrator, or
commissioner, would be appointed to supervise the running of each company during
a restructuring or, if there is no viable restructuring plan, a bankruptcy. The
commencement of those
9
insolvency proceedings would also constitute an immediate event of default and
acceleration of the maturity of the convertible subordinated notes referred to
above.
NTL is currently in discussions with the lenders under the Swiss credit
facility regarding proposals to resolve the over indebtedness issue as well as
requesting that they waive various additional covenant breaches under the credit
facility. There can be no assurance that NTL will reach agreement on the
resolution of the over indebtedness issue within the time period required or
obtain the requested waivers.
INTEREST PAYMENTS ON PUBLIC NOTES
NTL has substantial interest payment obligations under its existing
indebtedness. The Company did not make scheduled interest payments due April 1,
2002, in the aggregate amount of $74.3 million, in respect of its 9 1/2% notes
due 2008, 11 1/2% notes due 2008 and 11 7/8% notes due 2010. In addition, the
Company did not make interest payments falling due on April 15, 2002, totaling
$20.2 million, in respect of the 12 3/4% Senior Deferred Coupon Notes due 2005
and NTL Incorporated and NTL Delaware did not make interest payments and payment
of related fees falling due on April 15, 2002 in respect of their 5 3/4%
Convertible Subordinated Notes due 2011. Those payments were not made after
consideration by NTL of requests by the unofficial bondholder committee not to
make those payments. Interest payments of $18.9 million were made, when due, on
April 2, 2002 in respect of Diamond Cable Communications 13.25% senior discount
notes due 2004. On May 15, 2002, interest totaling $94.0 million is due on
outstanding notes of the Company and NTL Triangle.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires (on April 30, 2002 in the case of the missed interest
payments due April 1, 2002), there is an event of default under the indenture in
respect of the notes on which the interest is due and unpaid. An event of
default entitles the trustee under the indenture or the holders of 25% of the
outstanding notes to declare the principal amount of those notes to be
immediately due and payable. Even if the maturity of those notes is not
accelerated after April 30, 2002, such an event of default would also result in
an event of default in respect of other debt (commonly called cross defaults)
under all of NTL's other notes, except for those issued by NTL Triangle, Diamond
Cable Communications or Diamond Holdings. As a result, upon the expiration of
the grace period, on April 30, 2002, events of default for failure to pay
interest would occur under the relevant indentures at the Company and,
contemporaneously, cross defaults would occur under NTL's other indentures at
the Company, NTL Delaware, NTL Incorporated and under NTL's UK credit facilities
and could occur under NTL's Cablecom facility. This would give holders of the
outstanding series of debt at these entities the right to accelerate repayment
of those debts by declaring the principal amount of the debts to be immediately
due and payable unless NTL obtains waivers or forbearance agreements from
sufficient percentages of its creditors. If that right to accelerate was
exercised, NTL would not have sufficient cash resources to repay those debts,
which could ultimately lead to voluntary or involuntary bankruptcy proceedings
relating to the entities so affected. In addition, the lenders under NTL's UK
credit facilities have security over the assets of NTL's UK operating
subsidiaries, except for the Diamond and NTL Triangle groups of companies. In
the event that there was an event of default under those facilities, the lenders
could seek to take control of those assets under applicable UK insolvency law.
CREDIT RATING DOWNGRADES
On April 3, 2002, credit rating agency Standard & Poor's lowered the
long-term corporate credit rating on some of NTL's public debt to D, citing
NTL's failure to make a bond interest payment due on April 1, 2002.
SALE OF NTL AUSTRALIA
On April 2, 2002, NTL announced that it had completed the previously
announced sale of its Australian broadcast business to Macquarie Bank for A$850
million (US$448 million) in an all cash transaction. The net proceeds from the
sale were approximately A$574 million (US$303 million). At that time, the
business' bank debt outstanding totaled A$227 million (US$119 million).
10
On April 7, 2002, NTL Delaware loaned L90 million to NTL (UK) Group
Limited, which loan was funded by the proceeds of the sale of NTL Australia.
This loan is subordinated to NTL's UK credit facilities. The remaining proceeds
of the sale of NTL Australia remain at NTL Delaware and it is currently
anticipated that such proceeds will form a portion of the consideration to be
offered to bondholders of NTL Delaware and NTL Incorporated in satisfaction of
their claims against NTL Delaware as part of the proposed plan of
reorganization.
DESCRIPTION OF OUTSTANDING NOTES, CREDIT FACILITIES AND REDEEMABLE PREFERRED
STOCK
The following summarizes the terms of the significant notes, credit
facilities and redeemable preferred stock issued by the Company and its
subsidiaries as of December 31, 2001.
NTL Communications:
(1) 12 3/4% Senior Deferred Coupon Notes due April 15, 2005, principal
amount at maturity of $277.8 million, interest payable semiannually from
October 15, 2000, redeemable at the Company's option on or after April 15,
2000;
(2) 11 1/2% Senior Deferred Coupon Notes due February 1, 2006,
principal amount at maturity of $1,050.0 million, interest payable
semiannually from August 1, 2001, redeemable at the Company's option on or
after February 1, 2001;
(3) 10% Senior Notes due February 15, 2007, principal amount of $400.0
million, interest payable semiannually from August 15, 1997, redeemable at
the Company's option on or after February 15, 2002;
(4) 9 1/2% Senior Sterling Notes due April 1, 2008, principal amount
of L125.0 million ($181.8 million), interest payable semiannually from
October 1, 1998, redeemable at the Company's option on or after April 1,
2003;
(5) 10 3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008,
principal amount at maturity of L300.0 million ($436.3 million), interest
payable semiannually from October 1, 2003, redeemable at the Company's
option on or after April 1, 2003;
(6) 9 3/4% Senior Deferred Coupon Notes due April 1, 2008, principal
amount at maturity of $1,300.0 million, interest payable semiannually
beginning on October 1, 2003, redeemable at the Company's option on or
after April 1, 2003;
(7) 9 3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009,
principal amount at maturity of L330.0 million ($479.9 million), interest
payable semiannually beginning on October 15, 2004, redeemable at the
Company's option on or after April 15, 2004;
(8) 11 1/2% Senior Notes due October 1, 2008, principal amount of
$625.0 million, interest payable semiannually from April 1, 1999,
redeemable at the Company's option on or after October 1, 2003;
(9) 12 3/8% Senior Deferred Coupon Notes due October 1, 2008,
principal amount at maturity of $450.0 million, interest payable
semiannually beginning on April 1, 2004, redeemable at the Company's option
on or after October 1, 2003;
(10) 7% Convertible Subordinated Notes due December 15, 2008,
principal amount of $489.8 million, interest payable semiannually from June
15, 1999, convertible into shares of NTL Incorporated common stock at a
conversion price of $39.20 per share, redeemable at the Company's option on
or after December 15, 2001;
(11) 9 1/4% Senior Euro Notes due November 15, 2006, principal amount
of E250.0 million ($222.5 million), interest payable semiannually from May
15, 2000;
11
(12) 9 7/8% Senior Euro Notes due November 15, 2009, principal amount
of E350.0 million ($311.5 million), interest payable semiannually from May
15, 2000, redeemable at the Company's option on or after November 15, 2004;
(13) 11 1/2% Senior Deferred Coupon Euro Notes due November 15, 2009,
principal amount at maturity of E210.0 million ($186.9 million), interest
payable semiannually from May 15, 2005, redeemable at the Company's option
on or after November 15, 2004;
(14) 11 7/8% Senior Notes due October 1, 2010, principal amount at
maturity of $500.0 million, interest payable semiannually beginning on
April 1, 2001, redeemable at the Company's option on or after October 1,
2005;
(15) 12 3/8% Senior Euro Notes due February 1, 2008, principal amount
at maturity of E300.0 million ($267.0 million), interest payable
semiannually from August 1, 2001;
(16) 6 3/4% Convertible Senior Notes due May 15, 2008, principal
amount at maturity of $1,150.0 million, interest payable semiannually from
November 15, 2001, convertible into shares of the Company's common stock at
a conversion price of $32.728 per share, redeemable at the Company's option
on or after May 21, 2004;
NTLCL:
(17) Working Capital Facility, originally for L1,300.0 million
($1,890.6 million); following the issuance of new debt beginning in October
2000, the commitment has been reduced by L882.5 million ($1,283.4 million),
of which L100.0 million ($145.4 million) was outstanding as of December 31,
2001. Interest payable at least every six months at LIBOR plus a margin
rate of 5.50% per annum, which is subject to adjustment; effective interest
rate of 9.57% at December 31, 2001; the unused portion of the commitment is
subject to a commitment fee of 0.75% payable quarterly; principal is due in
full on March 31, 2006; in January and February 2002 the remaining amounts
available under this agreement were borrowed;
(18) Senior Credit Facility, of which L2,784.8 million ($4,050.0
million) was outstanding as of December 31, 2001; originally for L2,500.0
million ($3,635.8 million), dated 30 May 2000; interest payable at least
every six months at LIBOR plus a margin rate of 2.00% per annum, which is
subject to adjustment; effective interest rate of 6.73% at December 31,
2001; the unused portion of the commitment is subject to a commitment fee
of 0.75% payable quarterly, which is reduced to 0.50% when over 50% of the
commitment is utilized; principal is due in six quarterly installments
beginning on June 30, 2004; as amended and restated pursuant to a
Restatement Amendment Agreement dated 26 September 2001 which, inter alia,
amended such Senior Credit Facility to make available a L200.0 million
($290.9 million) Term Facility (interest payable on such Term Facility at
least every six months at LIBOR plus a margin rate of 3.50% per annum,
effective interest rate of 8.06 % at December 31, 2001, principal is due in
eight quarterly installments beginning on June 30, 2006) and increase the
availability of funds under the Senior Credit Facility by L84.8 million
($123.3 million);
NTL Triangle:
(19) 11.2% Senior Discount Debentures due November 15, 2007, principal
amount at maturity of $517.3 million, interest payable semiannually
beginning on May 15, 2001, redeemable at NTL Triangle's option after
November 15, 2000;
12
Diamond:
(20) 13 1/4% Senior Discount Notes due September 30, 2004, principal
amount at maturity of $285.1 million, interest payable semiannually from
March 31, 2000, redeemable at Diamond's option on or after September 30,
1999;
(21) 11 3/4% Senior Discount Notes due December 15, 2005, principal
amount at maturity of $531.0 million, interest payable semiannually from
June 15, 2001, redeemable at Diamond's option on or after December 15,
2000;
(22) 10 3/4% Senior Discount Notes due February 15, 2007, principal
amount at maturity of $420.5 million, interest payable semiannually
beginning on August 15, 2002, redeemable at Diamond's option on or after
December 15, 2002;
(23) 10% Senior Notes due February 1, 2008, issued by Diamond Holdings
plc, a wholly-owned subsidiary of Diamond, principal amount at maturity of
L135.0 million ($196.3 million), interest payable semiannually from August
1, 1998, redeemable at Diamond's option on or after February 1, 2003; and
(24) 9 1/8% Senior Notes due February 1, 2008, issued by Diamond
Holdings plc, principal amount of $110.0 million, interest payable
semiannually from August 1, 1998, redeemable at Diamond's option on or
after February 1, 2003.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
On January 22, 2002, the Securities and Exchange Commission issued FR-61,
"Commission Statement about Management's Discussion and Analysis of Financial
Condition and Results of Operations." The release sets forth certain views of
the Securities and Exchange Commission regarding disclosure that should be
considered by registrants. The Company's consolidated contractual obligations
and commercial commitments are summarized below, and are fully disclosed in the
Notes to Consolidated Financial Statements.
The following table includes aggregate information about the Company's
contractual obligations as of December 31, 2001 and the periods in which
payments are due. The entire long-term debt and capital lease obligation has
been classified as current due to the uncertainties about compliance with the
terms and conditions of the Company's debt that would give the holders of the
debt the right to accelerate repayment.
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
-----------------------------------------------------
LESS THAN 1-3 4-5 AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS 5 YEARS
- ----------------------- --------- --------- ------ -------- ---------
(IN MILLIONS)
Long-Term Debt............................. $14,650.9 $ 2.9 $420.7 $5,888.3 $ 8,339.0
Capital Lease Obligations.................. 192.7 9.3 15.5 12.7 155.2
Operating Leases........................... 476.9 82.9 104.7 63.6 225.7
Unconditional Purchase Obligations......... 1,367.0 306.0 216.0 195.0 650.0
Other Long-Term Obligations................ none
Total Contractual Cash Obligations......... $16,687.5 $401.1 $756.9 $6,159.6 $ 9,369.9
</Table>
13
The following table includes aggregate information about the Company's
commercial commitments as of December 31, 2001. Commercial commitments are items
that the Company could be obligated to pay in the future. They are not required
to be included in the consolidated balance sheet.
<Table>
<Caption>
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
---------------------------------------------------
OTHER COMMERCIAL TOTAL AMOUNTS LESS THAN 1-3 4-5 OVER
COMMITMENTS COMMITTED 1 YEAR YEARS YEARS 5 YEARS
- ---------------- ------------- --------- ----- ----- -------
(IN MILLIONS)
Guarantees.................................... $ 31.0 $ 3.2 $ 1.4 $11.9 $14.5
Lines of Credit............................... none
Standby Letters of Credit..................... none
Standby Repurchase Obligations................ none
Other Commercial Commitments.................. none
Total Commercial Commitments.................. $ 31.0 $ 3.2 $ 1.4 $11.9 $14.5
</Table>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash used in operating activities was $558.7 million and $170.3 million in
the years ended December 31, 2001 and 2000, respectively. Cash paid for interest
exclusive of amounts capitalized in the years ended December 31, 2001 and 2000
was $776.6 million and $363.9 million, respectively. In addition, the change in
cash used in operating activities is also due to changes in working capital as a
result of the timing of receipts and disbursements.
Purchases of fixed assets were $1,653.0 million in 2001 and $1,961.8
million in 2000 as a result of the continuing fixed asset purchases and
construction, including purchases and construction by acquired companies. The
Company expects to further reduce purchases of fixed assets in 2002 in an effort
to conserve cash.
Proceeds from borrowings, net of financing costs of $2,643.4 million in
2001 include $838.5 million borrowed under the NTLCL senior credit facility,
$431.8 million borrowed under the NTLCL working capital facility, $1,150.0
million from the issuance of NTL Communications 6 3/4% Convertible Senior Notes
and $277.9 million from the issuance of NTL Communications 12 3/8% Senior Euro
Notes, net of aggregate financing costs of $54.8 million.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements of the Company and related financial
information are based on the application of accounting principles generally
accepted in the United States (referred to as "GAAP"). GAAP requires the use of
estimates, assumptions, judgements and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported, as well as disclosures about contingencies, risk and financial
condition. The following critical accounting policies have the potential to have
a more significant impact on the Company's financial statements, either because
of the significance of the financial statement item to which they relate, or
because they require more judgement and estimation due to the uncertainty
involved in measuring, at a specific point in time, transactions which are
continuous in nature.
- The Company maintain allowances for doubtful accounts and notes
receivable for estimated losses resulting from the potential inability of
its customers or the other parties to make payments. These allowance are
estimated based on the current aging of receivables, prior collection
experience and future expectations of conditions that might impact the
collectibility. If the financial condition of our customers or the other
parties were to deteriorate resulting in an impairment in their ability
to make payments, additions to the allowances may be required.
- The Company's determination of the treatment of contingent liabilities in
the financial statements is based on a view of the expected outcome of
the applicable contingency. Legal counsel is consulted on matters related
to litigation. Experts both within and outside the company are consulted
with respect to other matters that arise in the ordinary course of
business. Examples of such matters that are based on
14
assumptions, judgements and estimates are the amount to be paid to
terminate certain agreements included in restructuring charges and the
amounts to be paid to settle certain other liabilities, A liability is
accrued if the likelihood of an adverse outcome is probable of occurrence
and the amount is estimable.
- The Company reviews long-lived assets and goodwill for impairment as
described in the Notes to Consolidated Financial Statements. The Company
obtained a valuation to assist with the determination of the fair value
of long-lived assets and goodwill. In analyzing potential impairments,
projections of future cash flows from the asset are used. The projections
are based on assumptions, judgements and estimates of growth rates for
the related business, anticipated future economic, regulatory and
political conditions, the assignment of discount rates relative to risk
and estimates of terminal values. Changes to these variables in the
future may necessitate impairment charges to reduce the carrying value to
fair value.
- Fixed assets and intangible assets are assigned useful lives which impact
the annual depreciation and amortization expense. The assignment of
useful lives involves significant judgements and the use of estimates.
Changes in technology or changes in intended use of these assets may
cause the estimated useful life to change.
- In 2001, restructuring charges were recorded as a result of additional
actions to reorganize, re-size and reduce operating costs and create
greater efficiency in various areas. These charges, for both severance
and exit costs, required the use of estimates. Actual results could
differ from those estimated for restructuring.
- The valuation of the Company's pension plans requires the use of
assumptions and estimates that are used to develop actuarial valuations
of expenses, projected benefit obligations and funding requirements.
These assumptions include, among others, discount rates, investment
returns and projected salary increases. Changes in assumptions and future
investment returns could potentially have a material impact on the
Company's pension expense and funding requirements.
RESULTS OF OPERATIONS
The Company's expects its growth in 2002 to be curtailed by funding
constraints. Although the Company's current business plan includes a reduction
in the number of new customers and an increase in revenue from existing
customers, the Company's cash constraints present many challenges to the
successful execution of the plan. The Company is conserving cash through a
reduction in capital expenditures including expenditures to connect new
customers to the Company's network. In order to maintain revenues and cash from
operations while reducing the number of new customers, the Company must reduce
and limit customer churn. The Company intends to improve its customer service
and increase its service offering to customers in an effort to curtail and
reduce churn. The Company is in the process of integrating its various billing
systems and customer databases in an effort to improve one of the main tools
used to provide customer service.
The plan to reduce churn and to increase average revenue per unit (referred
to as ARPU) includes an increase in broadband services to our existing
customers. The Company believes that its "triple play" offering of telephony,
broadband access to the Internet and digital television will prove attractive to
its existing customer base, which will result in higher ARPU as revenues per
existing customer increase. However, there is significant competition in the
broadband markets, through digital satellite and digital terrestrial television
and through alternative Internet access media, such as DSL offered by BT. If the
Company is unable to charge the prices for these services that are anticipated
in its business plan in response to competition or if the Company's competition
is able to attract the Company's customers, the Company's ARPU and results of
operations will be adversely affected.
Media speculation regarding the Company's financial condition and potential
outcomes of the recapitalization process could have an adverse effect on parts
of the Company's business. Similarly, negative press about the financial
condition of alternative telecom carriers in general may effect the Company's
reputation. One of the key strategies in the Company's business plan is to
increase its penetration of higher value small to
15
medium size enterprises (or SMEs) and provide increased retail services of
bundled voice, data and Internet services for SMEs. However, due to the negative
publicity surrounding the Company's financial condition and the effect of that
publicity on its brand name, the Company may find it difficult to convince SMEs
to become its customers. Even if the Company successfully completes the
recapitalization process, there is no assurance that the negative publicity will
not adversely impact the Company's results of operations or have a long-term
negative effect on the Company's brand.
In addition, this uncertainty may adversely affect the Company's
relationships with its suppliers. If suppliers become increasingly concerned
about the Company's financial condition, they may demand faster payments or not
extend normal trade credit, both of which could further adversely affect the
Company's cash conservation measures and its results of operations.
YEARS ENDED DECEMBER 31, 2001 AND 2000
As a result of the completion of the acquisition of the consumer cable
telephone, Internet and television operations of Cable & Wireless Communications
plc ("ConsumerCo") on May 30, 2000, the Company consolidated the results of
operations of this business from the date of acquisition.
Consumer telecommunications and television revenues increased to $2,069.2
million from $1,518.2 million as a result of the ConsumerCo acquisition, price
increases, upselling new services to customers and from growth in the Company's
customer base. The 2001 and 2000 revenue includes $956.6 million and $532.2
million, respectively, from ConsumerCo. Upselling to existing customers, new
digital and cable modem customers and the price increases implemented in the
first and second quarters of 2001 resulted in ARPU increases that contributed to
the revenue increase. Increase in ARPU in the future is also expected to be
achieved by continuing to provide new services such as digital television, cable
modem and mobile telephone services to consumer customers.
Business telecommunications revenues increased to $836.8 million from
$702.2 million as a result of acquisitions and from the growth in the Company's
customer base. The acquisition of the assets and contracts of Viatel UK in the
third quarter of 2001 accounted for $65.3 million of the revenue in 2001. The
2001 and 2000 revenue includes $97.4 million and $62.1 million, respectively,
from ConsumerCo. In addition, the Company continues to focus specific sales and
marketing effort on winning business customers in its franchise areas and
increasing revenue from its existing customers.
Broadcast transmission and other revenues increased to $283.6 million from
$263.8 million. The increase reflects increases in the number of broadcast
television and FM radio customers and accounts, which exceeded price cap
reductions in the Company's regulated services, and increases in satellite and
media services used by broadcast and media customers. The Company expects growth
in broadcast services to be driven primarily by contracts related to the
increased demand for tower infrastructure by wireless services operators
expanding and upgrading their networks for wireless broadband, the
digitalization of analog television and radio signals and the further
development of programming for the European markets requiring satellite and
terrestrial distribution services.
In 2000 and 2001, the substantial majority of revenues in all segments were
derived from operations in the United Kingdom.
Operating expenses (including network expenses) increased to $1,564.3
million from $1,223.2 million as a result of increases in interconnection and
programming costs due to revenue growth. The 2001 and 2000 expense includes
$491.5 million and $281.4 million, respectively, from ConsumerCo.
Selling, general and administrative expenses increased to $973.2 million
from $969.1 million. The 2001 and 2000 expense includes $293.3 million and
$213.1 million, respectively, from ConsumerCo. Selling, general and
administrative expenses as a percentage of revenues decreased to 30.5% in 2001
from 39.0% in 2000. The percentage decrease reflects various cost savings
efforts.
Asset impairments in 2001 of $8,161.6 million are related to intangible
assets and investments in affiliates. During 1999 and 2000, acquisitions were
made against a background of increasing consolidation and
16
record valuations in the telecommunications industry. In 2001, the Company
performed a review of the recoverability of its long-lived assets and associated
goodwill. This review was initiated because of the decline in NTL Incorporated's
stock price and significantly lower valuations for companies within its
industry. Additionally, at the time of the Company's review, the book value of
NTL Incorporated's net assets significantly exceeded its market capitalization.
Accordingly, the fair value of the Company's assets was determined by
discounting the Company's estimates of the expected future cash flows related to
these assets when the non-discounted cash flows indicated that the long-lived
assets would not be recoverable. The Company recorded a write-down of $8,161.6
million in the fourth quarter of 2001 as a result of this analysis and review.
The total charge included goodwill of $8,077.8 million, license acquisition
costs of $58.8 million, customer lists of $9.1 million, other intangibles of
$14.9 million and investments in affiliates of $1.0 million. The aggregate asset
impairment charge of $8,161.6 million related to the Company's business segments
as follows: $6,048.1 million Consumer, $2,113.0 million Business and $0.5
million Broadcast.
Non-cash compensation of $30.6 million in 2001 was due to modifications to
certain stock options approved by the Compensation and Option Committee of the
Board of Directors in July 2001. The latest possible expiration date of options
to purchase an aggregate of approximately 4.7 million shares of the Company's
common stock with exercise prices from $.17 to $14.76 per share was extended
from July 30, 2001 to October 2004, as applicable, to January 30, 2006. The
Company recognized non-cash compensation expense based on the excess of the
quoted market price of the Company's common stock on the date of the
modification of $12.05 per share over the exercise price per share.
Other charges of $297.9 million in 2001 include restructuring charges of
$202.8 million and costs of $95.1 million incurred primarily to integrate the
acquired companies, mostly related to information technology integration, as
well as costs incurred for business rationalization consulting. Other charges of
$92.7 million in 2000 include restructuring charges of $65.9 million and costs
of $26.8 million incurred primarily to integrate the acquired companies, mostly
related to information technology integration, as well as costs incurred for
business rationalization consulting. The increase in the information technology
integration and consulting costs was the result of an acceleration of a number
of these projects, and the associated fees to the consultants and advisors, in
order to achieve the cost savings earlier than projected.
Restructuring charges of $202.8 million and $65.9 million for the years
ended December 31, 2001 and 2000, respectively, relate to the Company's
announcements in the fourth quarter of 2001 and in November 2000 that it was
taking additional actions to reorganize, re-size and reduce operating costs and
create greater efficiency in various areas of the Company. An aggregate of $57.9
million of the 2001 reorganization costs are for the write-off of equipment and
other assets that are not used and will not require any future cash outlays. The
employee severance and related costs in 2000 were for approximately 2,300
employees to be terminated, approximately 550 of whom are still employed by the
Company as of December 31, 2001. These costs in 2001 are for approximately 5,200
employees to be terminated, of which approximately 2,900 employees are still
employed by the Company as of December 31, 2001. The following table summarizes
the restructuring charges incurred and utilized in 2000 and 2001:
<Table>
<Caption>
EMPLOYEE
SEVERANCE LEASE
AND RELATED EXIT AGREEMENT FIXED
COSTS COSTS MODIFICATIONS ASSETS TOTAL
----------- ----- ------------- ------ ------
(IN MILLIONS)
Charged to expense.................. $ 47.9 $18.0 $ -- $ -- $ 65.9
Utilized............................ -- -- -- -- --
------ ----- ----- ------ ------
Balance, December 31, 2000.......... 47.9 18.0 -- -- 65.9
2000 provision utilized............. (41.3) (9.6) -- -- (50.9)
2000 provision released............. (6.6) (7.3) -- -- (13.9)
Charged to expense.................. 89.7 41.4 27.7 57.9 216.7
2001 provision utilized............. (26.2) -- -- (57.9) (84.1)
------ ----- ----- ------ ------
Balance, December 31, 2001.......... $ 63.5 $42.5 $27.7 $ -- $133.7
====== ===== ===== ====== ======
</Table>
17
Corporate expenses increased to $24.3 million from $23.7 million primarily
due to the increase in various overhead costs.
Depreciation and amortization expense increased to $2,540.3 million from
$1,700.7 million due to an increase in amortization on acquisition related
intangibles and an increase in depreciation of telecommunications and cable
television equipment. The 2001 and 2000 expense includes $1,466.0 million and
$802.0 million, respectively, from ConsumerCo, including amortization of the
acquisition related intangibles.
Interest expense increased to $1,240.8 million from $886.3 million due to
the issuance of additional debt, and the increase in the accretion of original
issue discount on the deferred coupon notes. The 2001 and 2000 expense includes
$273.2 million and $135.0 million, respectively related to ConsumerCo. Interest
of $844.3 million and $459.0 million was paid in cash in the years ended
December 31, 2001 and 2000, respectively.
Other losses of $88.5 million in 2001 are from the sale of the ConsumerCo
off-net indirect access customers.
Foreign currency transaction gains (losses) were gains of $0.6 million in
2001 and losses of $58.1 million in 2000 primarily due to the effect of changes
in exchange rates. The Company and certain of its subsidiaries have cash, cash
equivalents and debt denominated in non-U.S. dollar currencies that are affected
by changes in exchange rates. In addition, foreign subsidiaries of the Company
whose functional currency is not the U.S. dollar hold cash, cash equivalents and
debt denominated in U.S. dollars which are affected by changes in exchange
rates.
Income tax expense in 2001 of $118.1 million is primarily the result of an
increase in the deferred tax liability attributable to separate company profits
of a foreign subsidiary offset to some extent by a decrease in net deferred tax
liabilities attributable to operating losses of other foreign subsidiaries. The
increase in deferred tax liabilities includes an adjustment related to 1997
through 2000 of approximately $116.1 million that is primarily attributable to
additional tax depreciation being claimed during 2001 on original and amended
income tax returns.
YEARS ENDED DECEMBER 31, 2000 AND 1999
As a result of the completion of the acquisitions of Diamond Cable
Communications Limited ("Diamond") in March 1999, the Australian National
Transmission Network ("NTL Australia") in April 1999, Cablelink Limited
("Cablelink") in July 1999, the "1G Networks" of France Telecom in August and
December 1999, NTL Business Limited (formerly Workplace Technologies plc) ("NTL
Business") in September 1999, the cable assets of Cablecom in March 2000 and the
consumer cable telephone, Internet and television operations of ConsumerCo in
May 2000, the Company consolidated the results of operations of these businesses
from the dates of acquisition.
Consumer telecommunications and television revenues increased to $1,518.2
million from $827.3 million as a result of acquisitions and from customer growth
that increased the Company's current revenue stream. The 2000 and 1999 revenue
includes $773.6 million and $162.4 million, respectively, from acquired
companies.
Business telecommunications revenues increased to $702.2 million from
$452.5 million as a result of acquisitions, customer growth and increases in
carrier services revenues. The 2000 and 1999 revenue includes $234.3 million and
$92.8 million, respectively, from acquired companies. Carrier services revenues
increased due to growth in services provided by the Company's wholesale
operation to other telephone companies.
Broadcast transmission and other revenues increased to $263.8 million from
$257.3 million due to increases in broadcast television and FM radio customers
and accounts, which exceeded price cap reductions in the Company's regulated
services, and increases in satellite and media services used by broadcast and
media customers.
Operating expenses (including network expense) increased to $1,223.2
million from $761.5 million as a result of increases in interconnection costs
and programming costs due to customer growth. Operating
18
expenses as a percentage of revenues decreased to 49.2% from 49.5%. The 2000 and
1999 expense includes $502.5 million and $141.9 million respectively, from
acquired companies.
Selling, general and administrative expenses increased to $969.1 million
from $562.9 million as a result of increases in telecommunications and cable
television sales and marketing costs and increases in additional personnel and
overhead to service the increasing customer base. The 2000 and 1999 expense
includes $377.9 million and $52.5 million respectively, from acquired companies.
Pursuant to the terms of various United Kingdom licenses, the Company
incurred license fees paid to the Independent Television Commission ("ITC") to
operate as the exclusive service provider in certain of its franchise areas.
Upon a request by the Company in 1999, the ITC converted all of the Company's
fee bearing exclusive licenses to non-exclusive licenses at the end of 1999, and
the Company's liability for license payments ceased upon the conversion.
Franchise fees were $16.5 million in 1999.
Corporate expenses decreased to $23.7 million from $25.3 million due to a
decrease in various overhead costs.
Depreciation and amortization expense increased to $1,700.7 million from
$765.7 million due to an increase in depreciation of telecommunications and
cable television equipment. The 2000 and 1999 expense includes $1,066.3 million
and $190.5 million respectively, from acquired companies, including amortization
of acquisition related intangibles.
Interest income and other, net decreased to $25.8 million from $48.2
million as a result of a decline in cash available for investment.
Interest expense increased to $886.3 million from $678.1 million due to the
issuance of additional debt, and the increase in the accretion of original issue
discount on the deferred coupon notes. The 2000 and 1999 expense includes $298.7
million and $133.8 million, respectively, from acquired companies. Interest of
$459.0 million and $222.1 million was paid in the years ended December 31, 2000
and 1999, respectively.
Other gains of $493.1 million in 1999 are from the sale of the Company's
investment in Cable London.
Foreign currency transaction (losses) gains decreased to losses of $58.1
million from gains of $22.8 million primarily due to the effect of unfavorable
changes in exchange rates. The Company's results of operations are impacted by
changes in foreign currency exchange rates as follows. The Company and certain
of its subsidiaries have cash, cash equivalents and debt denominated in foreign
currencies that are affected by changes in exchange rates. In addition, foreign
subsidiaries of the Company whose functional currency is not the U.S. dollar
hold cash, cash equivalents and debt denominated in U.S. dollars which are
affected by changes in exchange rates.
The Company recorded an extraordinary loss from the early extinguishment of
debt of $3.0 million in 1999 as a result of the repayment of the bridge loan
incurred in connection with the Cablelink acquisition.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the Financial Accounting Standards Board (referred to as
the FASB) issued Statement of Financial Accounting Standards (referred to as
SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
effective for the Company on January 1, 2002. This Statement supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and other related accounting guidance. The adoption of
this new standard had no significant effect on the results of operations,
financial condition or cash flows of the Company.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated asset
retirement costs. The Company is in the process of evaluating the financial
statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all
19
business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is no longer permitted. SFAS No. 141 also includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination that is completed after
June 30, 2001. SFAS No. 142 ends the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be reviewed
annually (or more frequently under certain conditions) for impairment in
accordance with this statement. This impairment test uses a fair value approach
rather than the undiscounted cash flow approach previously required by SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company adopted SFAS No. 142 on January 1, 2002.
In light of the significant impairment charge that the Company recorded in 2001,
the Company does not expect that the adoption of this new standard will have a
significant effect on the results of operations, financial condition or cash
flows of the Company. Amortization expense in 2001 related to goodwill and other
indefinite lived intangible assets was $1,104.1 million. The Company expects
that amortization expense in 2002 will not be significant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
MARKET RISK
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the potential
loss arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company does not enter into derivative
financial instruments for trading or speculative purposes. The Company has
entered into derivative financial instruments to hedge exposure to movements in
the British pound/U.S. dollar exchange rate. The counterparties are major
financial institutions.
FOREIGN EXCHANGE CONTRACTS
To the extent that the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, it will encounter
currency exchange rate risks. Furthermore, the Company's revenues are generated
in foreign currencies while its interest and principal obligations with respect
to most of the Company's existing indebtedness are payable in U.S. dollars.
At December 31, 2001, the Company had cross currency swaps to hedge
exposure to movements in the Euro to British pound exchange rate.
In September 2001, the Company entered into a British pound forward foreign
exchange agreement, consisting of twenty-six accumulating forward contracts, to
reduce its exposure to movement in the British pound/U.S. dollar exchange rate
in accordance with its market risk strategies.
INTEREST RATES
The fair market value of long-term fixed interest rate debt and the amount
of future interest payments on floating interest rate debt are subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise.
The Company has entered into interest rate swaps to hedge exposure to the
floating rate indebtedness incurred under the NTLCL L200.0 million term
facility. The notional amount of the interest rate swaps was L100.0 million at
December 31, 2001.
20
The following table provides information about the Company's long-term
fixed and floating interest rate debt and derivative financial instruments that
are sensitive to changes in interest rates and foreign currency exchange rates.
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
<Table>
<Caption>
YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING YEAR ENDING FAIR VALUE
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 THEREAFTER TOTAL 12/31/01
----------- ----------- ----------- ----------- ----------- ---------- -------- ----------
LONG-TERM DEBT INCLUDING
CURRENT PORTION
U.S. Dollar
Fixed Rate.............. -- -- $285.1 $808.8 $1,050.0 $5,962.6 $8,106.5 $2,510.7
Average Interest Rate... 13.25% 12.09% 11.50% 9.71%
U.K. Pound
Fixed Rate.............. -- -- -- -- -- L890.0 L890.0 L311.2
Average Interest Rate... 10.09%
Average Forward Exchange
Rate.................. 1.4372
Euro
Fixed Rate.............. -- -- -- -- E250.0 E860.0 E1,110.0 E353.5
Average Interest Rate... 9.25% 11.14%
Average Forward Exchange
Rate.................. .8948 .9090
U.K. Pound
Variable Rate........... -- -- L90.0 L2,494.8 L100.0 -- L2,684.8 L2,684.5
Average Interest Rate... LIBOR plus% LIBOR plus% LIBOR plus%
2.0 2.0 5.5
Average Forward Exchange
Rate.................. 1.4131 1.4150 1.4185
U.K. Pound
Variable Rate........... L20.0 L180.0 L200.0 L200.0
Average Interest Rate... LIBOR plus% LIBOR plus%
3.5 3.5
Average Forward Exchange
Rate.................. 1.4185 1.4301
INTEREST RATE DERIVATIVE
FINANCIAL INSTRUMENTS
RELATED TO LONG-TERM
DEBT
Receipt of U.K. Pounds
Notional Euro Amount.... E76.3 -- -- -- -- -- E76.3 E(4.0)
Average Contract Rate... .6457
</Table>
RELATED FORWARD CONTRACTS TO SELL FOREIGN CURRENCIES FOR US $
U.K. POUND
<Table>
<Caption>
YEAR ENDING FAIR VALUE
12/31/02* 12/31/01
----------- ----------
Notional amount............................................. Up to $47.5 $(0.3)
Average contract rate....................................... 1.45
</Table>
- ---------------
*The last contract ends on May 30, 2002.
21
RISK FACTORS
WE CURRENTLY HAVE LIMITED LIQUIDITY. IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT
A RECAPITALIZATION, THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS
A GOING CONCERN.
We have limited liquidity. We do not currently have access to our historic
sources of liquidity in the capital markets and our credit facilities are either
fully drawn or we are currently unable to access remaining undrawn amounts. If
we make scheduled payments of interest and overdue payments of interest, then we
will not have sufficient cash resources to meet our liquidity needs through the
third quarter of 2002. As a consequence, we need to restructure our outstanding
debt and/or raise new funds. If we cannot restructure our indebtedness or obtain
additional liquidity in a timely manner, we may face the possibility of
insolvency proceedings in the UK, the United States or elsewhere.
THE SUCCESSFUL IMPLEMENTATION OF THE PROPOSED RECAPITALIZATION PLAN WILL REQUIRE
THE SUPPORT OF OUR CREDITORS.
The completion of the proposed recapitalization contemplated by the
agreement in principle with the unofficial bondholder committee will require
support from NTL's creditors and holders of NTL's preferred stock, including
France Telecom. Pursuant to the terms of NTL's credit facilities waivers, the
agreement in principle reached with the unofficial committee is subject to the
approval of the lenders under NTL's credit facilities. The proposed
recapitalization plan will be implemented pursuant to a Chapter 11 bankruptcy
proceeding. Consummation of such a plan of reorganization will require a
favorable vote by impaired classes of creditors, satisfaction of bankruptcy law
requirements and confirmation by the bankruptcy court, which, as a court of
equity, may exercise substantial discretion and choose not to confirm any plan
of reorganization NTL agreed with its creditors. Even if such a plan received
the necessary support from many classes of NTL's creditors, there can be no
assurance that it would be completed. If a protracted reorganization was to
occur, or a liquidation would be necessary, there is a risk that the value of
NTL would be eroded to the detriment of some or all NTL stakeholders.
WE CANNOT BE CERTAIN THAT NTL'S BANK LENDERS WILL CONSENT TO THE PROPOSED
RECAPITALIZATION PLAN OR GRANT NTL ANY NEW WAIVERS NTL MAY NEED.
Before we could commence negotiations with the unofficial committee of our
bondholders NTL needed to obtain waivers from the lenders under its credit
facilities. These lenders granted waivers which, until April 30, 2002 in the
case of the UK credit facilities, or May 14, 2002 in the case of the Cablecom
facility, provide that NTL's commencement of negotiations with bondholders with
a view to rescheduling of its debt will not constitute an event of default under
NTL's credit facilities.
The waivers prohibit NTL from making an exchange offer with respect to its
outstanding notes or from entering into an agreement with bondholders without
the consent of the lenders under each of the credit facilities. The waivers also
prohibit NTL from commencing voluntary dissolution proceedings, including
proceedings under Chapter 11 of the U.S. Bankruptcy Code, without the consent of
these lenders. If NTL is unable to obtain the consent of the lenders, it will
not be able to make a voluntary Chapter 11 filing as currently contemplated in
connection with the proposed plan.
The UK Credit Facility waivers, if not extended, will terminate on April
30, 2002, unless the missed interest payments on April 1, 2002 are remedied or a
sufficient number of noteholders have agreed to waive or forbear from exercising
any rights in respect of such non-payment, in which case, the waivers will be
extended to May 14, 2002. If the waivers terminate and NTL continues to
negotiate with bondholders or the non-payment of interest is not cured, there
will be events of default under NTL's credit facilities that will entitle the
lenders to accelerate repayment. NTL does not have sufficient cash resources to
repay it outstanding indebtedness if its is declared immediately due and
payable. In addition, the lenders could also seek to take control over the
assets over which they hold security in an insolvency proceeding.
22
NTL DID NOT PAY INTEREST DUE ON SOME OF ITS OUTSTANDING NOTES ON APRIL 1 AND
APRIL 15, 2002; NTL MAY NOT CURE THE EXISTING EVENT OF DEFAULT. NTL MAY NOT MAKE
FUTURE INTEREST PAYMENTS ON MOST OF ITS OUTSTANDING NOTES.
NTL Incorporated and NTL (Delaware), Inc. did not make scheduled interest
payments due April 15, 2002 and NTL Communications did not make scheduled
interest payments and payments of related fees due April 1 and April 15, 2002.
If NTL fails to pay interest on these notes after a 30 day grace period
expires (on April 30, 2002 in the case of the missed interest payments due April
1, 2002), events of default for failure to pay interest would occur under the
relevant indentures and, contemporaneously, cross defaults would occur under
other of NTL's indentures at the Company, NTL Delaware, NTL Incorporated and
under NTL's UK credit facilities and could occur under NTL's Cablecom facility.
This would give holders of the outstanding series of debt at these entities the
right to accelerate repayment of those debts by declaring the principal amount
of the debts to be immediately due and payable unless NTL obtains waivers or
forbearance agreements from sufficient percentages of its creditors. If that
right to accelerate was exercised, NTL would not have sufficient cash resources
to repay those debts, which could ultimately lead to bankruptcy proceedings
relating to the entities so affected.
NTL HAS NO CURRENT AVAILABILITY UNDER ITS EXISTING CREDIT FACILITIES.
NTL has no current ability to borrow under its existing UK credit
facilities, as it has borrowed the full amounts available.
IF WE MAKE A VOLUNTARY BANKRUPTCY FILING IN CONNECTION WITH THE PROPOSED PLAN OF
RECAPITALIZATION, IT IS LIKELY WE WILL LOSE OUR NET OPERATING LOSS CARRYFORWARDS
FOR U.S. INCOME TAX PURPOSES.
We need to restructure our outstanding debt during 2002. A restructuring of
our debt can be expected to give to rise to cancellation of indebtedness
("COD"), which if it occurs in the course of a proceeding pursuant to Chapter 11
of the U.S. Bankruptcy Code, would be non-taxable. If the COD is non-taxable, we
will be required to reduce our net operating loss carryforwards and other
attributes such as tax basis in assets by an amount equal to the non-recognized
COD. As a result, it is likely that as a result of the successful completion of
the proposed plan of recapitalization, we will have no U.S. net operating loss
carryforwards.
UNCERTAINTY OVER NTL'S FINANCIAL CONDITION MAY HARM OUR BUSINESS AND OUR BRAND
NAME.
Media speculation regarding NTL's financial condition and potential
outcomes of the recapitalization process could have an adverse effect on parts
of our business. Similarly, negative press about the financial condition of
alternative telecom carriers in general may effect our reputation. For example,
one of our key strategies is to increase our penetration of higher value small
to medium size enterprises (or SMEs) and provide increased retail services of
bundled voice, data and Internet services for SMEs. However, due to the negative
publicity surrounding NTL's financial condition and the potential effect of that
publicity on our brand name, we may find it difficult to convince SMEs to take
up our services. Even if NTL successfully completes the recapitalization
process, there is no assurance that it will not adversely impact our results of
operations or have a long-term effect on our brand.
In addition, this uncertainty may adversely affect our relationships with
our suppliers. If suppliers become increasingly concerned about NTL's financial
condition they may demand quicker payment terms or not extend normal trade
credit, both of which could further adversely affect our working capital
position. NTL may not be successful in obtaining alternative suppliers if the
need arises and this would adversely affect our results of operations.
23
THE RECAPITALIZATION PROCESS HAS REQUIRED SIGNIFICANT TIME AND RESOURCES OF
NTL'S DIRECTORS AND SENIOR MANAGERS, WHICH COULD ADVERSELY AFFECT THE OPERATION
OF OUR BUSINESS.
NTL's senior managers and directors have needed to spend significant
amounts of their time dealing with the negotiations with bondholders, bank
lenders and other stakeholders in connection with the recapitalization process
and it is likely that they will continue to devote significant amounts of their
time to this process for the forseeable future. This has diverted their time and
resources from managing the operations of our business. If NTL's senior managers
and directors continue to spend significant amounts of their time in connection
with the recapitalization process, this may have a negative impact on our
operations.
WE HAVE HISTORICALLY INCURRED LOSSES AND GENERATED NEGATIVE CASH FLOWS AND WE
CANNOT ASSURE YOU THAT WE WILL BE PROFITABLE IN THE FUTURE.
Construction and operating expenditures and interest costs have resulted in
negative cash flow. We also expect to incur substantial additional losses. We
cannot be certain that we will achieve or sustain profitability in the future.
Failure to achieve profitability has and could in the future diminish our
ability to sustain our operations, obtain additional required funds and make
required payments on our indebtedness.
OUR GROWTH HAS BEEN CURTAILED BY FUNDING CONSTRAINTS.
We have significantly decreased the amount we are spending on capital
expenditures due to our liquidity constraints. As a result, we will be unable to
increase our subscriber numbers in the short term and our revenue may be
adversely affected. The decrease in capital expenditure is the result of our
need to divert increasing amounts of our financial resources to service our
debt. The decrease in capital spending is in line with our current strategy of
maximizing revenue from our existing customers rather than increasing our
customer base. In our residential business in the UK, we expect subscriber
numbers to potentially decrease in 2002. The revenue we expect to result from
our capital expenditure is long-term in nature. The reduction in capital
expenditures for connecting new subscribers to our network will likely lead to a
decrease in the rate of revenue growth in the future. Difficulties in obtaining
additional funding will likely hamper our ability to connect new subscribers to
our network and increase our revenue.
ONE OF OUR KEY STRATEGIES IS TO REDUCE CUSTOMER CHURN. HOWEVER THERE CAN BE NO
ASSURANCE THAT WE WILL SUCCESSFULLY ACCOMPLISH THIS OR THAT OUR CHURN RATE WILL
NOT INCREASE.
We have experienced rapid growth and development in a relatively short
period, either through acquisitions or connecting customers to our network. One
of our biggest challenges as we have grown has been to limit our customer churn
and the successful implementation of our business plan depends upon a reduction
in the percentage of our customers that stop using our services. Factors
contributing to increase of churn during 2001 included the continued integration
of our ConsumerCo acquisition, the existence of multiple billing systems, the
introduction of digital television and our decision to disconnect some of our
poor paying customers.
In order to reduce churn in the future, we aim to improve our customer
service. This improvement will be difficult to obtain without an integrated
billing system and a customer database across the entire NTL network. NTL does
not as yet have an integrated billing and operational platform.
Another part of our strategy leading to reduction in churn is an increased
take up of broadband services by our existing customers. If this increased level
of take up does not materialize we may have difficulties in reducing churn
levels, thereby adversely impacting our results of operations.
FAILURE TO SUCCESSFULLY MARKET BROADBAND TO OUR EXISTING RESIDENTIAL CLIENT BASE
WILL ADVERSELY IMPACT OUR REVENUE AND RESULTS OF OPERATIONS.
A significant component of our strategy to increase our average revenue per
unit is to successfully market broadband products to our existing residential
client base. Broadband usage by residential customers is in its infancy.
However, we believe that our triple play offering of telephony, broadband access
to the Internet and
24
digital television will prove attractive to our existing customer base and allow
us to increase our average revenue per user. However, we face significant
competition in these markets, through digital satellite and digital terrestrial
television and through alternative Internet access media, such as DSL offered by
BT and some of our competitors have substantially greater financial and
technical resources than we do. If we are unable to charge prices for broadband
services that are anticipated in our business plan in response to competition or
if our competition delivers a better product to our customers, our average
revenue per unit and our results of operations will be adversely affected.
WE ARE DEPENDENT UPON A SMALL NUMBER OF KEY PERSONNEL.
A small number of key executive officers manage our businesses. The loss of
one or more of these executive officers could have a material adverse effect on
us. We believe that our future success will depend in large part on our
continued ability to attract and retain highly skilled and qualified personnel.
We have not entered into written employment contracts or non-compete agreements
with, nor have we obtained life insurance policies covering those key executive
officers.
OUR PRINCIPAL BUSINESSES ARE SUBJECT TO GOVERNMENT REGULATION, INCLUDING PRICING
REGULATION, AND CHANGES IN CURRENT REGULATIONS MAY ADVERSELY AFFECT US.
Our principal business activities in the UK and the Republic of Ireland are
regulated and supervised by various governmental bodies. Changes in laws,
regulations or governmental policy or the interpretations of those laws or
regulations affecting our activities and those of our competitors, such as
licensing requirements, changes in price regulation and deregulation of
interconnection arrangements, could have a material adverse effect on us.
We are also subject to regulatory initiatives of the European Commission.
Changes in EU Directives may reduce our range of programming and increase the
costs of purchasing television programming or require us to provide access to
our cable network infrastructure to other service providers, which could have a
material adverse effect on us.
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO RAPID TECHNOLOGICAL CHANGES AND WE
CANNOT PREDICT THE EFFECT OF ANY CHANGES ON OUR BUSINESSES.
The telecommunications industry is subject to rapid and significant changes
in technology and the effect of technological changes on our businesses cannot
be predicted. Our core offerings may become outdated due to technological
breakthroughs rendering our products out of date. In addition, our business plan
contemplates the introduction of services using new technologies. Our
investments in those new services may prove premature and we may not realize
anticipated returns on these new products. The cost of implementation for
emerging and future technologies could be significant, and our ability to fund
such implementation may depend on our ability to obtain additional financing. We
cannot be certain that we would be successful in obtaining any additional
financing required.
WE DO NOT INSURE THE UNDERGROUND PORTION OF OUR CABLE NETWORK.
We obtain insurance of the type and in the amounts that we believe are
customary for similar companies. Consistent with this practice, we do not insure
the underground portion of our cable network. Substantially all of our cable
network is constructed underground. Any catastrophe that affects our underground
cable network could result in substantial uninsured losses.
WE ARE SUBJECT TO CURRENCY RISK BECAUSE WE OBTAIN A SUBSTANTIAL AMOUNT OF
FINANCING IN U.S. DOLLARS AND EURO BUT GENERALLY GENERATE REVENUES AND INCUR
EXPENSES IN OTHER CURRENCIES.
We encounter currency exchange rate risks because we generate revenues and
incur construction and operating expenses in other currencies, primarily in
pounds sterling while we pay interest and principal obligations with respect to
most of our existing indebtedness in U.S. dollars and Euro. We cannot assure you
that the hedging transactions we have entered into or any other hedging
transactions we might enter into will
25
be successful or that shifts in the currency exchange rates will not have a
material adverse effect on us. For example, to the extent that the pound
sterling declines in value against the U.S. dollar and, to a lesser extent, the
Euro, and we have not fully hedged against such declines, the effective cost of
servicing our U.S. dollar and Euro debt will be higher and we will incur
currency losses.
THE COMPANY, DIAMOND AND NTL TRIANGLE ARE HOLDING COMPANIES THAT ARE DEPENDENT
UPON CASH FLOW FROM THEIR SUBSIDIARIES TO MEET THEIR OBLIGATIONS -- THEIR
ABILITY TO ACCESS THAT CASH FLOW MAY BE LIMITED IN SOME CIRCUMSTANCES.
The Company, Diamond Cable Communications and Diamond Holdings and NTL
Triangle are holding companies with no independent operations or significant
assets other than investments in and advances to their respective subsidiaries
and affiliated joint ventures. Each of these companies depends upon the receipt
of sufficient funds from their subsidiaries or their respective parent companies
to meet their respective obligations. The terms of existing and future
indebtedness of their respective subsidiaries and the laws of the jurisdictions
under which those subsidiaries are organized generally limit the payment of
dividends, loan repayments and other distributions to them, subject in some
cases to exceptions that allow them to service indebtedness in the absence of
specified defaults.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following is a summary of the quarterly results of operations for the
years ended December 31, 2001 and 2000.
<Table>
<Caption>
2001(1)
-----------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN MILLIONS)
Revenues................................. $ 770.5 $ 776.9 $ 816.0 $ 826.2
Operating (loss)......................... (530.9) (541.5) (494.3) (8,835.9)
Net (loss)............................... (835.8) (798.9) (809.2) (9,393.1)
</Table>
<Table>
<Caption>
2000(2)
-----------------------------------------------
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
Revenues................................. $ 470.9 $ 553.6 $ 717.7 $ 742.0
Operating (loss)......................... (173.2) (269.0) (453.4) (629.6)
Net (loss)............................... (336.7) (526.1) (658.2) (867.1)
</Table>
- ---------------
(1) In the fourth quarter of 2001, the Company recorded asset impairments
totaling $8,161.6 million including goodwill of $8,077.8 million, license
acquisition costs of $58.8 million, customer lists of $9.1 million, other
intangibles of $14.9 million and investments in affiliates of $1.0 million.
In addition, in 2001 the Company recorded restructuring costs of $202.8
million, integration and consulting costs of $95.1 million and a loss on the
sale of the ConsumerCo off-net indirect access customers of $88.5 million.
(2) In May 2000, NTL Incorporated purchased ConsumerCo for an aggregate purchase
price of $13,111.0 million, including intangibles of $8,879.0 million.
ConsumerCo was subsequently acquired by the Company from NTL Incorporated.
The net assets and results of operations of ConsumerCo are included in the
consolidated financial statements from May 2000, the date of acquisition.
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
PART III
ITEMS 10, 11, 12 AND 13.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<Table>
(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 32.
(b) No reports on Form 8-K were filed by the Company during the fourth
quarter of 2001.
(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.
</Table>
27
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT
NO.
- --------
2.1 Agreement and Plan of Merger, dated as of February 9, 2000,
by and among NTL Incorporated, NTL Communications Corp. and
Holdings Merger Sub Inc. (Incorporated by reference to
Exhibit 2.1 to Amendment No. 1 to the Registration Statement
on Form S-3/A, filed by NTL (Delaware), Inc. and NTL
Incorporated on July 14, 2000, File No. 333-36434)
2.2 Agreement and Plan of Merger, dated as of March 26, 1999, by
and among NTL Incorporated, NTL Communications and NTL
Merger Inc.(Incorporated by reference to Exhibit 2.1 to
Amendment No. 2 to the Registration Statement on Form S-3/A,
filed by NTL Incorporated and NTL Communications Corp. on
June 3, 1999, File No. 333-72335)
2.3 Agreement and Plan of Amalgamation, dated as of February 4,
1998, as amended, by and among NTL Incorporated, NTL
(Bermuda) Limited, and Comcast UK Cable Partners Limited
(Incorporated by reference to the Registration Statement on
Form S-4, filed by NTL Incorporated on September 30, 1998,
File No. 333-64727)
2.4 Amendment No. 1 to Agreement and Plan of Amalgamation, dated
as of May 28, 1998, by and among NTL Incorporated, NTL
(Bermuda) Limited and Comcast UK Cable Partners Limited
(Incorporated by reference to Annex B to the Registration
Statement on Form S-4, filed by NTL Incorporated on
September 30, 1998, File No. 333-64727)
2.5 Share Exchange Agreement, dated as of June 16, 1998, as
amended, by and among NTL Incorporated and the shareholders
of Diamond Cable Communications plc (Incorporated by
reference to Annex A to the Proxy Statement, filed by NTL
Incorporated on January 29, 1999, File No. 000-22616)
2.6 Amendment No. 1 to Share Exchange Agreement, dated as of
December 21, 1998, by and among NTL Incorporated and the
shareholders of Diamond Cable Communications plc
(Incorporated by reference to Exhibit 99.1 to Form 8-K,
filed by NTL Incorporated on December 23, 1998, File No.
000-22616)
2.7 Transaction Agreement, dated as of July 26, 1999, by and
among, Bell Atlantic Corporation, Cable and Wireless PLC,
Cable, Wireless Communications PLC and NTL Incorporated
(Incorporated by reference to Annex J to the Proxy
Statement, filed by NTL Incorporated on February 11, 2000,
File No. 000-25691)
2.8 Investment Agreement, dated as of July 26, 1999, by and
between, NTL Incorporated and France Telecom S.A.
(Incorporated by reference to Annex A the Proxy Statement,
filed by NTL Incorporated on February 11, 2000, File No.
000-25691)
2.8(a) Amendment No. 1 to the Investment Agreement, dated as of
August 6, 1999 by and among NTL Incorporated and France
Telecom S.A.(Incorporated by reference Annex B to the Proxy
Statement, filed by NTL Incorporated on February 11, 2000,
File No. 000-25691)
2.8(b) Amendment No. 2 to the Investment Agreement, dated as of
October 8, 1999 by and among NTL Incorporated and France
Telecom S.A.(Incorporated by reference to Annex C to the
Proxy Statement, filed by NTL Incorporated on February 11,
2000, File No. 000-25691)
2.9 Purchase Agreement, dated as of February 17, 2000, by and
between France Telecom, S.A. and NTL Incorporated
(Incorporated by reference to Exhibit 99.3 to the Form 8-K,
filed by NTL Incorporated on February 22, 2000, File No.
000-25691)
2.10 Transaction Agreement dated as of December 12, 1999 by and
among Cablecom Holding AG and NTL Incorporated and certain
other parties thereto (Incorporated by reference to Exhibit
2.9 to the 1999 Annual Report on Form 10-K, filed by NTL
Incorporated on March 17, 2000, File No. 000-25691)
</Table>
28
<Table>
<Caption>
EXHIBIT
NO.
- --------
3.1 Restated Certificate of Incorporation of NTL Communications
Corp. (Incorporated by reference to the registration
statement on Form S-3, filed by Communications Corp. on June
3, 1999, File No. 333-72335)
3.2 By-Laws of NTL Communications Corp. (Incorporated by
reference to Exhibit 3.4 to Amendment No. 1 to the
Registration Statement on Form S-3/A, filed by NTL
Communications Corp. on June 3, 1999, File No. 333-72335)
4.1 Form of Indenture, dated as of September 28, 1994, by and
between Diamond Cable Communications plc, and The Bank of
New York as Trustee, with respect to the 13 1/4% Senior
Discount Notes due September 30, 2004 (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on
Form S-1, filed by Diamond Cable Communications plc on
September 6, 1994, File No. 33-83740)
4.2 First Supplemental Indenture, dated as of May 31, 1996, by
and between Diamond Cable Communications plc and The Bank of
New York as Trustee (Incorporated by reference to Exhibit
4.3 to Post-Effective Amendment No. 4 to the Registration
Statement on Form S-1, filed by Diamond Cable Communications
plc on September 12, 1996, File No. 33-83740)
4.3 Indenture, dated as of April 20, 1995, by and between NTL
Communications Corp. and Chemical Bank as Trustee, with
respect to the 12 3/4% Senior Notes (Incorporated by
reference to Exhibit 4.1 to the Registration Statement on
Form S-4, filed by International CableTel Incorporated on
May 26, 1995, File No. 33-92794)
4.4 First Supplemental Indenture, dated as of January 22, 1996,
by and between NTL Communications Corp. and Chemical Bank,
as Trustee, with respect to the 12 3/4% Senior Notes
(Incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form S-4, filed by International
CabelTel Incorporated on February 5, 1996, File No.
333-1010)
4.5 Indenture, dated as of November 11, 1995, by and between
Comcast UK Cable Partners Limited and Bank of Montreal Trust
Company as Trustee with respect to the 11.20% Senior
Discount Debentures due 2007 (Incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Registration Statement
on Form S-1/A filed by Comcast UK Cable Partners Limited on
November 5, 1995, File No. 33-96932)
4.6 First Supplemental Indenture, dated October 29, 1998, by and
between NTL (Bermuda) Limited (now NTL Triangle) LLC) and
Bank of Montreal Trust Company as Trustee, with respect to
the 11.20% Senior Discount Debentures due 2007 (Incorporated
by reference to Exhibit 4.1 to Form 8-K, filed by NTL
(Triangle) LLC on November 4, 1998, File No. 000-24792)
4.7 Indenture, dated as of December 15, 1995, by and between
Diamond Cable Communications plc, and The Bank of New York
as Trustee, with respect to the 11 3/4% Senior Discount
Notes due December 15, 2005 (Incorporated by reference to
Exhibit 4.1 to Amendment No. 2 to the Registration Statement
on Form S-1/A, filed by Diamond Cable Communications plc on
December 6, 1995, File No. 33-98374)
4.8 Indenture, dated as of January 30, 1996, by and between NTL
Communications and Chemical Bank as Trustee, with respect to
the 11 1/2% Senior Notes due 2006 (Incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form S-4,
filed by International CabelTel Incorporated on February 5,
1996, File No. 333-1010)
4.9 Indenture, date as of February 12, 1997, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 10% Senior Notes (Incorporated
by reference to Exhibit 4.9 to the 1996 Annual Report on
Form 10-K, filed by NTL Incorporated on March 28, 1997, File
No. 000-22616)
</Table>
29
<Table>
<Caption>
EXHIBIT
NO.
- --------
4.10 Indenture, dated as of February 27, 1997, by and between
Diamond Cable Communications plc and The Bank of New York as
Trustee, with respect to the 10 3/4% Senior Discount Notes
due February 15, 2007 (Incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-4, filed by
Diamond Cable Communications plc on April 15, 1997, File No.
333-25193)
4.11 Indenture, dated as of February 6, 1998, by and among
Diamond Holdings plc, Diamond Cable Communications plc, and
The Bank of New York as Trustee, with respect to the 10%
Senior Notes due February 1, 2008 and 9 1/8% Senior Notes
due February 1, 2008 (Incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-4, filed by
Diamond Cable Communications plc on March 20, 1998, File No.
333-48413)
4.12 Indenture, dated as of March 13, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 9 1/2% Senior Notes
(Incorporated by reference to Exhibit 4.10 to the 1997
Annual Report on Form 10-K filed by NTL Communications (File
No. 0-22616) on March 30, 1998)
4.13 Indenture, date as of March 13, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 9 3/4% Senior Deferred Coupon
Notes (Incorporated by reference to Exhibit 4.11 to the 1997
Annual Report on Form 10-K, filed by NTL Incorporated on
March 30, 1998, File No. 000-22616)
4.14 Indenture, date as of March 13, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 10 3/4% Senior Deferred Coupon
Notes (Incorporated by reference to Exhibit 4.12 to the 1997
Annual Report on Form 10-K, filed by NTL Incorporated on
March 30, 1998, File No. 000-22616)
4.15 Indenture, date as of November 2, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 11 1/2% Senior Notes due 2008
(Incorporated by reference to Exhibit 4.13 to the 1998
Annual Report on Form 10-K, filed by NTL Incorporated on
March 30, 1999, File No. 000-22616)
4.16 Indenture, date as of November 6, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 12 3/8% Senior Deferred Coupon
Notes due 2008 (Incorporated by reference to Exhibit 4.15 to
the 1998 Annual Report on Form 10-K, filed by NTL
Incorporated on March 30, 1999, File No. 000-22616)
4.17 Indenture, date as of December 16, 1998, by and between NTL
Communications Corp. and The Chase Manhattan Bank, as
Trustee, with respect to the 7% Convertible Subordinated
Notes due 2008 (Incorporated by reference to Exhibit 4.17 to
the 1998 Annual Report on Form 10-K, filed by NTL
Incorporated on March 30, 1999, File No. 000-22616)
4.18 First Supplemental Indenture, date as of March 31, 1999, by
and among NTL Incorporated, NTL Communications Corp. and The
Chase Manhattan Bank, as Trustee, with respect to the 7%
Convertible Subordinated Notes due 2008 (Incorporated by
reference to Exhibit 4.4 to Amendment No. 2 to the
Registration Statement on Form S-3/A, filed by NTL
Incorporated and NTL Communications Corp. on June 3, 1999,
File No. 333-72335)
4.19 Second Supplemental Indenture, dated as of March 16, 2000,
by and among NTL Incorporated, NTL Communications Corp.
(formerly NTL Incorporated) and The Chase Manhattan Bank as
Trustee, with respect to the 7% Convertible Subordinated
Notes due 2008 (Incorporated by reference to Exhibit 4.3 to
Amendment No. 1 to the Registration Statement on Form S-3/A,
filed by NTL Incorporated, NTL (Delaware), Inc. and NTL
Communications Corp. on August 30, 2000, File No. 333-42792)
</Table>
30
<Table>
<Caption>
EXHIBIT
NO.
- --------
4.20 Third Supplemental Indenture, dated as of May 17, 2000, by
and among NTL Incorporated, NTL Communications Corp.
(formerly NTL Incorporated) and The Chase Manhattan Bank as
Trustee, with respect to the 7% Convertible Subordinated
Notes due 2008 (Incorporated by reference to Exhibit 4.4 to
Amendment No. 1 to the Registration Statement on Form S-3/A,
filed by NTL Incorporated, NTL (Delaware), Inc. and NTL
Communications Corp. on August 30, 2000, File No. 333-42792)
4.21 Indenture, dated as of April 14, 1999, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 9 3/4% Senior Deferred Coupon
Notes due 2009 (Incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-4, filed by NTL
Communications Corp. on May 13, 1999, File No. 333-78405)
4.22 Indenture, dated as of November 24, 1999, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 9 1/4% Senior Notes due 2006
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, filed by NTL
Communications Corp. on January 24, 2000, File No.
333-95267)
4.23 Indenture, dated as of November 24, 1999, by and between NTL
Communication Corp. and The Chase Manhattan Bank as Trustee,
with respect to the 9 7/8% Senior Notes Due 2009
(Incorporated by reference to Exhibit 4.2 to the
Registration Statement on Form S-4, filed by NTL
Communication Corp. on January 24, 2000, File No. 333-95267)
4.24 Indenture, dated as of November 24, 1999, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 11 1/2% Senior Deferred Coupon
Notes due 2009 (Incorporated by reference to Exhibit 4.3 to
the Registration Statement on Form S-4, filed by NTL
Communications Corp. on January 24, 2000, File No.
333-95267)
4.25 Indenture, dated as of October 2, 2000, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 11 7/8% Senior Notes due 2010
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, filed by NTL
Communications Corp. on October 26, 2000, File No.
333-48648)
4.26 Indenture, dated as of January 24, 2001, by and between NTL
Communications Corp. and The Chase Manhattan Bank as
Trustee, with respect to the 12 3/8% Senior Notes due 2008
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-4, filed by NTL
Communications Corp. on February 9, 2001, File No.
333-55288)
4.27 Indenture, dated as of May 15, 2001, by and between NTL
Communications Corp., NTL Incorporated and The Chase
Manhattan Bank, as Trustee, with respect to the 6 3/4%
Convertible Senior Notes due 2008 (Incorporated by reference
to Exhibit 4.7 to Amendment No. 1 to the Registration
Statement on Form S-4/A, filed by NTL Communications Corp.
on June 8, 2001, File No. 333-55288)
4.28 Registration Rights Agreement dated as of May 15, 2001 by
and among NTL Communications Corp., NTL Incorporated, Morgan
Stanley & Co. Incorporated, J.P. Morgan Securities Inc.,
Credit Suisse First Boston Corporation and Salomon Smith
Barney Inc. with respect to the 6 3/4% Convertible Senior
Notes due 2008 (Incorporated by reference to Exhibit 4.8 to
Amendment No. 1 to the Registration Statement on Form S-4/A,
filed by NTL Communications Corp. on June 8, 2001, File No.
333-55288)
10.1 Compensation Plan and Agreements, as amended and restated
effective June 3, 1997 (Incorporated by reference to Exhibit
10.1 to the 1997 Annual Report on Form 10-K, filed by NTL
Communications on March 30, 1998, File No. 0-22616)
10.2 Rules of the NTL Sharesave Plan, adopted by NTL Incorporated
on October 28, 1997 (Incorporated by reference to Exhibit
10.2 to the 1998 Annual Report on Form 10-K, filed by NTL
Communications, on March 30, 1999, File No. 0-22616)
</Table>
31
<Table>
<Caption>
EXHIBIT
NO.
- --------
10.3 Form of Director and Officer Indemnity Agreement (together
with a schedule of executed Indemnity Agreements)
(Incorporated by reference to Exhibit 10.3 to the 1999
Annual Report on Form 10-K, filed by NTL Incorporated on
March 17, 2000, File No. 000-25691)
10.4 1998 Non-Qualified Stock Option Plan, as Amended and
Restated October 1998 (Incorporated by reference to Exhibit
10.4 to the 1998 Annual Report on Form 10-K, filed by NTL
Communications on March 30, 1999, File No. 0-22616)
10.5 Credit Agreement relating to the acquisition of Cable &
Wireless Communications (Holdings) PLC, dated as of May 30,
2000, by and among NTL Communications Limited, NTL Business
Limited, NTL Communications Corp., Chase Manhattan PLC and
Morgan Stanley Dean Witter Limited, Chase Manhattan
International Limited (Incorporated by reference to Exhibit
10.8 to the 2000 Annual Report on Form 10-K, filed by NTL
Incorporated on March 30, 2001, File No. 001-16183)
10.6 Restatement Amendment Agreement dated as of September 26,
2001 by and among NTL Communications Limited, NTL Investment
Holdings Limited, NTL Communications Corp., J.P. Morgan plc
and Morgan Stanley Dean Witter Bank Limited, Chase Manhattan
International Limited and others, agreeing to amend the
Credit Agreement, dated as of May 30, 2000, between NTL
Communications Corp., NTL (UK) Group, Inc., NTL
Communications Limited, Morgan Stanley Dean Witter Bank
Limited and Chase Manhattan PLC (Incorporated by reference
to Exhibit 10.16 to the 2001 Annual Report on Form 10-K,
filed by NTL Incorporated on April 16, 2001, File No.
0-30673)
10.6(a) Amended and Restated Credit Agreement dated as of September
26, 2001, restating the Credit Agreement dated as of 30 May
2000, as amended or waived pursuant to a letter dated as of
6 June 2000, amendment agreements dated as of 8 June 2000,
30 June 2000 and 4 September 2000, a novation agreement
dated as of 21 February 2001 and letters of consent dated as
of 22 December 2000 and 29 January 2001 by and among NTL
Communications Limited, NTL Investment Holdings Limited, NTL
Communications Corp., J.P. Morgan plc and Morgan Stanley
Dean Witter Bank Limited, Chase Manhattan International
Limited and others (Incorporated by reference to Exhibit
10.6(a) to the 2001 Annual Report on Form 10-K, filed by NTL
Incorporated on April 16, 2001, File No. 0-30673)
10.7 Investment Agreement, dated July 26, 1999, as amended, by
and between the Company and France telecom S.A (Incorporated
by reference to Annex A to the proxy statement filed by NTL
Incorporated on February 11, 2000, File No. 000-25691)
10.7(a) Amendment, dated as of September 12, 2001, to the Investment
Agreement, dated July 26, 1999, as amended, by and between
the Company and France Telecom S.A. (Incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q, filed by NTL Incorporated on November 14, 2001, File
No. 001-16183)
10.8 Framework Agreement For The Provision Of IT Outsourcing
Services, dated as of May 23, 2001, by and between NTL Group
Limited and IBM United Kingdom Limited (Incorporated by
reference to Exhibit 10.9 to the 2001 Annual Report on Form
10-K, filed by NTL Incorporated on April 16, 2001, File No.
0-30673)
10.9 Amendment, dated as of April 5, 2001 to the Framework
Agreement For The Provision of IT Outsourcing Services,
dated as of May 23, 2001, by and between NTL Group Limited
and IBM United Kingdom Limited (Incorporated by reference to
Exhibit 10.10 to the 2001 Annual Report on Form 10-K, filed
by NTL Incorporated on April 16, 2001, File No. 0-30673)
</Table>
32
<Table>
<Caption>
EXHIBIT
NO.
- --------
10.10 Consent Letter, dated as of March 8, 2002, in respect of the
Senior Credit Facility by and among NTL Communications
Limited, NTL Investment Holdings Limited, NTL Communications
Corp. and J.P. Morgan Europe Limited, on behalf of the banks
(Incorporated by reference to Exhibit 10.11 to the 2001
Annual Report on Form 10-K, filed by NTL Incorporated on
April 16, 2001, File No. 0-30673)
10.11 Consent Letter, dated as of March 8, 2002, in respect of the
Working Capital Facility by and among NTL Communications
Corp., NTL Communications Limited, NTL (UK) Group Inc. and
J.P. Morgan Europe Limited, on behalf of the banks
(Incorporated by reference to Exhibit 10.12 to the 2001
Annual Report on Form 10-K, filed by NTL Incorporated on
April 16, 2001, File No. 0-30673)
10.12 Consent Letter, dated as of March 28, 2002, in respect of
the Senior Credit Facility by and among NTL Communications
Limited, NTL Investment Holdings, NTL Communications
Corporation and J.P. Morgan Europe Limited, on behalf of the
banks (Incorporated by reference to Exhibit 10.14 to the
2001 Annual Report on Form 10-K, filed by NTL Incorporated
on April 16, 2001, File No. 0-30673)
10.13 Consent Letter, dated March 28, 2002, in respect of the
Working Capital Facility by and among NTL Communications
Corp., NTL Communications Limited, NTL (UK) Group Inc.
(Incorporated by reference to Exhibit 10.15 to the 2001
Annual Report on Form 10-K, filed by NTL Incorporated on
April 16, 2001, File No. 0-30673)
23 Consent of Ernst & Young LLP*
</Table>
- ---------------
* Filed herewith
33
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: April 17, 2002
NTL COMMUNICATIONS CORP.
By: /s/ BARCLAY KNAPP
------------------------------------
Barclay Knapp
President and Chief Executive
Officer
(Principal Executive Officer)
34
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BARCLAY KNAPP President and Chief Executive April 17, 2002
- ------------------------------------------------ Officer (Principal Executive
Barclay Knapp Officer)
/s/ GEORGE S. BLUMENTHAL Chairman of the Board and April 17, 2002
- ------------------------------------------------ Treasurer
George S. Blumenthal
/s/ JOHN F. GREGG Chief Financial Officer April 17, 2002
- ------------------------------------------------ (Chief Financial Officer)
John F. Gregg
/s/ GREGG N. GORELICK Vice President-Controller April 17, 2002
- ------------------------------------------------ (Principal Accounting Officer)
Gregg N. Gorelick
/s/ SIDNEY R. KNAFEL Director April 17, 2002
- ------------------------------------------------
Sidney R. Knafel
/s/ TED H. MCCOURTNEY Director April 17, 2002
- ------------------------------------------------
Ted H. McCourtney
/s/ ALAN J. PATRICOF Director April 17, 2002
- ------------------------------------------------
Alan J. Patricof
/s/ WARREN POTASH Director April 17, 2002
- ------------------------------------------------
Warren Potash
/s/ MICHAEL S. WILLNER Director April 17, 2002
- ------------------------------------------------
Michael S. Willner
/s/ ROBERT T. GOAD Director April 17, 2002
- ------------------------------------------------
Robert T. Goad
/s/ JEAN-LOUIS VINCIGUERRA Director April 17, 2002
- ------------------------------------------------
Jean-Louis Vinciguerra
/s/ ERIC BOUVIER Director April 17, 2002
- ------------------------------------------------
Eric Bouvier
/s/ BERNARD IZERABLE Director April 17, 2002
- ------------------------------------------------
Bernard Izerable
</Table>
35
FORM 10-K -- ITEM 14(a)(1) AND (2)
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of NTL Communications Corp.
and Subsidiaries are included in Item 8:
<Table>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets -- December 31, 2001 and 2000... F-3
Consolidated Statements of Operations --
Years ended December 31, 2001, 2000 and 1999.............. F-4
Consolidated Statement of Shareholder's (Deficiency)
Equity --
Years ended December 31, 2001, 2000 and 1999.............. F-5
Consolidated Statements of Cash Flows --
Years ended December 31, 2001, 2000 and 1999.............. F-6
Notes to Consolidated Financial Statements.................. F-8
</Table>
The following consolidated financial statement schedules of NTL
Communications Corp. and Subsidiaries are included in Item 14(d):
<Table>
Schedule I -- Condensed Financial Information of
Registrant................................................ F-36
Schedule II -- Valuation and Qualifying Accounts............ F-42
</Table>
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 Shareholder
NTL Communications Corp.
We have audited the consolidated balance sheets of NTL Communications Corp.
and Subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, shareholder's (deficiency) equity and cash flows for
each of the three years in the period ended December 31, 2001. Our audits also
included the financial statement schedules listed in the Index at Item 14(d).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Communications Corp. and Subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
The accompanying financial statements have been prepared assuming that NTL
Communications Corp. will continue as a going concern. As more fully described
in Note 1, the Company has incurred recurring operating losses and negative
operating cash flows, has a working capital deficiency and a deficiency in
shareholder's equity. The Company is a wholly-owned, indirect subsidiary of NTL
Incorporated, and has relied on subsidiaries of NTL Incorporated for funding.
NTL Incorporated's substantial leverage, its current debt and equity trading
levels and its non-compliance with certain debt covenants in 2002 have
eliminated its access to its historic sources of capital. NTL Incorporated has
initiated a recapitalization process, the success of which is dependent upon
adequate liquidity to complete the process as well as agreement of NTL
Incorporated's creditors and preferred stockholders. These conditions raise
substantial doubt about NTL Incorporated's and the Company's ability to continue
as going concerns. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
New York, New York
April 16, 2002
F-2
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
----------------------
2001 2000
---------- ---------
(DOLLARS IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 251.1 $ 423.5
Accounts receivable -- trade, less allowance for doubtful
accounts of $126.1 (2001) and $135.2 (2000)............ 479.0 527.4
Due from affiliates....................................... 6.9 105.1
Other..................................................... 271.8 275.0
---------- ---------
Total current assets........................................ 1,008.8 1,331.0
Fixed assets, net........................................... 10,840.3 10,916.8
Intangible assets, net...................................... 767.3 10,566.1
Investments in and loans to affiliates, net................. 4.6 11.6
Other assets, net of accumulated amortization of $125.0
(2001) and $81.9 (2000)................................... 255.1 316.1
Loan to NTL Incorporated.................................... 150.0 --
Deferred income taxes....................................... -- 4.9
---------- ---------
Total assets................................................ $ 13,026.1 $23,146.5
========== =========
LIABILITIES AND SHAREHOLDER'S (DEFICIENCY) EQUITY
Current liabilities:
Accounts payable.......................................... $ 378.3 $ 451.1
Accrued expenses and other................................ 836.2 1,105.6
Accrued construction costs................................ 119.8 172.9
Due to affiliates......................................... -- 117.9
Interest payable.......................................... 252.0 127.6
Deferred revenue.......................................... 290.2 291.5
Current portion of long-term debt......................... 14,205.9 10.7
---------- ---------
Total current liabilities................................... 16,082.4 2,277.3
Long-term debt.............................................. -- 11,843.4
Other....................................................... 8.9 13.6
Deferred income taxes....................................... 113.8 --
Commitments and contingent liabilities
Shareholder's (deficiency) equity:
Common stock -- $.01 par value; authorized 100 shares;
issued and outstanding 12 (2001) and 12 (2000)
shares................................................. -- --
Additional paid-in capital................................ 13,917.7 13,746.7
Accumulated other comprehensive (loss).................... (904.5) (379.3)
(Deficit)................................................. (16,192.2) (4,355.2)
---------- ---------
(3,179.0) 9,012.2
---------- ---------
Total liabilities and shareholder's (deficiency) equity..... $ 13,026.1 $23,146.5
========== =========
</Table>
See accompanying notes.
F-3
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
---------- --------- --------
(IN MILLIONS)
REVENUES
Consumer telecommunications and television.................. $ 2,069.2 $ 1,518.2 $ 827.3
Business telecommunications................................. 836.8 702.2 452.5
Broadcast transmission and other............................ 283.6 263.8 257.3
---------- --------- --------
3,189.6 2,484.2 1,537.1
COSTS AND EXPENSES
Operating expenses.......................................... 1,564.3 1,223.2 761.5
Selling, general and administrative expenses................ 973.2 969.1 562.9
Asset impairments........................................... 8,161.6 -- --
Franchise fees.............................................. -- -- 16.5
Non-cash compensation....................................... 30.6 -- --
Other charges............................................... 297.9 92.7 16.2
Corporate expenses.......................................... 24.3 23.7 25.3
Depreciation and amortization............................... 2,540.3 1,700.7 765.7
---------- --------- --------
13,592.2 4,009.4 2,148.1
---------- --------- --------
Operating (loss)............................................ (10,402.6) (1,525.2) (611.0)
OTHER INCOME (EXPENSE)
Interest income and other, net.............................. 34.7 25.8 48.2
Interest expense............................................ (1,240.8) (886.3) (678.1)
Share of (losses) from equity investments................... (22.3) (24.2) (18.4)
Other (losses) gains........................................ (88.5) -- 493.1
Foreign currency transaction gains (losses)................. 0.6 (58.1) 22.8
---------- --------- --------
(Loss) before income taxes and extraordinary item........... (11,718.9) (2,468.0) (743.4)
Income tax (expense) benefit................................ (118.1) 79.9 29.9
---------- --------- --------
(Loss) before extraordinary item............................ (11,837.0) (2,388.1) (713.5)
Loss from early extinguishment of debt...................... -- -- (3.0)
---------- --------- --------
Net (loss).................................................. $(11,837.0) $(2,388.1) $ (716.5)
========== ========= ========
</Table>
See accompanying notes.
F-4
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S (DEFICIENCY) EQUITY
<Table>
<Caption>
SERIES PREFERRED
STOCK COMMON STOCK
$.01 PAR VALUE $.01 PAR VALUE ADDITIONAL
---------------- ------------------- PAID-IN COMPREHENSIVE
SHARES PAR SHARES PAR CAPITAL LOSS
--------- ---- ----------- ----- ---------- -------------
(DOLLARS IN MILLIONS)
Balance, December 31, 1998........... 177,000 $-- 60,249,000 $ 0.6 $ 1,501.6
Exercise of stock options............ 432,000 -- 12.1
Exercise of warrants................. 15,000 -- --
Preferred stock issued for cash...... 500,000 -- 483.8
Warrants issued for cash............. 16.2
Accreted dividends on preferred
stock.............................. 4,000 (8.6)
Accretion of discount on preferred
stock.............................. --
Conversion of 7% Convertible
Subordinated Notes................. 1,000 -- --
Common stock issued for an
acquisition........................ 12,705,000 0.1 971.3
Stock options issued in connection
with an acquisition................ 6.6
Corporate restructuring.............. (681,000) -- (73,401,900) (0.7) 405.6
Distribution to NTL Incorporated..... (500.0)
Contributions from NTL
Incorporated....................... 173.2
Distribution of subsidiary to NTL
Incorporated....................... (30.5)
Corporate restructuring..............
Comprehensive loss:
Net loss for the year ended December
31, 1999........................... $ (716.5)
Currency translation adjustment...... (102.9)
----------
Total.............................. $ (819.4)
-------- --- ----------- ----- --------- ----------
Balance, December 31, 1999........... -- -- 100 -- 3,031.3
Contributions from NTL (Delaware),
Inc. .............................. 10,715.4
Corporate restructuring.............. (88)
Comprehensive loss:
Net loss for the year ended December
31, 2000........................... $ (2,388.1)
Currency translation adjustment...... (381.1)
----------
Total.............................. $ (2,769.2)
-------- --- ----------- ----- --------- ----------
Balance, December 31, 2000........... -- -- 12 -- 13,746.7
Contribution from NTL (Delaware),
Inc., net.......................... 140.4
Non-cash compensation................ 30.6
Comprehensive loss:
Net loss for the year ended December
31, 2001........................... $(11,837.0)
Currency translation adjustment...... (521.6)
Unrealized net losses on
derivatives........................ (3.6)
----------
Total.............................. $(12,362.2)
-------- --- ----------- ----- --------- ----------
Balance, December 31, 2001........... -- $-- 12 $ -- $13,917.7
======== === =========== ===== ========= ==========
<Caption>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME (LOSS)
-------------------------
UNREALIZED
FOREIGN NET
CURRENCY LOSSES ON
TRANSLATION DERIVATIVES (DEFICIT)
----------- ----------- ----------
(DOLLARS IN MILLIONS)
Balance, December 31, 1998........... $ 104.7 $ (1,251.7)
Exercise of stock options............
Exercise of warrants.................
Preferred stock issued for cash......
Warrants issued for cash.............
Accreted dividends on preferred
stock..............................
Accretion of discount on preferred
stock..............................
Conversion of 7% Convertible
Subordinated Notes.................
Common stock issued for an
acquisition........................
Stock options issued in connection
with an acquisition................
Corporate restructuring..............
Distribution to NTL Incorporated.....
Contributions from NTL
Incorporated.......................
Distribution of subsidiary to NTL
Incorporated....................... 1.1
Corporate restructuring..............
Comprehensive loss:
Net loss for the year ended December
31, 1999........................... (716.5)
Currency translation adjustment...... (102.9)
Total..............................
------- ----- ----------
Balance, December 31, 1999........... 1.8 (1,967.1)
Contributions from NTL (Delaware),
Inc. ..............................
Corporate restructuring..............
Comprehensive loss:
Net loss for the year ended December
31, 2000........................... (2,388.1)
Currency translation adjustment...... (381.1)
Total..............................
------- ----- ----------
Balance, December 31, 2000........... (379.3) (4,355.2)
Contribution from NTL (Delaware),
Inc., net..........................
Non-cash compensation................
Comprehensive loss:
Net loss for the year ended December
31, 2001........................... (11,837.0)
Currency translation adjustment...... (521.6)
Unrealized net losses on
derivatives........................ $(3.6)
Total..............................
------- ----- ----------
Balance, December 31, 2001........... $(900.9) $(3.6) $(16,192.2)
======= ===== ==========
</Table>
See accompanying notes.
F-5
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- --------- ---------
(IN MILLIONS)
OPERATING ACTIVITIES
Net loss................................................... $(11,837.0) $(2,388.1) $ (716.5)
Adjustment to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization............................ 2,540.3 1,700.7 765.7
Non-cash compensation.................................... 30.6 -- --
Non-cash restructuring charge............................ 57.9 -- --
Asset impairment......................................... 8,161.6 -- --
Equity in losses of unconsolidated subsidiaries.......... 22.3 -- --
Loss from early extinguishment of debt................... -- -- 3.0
(Gain) loss on sale of assets............................ 88.5 -- (493.1)
Provision for losses on accounts receivable.............. 58.3 98.5 45.7
Deferred income taxes.................................... 116.4 (80.8) (30.9)
Amortization of original issue discount.................. 284.7 473.1 451.4
Other.................................................... (16.8) (75.1) (8.0)
Changes in operating assets and liabilities, net of effect
from business acquisitions and dispositions:
Accounts receivable................................... (31.3) (247.9) (134.6)
Other current assets.................................. 23.4 (41.8) (34.6)
Other assets.......................................... 56.1 42.4 (25.2)
Accounts payable...................................... (38.8) (102.2) 32.0
Accrued expenses and other............................ (81.9) 330.3 150.4
Deferred revenue...................................... 7.0 120.6 68.4
---------- --------- ---------
Net cash (used in) provided by operating activities........ (558.7) (170.3) 73.7
INVESTING ACTIVITIES
Acquisitions, net of cash acquired......................... (26.2) (7,514.9) (637.6)
Purchase of fixed assets................................... (1,653.0) (1,961.8) (1,198.3)
Investments in and loans to affiliates..................... (11.9) -- --
Increase in other assets................................... (31.6) (33.7) (30.1)
Loan to NTL Incorporated................................... (150.0) -- --
Proceeds from sales of assets.............................. 14.6 -- 692.5
Purchase of marketable securities.......................... (9.9) (3.3) (354.5)
Proceeds from sales of marketable securities............... 10.0 8.3 618.6
---------- --------- ---------
Net cash (used in) investing activities.................... (1,858.0) (9,505.4) (909.4)
</Table>
F-6
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- --------- ---------
(IN MILLIONS)
FINANCING ACTIVITIES
Distribution to NTL (Delaware), Inc........................ (10.6) -- (500.0)
Contribution from NTL (Delaware), Inc...................... 40.8 5,227.2 167.6
Proceeds from borrowings, net of financing costs........... 2,643.4 5,009.8 1,846.0
Proceeds from issuance of preferred stock and warrants..... -- -- 500.0
Principal payments......................................... (421.5) (1,263.9) (758.2)
Cash released from (placed in) escrow for debt repayment... -- 77.5 (87.0)
Proceeds from exercise of stock options and warrants....... -- -- 12.1
---------- --------- ---------
Net cash provided by financing activities.................. 2,252.1 9,050.6 1,180.5
Effect of exchange rate changes on cash.................... (7.8) (25.6) (6.9)
---------- --------- ---------
(Decrease) increase in cash and cash equivalents........... (172.4) (650.7) 337.9
Cash and cash equivalents at beginning of year............. 423.5 1,074.2 736.3
---------- --------- ---------
Cash and cash equivalents at end of year................... $ 251.1 $ 423.5 $ 1,074.2
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest exclusive of amounts
capitalized.............................................. $ 776.6 $ 363.9 $ 180.3
Income taxes paid.......................................... 0.1 1.5 2.4
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Contribution from NTL (Delaware), Inc...................... $ 110.2 $ 5,488.2 $ 5.6
Accretion of dividends and discount on preferred stock..... -- -- 8.6
Conversion of Convertible Notes, net of unamortized
deferred financing costs................................. 109.5 -- 269.3
Common stock and stock options issued for acquisitions..... -- -- 978.0
</Table>
See accompanying notes.
F-7
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE RESTRUCTURING AND BUSINESS
CORPORATE RESTRUCTURING
On May 18, 2000, NTL Incorporated completed a second corporate
restructuring to create a holding company structure in connection with the
acquisition of certain assets of Cable & Wireless Communications plc ("CWC")
(the operations acquired from CWC are called "ConsumerCo"). The holding company
restructuring was accomplished through a merger so that all the stockholders of
NTL Incorporated at the effective time of the merger became stockholders of the
new holding company, and NTL Incorporated became a subsidiary of the new holding
company. The new holding company has taken the name NTL Incorporated and the
holding company's subsidiary simultaneously changed its name to NTL (Delaware),
Inc. ("NTL Delaware"). The Company is a wholly-owned subsidiary of NTL Delaware.
On February 21, 2001, the Company completed a transaction whereby it
acquired the entire issued share capital of NTL (CWC Holdings) Limited (the
entity that owns ConsumerCo) from NTL Incorporated and the entire issued share
capital of NTL Business Limited (formerly Workplace Technologies plc) from NTL
(Delaware), Inc. in exchange for shares of its common stock. As a result of this
transaction, ConsumerCo and NTL Business Limited became wholly-owned
subsidiaries of the Company. The Company accounted for the transaction in a
manner consistent with a transfer of entities under common control, which is
similar to a "pooling of interests." Accordingly, the net assets and results of
operations of ConsumerCo and NTL Business Limited have been included in the
consolidated financial statements from their respective dates of acquisition.
BUSINESS
The Company, through its subsidiaries, owns and operates broadband
communications networks for telephone, cable television and Internet services in
the United Kingdom and Ireland, and transmission networks for television and
radio broadcasting in the United Kingdom. Based on revenues and identifiable
assets, the Company's predominant lines of business are consumer services,
business services and broadcast transmission and related services in the United
Kingdom. Consumer services include telephony, cable television, Internet access
and interactive services. Business services include telephony, national and
international wholesale carrier telecommunications, and radio communications
services for the emergency services community. Broadcast transmission and
related services include digital and analog television and radio broadcasting,
rental of antenna space on the Company's owned and leased towers and sites and
associated services, and satellite and media services.
LIQUIDITY AND RECAPITALIZATION PROCESS
RECAPITALIZATION PROCESS AND ABILITY TO CONTINUE OPERATIONS
The Company required significant amounts of capital to finance construction
of its networks, connection of customers to the networks, other capital
expenditures and for working capital needs including debt service requirements.
The Company historically met these liquidity requirements through issuances of
high-yield debt securities in the capital markets and equity contributions from
NTL Incorporated. Both the equity and debt capital markets have recently
experienced periods of significant volatility, particularly for securities
issued by telecommunications and technology companies. The ability of
telecommunications companies to access those markets as well as their ability to
obtain financing provided by bank lenders and equipment suppliers has become
more restricted and financing costs have increased. During some recent periods,
the capital markets have been largely unavailable to new issues of securities by
telecommunications companies. NTL Incorporated's public equity is no longer
trading on the New York Stock Exchange, and NTL's public debt securities are
trading at or near all time lows. These factors, together with the Company's
substantial leverage, mean the Company does not currently have access to its
historic sources of capital.
F-8
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, NTL's UK credit facilities are fully drawn and NTL's Swiss
subsidiaries are currently unable to draw the remaining undrawn amounts under
the Cablecom credit facility. The Company did not pay cash interest on certain
series of its notes that was due on April 1, 2002 and April 15, 2002. NTL
Incorporated and NTL (Delaware), Inc., a wholly-owned subsidiary of NTL
Incorporated, also did not pay cash interest and related fees on a series of
their notes that was due on April 15, 2002. As of December 31, 2001, NTL had
approximately $505 million in cash and cash equivalents on hand and, on April 4,
2002, received approximately $303 million net cash proceeds from the sale of its
Australian business. NTL and the Company will require cash for working capital
and capital expenditures in 2002. If NTL makes scheduled and overdue interest
payments on its notes, then NTL will not have sufficient cash resources to meet
its liquidity needs through the third quarter of 2002.
The Company does not generate sufficient cash flow from operations to fund
its operational expenses and interest payments. The Company has historically met
its cash requirements through equity from NTL Incorporated and issuances of high
yield debt securities. Given NTL Incorporated's liquidity situation, it is
likely that it will not be able to provide the Company with cash at least for
the short-term.
These liquidity concerns raise substantial doubt about the Company's
ability to continue as a going concern. As a consequence, the Company, NTL
Incorporated and certain of its subsidiaries need to restructure their
outstanding debt and/or raise new funds through the issuance of equity or
additional debt.
On January 31, 2002, NTL Incorporated announced that it had appointed
Credit Suisse First Boston, JP Morgan and Morgan Stanley to advise on strategic
and recapitalization alternatives to strengthen NTL's balance sheet and reduce
debt and put an appropriate capital structure in place for its business. Since
then, NTL has been evaluating various recapitalization alternatives to effect a
comprehensive consensual reorganization in a timely manner to minimize negative
effects on its business operations.
On April 16, 2002, NTL announced that NTL and an unofficial committee of
its public bondholders had reached an agreement in principle on a comprehensive
recapitalization of NTL. The members of the committee hold in the aggregate over
50% of the face value of NTL and its subsidiaries' public bonds. The
recapitalization would result in a conversion of approximately $10.6 billion in
debt into equity.
To implement the proposed recapitalization, NTL Incorporated, NTL
(Delaware), Inc., the Company Diamond Cable Communications Limited and Diamond
Holdings Limited would file a pre-negotiated recapitalization plan in a Chapter
11 case under the U.S. Bankruptcy Code. NTL's operating subsidiaries would not
be included in the Chapter 11 filing. The agreement in principle is subject to
various conditions, including mutually acceptable terms with NTL's bank lenders.
The recapitalization transaction contemplates that the bank debt will remain in
place as part of the recapitalization.
To facilitate the recapitalization, certain members of the unofficial
committee of bondholders would commit to provide up to $500 million of new debt
financing to NTL's UK and Ireland operations during the Chapter 11 process and
for the post-recapitalized NTL. The new financing will ensure that NTL's
business operations have access to sufficient liquidity to continue ordinary
operations.
Under the agreement in principle, NTL would be split into two companies,
one tentatively called NTL UK and Ireland and holding all of its UK and Ireland
assets, and one tentatively called NTL Euroco and holding certain of its
continental European and other assets.
Holders of notes of NTL Incorporated, NTL (Delaware), Inc., the Company and
Diamond Cable Communications Limited would in the aggregate receive 100% of the
initial common stock of NTL UK and Ireland and approximately 86.5% of the
initial common stock of NTL Euroco. NTL (Delaware), Inc. bondholders would have
the option to reinvest all or a portion of NTL (Delaware), Inc. cash in
additional shares of NTL UK and Ireland common stock, or to receive such cash in
the recapitalization. Notes of Diamond Holdings Limited and NTL Triangle would
remain outstanding and will be kept current in interest
F-9
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payments. Current preferred and common stockholders, including France Telecom,
would participate in a package of rights (to be priced at a $10.5 billion
enterprise value) and warrants entitling them to purchase primary common stock
of NTL UK and Ireland at the consummation of the proposed plan, in the case of
the rights, and for the duration of the eight-year warrants at prescribed
prices. If fully exercised, those rights and warrants would entitle the current
preferred stockholders to acquire approximately 23.6% and the current common
stockholders to acquire approximately 8.9% of the entity's primary common stock.
Current preferred stockholders other than France Telecom would receive
approximately 3.2% and current common stockholders, other than France Telecom,
would receive approximately 10.3% of the primary equity of NTL Euroco. It is
contemplated that subject to consummation of the recapitalization France Telecom
would also receive NTL's 27% interest in Noos, pursuant to a pledge of such
interests to France Telecom given at the time of its acquisition by NTL.
During the recapitalization process, NTL has maintained normal and regular
trade terms with its suppliers and customers. There can be no assurance that
NTL's suppliers will continue to provide normal trade credit or credit on
acceptable terms, if at all, or that customers will continue to do business or
enter into new business with NTL.
BANK WAIVERS
Before NTL could commence negotiations with the unofficial committee of
bondholders, it was necessary to obtain waivers from the lenders under its
credit facilities. Effective March 8, 2002, these lenders granted waivers which,
until March 29, 2002, provided that the commencement of negotiations with
bondholders with a view to rescheduling its debt would not constitute an event
of default under the credit facilities.
But for the initial waivers, the commencement of negotiations with
bondholders would have been an event of default under the credit facilities. If
an event of default were to occur, it would entitle the lenders under the credit
facilities to declare the principal amount of the outstanding debt immediately
due and payable. If this right was exercised, it would result in an event of
default under all of NTL's outstanding notes, except for those issued by Diamond
Cable Communications, Diamond Holdings and NTL Triangle, entitling the trustee
or 25% of the holders of a series to accelerate the repayment of that series of
notes. NTL does not have sufficient cash resources to repay its outstanding
indebtedness if it is declared immediately due and payable.
In connection with the granting of the initial waivers, NTL agreed:
- to provide the lenders with a 13 week rolling cash flow projection
(updated every two weeks);
- to keep the lenders informed of, and to provide documents in connection
with, negotiations with bondholders or strategic investors or concerning
proposed asset dispositions;
- not to repurchase NTL notes; and
- not to make an exchange offer for NTL notes or enter into an agreement
with NTL bondholders, subject to some exceptions, without the consent of
the lenders.
Effective March 28, 2002, the lenders under the credit facilities agreed to
amend the initial waivers. The amendments to the initial waivers extend the
duration of the initial waivers to April 30, 2002 in the case of the UK credit
facilities or May 14 in the case of the Cablecom facility, unless the missed
interest payments on April 1, 2002 are remedied or a sufficient number of
bondholders agree to forbear in respect of such non-payment, in which case, the
UK credit facilities waivers will be extended to May 14, 2002. As a condition to
the waivers' continuing effectiveness, the UK lenders required NTL Delaware to
loan L90 million to NTL (UK) Group, Inc. following receipt of the proceeds from
the sale of NTL Australia. This loan is structurally
F-10
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
senior to the outstanding public notes issued by the Company but contractually
subordinated to the UK credit facilities. In connection with the amendments to
the waivers, NTL affirmed the provisions of the initial waivers and in addition,
NTL agreed, among other things, to:
- provide the bank lenders a timeline setting forth the steps proposed to
be taken in connection with the recapitalization and the dates by which
such steps are to be taken;
- use reasonable endeavors to consider with the lenders under the Cablecom
credit facility possible means of credit enhancement;
- provide the lenders under the Cablecom credit facility, by April 12,
2002, with an updated structure chart of NTL as well as a contingency
business plan for Cablecom in the event that sufficient additional
funding for Cablecom is not obtained; and
- pay legal, accounting and other advisory fees of the agent or
coordinators of the Cablecom credit facility.
The amended waivers prevent NTL from making an exchange offer with respect
to its outstanding notes or from entering into an agreement with bondholders
without the consent of the lenders under each of the credit facilities. The
amended waivers also prohibit NTL from commencing voluntary dissolution
proceedings, including proceedings under Chapter 11 of the U.S. Bankruptcy Code,
without the consent of these lenders.
As a consequence, NTL cannot enter into a binding agreement with the
unofficial bondholder committee or implement the proposed plan without the
consent of its bank lenders.
Cablecom GmbH is the principal trading company of NTL's Swiss group. There
are a number of technical defaults under the Swiss credit facility made
available to Cablecom and various of its subsidiaries. In addition, as of
December 31, 2001, Cablecom's and various of its subsidiaries' liabilities
exceeded their respective assets. As a consequence, under Swiss law, those
entities were deemed to be "overindebted". This also constituted an event of
default under the Cablecom credit facility which entitles the lenders to
accelerate repayment. Such an acceleration would result in an event of default
under NTL Incorporated's and NTL Delaware's 5.75% convertible subordinated notes
due 2011 and 5.75% convertible subordinated notes due 2009, entitling the
trustee or the holders of 25% of each series of notes to accelerate repayment.
Under Swiss law, unless the over indebtedness is rectified, those entities would
be required to commence an insolvency proceeding in Switzerland. A plan has been
formulated to rectify this overindebtedness. Implementation of this plan prior
to April 30, 2002 will mean those entities will not be required to commence an
insolvency proceeding. Those proceedings would likely either be a court
supervised moratorium in which an independent administrator, or commissioner,
would be appointed to supervise the running of each company during a
restructuring or, if there is no viable restructuring plan, a bankruptcy. The
commencement of those insolvency proceedings would also constitute an immediate
event of default and acceleration of the maturity of the convertible
subordinated notes referred to above.
NTL is currently in discussions with the lenders under the Swiss credit
facility regarding proposals to resolve the over indebtedness issue as well as
requesting that they waive various additional covenant breaches under the credit
facility. There can be no assurance that NTL will reach agreement on the
resolution of the over indebtedness issue within the time period required or
obtain the requested waivers.
INTEREST PAYMENTS ON PUBLIC NOTES
NTL has substantial interest payment obligations under its existing
indebtedness. The Company did not make scheduled interest payments due April 1,
2002, in the aggregate amount of $74.3 million, in respect of its 9 1/2% notes
due 2008, 11 1/2% notes due 2008 and 11 7/8% notes due 2010. In addition, the
Company did not make interest payments falling due on April 15, 2002, totaling
$20.2 million, in respect of the 12 3/4% Senior Deferred Coupon Notes due 2005
and NTL Incorporated and NTL Delaware did not make interest payments
F-11
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and payment of related fees falling due on April 15, 2002 in respect of their
5 3/4% Convertible Subordinated Notes due 2011. Those payments were not made
after consideration by NTL of requests by the unofficial bondholder committee
not to make those payments. Interest payments of $18.9 million were made, when
due, on April 2, 2002 in respect of Diamond Cable Communications 13.25% senior
discount notes due 2004. On May 15, 2002, interest totaling $94.0 million is due
on outstanding notes of the Company and NTL Triangle.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires (on April 30, 2002 in the case of the missed interest
payments due April 1, 2002), there is an event of default under the indenture in
respect of the notes on which the interest is due and unpaid. An event of
default entitles the trustee under the indenture or the holders of 25% of the
outstanding notes to declare the principal amount of those notes to be
immediately due and payable. Even if the maturity of those notes is not
accelerated after April 30, 2002, such an event of default would also result in
an event of default in respect of other debt (commonly called cross defaults)
under all of NTL's other notes, except for those issued by NTL Triangle, Diamond
Cable Communications or Diamond Holdings. As a result, upon the expiration of
the grace period, on April 30, 2002, events of default for failure to pay
interest would occur under the relevant indentures at the Company and,
contemporaneously, cross defaults would occur under NTL's other indentures at
the Company, NTL Delaware, NTL Incorporated and under NTL's UK credit facilities
and could occur under NTL's Cablecom facility. This would give holders of the
outstanding series of debt at these entities the right to accelerate repayment
of those debts by declaring the principal amount of the debts to be immediately
due and payable unless NTL obtains waivers or forbearance agreements from
sufficient percentages of its creditors. If that right to accelerate was
exercised, NTL would not have sufficient cash resources to repay those debts,
which could ultimately lead to voluntary or involuntary bankruptcy proceedings
relating to the entities so affected. In addition, the lenders under NTL's UK
credit facilities have security over the assets of NTL's UK operating
subsidiaries, except for the Diamond and NTL Triangle groups of companies. In
the event that there was an event of default under those facilities, the lenders
could seek to take control of those assets under applicable UK insolvency law.
CREDIT RATING DOWNGRADES
On April 3, 2002, credit rating agency Standard & Poor's lowered the
long-term corporate credit rating on some of NTL's public debt to D, citing
NTL's failure to make a bond interest payment due on April 1, 2002.
SALE OF NTL AUSTRALIA
On April 2, 2002, NTL announced that it had completed the previously
announced sale of its Australian broadcast business to Macquarie Bank for A$850
million (US$448 million) in an all cash transaction. The net proceeds from the
sale were approximately A$574 million (US$303 million). At that time, the
business' bank debt outstanding totaled A$227 million (US$119 million).
On April 7, 2002, NTL Delaware loaned L90 million to NTL (UK) Group
Limited, which loan was funded by the proceeds of the sale of NTL Australia.
This loan is subordinated to NTL's UK credit facilities. The remaining proceeds
of the sale of NTL Australia remain at NTL Delaware and it is currently
anticipated that such proceeds will form a portion of the consideration to be
offered to bondholders of NTL Delaware and NTL Incorporated in satisfaction of
their claims against NTL Delaware as part of the proposed plan of
reorganization.
UNCERTAINTY RELATED TO SUPPLIERS
The uncertainty over the Company's financial condition may adversely affect
its relationships with its suppliers. If the Company's suppliers become
increasingly concerned about its financial condition they may demand quicker
payment terms or not extend normal trade credit, both of which could further
adversely affect its results of operations, financial condition and cash flows.
F-12
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BASIS OF PRESENTATION
As indicated above, substantial doubt exists about the Company's ability to
continue as a going concern. The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability of assets or classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Due to uncertainties about compliance with the terms and conditions of the
Company's debt that would give the holders of the debt the right to accelerate
repayment, all of the Company's long-term debt has been classified as current.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Such estimates and assumptions impact, among
others, the following: the amount of uncollectible accounts and notes
receivable, the amount to be paid to terminate certain agreements included in
restructuring costs, the amount to be paid for other liabilities, the Company's
pension expense and pension funding requirements and estimates related to the
value of investments, long-lived assets and goodwill. 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.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year presentation.
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
translation gains or losses resulting from the change in exchange rates have
been reported as a component of accumulated other comprehensive income (loss).
Foreign currency transaction gains and losses are included in the results of
operations as incurred.
To the extent that the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, it will encounter
currency exchange rate risks. In addition, the Company's revenues are generated
in foreign currencies while its interest and principal obligations with respect
to approximately half of the Company's exiting indebtedness are payable in U.S.
dollars.
CASH EQUIVALENTS
Cash equivalents are short-term highly liquid investments purchased with a
maturity of three months or less. Cash equivalents were $218.7 million and
$211.3 million at December 31, 2001 and 2000, respectively, which consisted
primarily of U.S. Treasury bills (2000 only) bank time deposits and corporate
commercial
F-13
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
paper. At December 31, 2001 and 2000, $188.7 million and $57.2 million,
respectively, of the cash equivalents were denominated in foreign currencies.
MARKETABLE SECURITIES
Marketable securities were classified as available-for-sale, which are
carried at fair value. Unrealized holding gains and losses on securities, net of
tax, are carried as a component of accumulated other comprehensive (loss). The
amortized cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income. Realized gains and losses and declines in value judged to be other than
temporary will be included in interest income. The cost of securities sold or
matured is based on the specific identification method. Interest on securities
is included in interest income.
During the years ended December 31, 2001, 2000 and 1999, there were no
realized gains or losses on sales of securities.
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 40 years.
INTANGIBLE ASSETS
Intangible assets include goodwill, license acquisition costs, customer
lists and other intangibles. 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 of 3, 10, 15 or 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
lives of the licenses at acquisition, which vary from approximately two years to
23 years. Customer lists represent the portion of the purchase price allocated
to the value of the customer base. Customer lists are amortized on a
straight-line basis over 3 or 5 years. Other intangibles include the portion of
the purchase price allocated to the value of workforce in place. Workforce in
place is amortized over the period benefited of four 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 other
long-lived assets.
VALUATION OF 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.
EQUITY METHOD INVESTMENTS
All investments in which the Company has the ability to exercise
significant influence over the investee, but less than a controlling voting
interest, are accounted for using the equity method. Equity method investments
are recorded at original cost and adjusted periodically to recognize the
Company's proportionate share of the investees' net income or losses after the
date of investment, additional contributions made and dividends received. The
difference between the Company's recorded investment and its proportionate
interest
F-14
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in the book value of the investees' net assets are being amortized on a
straight-line basis over 10 years. The Company evaluates the carrying value of
its equity method investments and tests for impairment in accordance with APB
Opinion No. 18.
DEFERRED FINANCING COSTS
Deferred financing costs are incurred in connection with the issuance of
debt and are amortized over the term of the related debt.
CAPITALIZED INTEREST
Interest is capitalized as a component of the cost of fixed assets
constructed. In 2001, 2000 and 1999, total interest incurred was $1,308.5
million, $981.4 million and $719.9 million, respectively, of which interest of
$67.7 million, $95.1 million and $41.8 million, respectively, was capitalized.
REVENUE RECOGNITION
Revenues are recognized at the time the service is rendered to the customer
or the performance of the service has been completed. Charges for services that
are billed in advance are deferred and recognized when earned. Rental revenues
are recognized when earned on a monthly basis. Installation and maintenance
service revenues are recognized when the performance of the service has been
completed.
CABLE TELEVISION SYSTEM COSTS, EXPENSES AND REVENUES
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its broadband communications networks in
accordance with SFAS No. 51, "Financial Reporting by Cable Television
Companies."
ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred.
Advertising costs were $77.9 million, $94.0 million and $35.8 million in 2001,
2000 and 1999, respectively.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company applied APB Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock option plans.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses financial instruments to hedge a portion, but not all, of
its exposure from floating interest rate debt and from movements in foreign
exchange rates. Gains and losses on these instruments are deferred and
recognized in the statement of operations when the related hedged transactions
are recognized. To date, premiums paid for these contracts have not been
material. The Company does not use derivative financial instruments for trading
or speculative purposes.
The Company sometimes uses British pound forward foreign exchange contracts
to reduce its exposure to foreign currency risk. A forward foreign exchange
contract obligates the Company to exchange predetermined amounts of specified
foreign currencies at specified exchange rates on specified dates or to make an
equivalent U.S. dollar payment equal to the value of such exchange. These
contracts do not qualify for hedge accounting under SFAS No. 133 (as amended).
Any changes in fair value are recorded in results of operations.
F-15
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for the Company on
January 1, 2002. This Statement supercedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
other related accounting guidance. The adoption of this new standard had no
significant effect on the results of operations, financial condition or cash
flows of the Company.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated asset
retirement costs. The Company is in the process of evaluating the financial
statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually (or more frequently under certain conditions)
for impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flow approach previously
required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Company adopted SFAS No. 142
on January 1, 2002. In light of the significant impairment charge that the
Company recorded in 2001, the Company does not expect that the adoption of this
new standard will have a significant effect on the result of operations,
financial condition or cash flows of the Company. Amortization expense in 2001
related to goodwill and other indefinite lived intangible assets was $1,104.1
million. The Company expects that amortization expense in 2002 will not be
significant.
4. ASSET IMPAIRMENTS
As of December 31, 2001, the Company performed an analysis of the carrying
values of its long-lived assets including goodwill. During 1999 and 2000,
acquisitions were made against a background of increasing consolidation and
record valuations in the telecommunications industry. This analysis was
initiated because of the decline in NTL Incorporated's stock price and
significantly lower valuations for companies within its industry. Additionally,
at the time of the Company's analysis, the book value of NTL Incorporated's net
assets significantly exceeded its market capitalization. Accordingly, the
Company performed an analysis of the recoverability of its long-lived assets and
associated goodwill. The fair value of the Company's assets was determined by
discounting the Company's estimates of the expected future cash flows related to
these investments when the non-discounted cash flows indicated that the
long-lived assets would not be recoverable. The Company recorded a write-down of
$8,161.6 million in the fourth quarter of 2001 as a result of this analysis and
review. The total charge included goodwill of $8,077.8 million, license
acquisition costs of $58.8 million, customer lists of $9.1 million, other
intangibles of $14.9 million and investments in affiliates of $1.0 million. The
aggregate asset impairment charge of $8,161.6 million related to the Company's
business segments as follows: $6,048.1 million Consumer, $2,113.0 million
Business and $0.5 million Broadcast.
5. ACQUISITIONS
On May 30, 2000, the Company acquired the consumer cable telephone,
Internet and television operations of CWC in the United Kingdom ("ConsumerCo").
The acquisition was accounted for as a purchase, and accordingly, the net assets
and results of operations of the acquired business has been included in the
consolidated financial statements from the date of acquisition.
F-16
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1999, the Company purchased Diamond Cable Communications plc
("Diamond") for an aggregate purchase price of $984.6 million, including
intangibles aggregating $1,323.0 million. In July 1999, the Company acquired
Cablelink Limited ("Cablelink") for an aggregate purchase price of $700.5
million, including intangibles of $669.6 million. In September 1999, NTL
Delaware acquired the shares of Workplace Technologies plc, for an aggregate
purchase price of $175.0 million, including intangibles of $176.9 million.
Workplace Technologies was subsequently acquired by the Company from NTL
Delaware. The net assets and results of operations of Diamond, Cablelink and
Workplace Technologies plc are included in the consolidated financial statements
from March 1999, July 1999 and September 1999, their respective dates of
acquisition.
A significant component of the pro forma results is associated with the
acquisition of ConsumerCo. The historical results of ConsumerCo reflect certain
intercompany costs and expenses as they were prior to the separation of
ConsumerCo, which was completed in the second quarter of 2000. These costs and
expenses do not necessarily reflect the costs and expenses that would have been
incurred had ConsumerCo reported as a separate entity for these periods.
Therefore the historical results of ConsumerCo which are included in the pro
forma results below are not reflective of results on a going forward basis.
The pro forma unaudited consolidated results of operations for the years
ended December 31, 2000 and 1999 assuming consummation of these transactions as
of January 1, 1999 is as follows (in millions).
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Total revenue............................................... $ 2,953.4 $ 2,844.5
Net (loss) before extraordinary item........................ (2,973.5) (2,326.0)
Net (loss).................................................. (2,973.5) (2,329.0)
</Table>
In November 2001, the Company sold a portion of the indirect access
customers acquired from CWC for L10.2 million ($14.8 million) which does not
include contingent payments for the collection of certain future service
revenues and existing receivables. The Company recognized a loss on this sale of
$88.5 million, after deducting $102.0 million of unamortized intangibles.
6. FIXED ASSETS
Fixed assets consist of:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
Operating equipment......................................... $11,703.1 $10,004.9
Other equipment............................................. 833.2 1,079.8
Construction-in-progress.................................... 1,274.4 1,509.7
--------- ---------
13,810.7 12,594.4
Accumulated depreciation.................................... (2,970.4) (1,677.6)
--------- ---------
$10,840.3 $10,916.8
========= =========
</Table>
Depreciation expense (including amortization of assets held under capital
leases) for the years ended December 31, 2001, 2000 and 1999 was $1,361.4
million, $874.4 million and $475.5 million, respectively.
F-17
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INTANGIBLE ASSETS
Intangible assets consist of:
<Table>
<Caption>
DECEMBER 31,
------------------
2001 2000
------ ---------
(IN MILLIONS)
Goodwill, net of accumulated amortization of $58.4 (2001)
and $837.7 (2000)......................................... $640.9 $10,236.4
License acquisition costs, net of accumulated amortization
of $125.2 (2001) and $215.8 (2000)........................ 54.7 139.2
Customer lists, net of accumulated amortization of $78.1
(2001) and $70.4 (2000)................................... 64.8 158.6
Other intangibles, net of accumulated amortization of $4.5
(2001) and $5.5 (2000).................................... 6.9 31.9
------ ---------
$767.3 $10,566.1
====== =========
</Table>
Amortization of intangibles and other assets charged to expense for the
years ended December 31, 2001, 2000 and 1999 was $1,178.9 million, $826.3
million and $290.2 million, respectively.
8. INVESTMENTS IN CABLE LONDON PLC
NTL (Triangle) LLC ("NTL Triangle"), an indirect wholly-owned subsidiary of
the Company, owned a 50% interest in Cable London plc ("Cable London"). Pursuant
to an agreement with Telewest Communications plc ("Telewest") relating to NTL
Triangle's and Telewest's respective 50% ownership interests in Cable London, in
November 1999 Telewest purchased all of NTL Triangle's shares of Cable London
for L428.0 million ($692.5 million) in cash. The Company recorded a gain of
$493.1 million on the sale. The sale of the Cable London interest was an "Asset
Sale" for purposes of the Company's Indentures for certain of its notes. The
Company used an amount equal to the proceeds from the sale to invest in
"Replacement Assets" by November 2000.
F-18
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
NTL Communications:
12 3/4% Senior Deferred Coupon Notes.................. (a) $ 277.8 $ 277.8
11 1/2% Senior Deferred Coupon Notes.................. (b) 1,050.0 1,040.5
10% Senior Notes...................................... (c) 400.0 400.0
9 1/2% Senior Sterling Notes, less unamortized
discount........................................... (d) 181.4 186.5
10 3/4% Senior Deferred Coupon Sterling Notes......... (e) 382.3 353.6
9 3/4% Senior Deferred Coupon Notes................... (f) 1,153.8 1,048.5
9 3/4% Senior Deferred Coupon Sterling Notes.......... (g) 385.9 360.8
11 1/2% Senior Notes.................................. (h) 625.0 625.0
12 3/8% Senior Deferred Coupon Notes.................. (i) 364.9 323.6
7% Convertible Subordinated Notes..................... (j) 489.8 599.3
9 1/4% Senior Euro Notes.............................. (k) 222.5 234.7
9 7/8% Senior Euro Notes.............................. (l) 311.5 328.6
11 1/2% Senior Deferred Coupon Euro Notes............. (m) 135.6 127.9
11 7/8% Senior Notes, less unamortized discount....... (n) 490.7 489.6
12 3/8% Senior Euro Notes, less unamortized premium... (o) 267.8 --
6 3/4% Convertible Senior Notes....................... (p) 1,150.0 --
NTL Communications Limited:
Credit Agreement...................................... (w) 3,759.1 375.3
Working Capital Agreement............................. (w) 145.4 --
Senior Secured Financing.............................. (w) 290.9 --
Other................................................. 58.6 --
NTL Business:
Credit Agreement...................................... (w) -- 3,030.3
ConsumerCo:
Term Loan Facility and other.......................... -- 21.7
NTL Triangle:
11.2% Senior Discount Debentures...................... (q) 517.3 517.3
Other................................................. 4.5 5.2
Diamond:
13 1/4% Senior Discount Notes......................... (r) 285.1 285.1
11 3/4% Senior Discount Notes......................... (s) 531.0 531.0
10 3/4% Senior Discount Notes......................... (t) 415.1 373.9
10% Senior Sterling Notes............................. (u) 196.3 201.9
9 1/8% Senior Notes................................... (v) 110.0 110.0
Other................................................. 3.6 6.0
--------- ---------
14,205.9 11,854.1
</Table>
F-19
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
Less current portion.................................... 14,205.9 10.7
--------- ---------
$ -- $11,843.4
========= =========
</Table>
- ---------------
(a) 12 3/4% Notes due April 15, 2005, principal amount at maturity of $277.8
million, interest payable semiannually from October 15, 2000, redeemable at
the Company's option on or after April 15, 2000;
(b) 11 1/2% Notes due February 1, 2006, principal amount at maturity of
$1,050.0 million, interest payable semiannually from August 1, 2001,
redeemable at the Company's option on or after February 1, 2001;
(c) 10% Notes due February 15, 2007, principal amount at maturity of $400.0
million, interest payable semiannually from August 15, 1997, redeemable at
the Company's option on or after February 15, 2002;
(d) 9 1/2% Sterling Notes due April 1, 2008, principal amount at maturity of
L125.0 million ($181.8 million), interest payable semiannually from October
1, 1998, redeemable at the Company's option on or after April 1, 2003;
(e) 10 3/4% Sterling Notes due April 1, 2008, principal amount at maturity of
L300.0 million ($436.3 million), interest payable semiannually beginning on
October 1, 2003, redeemable at the Company's option on or after April 1,
2003;
(f) 9 3/4% Notes due April 1, 2008, principal amount at maturity of $1,300.0
million, interest payable semiannually beginning on October 1, 2003,
redeemable at the Company's option on or after April 1, 2003;
(g) 9 3/4% Sterling Notes due April 15, 2009, principal amount at maturity of
L330.0 million ($479.9 million), interest payable semiannually beginning on
October 15, 2004, redeemable at the Company's option on or after April 15,
2004;
(h) 11 1/2% Notes due October 1, 2008, principal amount at maturity of $625.0
million, interest payable semiannually from April 1, 1999, redeemable at
the Company's option on or after October 1, 2003;
(i) 12 3/8% Notes due October 1, 2008, principal amount at maturity of $450.0
million, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
(j) 7% Convertible Notes due December 15, 2008, principal amount at maturity of
$489.8 million, interest payable semiannually from June 15, 1999,
redeemable at the Company's option on or after December 15, 2001,
convertible into shares of NTL Incorporated common stock at a conversion
price of $39.20 per share (there are approximately 12.5 million shares of
NTL Incorporated common stock reserved for issuance upon conversion);
(k) 9 1/4% Euro Notes due November 15, 2006, principal amount at maturity of
E250.0 million, ($222.5 million), interest payable semiannually from May
15, 2000;
(l) 9 7/8% Euro Notes due November 15, 2009, principal amount at maturity of
E350.0 million, ($311.5 million), interest payable semiannually from May
15, 2000, redeemable at the Company's option on or after November 15, 2004;
(m) 11 1/2% Deferred Euro Notes due November 15, 2009, principal amount at
maturity of E210.0 million ($186.9 million), interest payable semiannually
beginning on May 15, 2005, redeemable at the Company's option on or after
November 15, 2004;
(n) 11 7/8% Notes due October 1, 2010, principal amount at maturity of $500.0
million, interest payable semiannually from April 1, 2001, redeemable at
the Company's option on or after October 1, 2005;
F-20
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(o) 12 3/8% Senior Euro Notes due February 1, 2008, issued in January and
February 2001, principal amount at maturity of E300.0 million ($267.0
million), interest payable semiannually from August 1, 2001;
(p) 6 3/4% Convertible Senior Notes due May 15, 2008, issued in May 2001,
principal amount at maturity of $1,150.0 million, interest payable
semiannually from November 15, 2001, redeemable at the Company's option on
or after May 20, 2004, convertible into shares of NTL Incorporated common
stock at a conversion price of $32.728 per share (there were approximately
35.1 million shares of NTL Incorporated common stock reserved for issuance
upon conversion);
(q) 11.2% Debentures due November 15, 2007, principal amount at maturity of
$517.3 million, interest payable semiannually from May 15, 2001, redeemable
at NTL Triangle's option after November 15, 2000;
(r) 13 1/4% Notes due September 30, 2004, principal amount at maturity of
$285.1 million, interest payable semiannually from March 31, 2000,
redeemable at Diamond's option on or after September 30, 1999;
(s) 11 3/4% Notes due December 15, 2005, principal amount at maturity of $531.0
million, interest payable semiannually from June 15, 2001, redeemable at
Diamond's option on or after December 15, 2000;
(t) 10 3/4% Notes due February 15, 2007, principal amount at maturity of $420.5
million, interest payable semiannually beginning on August 15, 2002,
redeemable at Diamond's option on or after December 15, 2002;
(u) 10% Sterling Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount at maturity of L135.0 million ($196.3 million), interest
payable semiannually from August 1, 1998, redeemable at Diamond's option on
or after February 1, 2003; and
(v) 9 1/8% Notes due February 1, 2008, issued by Diamond Holdings plc,
principal amount of $110.0 million, interest payable semiannually from
August 1, 1998, redeemable at Diamond's option on or after February 1,
2003.
See Note 1 for discussion of the uncertainties about compliance with the
terms and conditions of the Company's debt that would give the holders of the
debt the right to accelerate repayment, which has caused primarily all of the
Company's long-term debt to be classified as current.
The indentures governing the notes contain 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.
The Company, NTL Incorporated and NTL Delaware did not make interest
payments and payments of related fees when due on April 1 and April 15, 2002. If
the applicable issuer does not pay interest on these notes after a 30 day grace
period expires (on April 30, 2002 in the case of the missed interest payments
due April 1, 2002), there is an event of default under the indenture in respect
of the notes on which the interest is due and unpaid. An event of default
entitles the trustee under the indenture or the holders of 25% of the
outstanding notes to declare the principal amount of those notes to be
immediately due and payable. Even if the maturity of those notes is not
accelerated after April 30, 2002, such an event of default would also result in
an event of default for payment defaults in respect of other debt (commonly
called cross defaults) under all of our other notes, except for those issued by
NTL Triangle, Diamond Cable Communications or Diamond Holdings. As a result,
upon the expiration of the grace period, on April 30, 2002, events of default
for failure to pay interest would occur under the relevant indentures at NTL
Communications and, contemporaneously, cross defaults would occur under the
Company's other indentures at NTL Communications, NTL Delaware, NTL Incorporated
and under our bank credit facility in the United Kingdom. This would give
holders of the outstanding series of debt at these entities the right to
accelerate repayment of those debts by declaring the principal amount of the
debts to be immediately due and payable unless we obtain waivers or forbearance
agreements from sufficient percentages of our creditors.
F-21
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 2001, 2000 and 1999, the Company recognized $284.7 million, $473.1
million and $451.4 million, respectively, of original issue discount as interest
expense.
In addition to the notes described above, a subsidiary of the Company has
the following bank credit agreements outstanding:
(w) In May 2000, NTL Business Limited ("NTL Business"), a wholly-owned
subsidiary of the Company and NTL Communications Limited ("NTLCL"), a
wholly-owned indirect subsidiary of the Company, entered into a L2,500.0
million ($3,635.8 million) credit agreement in connection with the
ConsumerCo acquisition. On February 21, 2001, as required by the NTL
Business and NTLCL credit agreement, the Company completed a transaction
whereby it acquired the entire issued share capital of NTL (CWC Holdings)
Limited (the entity that owns ConsumerCo) from NTL Incorporated and the
entire issued share capital of NTL Business from NTL Delaware in exchange
for shares of NTL Incorporated common stock. As a result of this
transaction, ConsumerCo and NTL Business became subsidiaries of the
Company, and NTL Business' rights and obligations under the L2,500.0
million credit agreement were assigned to a subsidiary of NTLCL. In October
2001, NTLCL completed L169.6 million ($246.6 million) of vendor financing
as an addition to NTLCL's L2,500.0 million credit agreement with the same
terms and conditions. The Company borrowed L84.8 million ($123.3 million)
of the vendor financing in October 2001. The commitment for the remaining
L84.8 million has expired. Interest is payable at least every six months at
LIBOR plus a margin rate of 2.00% per annum, which is subject to adjustment
based on the ratio of EBITDA to finance charges of the UK Group.
For purposes of this credit agreement, Diamond Cable Communications Limited
and subsidiaries, NTL (Triangle) LLC and subsidiaries and certain other
entities are excluded from the U.K. Group. The unused portion of the
commitment is subject to a commitment fee of 0.75% payable quarterly, which
is reduced to 0.50% when over 50% of the commitment is utilized. Principal
is due in six quarterly installments beginning on June 30, 2004. The credit
agreement contains various financial and other covenants with respect to
the U.K. Group, and restrictions on dividends and distributions by the U.K.
Group. As of December 31, 2001, there was L2,584.8 million ($3,759.1
million) outstanding under this credit agreement. The effective interest
rate was 6.73% and 8.283% as of December 31, 2001 and 2000, respectively.
In October 2001, NTLCL completed L200.0 million ($290.9 million) of GE
Capital senior secured financing. Interest on the GE Capital senior secured
financing is payable at least every six months at LIBOR plus a margin rate
of 3.50% per annum. The senior secured financing is repayable in eight
quarterly installments beginning on June 30, 2006. The effective interest
rate at December 31, 2001 was 8.06%.
NTLCL has a L1,300.0 million ($1,890.6 million) credit agreement with a
group of banks, which is available to finance working capital requirements
of the U.K. Group (as defined above). Pursuant to the credit agreement, in
connection with the issuance of new debt beginning in October 2000, the
commitment has been reduced by L882.5 million ($1,283.4 million). Interest
is payable at least every six months at LIBOR plus a margin rate of 5.50%
per annum. The margin rate shall increase by 0.50% on the three month
anniversary of the initial advance and by an additional 0.50% on each
subsequent three month anniversary, up to a maximum total interest rate of
16.00% per annum. The unused portion of the commitment is subject to a
commitment fee of 0.75% payable quarterly. Principal is due in full on
March 31, 2001. The credit agreement contains various financial and other
covenants with respect to the U.K. Group, and restrictions on dividends and
distributions by the U.K. Group. As of December 31, 2001, L100.0 million
($145.4 million) was outstanding under this credit agreement with an
effective interest rate of 9.57%. In January and February 2002, the Company
borrowed the remaining amounts available under this agreement.
F-22
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 2001, $109.5 million principal amount of 7% Convertible
Subordinated Notes due December 15, 2008 were converted into 2.8 million shares
of NTL Incorporated common stock at the applicable conversion price of $39.20
per share. The Company issued as a premium on the conversion an additional 0.5
million shares which were valued at NTL Incorporated closing common stock price
on the dates of conversion. The premium, which amounted to $17.6 million, is
included in interest expense. Additionally accrued and unpaid interest of $1.2
million at the time of the conversion was waived by the holders of the
convertible notes.
In connection with the Cablelink acquisition, the Company issued $704.6
million principal amount Senior Increasing Rate Notes due 2000. In November
1999, the Company received net proceeds of $720.7 from the issuance of the
9 1/4% Euro Notes, the 9 7/8% Euro Notes and the 11 1/2% Deferred Euro Notes, of
which $716.5 million was used to repay the Senior Increasing Rate Notes plus
accrued interest. The Company recorded an extraordinary loss from the early
extinguishment of the notes of $3.0 million in 1999.
The NTLCL bank credit facilities, as well as the NTL Triangle and Diamond
notes, restrict the payment of cash dividends and loans to the Company. At
December 31, 2001, restricted net assets were $3,640.1 million.
Long-term debt repayments are due as follows (in millions). The table
reflects the Company's contractual obligations, but the entire obligation has
been classified as current.
<Table>
<Caption>
Year ending December 31:
2002...................................................... $ 2.9
2003...................................................... 2.4
2004...................................................... 418.3
2005...................................................... 4,439.2
2006...................................................... 1,449.1
Thereafter................................................ 8,339.0
---------
Total debt repayments $14,650.9
Less: current portion (14,650.9)
---------
$ --
=========
</Table>
10. DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137
and 138. The new accounting standard requires that all derivative instruments be
recorded on the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in the results of operations or in other
comprehensive income (loss), depending on whether a derivative is designated as
a fair value or cash flow hedge. The ineffective portion of all hedges is
recognized in the results of operations. Beginning in October 1, 2001, the
Company has recorded the change in the fair value of derivatives related to
changes in time value each period in other comprehensive income for certain
qualifying cash flow hedges.
On January 1, 2001, the Company recorded all of its outstanding derivative
instruments at their fair value. The outstanding derivative instruments were
comprised of cross currency swaps to hedge exposure to movements in the British
pound/U.S. dollar exchange rate, and a number of zero cost collars to hedge
exposure to floating interest rates on certain of its debt. The aggregate fair
value on January 1, 2001 was a liability of $2.2 million, which was recorded as
other comprehensive loss. In 2001, the Company entered into cross currency swaps
to hedge exposure to movements in the Euro/British pound exchange rate. In the
year
F-23
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended December 31, 2001, the Company recorded other comprehensive loss of $1.4
million as a result of changes in the fair values. The aggregate fair value at
December 31, 2001 was a net liability of $3.6 million.
In September 2001, the Company entered into a British pound forward foreign
exchange agreement, consisting of twenty-six accumulating forward contracts, to
reduce its exposure to movement in the British pound/U.S. dollar exchange rate
in accordance with its market risk strategies. As of December 31, 2001, the fair
value of this instrument was a liability of $0.3 million.
11. NON-CASH COMPENSATION
In July 2001, the Compensation and Option Committee of the Board of
Directors (the "Compensation Committee") approved modifications to certain stock
options. The latest possible expiration date of options to purchase an aggregate
of approximately 4.7 million shares of NTL Incorporated's common stock with
exercise prices from $.17 to $14.76 per share was extended from July 30, 2001 to
October 2004, as applicable, to January 30, 2006. The Company recognized
non-cash compensation expense of $30.6 million based on the excess of the quoted
market price of NTL Incorporated's common stock on the date of the modification
of $12.05 per share over the exercise price per share.
In September 2000, the Board of Directors approved modifications to certain
stock options granted to employees in November 1999 through May 2000. Options to
purchase an aggregate of approximately 16.5 million shares of NTL Incorporated's
common stock with a weighted average exercise price of $64.39 per share were
modified such that the exercise price was reduced to $44.50 per share and the
vesting schedule was delayed and/or lengthened. The Company is accounting for
these options as a variable plan beginning in September 2000. The Company will
recognize non-cash compensation expense for the excess of the quoted market
price of NTL Incorporated's common stock over the exercise price of the vested
options while the options remain outstanding. In September 2000, the Company
recognized non-cash compensation expense of $2.2 million related to this plan.
The Compensation Committee has taken the actions described above to
continue to provide the appropriate performance incentives to those affected.
12. OTHER CHARGES INCLUDING RESTRUCTURING CHARGES
Other charges of $297.9 million in 2001 include restructuring charges of
$202.8 million and costs of $95.1 million incurred primarily to integrate the
acquired companies, mostly related to information technology integration, as
well as costs incurred for business rationalization consulting. Other charges of
$92.7 million in 2000 include restructuring charges of $65.9 million and costs
of $26.8 million incurred primarily to integrate the acquired companies, mostly
related to information technology integration, as well as costs incurred for
business rationalization consulting. Other charges of $16.2 million in 1999 were
incurred for the cancellation of certain contracts.
Restructuring charges of $202.8 million and $65.9 million for the years
ended December 31, 2001 and 2000, respectively, relate to the Company's
announcements in the fourth quarter of 2001 and in November 2000 that it was
taking additional actions to reorganize, re-size and reduce operating costs and
create greater efficiency in various areas of the Company. An aggregate of $57.9
million of the 2001 reorganization costs are for the write-off of equipment and
other assets that are not in use and will not require any future cash outlays.
The employee severance and related costs in 2000 were for approximately 2,300
employees to be terminated, approximately 550 of whom are still employed by the
Company as of December 31, 2001. These costs in 2001 are for approximately 5,200
employees to be terminated, of which approximately 2,900 employees are still
employed by the Company as of December 31, 2001.
F-24
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the restructuring charges incurred and
utilized in 2000 and 2001:
<Table>
<Caption>
EMPLOYEE
SEVERANCE LEASE
AND RELATED EXIT AGREEMENT FIXED
COSTS COSTS MODIFICATIONS ASSETS TOTAL
----------- ----- ------------- ------ ------
(IN MILLIONS)
Charged to expense.................. $ 47.9 $18.0 $ -- $ -- $ 65.9
Utilized............................ -- -- -- -- --
------ ----- ----- ------ ------
Balance, December 31, 2000.......... 47.9 18.0 -- -- 65.9
2000 provision utilized............. (41.3) (9.6) -- -- (50.9)
2000 provision released............. (6.6) (7.3) -- -- (13.9)
Charged to expense.................. 89.7 41.4 27.7 57.9 216.7
2001 provision utilized............. (26.2) -- -- (57.9) (84.1)
------ ----- ----- ------ ------
Balance, December 31, 2001.......... $ 63.5 $42.5 $27.7 $ -- $133.7
====== ===== ===== ====== ======
</Table>
13. INCOME TAXES
The expense (benefit) for income taxes consists of the following:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------
2001 2000 1999
------- ------ ------
(IN MILLIONS)
Current:
Federal................................................. $ 1.2 $ -- $ 1.0
Foreign................................................. 0.5 0.9 --
------- ------ ------
Total current............................................. 1.7 0.9 1.0
------- ------ ------
Deferred:
Foreign................................................. $ 116.4 $(80.8) $(30.9)
------- ------ ------
Total deferred............................................ 116.4 (80.8) (30.9)
------- ------ ------
$ 118.1 $(79.9) $(29.9)
======= ====== ======
</Table>
The Company's tax expense relates primarily to an increase in the deferred
tax liability attributable to separate company profits of a foreign subsidiary
offset to some extent by a decrease in net deferred tax liabilities attributable
to operating losses of other foreign subsidiaries. The increase in deferred tax
liabilities includes an adjustment related to 1997 through 2000 of approximately
$116.1 million that is primarily attributable to additional tax depreciation
being claimed during 2001 on original and amended income tax returns.
F-25
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
Deferred tax liabilities:
Intangibles............................................... $ 34.5 $ 58.0
Depreciation and amortization............................. 354.2 591.9
--------- ---------
Total deferred tax liabilities.............................. 388.7 649.9
Deferred tax assets:
Net operating losses...................................... 1,932.9 1,491.9
Net deferred interest expense............................. 239.9 198.6
Depreciation and amortization............................. 401.5 378.0
Inventory................................................. 15.9 18.5
Purchase accounting liabilities........................... 16.5 158.5
Other..................................................... 51.9 32.4
--------- ---------
Total deferred tax assets................................... 2,658.6 2,277.9
Valuation allowance for deferred tax assets................. (2,383.7) (1,623.1)
--------- ---------
Net deferred tax assets..................................... 274.9 654.8
--------- ---------
Net deferred tax (assets) liabilities....................... $ 113.8 $ (4.9)
========= =========
</Table>
At December 31, 2001, the Company had a valuation allowance against its
deferred tax assets to the extent it was not more likely than not that such
assets would be realized in the future. At December 31, 2001, the valuation
allowance includes approximately $475.0 million, which, if realized, would be
accounted for as a reduction to goodwill or an increase in additional paid-in
capital.
At December 31, 2001, the Company had net operating loss carryforwards of
approximately $1,000.0 million for U.S. federal income tax purposes that expire
in varying amounts commencing in 2009. This excludes net operating loss
carryforwards of companies that are resident in both the U.S. and the United
Kingdom. The Company also has United Kingdom net operating loss carryforwards of
approximately $5,215.0 million that 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. A portion of the United Kingdom net operating
loss carryforward relates to dual resident companies, of which the U.S. net
operating loss carryforward amount is approximately $1,100.0 million.
As discussed in Note 1, the Company needs to restructure its outstanding
debt during 2002. A restructuring of the Company's debt can be expected to give
rise to cancellation of indebtedness ("COD"), which if it occurs in the course
of a proceeding pursuant to Chapter 11 of the U.S. Bankruptcy Code, would be
non-taxable. If the COD is non-taxable, the Company will be required to reduce
its U.S. net operating loss carryforwards and other attributes such as tax basis
in assets by an amount equal to the non-recognized COD. Therefore, it is likely
that as a result of the successful completion of the proposed plan of
recapitalization, the Company will have no U.S. net operating loss
carryforwards.
In 2000, the Internal Revenue Service completed its federal income tax
audit of the Company for the years 1993, 1994 and 1995. The audit resulted in a
reduction in U.S. net operating loss carryforwards that had no material impact
on the Company. The Company is currently undergoing a U.S. federal income tax
audit
F-26
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for the years 1996, 1997 and 1998. The Company does not expect that the audit
adjustments will have a material adverse effect on its financial position,
results of operations or cash flows.
The reconciliation of income taxes computed at U.S. federal statutory rates
to income tax expense is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------
2001 2000 1999
--------- ------- -------
(IN MILLIONS)
(Benefit) at federal statutory rate (35%).............. $(4,101.6) $(863.8) $(261.0)
Add:
Non-deductible asset impairments..................... 2,856.6 -- --
Foreign losses with no benefit....................... 809.7 568.6 106.9
U.S. losses with no benefit.......................... 436.6 215.3 124.2
Prior year accelerated depreciation.................. 116.3 -- --
State and local income tax, net of federal benefit... 0.5 -- --
--------- ------- -------
$ 118.1 $ (79.9) $ (29.9)
========= ======= =======
</Table>
14. 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: The carrying amounts reported in the
consolidated balance sheets approximate fair value.
Long-term debt: The carrying amounts of the bank credit facilities and the
senior secured financing approximate their fair values. The fair values of the
Company's other debt in the following table are based on the quoted market
prices.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
<Table>
<Caption>
DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
Cash and cash equivalents................... $ 251.1 $ 251.1 $ 423.5 $ 423.5
Long-term debt:
12 3/4% Notes............................. 277.8 91.7 277.8 255.6
11 1/2% Notes............................. 1,050.0 336.0 1,040.5 913.5
10% Notes................................. 400.0 120.0 400.0 348.0
9 1/2% Sterling Senior Notes.............. 181.4 60.1 186.5 154.2
10 3/4% Sterling Notes.................... 382.3 124.3 353.6 242.3
9 3/4% Notes.............................. 1,153.8 338.0 1,048.5 715.0
9 3/4% Sterling Notes..................... 385.9 124.8 360.8 214.7
11 1/2% Notes............................. 625.0 200.0 625.0 556.3
12 3/8% Notes............................. 364.9 108.0 323.6 252.0
7% Convertible Notes...................... 489.8 53.9 599.3 470.5
9 1/4% Euro Notes......................... 222.5 74.6 234.7 207.7
9 7/8% Euro Notes......................... 311.5 104.4 328.6 269.4
</Table>
F-27
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
DECEMBER 31, 2001 DECEMBER 31, 2000
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(IN MILLIONS)
11 1/2% Euro Deferred Notes............... 135.6 44.9 127.9 99.6
11 7/8% Senior Notes...................... 490.7 160.0 489.6 445.0
12 3/8% Senior Euro Notes................. 267.8 90.8 -- --
6 3/4% Convertible Senior Notes........... 1,150.0 353.6 -- --
Credit Agreement.......................... 3,759.1 3,759.1 3,405.6 3,405.6
Working Capital Agreement................. 145.4 145.4 -- --
Senior Secured Financing.................. 290.9 290.9 -- --
11.2% Debentures.......................... 517.3 367.3 517.3 439.7
13 1/4% Notes............................. 285.1 77.0 285.1 270.8
11 3/4% Notes............................. 531.0 132.8 531.0 467.3
10 3/4% Notes............................. 415.1 100.9 373.9 281.7
10% Sterling Notes........................ 196.3 143.4 201.9 161.5
9 1/8% Notes.............................. 110.0 71.5 110.0 89.7
</Table>
15. RELATED PARTY TRANSACTIONS
In 1999, the Company provided management, financial, legal and technical
services to Cellular Communications International, Inc. ("CCII") and Cellular
Communications of Puerto Rico, Inc. ("CCPR"). Certain officers and directors of
the Company were officers and directors of CCII and CCPR.
In the fourth quarter of 1999, CoreComm Limited ("CoreComm") (which was
formed in 1998 and has certain common officers and directors with the Company)
began charging the Company a percentage of its office rent and supplies expense
in respect of certain facilities which were shared with the Company. In 1999,
the Company charged CCPR, CCII and CoreComm $0.1 million, $0.4 million and $1.3
million, respectively, for direct costs where identifiable and a fixed
percentage of its corporate overhead, net of CoreComm's charges to the Company.
Charges to CCPR and to CCII ceased in 1999 due to each of them being acquired
and the resulting termination of services. In 2001 and 2000, the Company charged
CoreComm $0.3 million and $0.9 million, respectively, for direct costs where
identifiable and a fixed percentage of its corporate overhead, net of CoreComm's
charges to the Company. These charges reduced corporate expenses in 2001, 2000
and 1999. It is not practicable to determine the amounts of these expenses that
would have been incurred had the Company operated as an unaffiliated entity. In
the opinion of management of the Company, the allocation methods are reasonable.
The Company obtains billing and software development services from
CoreComm. CoreComm billed the Company $3.4 million, $5.9 million and $4.6
million in 2001, 2000 and 1999, respectively, for these services.
In March 2000, the Company and CoreComm announced that they had entered
into an agreement to link their networks in order to create an international
Internet backbone that commenced operations in February 2001. The Company
incurred costs of $0.3 million for network usage in the year ended December 31,
2001.
On April 12, 2001, NTL Incorporated purchased $15.0 million of an unsecured
convertible note from CoreComm Limited and received warrants to purchase 770,000
shares of CoreComm common stock at an exercise price of $.01 per share that
expire in April 2011. In addition, concurrently with the note purchase and
without additional compensation, NTL Incorporated entered into a network and
software agreement with CoreComm. Under the agreement, CoreComm will provide
U.S. network access for Internet traffic from NTL Incorporated's U.K. customers
for three years, as well as a royalty free license to use certain billing and
F-28
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provisioning software and know-how. Interest on the notes is at 10.75% per
annum, payable semiannually beginning on October 15, 2001. The interest is
payable in kind by the issuance of additional notes in such principal amount
equal to the interest payment that is then due. The notes are convertible into
CoreComm common stock prior to maturity at a conversion price of $1.00 per
share, subject to adjustment. Additional notes issued for interest will have an
initial conversion price equal to 120% of the weighted average closing price of
CoreComm common stock for a specified period. The Company and CoreComm have
agreed to certain modifications to the conversion feature in connection with
CoreComm's recapitalization in December 2001.
In 2001, the Company and CoreComm entered into a license agreement whereby
the Company was granted an exclusive, irrevocable, perpetual license to certain
billing software developed by CoreComm for telephony rating, digital television
events rating, fraud management and other tasks. The sales price was cash of
$9.8 million for the development costs expended by CoreComm plus a fixed amount
of $3.0 million representing the one-time perpetual license fee. The billing
software was being used by the Company at the time of this agreement, and was
being maintained and modified by CoreComm under an ongoing software maintenance
and development outsourcing arrangement between the companies.
On September 28, 2001, the Company loaned NTL Incorporated $150.0 million
in cash and received 15.0% Promissory Notes due September 30, 2004. Interest is
payable monthly in cash at a rate of 15.0% per annum beginning on October 31,
2001.
At December 31, 2001 and 2000, the Company had a receivable from CoreComm
of $1.1 million and a payable to CoreComm of $17.1 million, respectively. The
2000 payable balance primarily related to services and other charges billed in
advance in October and November 2000 of $15.8 million.
16. SHAREHOLDER'S EQUITY
SALES OF PREFERRED STOCK AND WARRANTS
In January 1999, the Company received $500.0 million in cash from Microsoft
Corp. ("Microsoft") in exchange for 500,000 shares of the Company's 5.25%
Convertible Preferred Stock and warrants to purchase 1.9 million shares of the
Company's common stock at an exercise price of $53.76 per share (as adjusted for
stock splits in 1999 and 2000).
SERIES PREFERRED STOCK
In February 1997, the Company issued 100,000 shares of its 13% Senior
Redeemable Exchangeable Preferred Stock.
In September 1998, the Company issued 125,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series A (the "Series A Preferred
Stock") in connection with an acquisition. Each share of Series A Preferred
Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the
stated value per share. Dividends were payable when and if declared by the Board
of Directors.
In December 1998, the Company issued 52,000 shares of 9.9% Non-voting
Mandatorily Redeemable Preferred Stock, Series B (the "Series B Preferred
Stock") in connection with an acquisition. Each share of Series B Preferred
Stock had a stated value of $1,000. Cumulative dividends accrued at 9.9% of the
stated value per share. Dividends were payable when and if declared by the Board
of Directors.
F-29
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The changes in the number of shares of Series Preferred Stock were as
follows:
<Table>
<Caption>
9.9% 9.9%
13% SERIES A SERIES B 5.25%
-------- -------- -------- --------
Balance, December 31, 1997.................. 110,000 -- -- --
Issued for acquisitions..................... -- 125,000 52,000 --
Issued for dividends........................ 15,000 -- -- --
-------- -------- ------- --------
Balance, December 31, 1998.................. 125,000 125,000 52,000 --
Issued for cash............................. -- -- -- 500,000
Issued for dividends........................ 3,000 -- -- 4,000
Corporate restructuring..................... (128,000) (125,000) (52,000) (504,000)
-------- -------- ------- --------
Balance, December 31, 2001, 2000 and 1999... -- -- -- --
======== ======== ======= ========
</Table>
STOCK OPTIONS
The Company's employees participate in the following NTL Incorporated stock
option plans.
There are 3,848,000 shares and 10,396,000 shares of common stock reserved
for issuance under the 1991 Stock Option Plan and the 1993 Stock Option Plan,
respectively. These plans provide that incentive stock options ("ISOs") be
granted at the fair market value of NTL Incorporated'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 NTL Incorporated'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. No additional options will be granted under these plans.
There are 156,000 shares and 500,000 shares of common stock reserved for
issuance under 1991 and 1993 Non-Employee Director Stock Option Plans,
respectively. Under the terms of these plans, options will be granted to members
of the Board of Directors who are not employees of the Company or any of its
affiliates. These plans provide that all options be granted at the fair market
value of NTL Incorporated'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. No additional options will be
granted under these plans.
There are 83,438,000 shares of common stock reserved for issuance under the
1998 Non-Qualified Stock Option Plan, and there are 19,684,000 shares available
for issuance at December 31, 2000. The exercise price of a NQSO shall be
determined by the Compensation and Option Committee. Options are generally
exercisable ratably over five to ten years while the optionee remains an
employee of the Company. Options will expire ten years after the date of the
grant.
There were 13.7 million, 34.8 million and 6.4 million options granted under
these plans for the years ended December 31, 2001, 2000 and 1999, respectively.
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 NTL
Inc.'s 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
2001, 2000 and 1999: risk-free interest rates of 4.47%, 5.30% and 6.81%,
respectively, dividend yield of 0%, volatility factor of the
F-30
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expected market price of NTL Incorporated common stock of .702, .385 and .336,
respectively, 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 NTL Incorporated 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. The effects of
applying SFAS No. 123 on pro forma disclosures of net loss for the years ended
December 31, 2001, 2000 and 1999 are not likely to be representative of the pro
forma effects on net loss in future years. Following is the Company's pro forma
information as if the Company and not NTL Incorporated had issued the stock
options:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---------- --------- -------
(IN MILLIONS)
Pro forma net (loss)................................ $(12,096.9) $(2,636.7) $(799.8)
</Table>
17. EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company operate defined benefit pension plans
in the United Kingdom. The assets of the Plans are held separately from those of
the Company and are invested in specialized portfolios under the management of
an investment group. The pension cost is calculated using the attained age
method. The Company's policy is to fund amounts to the defined benefit plans
necessary to comply with the funding requirements as prescribed by the laws and
regulations in the United Kingdom.
At December 31, 2001, the projected benefit obligation of NTL Business'
defined benefit pension plan exceeded the fair value of its plan assets by $3.0
million.
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
---------------
2001 2000
------ ------
(IN MILLIONS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..................... $201.8 $197.1
Service cost................................................ 9.9 10.7
Interest cost............................................... 11.3 11.3
Actuarial (gains) losses.................................... (7.0) 0.2
Benefits paid............................................... (6.3) (5.7)
Foreign currency exchange rate changes...................... (9.4) (11.8)
------ ------
Benefit obligation at end of year........................... $200.3 $201.8
====== ======
</Table>
F-31
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
YEAR ENDED
DECEMBER 31,
---------------
2001 2000
------ ------
(IN MILLIONS)
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.............. $269.1 $278.4
Actual return on plan assets................................ (31.0) 2.0
Company contributions....................................... 8.0 8.6
Plan participants' contributions............................ 3.0 3.4
Benefits paid............................................... (6.3) (5.7)
Foreign currency exchange rate changes...................... (13.6) (17.6)
------ ------
Fair value of plan assets at end of year.................... $229.2 $269.1
====== ======
Funded status of the plan................................... $ 28.9 $ 67.3
Unrecognized net actuarial gains............................ (12.4) (62.0)
Unrecognized transition obligation.......................... 5.0 6.8
------ ------
Prepaid benefit cost........................................ $ 21.5 $ 12.1
====== ======
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-----------------------------
2001 2000
------------- -------------
Actuarial assumptions:
Weighted average discount rate...................... 6.00% 6.00%
Weighted average rate of compensation increase...... 3.50% - 4.00% 3.50% - 4.25%
Expected long-term rate of return on plan assets.... 7.00% - 7.50% 7.50% - 7.75%
</Table>
The components of net pension costs are as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------
2001 2000 1999
------ ------ ------
(IN MILLIONS)
Service cost............................................... $ 9.9 $ 10.7 $ 12.0
Interest cost.............................................. 11.3 11.3 12.0
Actual return on plan assets............................... 31.0 (2.0) (43.1)
Net amortization and deferral.............................. (51.9) (20.6) 26.8
------ ------ ------
$ 0.3 $ (0.6) $ 7.7
====== ====== ======
</Table>
18. LEASES
A summary of assets held under capital lease are as follows (in millions):
<Table>
<Caption>
DECEMBER 31,
---------------
2001 2000
------ ------
Land, buildings and equipment............................... $100.2 $ 95.8
Less: accumulated depreciation.............................. (28.5) (22.2)
------ ------
$ 71.7 $ 73.6
====== ======
</Table>
F-32
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum annual payments at December 31, 2001 are as follows (in
millions). The table reflects the Company's contractual obligations, but the
entire obligation has been classified as current.
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
Year ending December 31:
2002........................................................ $ 9.3 $ 82.9
2003........................................................ 8.2 61.2
2004........................................................ 7.3 43.5
2005........................................................ 6.5 32.4
2006........................................................ 6.2 31.2
Thereafter.................................................. 155.2 225.7
------- ------
Total minimum lease payments................................ 192.7 $476.9
======
Less: amount representing interest.......................... (129.8)
-------
Present value of net minimum obligations.................... 62.9
Less: current portion....................................... (62.9)
-------
$ --
=======
</Table>
Leases for buildings, office space and equipment extend through 2031. Total
rental expense for the years ended December 31, 2001, 2000 and 1999 under
operating leases was $74.5 million, $46.2 million and $27.5 million,
respectively.
19. COMMITMENTS AND CONTINGENT LIABILITIES
At December 31, 2001, the Company was committed to pay approximately
$1,367.0 million for equipment and services, which includes approximately
$1,061.0 million for certain operations and maintenance contracts through 2006.
The Company had certain exclusive local delivery operator licenses for
Northern Ireland and other franchise areas in the United Kingdom. Pursuant to
these licenses, various subsidiaries of the Company were required to make
monthly cash payments to the Independent Television Commission ("ITC") during
the 15-year license terms. Upon a request by the Company in 1999, the ITC
converted all of the Company's fee bearing exclusive licenses to non-exclusive
licenses by the end of 1999. In 1999, the Company paid $30.1 million in
connection with these licenses. Since the Company's liability for the license
payments ceased upon the conversion, in 1999 the Company reversed an accrual for
franchise fees of $13.6 million.
The Company is involved in certain disputes and litigation arising in the
ordinary course of its business. None of these matters are expected to have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
20. INDUSTRY SEGMENTS
The Company has four reportable segments: Broadcast Services, Consumer
Services, Business Services and Shared Services. The Broadcast Services segment
operates in the United Kingdom and includes digital and analog television and
radio broadcasting, rental of antenna space on the Company's owned and leased
towers and sites and associated services, and satellite and media services.
Consumer Services include telephony, cable television, Internet access and
interactive services in regional franchise areas in the United Kingdom and
Ireland. The Business Services segment operates primarily in the United Kingdom
and includes telephony, national and international wholesale carrier
telecommunications, and radio communications
F-33
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services to the emergency services community. Shared Services principally
include network and information technology management, finance, human resources
and facilities management. Shared Services also includes assets and related
depreciation and amortization that are not allocated to another segment.
The accounting policies of the segments are the same as those described in
the Significant Accounting Policies note. The Company's management evaluates
segment performance based on various financial and non-financial measurements.
The Company's primary measure of profit or loss is EBITDA. The results of
operations data utilized in financial measurements are revenues and EBITDA,
which is earnings before interest, taxes, depreciation and amortization,
franchise fees, non-cash compensation, other charges, corporate expenses, asset
impairments, share of (losses) from equity investments, other (losses) gains,
foreign currency transactions gains (losses) and extraordinary items. Certain
selling, general and administrative expenses are allocated to segments based on
revenues. Management does not allocate costs of shared services departments and
jointly used assets for purposes of measuring segment performance. The
reportable segments are strategic business units that are managed separately and
offer different services.
<Table>
<Caption>
BROADCAST CONSUMER BUSINESS SHARED TOTAL
--------- --------- -------- -------- ---------
(IN MILLIONS)
YEAR ENDED DECEMBER 31, 2001
Revenues................................. $283.6 $ 2,069.2 $ 836.8 $ -- $ 3,189.6
Depreciation and amortization............ 76.0 1,840.5 587.9 35.9 2,540.3
EBITDA(1)................................ 143.9 738.7 335.2 (565.7) 652.1
Expenditures for long-lived assets....... 75.3 823.9 171.9 577.3 1,648.4
Total assets(2).......................... 792.5 8,008.0 3,287.0 938.6 13,026.1
YEAR ENDED DECEMBER 31, 2000
Revenues................................. $263.8 $ 1,518.2 $ 702.2 $ -- $ 2,484.2
Depreciation and amortization............ 53.2 1,443.6 184.2 19.7 1,700.7
EBITDA(1)................................ 130.3 410.8 232.4 (481.6) 291.9
Expenditures for long-lived assets....... 70.0 1,088.5 724.6 276.1 2,159.2
Total assets(3).......................... 804.8 17,910.7 3,746.0 685.0 23,146.5
YEAR ENDED DECEMBER 31, 1999
Revenues................................. $257.3 $ 827.3 $ 452.5 $ -- $ 1,537.1
Depreciation and amortization............ 52.7 580.0 104.1 28.9 765.7
EBITDA(1)................................ 140.4 245.0 106.6 (279.3) 212.7
Expenditures for long-lived assets....... 69.6 590.5 356.7 124.5 1,141.3
Total assets(4).......................... 698.4 6,646.5 1,319.1 1,069.0 9,733.0
</Table>
- ---------------
(1) Represents earnings before interest, taxes, depreciation and amortization,
franchise fees, non-cash compensation, other charges, corporate expenses,
asset impairments, share of (losses) from equity investments, other (losses)
gains, foreign currency transaction gains (losses) and extraordinary items.
(2) At December 31, 2001, shared assets included $189.8 million of cash and cash
equivalents and $748.8 million in other assets.
(3) At December 31, 2000, shared assets included $355.0 million of cash and cash
equivalents and $330.0 million of other assets.
(4) At December 31, 1999, shared assets included $828.6 million of cash, cash
equivalents and marketable securities and $240.4 million in other assets.
F-34
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of segment combined EBITDA to loss before income taxes
and extraordinary item is as follows:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------
2001 2000 1999
---------- --------- -------
(IN MILLIONS)
Segment Combined EBITDA............................. $ 652.1 $ 291.9 $ 212.7
(Add) Deduct:
Franchise fees.................................... -- -- 16.5
Non-cash compensation............................. 30.6 -- --
Other charges..................................... 297.9 92.7 16.2
Corporate expenses................................ 24.3 23.7 25.3
Asset impairments................................. 8,161.6 -- --
Depreciation and amortization..................... 2,540.3 1,700.7 765.7
Interest income and other, net.................... (34.7) (25.8) (48.2)
Interest expense.................................. 1,240.8 886.3 678.1
Shares of losses from equity investments.......... 22.3 24.2 18.4
Other losses (gains).............................. 88.5 -- (493.1)
Foreign currency transaction (gains) losses....... (0.6) 58.1 (22.8)
---------- --------- -------
12,371.0 2,759.9 956.1
---------- --------- -------
Loss before income taxes and extraordinary item..... $(11,718.9) $(2,468.0) $(743.4)
========== ========= =======
</Table>
21. GEOGRAPHIC INFORMATION
<Table>
<Caption>
UNITED STATES UNITED KINGDOM IRELAND TOTAL
------------- -------------- ------- ---------
(IN MILLIONS)
2001
Revenues.............................. $-- $ 3,127.3 $ 62.3 $ 3,189.6
Long-lived assets..................... 151.3 11,703.3 162.6 12,017.2
2000
Revenues.............................. $-- $ 2,423.0 $ 61.2 $ 2,484.2
Long-lived assets..................... 1.6 21,660.1 155.4 21,815.5
1999
- ---------------
Revenues.............................. $-- $ 1,505.9 $ 31.2 $ 1,537.1
Long-lived assets..................... 1.6 8,143.6 148.0 8,293.2
</Table>
F-35
NTL COMMUNICATIONS CORP.
SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 78.5 $ 168.2
Other..................................................... 12.9 10.5
--------- ---------
Total current assets........................................ 91.4 178.7
Office improvements and equipment, net of accumulated
depreciation of $1.7 (2001) and $1.2 (2000)............... 1.2 1.6
Investments in and loans to affiliates, net................. 4,461.3 15,188.5
Deferred financing costs, net of accumulated amortization of
$75.9 (2001) and $51.4 (2000)............................. 154.1 136.6
Note receivable from NTL Incorporated....................... 150.0 --
--------- ---------
Total assets................................................ $ 4,858.0 $15,505.4
========= =========
LIABILITIES AND SHAREHOLDER'S (DEFICIENCY) EQUITY
Current liabilities......................................... $ 8,037 $ 96.8
Long-term debt.............................................. -- 6,396.4
Shareholder's (deficiency) equity:
Common stock.............................................. -- --
Additional paid-in capital................................ 13,917.7 13,746.7
Accumulated other comprehensive (loss).................... (904.5) (379.3)
(Deficit)................................................. (16,192.2) (4,355.2)
--------- ---------
(3,179.0) 9,012.2
--------- ---------
Total liabilities and shareholder's (deficiency) equity..... $ 4,858.0 $15,505.4
========= =========
</Table>
See accompanying notes.
F-36
NTL COMMUNICATIONS CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
---------- --------- --------
(IN MILLIONS)
COSTS AND EXPENSES
Corporate expenses.......................................... $ 24.5 $ 23.6 $ 22.7
General and administrative expenses......................... 3.2 5.9 --
Asset impairments........................................... 1.0 -- --
Non-cash compensation....................................... 30.6 -- --
Depreciation and amortization............................... 25.0 19.7 18.3
---------- --------- --------
Operating (loss)............................................ (84.3) (49.2) (41.0)
OTHER INCOME (EXPENSE)
Interest income and other, net.............................. 26.9 14.4 121.6
Interest expense............................................ (762.8) (599.4) (529.5)
Foreign currency transaction gains.......................... 58.2 67.8 21.9
---------- --------- --------
(Loss) before income taxes, extraordinary item and equity in
net (loss) of subsidiaries................................ (762.0) (566.4) (427.0)
Income tax expense.......................................... -- -- (1.0)
---------- --------- --------
(Loss) before extraordinary item and equity in net (loss) of
subsidiaries.............................................. (762.0) (566.4) (428.0)
Loss from early extinguishment of debt...................... -- -- (3.0)
---------- --------- --------
(Loss) before equity in net (loss) of subsidiaries.......... (762.0) (566.4) (431.0)
Equity in net (loss) of subsidiaries........................ (11,075.0) (1,821.7) (285.5)
---------- --------- --------
Net (loss).................................................. $(11,837.0) $(2,388.1) $ (716.5)
========== ========= ========
</Table>
See accompanying notes.
F-37
NTL COMMUNICATIONS CORP.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
---------- --------- --------
(IN MILLIONS)
Net cash (used in) operating activities..................... $ (399.0) $ (293.8) $ (118.3)
INVESTING ACTIVITIES
Purchase of office improvements and equipment............... (0.1) (0.5) (0.9)
Purchase of marketable securities........................... (9.9) -- (354.5)
Proceeds from sales of marketable securities................ 10.0 5.0 618.6
Loan to NTL Incorporated.................................... (150.0) -- --
Increase in investments in and loans to affiliates.......... (956.8) (5,953.2) (1,164.8)
---------- --------- --------
Net cash (used in) investing activities..................... (1,106.8) (5,948.7) (901.6)
FINANCING ACTIVITIES
Distribution to NTL (Delaware), Inc......................... (10.6) -- (500.0)
Contributions from NTL (Delaware), Inc...................... 40.8 5,227.2 167.6
Proceeds from borrowings, net of financing costs............ 1,385.9 476.3 1,846.0
Proceeds from issuance of preferred stock and warrants...... -- -- 500.0
Principal payments.......................................... -- (73.7) (730.3)
Proceeds from exercise of stock options and warrants........ -- -- 12.1
Cash released from (placed in) escrow for debt repayment.... -- 77.5 (87.0)
---------- --------- --------
Net cash provided by financing activities................... 1,416.1 5,707.3 1,208.4
---------- --------- --------
(Decrease) increase in cash and cash equivalents............ (89.7) (535.2) 188.5
Cash and cash equivalents at beginning of year.............. 168.2 703.4 514.9
---------- --------- --------
Cash and cash equivalents at end of year.................... $ 78.5 $ 168.2 $ 703.4
========== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 424.3 $ 240.2 $ 209.1
Income taxes paid........................................... -- 0.4 --
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Accretion of dividends and discount on preferred stock...... $ -- $ -- $ 8.6
Conversion of Convertible Notes, net of unamortized deferred
financing costs........................................... 109.5 -- 269.3
Contribution from NTL (Delaware), Inc....................... 110.2 -- --
Common stock and stock options issued for an acquisition.... $ -- -- 978.0
</Table>
See accompanying notes.
F-38
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. CORPORATE RESTRUCTURING
On May 18, 2000, NTL Incorporated completed a corporate restructuring to
create a holding company structure in connection with the acquisition of
ConsumerCo. The holding company restructuring was accomplished through a merger
so that all the stockholders of NTL Incorporated at the effective time of the
merger became stockholders of the new holding company, and NTL Incorporated
became a subsidiary of the new holding company. The new holding company has
taken the name NTL Incorporated and the holding company's subsidiary
simultaneously changed its name to NTL (Delaware), Inc. NTL Communications Corp.
(the "Company") is a wholly-owned subsidiary of NTL (Delaware), Inc.
On February 21, 2001, the Company completed a transaction whereby it
acquired the entire issued share capital of NTL (CWC Holdings) Limited (the
entity that owns ConsumerCo) from NTL Incorporated and the entire issued share
capital of NTL Business Limited (formerly Workplace Technologies plc) from NTL
(Delaware), Inc. in exchange for shares of its common stock. As a result of this
transaction, ConsumerCo and NTL Business Limited became wholly-owned
subsidiaries of the Company. The Company accounted for the transaction in a
manner consistent with a transfer of entities under common control, which is
similar to a "pooling of interests." Accordingly, the net assets and results of
operations of ConsumerCo and NTL Business Limited have been included in the
financial statements from their respective dates of acquisition.
2. BASIS OF PRESENTATION
In the Company's condensed financial statements, the Company's investment
in subsidiaries is stated at cost plus equity in the undistributed earnings of
the subsidiaries. The Company's share of net loss of its subsidiaries is
included in net loss using the equity method of accounting. The condensed
financial statements should be read in conjunction with the Company's
consolidated financial statements.
3. LONG-TERM DEBT
Long-term debt consists of:
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN MILLIONS)
12- 3/4% Senior Deferred Coupon Notes....................... (a) $ 277.8 $ 277.8
11- 1/2% Senior Deferred Coupon Notes....................... (b) 1,050.0 1,040.5
10% Senior Notes............................................ (c) 400.0 400.0
9- 1/2% Senior Sterling Notes, less unamortized discount.... (d) 181.4 186.5
10- 3/4% Senior Deferred Coupon Sterling Notes.............. (e) 382.3 353.6
9- 3/4% Senior Deferred Coupon Notes........................ (f) 1,153.8 1,048.5
9- 3/4% Senior Deferred Coupon Sterling Notes............... (g) 385.9 360.8
11- 1/2% Senior Notes....................................... (h) 625.0 625.0
12- 3/8% Senior Deferred Coupon Notes....................... (i) 364.9 323.6
7% Convertible Subordinated Notes........................... (j) 489.8 599.3
9- 1/4% Senior Euro Notes................................... (k) 222.5 234.7
9- 7/8% Senior Euro Notes................................... (l) 311.5 328.6
11- 1/2% Senior Deferred Coupon Euro Notes.................. (m) 135.6 127.9
11- 7/8% Senior Notes, less unamortized discount............ (n) 490.7 489.6
12- 3/8% Senior Euro Notes, plus unamortized premium........ (o) 267.8 --
6- 3/4% Convertible Senior Notes............................ (p) 1,150.0 --
--------- ---------
7,889.0 6,396.4
Less current portion........................................ 7,889.0
--------- ---------
$ -- $ 6,396.4
========= =========
</Table>
F-39
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
3. LONG-TERM DEBT (CONTINUED)
(a) 12- 3/4% Notes due April 15, 2005, principal amount at maturity of $277.8
million, interest payable semiannually from on October 15, 2000, redeemable
at the Company's option on or after April 15, 2000;
(b) 11- 1/2% Notes due February 1, 2006, principal amount at maturity of
$1,050.0 million, interest payable semiannually from August 1, 2001,
redeemable at the Company's option on or after February 1, 2001;
(c) 10% Notes due February 15, 2007, principal amount at maturity of $400.0
million, interest payable semiannually from August 15, 1997, redeemable at
the Company's option on or after February 15, 2002;
(d) 9- 1/2% Sterling Notes due April 1, 2008, principal amount at maturity of
L125.0 million ($181.8 million), interest payable semiannually from October
1, 1998, redeemable at the Company's option on or after April 1, 2003;
(e) 10- 3/4% Sterling Notes due April 1, 2008, principal amount at maturity of
L300.0 million ($436.3 million), interest payable semiannually beginning on
October 1, 2003, redeemable at the Company's option on or after April 1,
2003;
(f) 9- 3/4% Notes due April 1, 2008, principal amount at maturity of $1,300.0
million, interest payable semiannually beginning on October 1, 2003,
redeemable at the Company's option on or after April 1, 2003;
(g) 9- 3/4% Sterling Notes due April 15, 2009, principal amount at maturity of
L330.0 million ($479.9 million), interest payable semiannually beginning on
October 15, 2004, redeemable at the Company's option on or after April 15,
2004;
(h) 11- 1/2% Notes due October 1, 2008, principal amount at maturity of $625.0
million, interest payable semiannually from April 1, 1999, redeemable at
the Company's option on or after October 1, 2003;
(i) 12- 3/8% Notes due October 1, 2008, principal amount at maturity of $450.0
million, interest payable semiannually beginning on April 1, 2004,
redeemable at the Company's option on or after October 1, 2003;
(j) 7% Convertible Notes due December 15, 2008, principal amount at maturity of
$489.8 million, interest payable semiannually from June 15, 1999,
convertible into shares of NTL Incorporated common stock at a conversion
price of $39.20 per share, redeemable at the Company's option on or after
December 15, 2001 (there are approximately 12.5 million shares of NTL
Incorporated common stock reserved for issuance upon conversion);
(k) 9- 1/4% Euro Notes due November 15, 2006, principal amount at maturity of
E250.0 million ($222.5 million), interest payable semiannually from May 15,
2000;
(l) 9- 7/8% Euro Notes due November 15, 2009, principal amount at maturity of
E350.0 million ($311.5 million), interest payable semiannually from May 15,
2000, redeemable at the Company's option on or after November 15, 2004;
(m) 11- 1/2% Deferred Euro Notes due November 15, 2009, principal amount at
maturity of E210.0 million ($186.9 million), interest payable semiannually
beginning on May 15, 2005, redeemable at the Company's option on or after
November 15, 2004 and;
(n) 11- 7/8% Notes due October 1, 2010, principal amount at maturity of $500.0
million, interest payable semiannually from April 1, 2001, redeemable at
the Company's option on or after October 1, 2005;
(o) 12- 3/8% Senior Euro Notes due February 1, 2008, issued in January and
February 2001, principal amount at maturity of E300.0 million ($267.0
million), interest payable semiannually from August 1, 2001;
(p) 6- 3/4% Convertible Senior Notes due May 15, 2008, issued in May 2001,
principal amount at maturity of $1,150.0 million, interest payable
semiannually from November 15, 2001, convertible into shares of
F-40
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
3. LONG-TERM DEBT (CONTINUED)
NTL Incorporated common stock at a conversion price of $32.728 per share,
redeemable at the Company's option on or after May 20, 2004 (there are
approximately 35.1 million shares of NTL Incorporated common stock reserved
for issuance upon conversion);
The indentures governing the notes contain 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.
During 2001, 2000 and 1999, the Company recognized $243.5 million, $334.3
million and $308.1 million, respectively, of original issue discount as interest
expense.
In connection with the Cablelink acquisition, the Company issued $704.6
million principal amount Senior Increasing Rate Notes due 2000. In November
1999, the Company received net proceeds of $720.7 million from the issuance of
the 9- 1/4% Euro Notes, the 9- 7/8% Euro Notes and the 11- 1/2% Deferred Euro
Notes, of which $716.5 million was used to repay the Senior Increasing Rate
Notes plus accrued interest. The Company recorded an extraordinary loss from the
early extinguishment of the notes of $3.0 million in 1999.
Long-term debt repayments are due as follows (in millions). The table
reflects the Company's contractual obligations, but the entire obligation has
been classified as current.
<Table>
Year ending December 31:
2002............................................. $ --
2003............................................. --
2004............................................. --
2005............................................. 277.8
2006............................................. 1,272.5
Thereafter....................................... 6,778.2
--------
Total debt repayments............................ 8,328.5
Less: current portion............................ (8,328.5)
--------
$ --
========
</Table>
4. LEASES
Leases for office space end in 2004. Total rental expense for the years
ended December 31, 2001, 2000 and 1999 under operating leases was $1.8 million,
$2.0 million and $1.2 million, respectively.
Future minimum lease payments under noncancellable operating leases as of
December 31, 2001 are (in millions): $77.7 (2002), $56.3 (2003), $39.7 (2004)
and $29.7 (2005).
5. OTHER
On September 28, 2001, the Company loaned NTL Incorporated $150.0 million
in cash and received 15.0% Promissory Notes due September 30, 2004. Interest is
payable monthly in cash at a rate of 15.0% per year beginning on October 31,
2001.
F-41
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
5. OTHER (CONTINUED)
No cash dividends were paid to the registrant by subsidiaries for the years
ended December 31, 2001, 2000 and 1999.
F-42
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
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)/ADDITIONS AT END
DESCRIPTION PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
- ----------- ------------ ---------- ----------- ---------------------- ---------
Year ended December 31, 2001
Allowance for doubtful
accounts................. $135.2 $58.3 $-- $(67.4)(b) $126.1
====== ===== == ====== ======
Year ended December 31, 2000
Allowance for doubtful
accounts................. $ 84.9 $98.5 $-- $(48.2)(c) $135.2
====== ===== == ====== ======
Year ended December 31, 1999
Allowance for doubtful
accounts................. $ 38.5 $45.7 $-- $ 0.7(a) $ 84.9
====== ===== == ====== ======
</Table>
- ---------------
(a) Uncollectible accounts written-off, net of recoveries of $63.5 million and
$3.9 million foreign currency translation adjustments.
(b) Uncollectible accounts written-off, net of recoveries of $91.6 million and
$5.7 million foreign exchange currency translation adjustments, offset by
$49.1 million allowance for doubtful accounts as of acquisition dates of
purchased subsidiaries.
(c) Uncollectible accounts written-off, net of recoveries of $15.1 million and
$1.1 million foreign currency exchange translation adjustments, offset by
$16.9 million allowance for doubtful accounts as of acquisition dates of
purchased subsidiaries.
F-43
EXHIBIT F
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO SECOND AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/_/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
OR
/_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No 0-22616
NTL COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
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)
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 /_/ No /_/
The number of shares outstanding of the issuer's common stock as of
March 31, 2002 was 13. The Registrant is an indirect wholly-owned
subsidiary of NTL Incorporated and there is no market for the Registrant's
common stock.
TABLE OF CONTENTS
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-
March 31, 2002 and December 31, 2001 2
Condensed Consolidated Statements of Operations-
Three months ended March 31, 2002 and 2001 4
Condensed Consolidated Statement of Shareholder's (Deficiency)-
Three months ended March 31, 2002 5
Condensed Consolidated Statements of Cash Flows-
Three months ended March 31, 2002 and 2001 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 32
Risk Factors 34
PART II OTHER INFORMATION
Item 3. Defaults Upon Senior Securities 38
Item 6. Exhibits and Reports on Form 8-K 40
SIGNATURES 41
PART I. FINANCIAL INFORMATIONS
ITEM 1. FINANCIAL STATEMENTS
NTL Communications Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in millions)
March 31, December 31,
2002 2001
------------ ----------
(unaudited) (see note)
Assets
Current assets:
Cash and cash equivalents $ 393.3 $ 251.1
Marketable securities 2.0 -
Accounts receivable-trade, less
allowance for doubtful accounts
of $112.8 (2002) and $126.1 (2001) 462.7 516.2
Due from affiliates 13.4 6.9
Other 255.0 238.8
----------- -----------
Total current assets 1,126.4 1,013.0
Fixed assets, net 10,464.4 10,840.3
Intangible assets, net 749.9 767.3
Investments in and loans to affiliates, net 9.0 4.6
Other assets, net of accumulated
amortization of $136.5 (2002) and $125.0(2001) 249.8 255.2
Loan to NTL Incorporated 150.0 150.0
----------- -----------
Total assets $ 12,749.5 $ 13,030.4
=========== ===========
NTL Communications Corp. and Subsidiaries
Condensed Consolidated Balance Sheets-continued
(dollars in millions)
March 31, December 31,
2002 2001
------------- ----------
(unaudited) (see note)
Liabilities and shareholder's (deficiency) Current
liabilities:
Accounts payable $ 418.4 $ 390.5
Accrued expenses and other 681.0 840.3
Accrued construction costs 82.4 107.8
Interest payable 311.3 252.0
Deferred revenue 277.4 290.2
Current portion of long-term
debt 14,585.6 14,205.9
------------ ------------
Total current liabilities 16,356.1 16,086.7
Long-term debt - -
Other 5.0 8.9
Commitments and contingent liabilities
Deferred income taxes 100.2 113.8
Shareholder's (deficiency):
Common stock-$.01 par value;
authorized 100 shares;
issued and outstanding 13
(2002) and 13 (2001) shares - -
Additional paid-in capital 13,921.4 13,917.7
Accumulated other
comprehensive (loss) (981.1) (904.5)
(Deficit) (16,652.1) (16,192.2)
------------ ------------
(3,711.8) (3,179.0)
------------ ------------
Total liabilities and shareholder's
(deficiency) $ 12,749.5 $ 13,030.4
============ ============
Note: The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date.
See accompanying notes.
NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in millions)
Three Months Ended
March 31,
2002 2001
Revenues
Consumer telecommunications and television $ 504.7 $ 502.2
Business telecommunications 214.7 200.2
Broadcast transmission and other 73.5 68.1
-------- ----------
792.9 770.5
Costs and expenses
Operating expenses 380.9 397.6
Selling, general and administrative expenses 185.3 268.6
Recapitalization expense 32.1 -
Other charges 1.6 7.4
Corporate expenses 6.7 4.1
Depreciation and amortization 337.4 623.7
-------- ----------
944.0 1,301.4
Operating (loss) (151.1) (530.9)
Other income (expense)
Interest income and other, net 9.4 10.2
Interest expense (324.8) (308.0)
Share of income (losses) from equity investments 0.3 (2.6)
Foreign currency transaction (losses) (5.0) (5.7)
-------- ----------
(Loss) before income taxes (471.2) (837.0)
Income tax benefit 11.3 1.2
-------- ----------
Net (loss) $ (459.9) $ (835.8)
======== ==========
See accompanying notes.
NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statement of Shareholder's (Deficiency)
(Unaudited)
(dollars in millions)
Common Stock
$.01 Par Value
Shares Par
Balance, December 31, 2001 13 $--
Contribution from NTL(Delaware), Inc.
Comprehensive loss: Net loss for the
three months ended March 31, 2002
Currency translation adjustment
Unrealized net gains on derivatives
Total
Balance, March 31, 2002 13 $--
=== ===
NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statement of Shareholder's (Deficiency)
(Unaudited) - continued
(dollars in millions)
Accumulated Other
Comprehensive
(Loss)
------
Unrealized
Additional Foreign Net
Paid-In Comprehensive Currency Losses on
Capital Loss Translation Derivatives (Deficit)
---------- ------------- ----------- ----------- ---------
Balance, December 31, 2001 $ 13,917.7 $ (900.9) $(3.6) $(16,192.2)
Contribution from NTL(Delaware),
Inc. 3.7
Comprehensive loss:
Net loss for the three
months ended March 31, 2002 $(459.9) (459.9)
Currency translation adjustment (77.0) (77.0)
Unrealized net gains on derivatives 0.4 0.4
-------
Total $(536.5)
---------- ------- -------- -----
Balance, March 31, 2002 $ 13,921.4 $ (977.9) $(3.2) $(16,652.1)
========== ======== ====== ==========
See accompanying notes.
NTL Communications Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in millions)
Three Months Ended
March 31,
2002 2001
---- ----
Net cash (used in) operating activities $ (67.3) $ (160.3)
Investing activities
Purchase of fixed assets (214.5) (542.0)
Investments in and loans to affiliates (3.7) (8.4)
Increase in other assets - (0.4)
Purchase of marketable securities (2.0) -
-------- --------
Net cash (used in) investing activities (220.2) (550.8)
Financing activities
Contribution from NTL (Delaware), Inc. 3.7 7.0
Proceeds from borrowings, net of financing costs 430.4 596.7
Principal payments (0.9) (22.1)
-------- --------
Net cash provided by financing activities 433.2 581.6
Effect of exchange rate changes on cash (3.5) (10.1)
-------- --------
Increase (decrease) in cash and cash equivalents 142.2 (139.6)
Cash and cash equivalents at beginning of year 251.1 423.5
-------- --------
Cash and cash equivalents at end of year $ 393.3 $ 283.9
======== ========
Supplemental disclosure of cash flow information
Cash paid during the year for interest exclusive
of amounts capitalized $ 187.1 $ 164.4
Supplemental schedule of non-cash financing activities
Contribution from NTL (Delaware), Inc. $ - $ 198.1
Conversion of Convertible Notes - 109.5
See accompanying notes.
NTL Communications Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Note A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 2002 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2002. For
further information, refer to the consolidated financial statements and
footnotes thereto included in NTL Communications Corp.'s Annual Report on
Form 10-K for the year ended December 31, 2001.
As indicated below, substantial doubt exists about the Company's ability to
continue as a going concern. The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability of assets or
classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
Certain prior period amounts have been reclassified to conform to the
current presentation.
Note B -- Recapitalization Process and Ability to Continue Operations
On May 8, 2002, NTL Incorporated ("NTL Incorporated" and, together with its
consolidated subsidiaries, "NTL"), NTL (Delaware), Inc., NTL Communications
Corp. ("NTL Communications" and the "Company"), Diamond Cable
Communications Limited, Diamond Holdings Limited and Communications Cable
Funding Corp. filed an arranged joint reorganization plan under Chapter 11
of the United States Bankruptcy Code (referred to as the proposed
recapitalization plan). NTL's operating subsidiaries were not included in
the Chapter 11 filing. Toward the end of 2001, while NTL continued to have
sufficient liquidity to meet its near term obligations, it recognized the
negative impact of the collapsing European and U.S. telecommunications
markets on its ability to service its debt. Accordingly, NTL began to
implement a strategy to preserve and maximize its enterprise value. This
strategy included the implementation of cost-cutting measures and the
commencement of discussions with certain third parties regarding strategic
alternatives for NTL's business.
The Company historically incurred operating losses and negative operating
cash flow. In addition, the Company has required significant amounts of
capital to finance construction of its networks, connection of customers to
the networks, other capital expenditures and for working capital needs
including debt service requirements. The Company historically met these
liquidity requirements through amounts available under its credit
facilities, issuances of high-yield debt securities in the capital markets
and equity contributions from NTL Incorporated. Both the equity and debt
capital markets have recently experienced periods of significant
volatility, particularly for securities issued by telecommunications and
technology companies. The ability of telecommunications companies to access
those markets as well as their ability to obtain financing provided by bank
lenders and equipment suppliers has become more restricted and financing
costs have increased. During some recent periods, the capital markets have
been largely unavailable to new issues of securities by telecommunications
companies. NTL Incorporated's public equity is no longer trading on the New
York Stock Exchange, and NTL's public debt securities are trading at or
near all time lows. These factors, together with NTL's substantial
leverage, means the Company does not currently have access to its historic
sources of capital.
In addition, the Company's UK credit facilities are fully drawn. The
revolving tranche of the Cablecom credit facility has been capped at its
utilized amount of CHF 1,055.0 million although the availability may be
increased with the consent of the requisite majority of the lenders under
that facility. The term tranche of the Cablecom credit facility is fully
drawn. The Company did not pay cash interest on certain series of its notes
that was due on April 1, 2002, April 15, 2002 and May 15, 2002. NTL
Incorporated and NTL (Delaware), a wholly-owned subsidiary of NTL
Incorporated, also did not pay cash interest and related fees on a series
of their notes that was due on April 15, 2002. In accordance with the
proposed recapitalization plan, NTL does not plan to make future interest
payments on its outstanding publicly traded notes except notes issued by
NTL Triangle and Diamond Holdings Limited.
As of March 31, 2002, the Company had approximately $395.3 million in cash,
cash equivalents and marketable securities on hand. The Company may require
additional cash in the twelve months from April 1, 2002 to March 31, 2003.
NTL Incorporated expects to obtain a DIP Facility (as described below) to
meet the potential cash requirements of NTL Incorporated and its
subsidiaries, excluding Cablecom. NTL Incorporated also expects that the
DIP Facility will be replaced with an exit facility for NTL Communications
and its subsidiaries upon the completion of the recapitalization process.
The Company believes that cash, cash equivalents and marketable securities
on hand at March 31, 2002 and the cash expected to be available from the
DIP Facility and the exit facility will be sufficient for its and its
subsidiaries cash requirements during the twelve months from April 1, 2002
to March 31, 2003.
Beginning in January 2002, NTL was contacted by an unofficial committee of
bondholders regarding the commencement of a comprehensive and consensual
restructuring process. NTL has been informed that the members of the
unofficial steering committee of bondholders currently own, in the
aggregate, more than 50% of the outstanding principal amount of NTL's
notes. In connection with the restructuring process, the steering committee
of the unofficial committee of bondholders retained advisors to facilitate
the negotiations.
On January 31, 2002, NTL announced that it had appointed Credit Suisse
First Boston, JP Morgan and Morgan Stanley to advise on strategic and
recapitalization alternatives to strengthen NTL's balance sheet and reduce
debt and put an appropriate capital structure in place for its business.
Subsequently, NTL evaluated various recapitalization alternatives, and met
with a number of strategic investors, to effect a comprehensive consensual
reorganization in a timely manner to minimize negative effects on its
business operations. Discussions with such strategic investors did not
result in a proposal which NTL's board of directors believed was comparable
or superior to the value provided to its stakeholders by the proposed plan
of reorganization.
Liberty Media Corporation, one of such potential strategic investors, which
is also a significant shareholder in Telewest plc, another British cable
and telephone company, has discussed various transactions with NTL from
time to time over the past several years. In March 2002, Liberty and NTL
amended a previously existing confidentiality agreement between them to
cover the restructuring process and to include a "standstill" agreement
which prohibited various acquisitions of, or offers, for NTL debt or equity
securities by Liberty and its subsidiaries until June 30, 2002.
On April 17, 2002, Liberty sent a proposal to NTL's board of directors,
which proposed a cash tender offer for 30% of the outstanding bonds of NTL
Communications Corp. at a "small premium" to the prevailing market price
and an agreement to vote such acquired bonds in favor of the proposed plan
of reorganization, as well as a "participation" with NTL in a cash infusion
of up to $500 million into Cablecom. After consultation with NTL's board of
directors and the steering committee of bondholders on April 18, 2002, NTL
indicated to Liberty that it did not consider the Liberty proposal to be in
the best interests of NTL and that the best course of action for NTL to
maximize its enterprise value was to promptly consummate the proposed plan
of reorganization. Subsequent to April 18, 2002, Liberty has continued
discussions with NTL with respect to Cablecom.
Promptly upon obtaining the requisite waivers from the lenders under its
credit facilities, in March 2002, NTL commenced negotiations with the
steering committee of the unofficial committee of bondholders and its legal
and financial advisors. The negotiations continued during the latter part
of March and throughout April 2002, and also included France Telecom. On
April 16, 2002, NTL announced that it had reached a comprehensive agreement
in principle with the committee (holding over 50% of the face value of NTL
and its subsidiaries' public bonds) and France Telecom, a significant
holder of the NTL Incorporated's preferred stock, on implementing a
recapitalization plan. On May 2, 2002, a steering committee of the lending
banks under NTL's credit facilities gave their approval in principle (on a
non-legally binding basis) to the NTL's proposed plan of reorganization.
On June 21, 2002, the United States Trustee appointed an official
creditors' committee, comprised of the three indenture trustees for the
publicly traded debt of NTL and the ten members of the steering committee
of bondholders. The members of the official creditors' committee are: The
Bank of New York; Wilmington Trust Company; Wells Fargo Bank Minnesota,
National Association; Angelo Gordon & Co. LP; Capital Research & Management
Company; Franklin Mutual Advisors, LLC; Oaktree Capital Management LLC;
Salomon Brothers Asset Management; Appaloosa Management, LP; Fidelity
Management & Research Co.; Mackay Shields LLC; SAB Capital Management L.P.;
and W.R. Huff Asset Management Co., LLC.
The recapitalization plan, if implemented, would result in the cancellation
of all of NTL Incorporated's outstanding shares of common stock, preferred
stock and redeemable preferred stock, and the cancellation of all of the
publicly held notes of NTL Incorporated, NTL (Delaware), Inc. and NTL
Communications Corp. and the transfer of the publicly held notes of Diamond
Cable Communications Limited to NTL UK and Ireland. In addition, NTL would
be discharged from its obligation to pay dividends accruing on the canceled
preferred stock and interest accruing on the canceled notes.
To implement the proposed recapitalization, on May 8, 2002 NTL
Incorporated, NTL (Delaware), the Company, Diamond Cable Communications
Limited, Diamond Holdings Limited and Communications Cable Funding Corp.
filed cases and a pre-arranged joint reorganization plan under Chapter 11
of the United States Bankruptcy Code. NTL's operating subsidiaries were not
included in the Chapter 11 filing. The reorganization plan contemplates
that the bank debt will remain in place as part of the recapitalization. On
May 24, 2002, NTL and its debtor subsidiaries filed an amended joint
reorganization plan and disclosure statement. The bankruptcy court has
scheduled July 12, 2002 for a hearing to consider approval of the amended
joint reorganization plan and disclosure statement. A copy of the Amended
Joint Reorganization Plan of NTL Incorporated and Certain Subsidiaries and
the related Disclosure Statement are included as exhibits to NTL
Incorporated's Current Report on Form 8-K filed on May 28, 2002.
The filing of the petitions seeking relief filed under Chapter 11
constituted an event of default under the indentures of each of the
entities which filed such Chapter 11 petitions and amounts outstanding
under these indentures became immediately due and payable. NTL's Chapter 11
petitions also constituted an event of default under NTL's UK credit
facilities and the Cablecom credit facility, allowing the lenders
thereunder to declare amounts outstanding to be immediately payable.
In connection with the proposed joint reorganization plan, certain members
of the unofficial committee of bondholders have committed to provide up to
$500 million of new debt financing to NTL and certain of its subsidiaries
during the Chapter 11 process and for the post-recapitalized NTL, subject
to bankruptcy court approval. The new financing will ensure that NTL's
business operations have access to sufficient liquidity to continue
ordinary operations. The bankruptcy court has set July 2, 2002 as the date
to consider approval of the DIP Facility, which has been agreed in
principle with NTL and the prospective lenders under the facility. Despite
such agreement, however, GE Capital, the sole holder of the 5 3/4%
Convertible Subordinated Notes due 2011, and Wilmington Trust Company, the
trustee, have objected to the DIP Facility.
Recapitalization expense of $32.1 million in 2002 includes $8.8 million for
employee retention related to substantially all of our UK employees and
$23.3 million for financial advisor, legal, accounting and consulting
costs. NTL expects to incur approximately $50.0 million in additional
recapitalization costs until the process is completed.
Proposed Recapitalization Plan
Under the proposed recapitalization plan, NTL would be split into two
companies, one tentatively called NTL UK and Ireland and holding
substantially all of NTL's UK and Ireland assets, and one tentatively
called NTL Euroco and holding substantially all of NTL's continental
European and other assets.
Holders of notes of NTL Incorporated (other than France Telecom), NTL
(Delaware), Inc. (other than France Telecom), the Company and Diamond Cable
Communications Limited would in the aggregate receive 100% of the initial
common stock of NTL UK and Ireland (excluding shares issuable in the rights
offerings and upon the exercise of warrants (discussed below) and upon the
exercise of options which will be granted to certain employees of NTL UK
and Ireland). Holders of notes of NTL Incorporated (other than France
Telecom), NTL (Delaware), Inc. (other than France Telecom) and the Company
would in the aggregate receive (i) 100% of the preferred stock of NTL
Euroco and (ii) a certain amount of cash as specified in the amended joint
reorganization plan. Holders of the subordinated notes of NTL Incorporated
(other than France Telecom), NTL (Delaware), Inc. (other than France
Telecom) and the Company would in the aggregate receive 86.5% of the
initial common stock of NTL Euroco (excluding shares issuable upon the
exercise of options which will be granted to certain employees of NTL
Euroco). Holders of senior notes of the Company would receive the value of
a specified number of shares of common stock of NTL Euroco pursuant to the
amended joint reorganization plan. Notes of the Company's subsidiaries
Diamond Holdings Limited and NTL (Triangle) LLC would remain outstanding
and interest payments will be made.
Current preferred and common stockholders of NTL Incorporated, including
France Telecom, would receive warrants to purchase common stock of NTL UK
and Ireland and rights (to be priced at a $10.5 billion enterprise value of
NTL UK and Ireland) entitling them to purchase common stock of NTL UK and
Ireland. For each share of common stock purchased upon exercise of rights,
the person exercising such rights will receive a warrant to purchase one
share of common stock of NTL UK and Ireland. The rights will be
exercisable, on an oversubscription basis, for the 20-business day period
after the entry of the confirmation order, as such period may be extended,
and the warrants will be exercisable for a period of eight years at an
exercise price of $77.47 per share, subject to anti-dilution adjustments.
If fully exercised, the rights and warrants would entitle the current
preferred stockholders of NTL Incorporated to acquire approximately 23.6%
and the current common stockholders of NTL Incorporated to acquire
approximately 8.9% of NTL UK and Ireland's primary common stock on the
effective date of the recapitalization. Holders of the subordinated notes
of NTL Incorporated (other than France Telecom), NTL (Delaware), Inc.
(other than France Telecom), and the Company would have the right to
purchase any shares of NTL UK and Ireland common stock and warrants not
subscribed for in the rights offering by the preferred and common
stockholders of NTL Incorporated. It is expected that the warrants will be
listed or quoted on the same securities exchange or inter-dealer quotation
system as the shares of common stock of the reorganized NTL.
Current preferred stockholders of NTL Incorporated, other than France
Telecom would receive approximately 3.2% and current common stockholders,
other than France Telecom, would receive approximately 10.3% of the primary
equity of NTL Euroco. It is contemplated that subject to consummation of
the recapitalization, France Telecom would also receive NTL Incorporated's
27% interest in Noos, pursuant to a pledge of such interest to France
Telecom given at the time of its acquisition by NTL.
During the recapitalization process, NTL has maintained normal and regular
trade terms with its suppliers and customers. There can be no assurance
that NTL's suppliers will continue to provide normal trade credit or credit
on acceptable terms, if at all, or that customers will continue to do
business or enter into new business with NTL. See also "Risk Factors" for a
summary of risks related to NTL's business in general and the
recapitalization process in particular.
Section 1129 of the United States Bankruptcy Code requires, among other
things, a showing that confirmation of the proposed recapitalization plan
will not be followed by liquidation or the need for further financial
reorganization of NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp., Diamond Cable Communications Limited or Diamond
Holdings Limited, and that the value of distributions to dissenting holders
of claims and interests may not be less than the value such holders would
receive in a liquidation under Chapter 7 of the United States Bankruptcy
Code. Although NTL believes that the proposed recapitalization plan will
meet these tests, there can be no assurance that the Bankruptcy Court will
reach the same conclusion.
The United States Bankruptcy Code also requires that a plan must provide
the same treatment for each claim or interest in a particular class, unless
a holder agrees to a less favorable treatment of its particular claim or
interest. NTL believes that the proposed recapitalization plan complies
with this requirement of the United States Bankruptcy Code. However, if a
member of a class objects to its treatment, or if the Bankruptcy Court
finds that the proposed recapitalization plan does not comply with the
requirements of the United States Bankruptcy Code, confirmation of the plan
could be delayed or prevented. In addition, each class of impaired claims
and interests that will (or may) be entitled to receive property under the
plan will have the opportunity to vote to accept or reject the plan. If an
impaired class of claims or interests rejects the plan, NTL may request
confirmation of the plan pursuant to the "cramdown" provisions of the
United States Bankruptcy Code. Even if the requirements for "cramdown" are
met, the Bankruptcy Court, which, as a court of equity may exercise
substantial discretion, may choose not to confirm the plan.
Bank Waivers
Before NTL could commence negotiations with the unofficial committee of
bondholders, it was necessary to obtain waivers from the lenders under its
credit facilities. Effective March 8, 2002, these lenders granted waivers
which, until March 29, 2002, provided that the commencement of negotiations
with bondholders with a view to rescheduling its debt would not constitute
an event of default under the credit facilities. Such initial waivers did
not permit NTL to make to any of its noteholders an exchange or similar
offer for NTL's outstanding public notes or to enter into a legally binding
agreement with the unofficial steering committee of bondholders, subject to
some exceptions, without the consent of the lenders under the credit
facilities. But for the initial waivers, the commencement of negotiations
with bondholders would have been an event of default under the credit
facilities.
Effective March 28, 2002, the lenders under the credit facilities agreed to
amend the initial waivers. The amendments to the initial waivers extended
the duration of the initial waivers to April 29, 2002 in the case of the UK
credit facilities or May 14, 2002 in the case of the Cablecom credit
facility, unless the interest payments missed by NTL Communications Corp.
on April 1, 2002 were remedied or a sufficient number of bondholders agreed
to forbear in respect of such non-payment, in which case, the UK credit
facilities waivers were to be extended to May 14, 2002. As a condition to
the amendment to the initial waivers, the UK lenders required NTL Delaware
to loan (pound)90 million to NTL (UK) Group, Inc. following receipt of the
proceeds from the sale of NTL Australia. Such loan was actually made (with
the approval of the lenders under the UK credit facilities) to NTL (UK)
Group, Inc. and then on-lent to certain subsidiaries of NTL (UK) Group,
Inc. This loan, which was made on April 5, 2002, is structurally senior to
the outstanding public notes issued by the Company and contractually senior
to intra-group debt owed by NTL (UK) Group, Inc. to NTL Communications
Corp. but contractually subordinated to the UK credit facilities. In
connection with the amendments to the waivers, NTL affirmed the provisions
of the initial waivers and agreed, among other things, not to commence
voluntary dissolution proceedings, including proceedings under Chapter 11
of the United States Bankruptcy Code, without the consent of these lenders.
As of the date of this Form 10-Q, there are no current waivers from NTL's
secured lenders and NTL is therefore in default under its UK credit
facilities and the Cablecom credit facility. In connection with the
proposed recapitalization plan, it is intended that the existing events of
default under the credit facilities will be cured by amendment with effect
from the effective date of the recapitalization, if it is approved by
creditors and the bankruptcy court. On May 2, 2002, a memorandum was
executed by NTL, a steering committee of its lending banks and the
unofficial committee of its public bondholders indicating the parties'
agreement in principle (on a non-legally binding basis) to the terms of the
proposed recapitalization and the terms on which the NTL's UK credit
facilities should be amended and restated and with respect to certain
matters relating to the sale of, or investment in, Cablecom.
Cablecom GmbH, an indirect wholly-owned subsidiary of NTL (Delaware), Inc.,
is the principal trading company of NTL's Swiss group. There were a number
of technical defaults under the Swiss credit facility made available to
Cablecom and various of its subsidiaries. In addition, as of December 31,
2001, Cablecom's and six of its direct and indirect subsidiaries'
liabilities exceeded their respective assets. As a consequence, under Swiss
law, those entities were deemed to be "overindebted". This also constituted
an event of default under the Cablecom credit facility, which entitled the
lenders to accelerate repayment. Such an acceleration would have resulted
in an event of default under NTL Incorporated's and NTL Delaware's 5.75%
convertible subordinated notes due 2011 and 5.75% convertible subordinated
notes due 2009.
Under Swiss law, the board of directors of an overindebted company is
generally obliged to notify a judge of overindebtedness so that the judge
may either institute insolvency proceedings or postpone such adjudication
and take appropriate measures to preserve the value of the assets. An
overindebted company is not required to notify a judge only if the
creditors of the overindebted entity subordinate their claims in the amount
of the overindebtedness.
On April 30, 2002, Cablecom reached an agreement with the lenders under the
Cablecom credit facility which, together with the implementation of an
intra-group transaction, resolved its overindebtedness. The agreement
included a waiver by the lenders of various additional covenant breaches
under the credit facility. Temporary measures were put in place to ensure
that Cablecom's overindebted subsidiaries were not required to institute
insolvency proceedings. On June 28, 2002, the commercial registry in
Switzerland confirmed the registration of the merger on July 26 and 27,
2002 of three subsidiaries of Cablecom into Cablecom or another member of
the Cablecom group, which mergers resolved the problem of overindebtedness
in respect of those three subsidiaries. With respect to the remaining three
subsidiaries which were affected by the overindebtedness issue,
subordination agreements were reached, precluding the need to notify the
judge of the overindebtedness.
Interest Payments on Public Notes
NTL has substantial interest payment obligations under its existing
indebtedness. The Company did not make scheduled interest payments due
April 1, 2002, in the aggregate amount of $74.2 million, in respect of its
9 1/2% notes due 2008, 11 1/2% notes due 2008 and 11 7/8% notes due 2010.
The Company also did not make interest payments falling due on April 15,
2002, totaling $17.7 million, in respect of the 12 3/4% Senior Deferred
Coupon Notes due 2005 and NTL Incorporated and NTL Delaware did not make
interest payments and payment of related fees falling due on April 15,
2002, totaling $2.5 million, in respect of their 5 3/4% Convertible
Subordinated Notes due 2011. In addition, the Company did not make the
scheduled interest payments due May 15, 2002 in the aggregate amount of
$65.0 million, in respect of its 9 1/4% notes due 2006, 6 3/4% notes due
2008 and 9 7/8% notes due 2009.
Interest payments of $18.9 million were made, when due, on April 2, 2002 in
respect of Diamond Cable Communications 13.25% senior discount notes due
2004. In accordance with the proposed recapitalization plan, NTL does not
plan to make future interest payments on its outstanding publicly traded
notes except notes issued by NTL Triangle and Diamond Holdings Limited.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires there is an event of default under the indenture
in respect of the notes on which the interest is due and unpaid. An event
of default entitles the trustee under the indenture or the holders of 25%
of the outstanding notes to declare the principal amount of those notes to
be immediately due and payable. Even if the maturity of those notes is not
accelerated after the 30 day grace period, such an event of default would
also result in an event of default in respect of other debt (commonly
called cross defaults) under most of NTL's other notes. Therefore, there
was an event of default for failure to pay interest on May 1, 2002 under
the indentures relating to the missed interest payments due April 1, 2002
and on May 16, 2002, under the indentures relating to the missed interest
payments due April 15, 2002. As a result, cross defaults occurred under
NTL's other indentures at NTL Communications, NTL Delaware, NTL
Incorporated and under NTL's UK credit facilities and under the Cablecom
credit facility. This gave holders of the outstanding series of debt at
these entities the right to accelerate repayment of those debts by
declaring the principal amount of the debts to be immediately due and
payable. As a result of the payment defaults as well as NTL's voluntary
filing under Chapter 11 of the United States Bankruptcy Code on May 8,
2002, there is an event of default under all of NTL's credit facilities and
the indentures governing all of NTL's publicly traded debt, other than debt
of NTL Triangle. As a result of the Chapter 11 filings, all of NTL's
publicly traded debt, other than the debt of NTL Triangle, became
immediately due and payable, pursuant to the terms of the indentures
governing such debt. The automatic stay of Section 362 of the United States
Bankruptcy Code prevents the holders of such debt from seeking to enforce
their collection rights under the indentures, except within the context of
the Chapter 11 cases, and even then only with the prior approval of the
bankruptcy court. However, NTL has received letters from the agents for the
lenders under the UK credit facilities reserving such lenders' rights to
accelerate repayment of the facilities and to enforce the security granted
in respect of the facilities on account of the defaults thereunder, actions
which would not be prohibited by the automatic stay.
Credit Rating Downgrades
On April 3, 2002, credit rating agency Standard & Poor's lowered the
long-term corporate credit rating on some of NTL's public debt to D, citing
NTL's failure to make a bond interest payment due on April 1, 2002.
Delisting of NTL Incorporated Common Stock
On March 28, 2002, the New York Stock Exchange ("NYSE") announced that it
was suspending NTL Incorporated's common stock from trading on the NYSE.
This determination was based upon, among other things, the selling price of
NTL Incorporated's common stock, which closed at $0.20 on March 26, 2002.
The continued listing standards of the NYSE, which were applicable to NTL
Incorporated, required maintenance of a minimum share price of $1.00 over a
30 trading day period and average global market capitalization of $100
million over a 30 trading day period. NTL Incorporated's common stock fell
below both of these continued listing standards. In addition, on May 9,
2002, Nasdaq Europe halted trading of NTL Incorporated's common stock
pending receipt of information relating to the restructuring process
because of the filing of NTL's Chapter 11 cases. NTL has complied with this
information request, although there can be no assurance that Nasdaq Europe
will (1) not make additional information requests, (2) remove the trading
halt on shares of NTL Incorporated's common stock or (3) not delist shares
of NTL Incorporated's common stock. NTL Incorporated's common stock is
currently quoted on the Over the Counter Bulletin Board under the symbol
"NTLD".
Sale of NTL Australia
On April 2, 2002, NTL announced that it had completed the previously
announced sale of its Australian broadcast business to Macquarie
Communications Infrastructure Holding Pty Limited for A$850 million (US$448
million) in an all cash transaction. The net proceeds from the sale were
approximately A$581 million (US$306 million). At that time, the business'
bank debt outstanding totaled A$227 million (US$120 million).
On April 5, 2002, NTL Delaware loaned (pound)90 million to NTL (UK) Group,
Inc., which loan was funded by the proceeds of the sale of NTL Australia.
This loan is subordinated to NTL's UK credit facilities. The remaining
proceeds of the sale of NTL Australia remain at NTL Delaware and the
proposed plan of reorganization anticipates that such proceeds will form a
portion of the consideration to be offered to bondholders of NTL Delaware
and NTL Incorporated in satisfaction of their claims against those
companies.
Potential Sale of, or Outside Investment in, Cablecom
It has been agreed to engage UBS Warburg LLC by August 31, 2002 to advise
in connection with an outside investment in, or sale of all or part of,
Cablecom. As part of this process, NTL (Delaware), Inc. and certain of its
subsidiaries have agreed to approve any such outside investment or sale,
which is acceptable to the lenders under the Cablecom credit facility.
It has also been agreed that if such a sale of all or part of Cablecom is
consummated on or before August 31, 2003, the lenders under the Cablecom
credit facility will be entitled to receive additional interest equal to
20% of the net proceeds of such a sale after repayment of the amounts
outstanding under the Cablecom credit facility and other expenses and taxes
of the sale. There can be no assurance that any outside investment in, or
sale of all or part of, Cablecom pursuant to the Cablecom credit facility
will be on terms that are favorable to NTL and such investment or sale
could have a material adverse effect on NTL's finances and business. In
particular, in the current environment, NTL's shareholding in Cablecom may
have little or no value, which may result in NTL receiving little or no
consideration for its equity interest in Cablecom.
Further, if a third party makes an investment in Cablecom there can be no
assurance that NTL will be able to maintain its ability to direct the
management of Cablecom.
Uncertainty Related to Suppliers
The uncertainty over NTL's financial condition may adversely affect its
relationships with its suppliers. If NTL's suppliers become increasingly
concerned about its financial condition, they may demand quicker payment
terms or not extend normal trade credit, both of which could further
adversely affect its results of operations, financial condition and cash
flows.
Note C -- Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," effective for the
Company on January 1, 2002. This Statement superceded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and other related accounting guidance. The
adoption of this new standard had no significant effect on the results of
operations, financial condition or cash flows of the Company.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated
asset retirement costs. The Company is in the process of evaluating the
financial statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is no
longer permitted. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets
acquired in a business combination that is completed after June 30, 2001.
SFAS No. 142 ends the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or more
frequently under certain conditions) for impairment in accordance with this
statement. This impairment test uses a fair value approach rather than the
undiscounted cash flow approach previously required by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company adopted SFAS No. 142 on January 1,
2002. Primarily due to the significant impairment charge that the Company
recorded in 2001, the adoption of this new standard did not have a
significant effect on the results of operations, financial condition or
cash flows of the Company.
The following table shows the Company's net loss as adjusted for the adoption of SFAS No. 142, had SFAS
No. 142 been in effect on January 1, 2001 (unaudited) (in millions).
Three Months Ended March 31,
2002 2001
----------------- -----------
Net (loss) - as reported $ (459.9) $ (835.8)
Amortization of:
Goodwill - 288.3
License acquisition costs - 18.8
Other - 2.5
---------- --------
- 309.6
Net (loss) - as adjusted $ (459.9) $ (526.2)
========== ========
Note D -- Fixed Assets
Fixed assets consist of:
March 31, December 31,
2002 2001
------------ ----------
(unaudited)
(in millions)
Operating equipment $ 11,479.7 $ 11,620.8
Other equipment 911.8 922.4
Construction-in-progress 1,305.1 1,267.5
----------- -----------
13,696.6 13,810.7
Accumulated depreciation (3,232.2) (2,970.4)
----------- -----------
$ 10,464.4 $ 10,840.3
=========== ===========
Depreciation expense (including amortization of assets held under capital
leases) for the three months ended March 31, 2002 and 2001 was $322.5
million and $292.9 million, respectively.
Note E -- Intangible Assets
Intangible assets consist of:
March 31, December 31,
2002 2001
------------ ----------
(unaudited)
(in millions)
Intangible assets not subject to
amortization:
Goodwill, net of accumulated amortization of
$56.4 (2002) and $58.4 (2001) $ 631.7 $ 640.9
License acquisition costs, net of
accumulated amortization of $122.5 (2002)
and $125.2 (2001) 55.2 54.7
Intangible assets subject to amortization:
Customer lists, net of accumulated
amortization of $83.7 (2002) and $78.1
(2001) 56.3 64.8
Other intangibles, net of accumulated
amortization of $4.4 (2002) and $4.5 (2001) 6.7 6.9
-------- --------
$ 749.9 $ 767.3
======== ========
Amortization of intangibles and other assets charged to expense for the
three months ended March 31, 2002 and 2001 was $14.9 million and $330.8
million, respectively.
Note F -- Long-Term Debt
Long-term debt consists of:
March 31, December 31,
2002 2001
------------ ------------
(unaudited)
(in millions)
NTL Communications:
12 3/4% Senior Deferred
Coupon Notes $ 277.8 $ 277.8
11 1/2% Senior Deferred
Coupon Notes 1,050.0 1,050.0
10% Senior Notes 400.0 400.0
9 1/2% Senior Sterling
Notes, less unamortized
discount 177.7 181.4
10 3/4% Senior Deferred
Coupon Sterling Notes 384.5 382.3
9 3/4% Senior Deferred
Coupon Notes 1,181.4 1,153.8
9 3/4% Senior Deferred
Coupon Sterling Notes 387.2 385.9
11 1/2% Senior Notes 625.0 625.0
12 3/8% Senior Deferred
Coupon Notes 375.8 364.9
7% Convertible Subordinated
Notes 489.8 489.8
9 1/4% Senior Euro Notes 217.9 222.5
9 7/8% Senior Euro Notes 305.1 311.5
11 1/2% Senior Deferred
Coupon Euro Notes 136.5 135.6
11 7/8% Senior Notes, less
unamortized discount 491.0 490.7
12 3/8% Senior Euro Notes,
plus unamortized premium 262.2 267.8
6 3/4% Convertible Senior
Notes 1,150.0 1,150.0
NTL Communications Limited:
Senior Credit Facility 3,968.4 4,050.0
Working Capital Facility 581.8 145.4
Other 57.4 58.6
NTL Triangle:
11.2% Senior Discount
Debentures 517.3 517.3
Other 3.8 4.5
Diamond:
13 1/4% Senior Discount Notes 285.1 285.1
11 3/4% Senior Discount Notes 531.0 531.0
10 3/4% Senior Discount Notes 420.5 415.1
10% Senior Sterling Notes 192.4 196.3
9 1/8% Senior Notes 110.0 110.0
Other 6.0 3.6
----------- -----------
14,585.6 14,205.9
Less current portion 14,585.6 14,205.9
----------- -----------
$ - $ -
=========== ===========
See Note B for discussion of the events of default and uncertainties about
compliance with the terms and conditions of the Company's debt. The holders
of the debt have the right to accelerate repayment, or may have such right,
which has caused all of the Company's long-term debt to be classified as
current. The automatic stay of Section 362 of the United States Bankruptcy
Code prevents the holders of such debt from seeking to enforce their
collection rights under the indentures, except within the context of the
Chapter 11 cases, and even then only with the prior approval of the
bankruptcy court. However, NTL has received letters from the agents for the
lenders under the UK credit facilities reserving such lenders' rights to
accelerate repayment of the facilities and to enforce the security granted
in respect of the facilities on account of the defaults thereunder, actions
which would not be prohibited by the automatic stay.
The effective interest rates on the Company's variable interest rate debt
were as follows:
March 31, December 31,
2002 2001
----------- -----------
NTL Communications Limited:
Senior Credit Facility 6.16% 6.73%
Term Facility 7.66% 8.06%
Working Capital Facility 10.15% 9.57%
Note G -- Other Charges Including Restructuring Charges
Other charges of $1.6 million in 2002 were restructuring charges. Other
charges of $7.4 million in 2001 were for information technology integration
and for business rationalization consulting.
The Company recorded restructuring charges in the fourth quarter of 2001 as
a result of actions to reorganize, re-size and reduce operating costs and
create greater efficiency in various areas of the Company. These charges
included employee severance and related costs for approximately 5,200
employees to be terminated, of which approximately 500 employees were still
employed by the Company as of March 31, 2002.
The following table summarizes the restructuring charges incurred and
utilized in 2002 and 2001:
Employee
Severance Lease
And Related Exit Agreement
Costs Costs Modifications Total
----- ----- ------------- -----
(in millions)
Balance, December
31, 2001 $ 72.5 $ 33.5 $ 27.7 $ 133.7
Charged to expense 1.6 - - 1.6
Utilized (61.7) (5.3) (5.6) (72.6)
-------- ------- ------- --------
Balance, March 31,
2002 $ 12.4 $ 28.2 $ 22.1 $ 62.7
======== ======= ======= ========
Note H -- Related Party Transactions
On September 28, 2001, the Company loaned NTL Incorporated $150.0 million
in cash and received 15.0% Promissory Notes due September 30, 2004.
Interest is payable monthly in cash at a rate of 15.0% per annum beginning
on October 31, 2001.
On April 5, 2002, following receipt of the proceeds from the sale of NTL
Australia, NTL Delaware loaned (pound)90.0 million to NTL (UK) Group, Inc.
Such loan was actually made (with the approval of the lenders under the UK
credit facilities) to NTL (UK) Group, Inc. and then on-lent to certain
subsidiaries of NTL (UK) Group, Inc. This loan is structurally senior to
the outstanding public notes issued by the Company and contractually senior
to intra-group debt owed by NTL (UK) Group, Inc. to the Company but
contractually subordinated to the UK credit facilities. The loan is due on
April 1, 2006 and is redeemable at the option of NTL Delaware. Interest on
the note is at 23% per annum, compounded semiannually, and is payable, in
cash, on the earlier of April 1, 2006 or the redemption date of the notes.
Note I - Comprehensive Loss
The Company's comprehensive loss for the three months ended March 31, 2002
and 2001 was $536.5 million and $958.2 million, respectively.
Note J -- Commitments and Contingent Liabilities
At March 31, 2002, the Company was committed to pay approximately $1,299.7
million for equipment and services and for investments in and loans to
affiliates. This amount includes approximately $1,039.6 million for
operations and maintenance contracts and other commitments from April 1,
2003 to 2006.
The Company is involved in certain disputes and litigation arising in the
ordinary course of its business. None of these matters are expected to have
a material adverse effect on the Company's financial position, results of
operations or cash flows.
Note K - Segment Data
Broadcast Consumer Business Shared Total
(in millions)
Three Months Ended
March 31, 2002
Revenues $ 73.5 $ 504.7 $ 214.7 $ - $ 792.9
EBITDA(1) 35.8 196.3 80.6 (86.0) 226.7
Three Months Ended
March 31, 2001
Revenues $ 68.1 $ 502.2 $ 200.2 $ - $ 770.5
EBITDA(1) 32.4 120.1 59.7 (107.9) 104.3
Total assets
March 31, 2002 (2) $ 784.4 $7,777.0 $3,245.1 $ 943.0 $12,749.5
December 31, 2001 (3) 792.5 8,012.3 3,287.0 938.6 13,030.4
(1) Represents earnings before interest, taxes, depreciation and
amortization, recapitalization expense, other charges, corporate
expenses, share of income (losses) from equity investments and foreign
currency transaction (losses). Segment EBITDA in 2001 has been
reclassified to conform to the current year presentation.
(2) At March 31, 2002, shared assets included $318.5 million of cash, cash
equivalents and marketable securities and $624.5 million of other
assets.
(3) At December 31, 2001, shared assets included $189.8 million of cash and
cash equivalents and $748.8 million of other assets.
The reconciliation of segment combined EBITDA to loss before income taxes
is as follows:
Three Months Ended March 31,
2002 2001
----------------- -----------
(in millions)
Segment combined EBITDA $ 226.7 $ 104.3
(Add) deduct:
Recapitalization expense 32.1 -
Other charges 1.6 7.4
Corporate expenses 6.7 4.1
Depreciation and amortization 337.4 623.7
Interest income and other, net (9.4) (10.2)
Interest expense 324.8 308.0
Share of (income) losses from equity investments (0.3) 2.6
Foreign currency transaction losses 5.0 5.7
-------- --------
697.9 941.3
-------- --------
Loss before income taxes $ (471.2) $ (837.0)
======== ========
NTL Communications Corp. and Subsidiaries
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
Recapitalization Process and Ability to Continue Operations
On May 8, 2002, NTL Incorporated ("NTL Incorporated" and, together with its
consolidated subsidiaries, "NTL"), NTL (Delaware), Inc., NTL Communications
Corp. ("NTL Communications" and the "Company"), Diamond Cable
Communications Limited, Diamond Holdings Limited and Communications Cable
Funding Corp. filed an arranged joint reorganization plan under Chapter 11
of the United States Bankruptcy Code (referred to as the proposed
recapitalization plan). NTL's operating subsidiaries were not included in
the Chapter 11 filing. Toward the end of 2001, while NTL continued to have
sufficient liquidity to meet its near term obligations, it recognized the
negative impact of the collapsing European and U.S. telecommunications
markets on its ability to service its debt. Accordingly, NTL began to
implement a strategy to preserve and maximize its enterprise value. This
strategy included the implementation of cost-cutting measures and the
commencement of discussions with certain third parties regarding strategic
alternatives for NTL's business.
The Company historically incurred operating losses and negative operating
cash flow. In addition, the Company has required significant amounts of
capital to finance construction of its networks, connection of customers to
the networks, other capital expenditures and for working capital needs
including debt service requirements. The Company historically met these
liquidity requirements through amounts available under its credit
facilities, issuances of high-yield debt securities in the capital markets
and equity contributions from NTL Incorporated. Both the equity and debt
capital markets have recently experienced periods of significant
volatility, particularly for securities issued by telecommunications and
technology companies. The ability of telecommunications companies to access
those markets as well as their ability to obtain financing provided by bank
lenders and equipment suppliers has become more restricted and financing
costs have increased. During some recent periods, the capital markets have
been largely unavailable to new issues of securities by telecommunications
companies. NTL Incorporated's public equity is no longer trading on the New
York Stock Exchange, and NTL's public debt securities are trading at or
near all time lows. These factors, together with NTL's substantial
leverage, means the Company does not currently have access to its historic
sources of capital.
In addition, the Company's UK credit facilities are fully drawn. The
revolving tranche of the Cablecom credit facility has been capped at its
utilized amount of CHF 1,055.0 million although the availability may be
increased with the consent of the requisite majority of the lenders under
that facility. The term tranche of the Cablecom credit facility is fully
drawn. The Company did not pay cash interest on certain series of its notes
that was due on April 1, 2002, April 15, 2002 and May 15, 2002. NTL
Incorporated and NTL (Delaware), a wholly-owned subsidiary of NTL
Incorporated, also did not pay cash interest and related fees on a series
of their notes that was due on April 15, 2002. In accordance with the
proposed recapitalization plan, NTL does not plan to make future interest
payments on its outstanding publicly traded notes except notes issued by
NTL Triangle and Diamond Holdings Limited.
As of March 31, 2002, the Company had approximately $395.3 million in cash,
cash equivalents and marketable securities on hand. The Company may require
additional cash in the twelve months from April 1, 2002 to March 31, 2003.
NTL Incorporated expects to obtain a DIP Facility (as described below) to
meet the potential cash requirements of NTL Incorporated and its
subsidiaries, excluding Cablecom. NTL Incorporated also expects that the
DIP Facility will be replaced with an exit facility for NTL Communications
and its subsidiaries upon the completion of the recapitalization process.
The Company believes that cash, cash equivalents and marketable securities
on hand at March 31, 2002 and the cash expected to be available from the
DIP Facility and the exit facility will be sufficient for its and its
subsidiaries cash requirements during the twelve months from April 1, 2002
to March 31, 2003.
Beginning in January 2002, NTL was contacted by an unofficial committee of
bondholders regarding the commencement of a comprehensive and consensual
restructuring process. NTL has been informed that the members of the
unofficial steering committee of bondholders currently own, in the
aggregate, more than 50% of the outstanding principal amount of NTL's
notes. In connection with the restructuring process, the steering committee
of the unofficial committee of bondholders retained advisors to facilitate
the negotiations.
On January 31, 2002, NTL announced that it had appointed Credit Suisse
First Boston, JP Morgan and Morgan Stanley to advise on strategic and
recapitalization alternatives to strengthen NTL's balance sheet and reduce
debt and put an appropriate capital structure in place for its business.
Subsequently, NTL evaluated various recapitalization alternatives, and met
with a number of strategic investors, to effect a comprehensive consensual
reorganization in a timely manner to minimize negative effects on its
business operations. Discussions with such strategic investors did not
result in a proposal which NTL's board of directors believed was comparable
or superior to the value provided to its stakeholders by the proposed plan
of reorganization.
Liberty Media Corporation, one of such potential strategic investors, which
is also a significant shareholder in Telewest plc, another British cable
and telephone company, has discussed various transactions with NTL from
time to time over the past several years. In March 2002, Liberty and NTL
amended a previously existing confidentiality agreement between them to
cover the restructuring process and to include a "standstill" agreement
which prohibited various acquisitions of, or offers, for NTL debt or equity
securities by Liberty and its subsidiaries until June 30, 2002.
On April 17, 2002, Liberty sent a proposal to NTL's board of directors,
which proposed a cash tender offer for 30% of the outstanding bonds of NTL
Communications Corp. at a "small premium" to the prevailing market price
and an agreement to vote such acquired bonds in favor of the proposed plan
of reorganization, as well as a "participation" with NTL in a cash infusion
of up to $500 million into Cablecom. After consultation with NTL's board of
directors and the steering committee of bondholders on April 18, 2002, NTL
indicated to Liberty that it did not consider the Liberty proposal to be in
the best interests of NTL and that the best course of action for NTL to
maximize its enterprise value was to promptly consummate the proposed plan
of reorganization. Subsequent to April 18, 2002, Liberty has continued
discussions with NTL with respect to Cablecom.
Promptly upon obtaining the requisite waivers from the lenders under its
credit facilities, in March 2002, NTL commenced negotiations with the
steering committee of the unofficial committee of bondholders and its legal
and financial advisors. The negotiations continued during the latter part
of March and throughout April 2002, and also included France Telecom. On
April 16, 2002, NTL announced that it had reached a comprehensive agreement
in principle with the committee (holding over 50% of the face value of NTL
and its subsidiaries' public bonds) and France Telecom, a significant
holder of the NTL Incorporated's preferred stock, on implementing a
recapitalization plan. On May 2, 2002, a steering committee of the lending
banks under NTL's credit facilities gave their approval in principle (on a
non-legally binding basis) to the NTL's proposed plan of reorganization.
On June 21, 2002, the United States Trustee appointed an official
creditors' committee, comprised of the three indenture trustees for the
publicly traded debt of NTL and the ten members of the steering committee
of bondholders. The members of the official creditors' committee are: The
Bank of New York; Wilmington Trust Company; Wells Fargo Bank Minnesota,
National Association; Angelo Gordon & Co. LP; Capital Research & Management
Company; Franklin Mutual Advisors, LLC; Oaktree Capital Management LLC;
Salomon Brothers Asset Management; Appaloosa Management, LP; Fidelity
Management & Research Co.; Mackay Shields LLC; SAB Capital Management L.P.;
and W.R. Huff Asset Management Co., LLC.
The recapitalization plan, if implemented, would result in the cancellation
of all of NTL Incorporated's outstanding shares of common stock, preferred
stock and redeemable preferred stock, and the cancellation of all of the
publicly held notes of NTL Incorporated, NTL (Delaware), Inc. and NTL
Communications Corp. and the transfer of the publicly held notes of Diamond
Cable Communications Limited to NTL UK and Ireland. In addition, NTL would
be discharged from its obligation to pay dividends accruing on the canceled
preferred stock and interest accruing on the canceled notes.
During the recapitalization process, it is anticipated that NTL's
operations will continue uninterrupted, customer service will be
unaffected, suppliers will be paid in the ordinary course and NTL's
management will remain in place.
To implement the proposed recapitalization, on May 8, 2002 NTL
Incorporated, NTL (Delaware), the Company, Diamond Cable Communications
Limited, Diamond Holdings Limited and Communications Cable Funding Corp.
filed cases and a pre-arranged joint reorganization plan under Chapter 11
of the United States Bankruptcy Code. NTL's operating subsidiaries were not
included in the Chapter 11 filing. The reorganization plan contemplates
that the bank debt will remain in place as part of the recapitalization. On
May 24, 2002, NTL and its debtor subsidiaries filed an amended joint
reorganization plan and disclosure statement. The bankruptcy court has
scheduled July 12, 2002 for a hearing to consider approval of the amended
joint reorganization plan and disclosure statement. A copy of the Amended
Joint Reorganization Plan of NTL Incorporated and Certain Subsidiaries and
the related Disclosure Statement are included as exhibits to NTL
Incorporated's Current Report on Form 8-K filed on May 28, 2002.
The filing of the petitions seeking relief filed under Chapter 11
constituted an event of default under the indentures of each of the
entities which filed such Chapter 11 petitions and amounts outstanding
under these indentures became immediately due and payable. NTL's Chapter 11
petitions also constituted an event of default under NTL's UK credit
facilities and the Cablecom credit facility, allowing the lenders
thereunder to declare amounts outstanding to be immediately payable.
In connection with the proposed joint reorganization plan, certain members
of the unofficial committee of bondholders have committed to provide up to
$500 million of new debt financing to NTL and certain of its subsidiaries
during the Chapter 11 process and for the post-recapitalized NTL, subject
to bankruptcy court approval. The new financing will ensure that NTL's
business operations have access to sufficient liquidity to continue
ordinary operations. The bankruptcy court has set July 2, 2002 as the date
to consider approval of the DIP Facility, which has been agreed in
principle with NTL and the prospective lenders under the facility. Despite
such agreement, however, GE Capital, the sole holder of the 5 3/4%
Convertible Subordinated Notes due 2011, and Wilmington Trust Company, the
trustee, have objected to the DIP Facility.
Proposed Recapitalization Plan
Under the proposed recapitalization plan, NTL would be split into two
companies, one tentatively called NTL UK and Ireland and holding
substantially all of NTL's UK and Ireland assets, and one tentatively
called NTL Euroco and holding substantially all of NTL's continental
European and other assets.
Holders of notes of NTL Incorporated (other than France Telecom), NTL
(Delaware), Inc. (other than France Telecom), the Company and Diamond Cable
Communications Limited would in the aggregate receive 100% of the initial
common stock of NTL UK and Ireland (excluding shares issuable in the rights
offerings and upon the exercise of warrants (discussed below) and upon the
exercise of options which will be granted to certain employees of NTL UK
and Ireland). Holders of notes of NTL Incorporated (other than France
Telecom), NTL (Delaware), Inc. (other than France Telecom) and the Company
would in the aggregate receive (i) 100% of the preferred stock of NTL
Euroco and (ii) a certain amount of cash as specified in the amended joint
reorganization plan. Holders of the subordinated notes of NTL Incorporated
(other than France Telecom), NTL (Delaware), Inc. (other than France
Telecom) and the Company would in the aggregate receive 86.5% of the
initial common stock of NTL Euroco (excluding shares issuable upon the
exercise of options which will be granted to certain employees of NTL
Euroco). Holders of senior notes of the Company would receive the value of
a specified number of shares of common stock of NTL Euroco pursuant to the
amended joint reorganization plan. Notes of the Company's subsidiaries
Diamond Holdings Limited and NTL (Triangle) LLC would remain outstanding
and interest payments will be made.
Current preferred and common stockholders of NTL Incorporated, including
France Telecom, would receive warrants to purchase common stock of NTL UK
and Ireland and rights (to be priced at a $10.5 billion enterprise value of
NTL UK and Ireland) entitling them to purchase common stock of NTL UK and
Ireland. For each share of common stock purchased upon exercise of rights,
the person exercising such rights will receive a warrant to purchase one
share of common stock of NTL UK and Ireland. The rights will be
exercisable, on an oversubscription basis, for the 20-business day period
after the entry of the confirmation order, as such period may be extended,
and the warrants will be exercisable for a period of eight years at an
exercise price of $77.47 per share, subject to anti-dilution adjustments.
If fully exercised, the rights and warrants would entitle the current
preferred stockholders of NTL Incorporated to acquire approximately 23.6%
and the current common stockholders of NTL Incorporated to acquire
approximately 8.9% of NTL UK and Ireland's primary common stock on the
effective date of the recapitalization. Holders of the subordinated notes
of NTL Incorporated (other than France Telecom), NTL (Delaware), Inc.
(other than France Telecom), and the Company would have the right to
purchase any shares of NTL UK and Ireland common stock and warrants not
subscribed for in the rights offering by the preferred and common
stockholders of NTL Incorporated. It is expected that the warrants will be
listed or quoted on the same securities exchange or inter-dealer quotation
system as the shares of common stock of the reorganized NTL.
Current preferred stockholders of NTL Incorporated, other than France
Telecom would receive approximately 3.2% and current common stockholders,
other than France Telecom, would receive approximately 10.3% of the primary
equity of NTL Euroco. It is contemplated that subject to consummation of
the recapitalization, France Telecom would also receive NTL Incorporated's
27% interest in Noos, pursuant to a pledge of such interest to France
Telecom given at the time of its acquisition by NTL.
During the recapitalization process, NTL has maintained normal and regular
trade terms with its suppliers and customers. There can be no assurance
that NTL's suppliers will continue to provide normal trade credit or credit
on acceptable terms, if at all, or that customers will continue to do
business or enter into new business with NTL. See also "Risk Factors" for a
summary of risks related to NTL's business in general and the
recapitalization process in particular.
Section 1129 of the United States Bankruptcy Code requires, among other
things, a showing that confirmation of the proposed recapitalization plan
will not be followed by liquidation or the need for further financial
reorganization of NTL Incorporated, NTL (Delaware), Inc., NTL
Communications Corp., Diamond Cable Communications Limited or Diamond
Holdings Limited, and that the value of distributions to dissenting holders
of claims and interests may not be less than the value such holders would
receive in a liquidation under Chapter 7 of the United States Bankruptcy
Code. Although NTL believes that the proposed recapitalization plan will
meet these tests, there can be no assurance that the Bankruptcy Court will
reach the same conclusion.
The United States Bankruptcy Code also requires that a plan must provide
the same treatment for each claim or interest in a particular class, unless
a holder agrees to a less favorable treatment of its particular claim or
interest. NTL believes that the proposed recapitalization plan complies
with this requirement of the United States Bankruptcy Code. However, if a
member of a class objects to its treatment, or if the Bankruptcy Court
finds that the proposed recapitalization plan does not comply with the
requirements of the United States Bankruptcy Code, confirmation of the plan
could be delayed or prevented. In addition, each class of impaired claims
and interests that will (or may) be entitled to receive property under the
plan will have the opportunity to vote to accept or reject the plan. If an
impaired class of claims or interests rejects the plan, NTL may request
confirmation of the plan pursuant to the "cramdown" provisions of the
United States Bankruptcy Code. Even if the requirements for "cramdown" are
met, the Bankruptcy Court, which, as a court of equity may exercise
substantial discretion, may choose not to confirm the plan.
There can be no assurance that we will successfully complete the proposed
recapitalization plan in a timely manner in order to sustain our
operations.
Bank Waivers
Before NTL could commence negotiations with the unofficial committee of
bondholders, it was necessary to obtain waivers from the lenders under its
credit facilities. Effective March 8, 2002, these lenders granted waivers
which, until March 29, 2002, provided that the commencement of negotiations
with bondholders with a view to rescheduling its debt would not constitute
an event of default under the credit facilities. Such initial waivers did
not permit NTL to make to any of its noteholders an exchange or similar
offer for NTL's outstanding public notes or to enter into a legally binding
agreement with the unofficial steering committee of bondholders, subject to
some exceptions, without the consent of the lenders under the credit
facilities. But for the initial waivers, the commencement of negotiations
with bondholders would have been an event of default under the credit
facilities.
Effective March 28, 2002, the lenders under the credit facilities agreed to
amend the initial waivers. The amendments to the initial waivers extended
the duration of the initial waivers to April 29, 2002 in the case of the UK
credit facilities or May 14, 2002 in the case of the Cablecom credit
facility, unless the interest payments missed by NTL Communications Corp.
on April 1, 2002 were remedied or a sufficient number of bondholders agreed
to forbear in respect of such non-payment, in which case, the UK credit
facilities waivers were to be extended to May 14, 2002. As a condition to
the amendment to the initial waivers, the UK lenders required NTL Delaware
to loan (pound)90 million to NTL (UK) Group, Inc. following receipt of the
proceeds from the sale of NTL Australia. Such loan was actually made (with
the approval of the lenders under the UK credit facilities) to NTL (UK)
Group, Inc. and then on-lent to certain subsidiaries of NTL (UK) Group,
Inc. This loan, which was made on April 5, 2002, is structurally senior to
the outstanding public notes issued by the Company and contractually senior
to intra-group debt owed by NTL (UK) Group, Inc. to NTL Communications
Corp. but contractually subordinated to the UK credit facilities. In
connection with the amendments to the waivers, NTL affirmed the provisions
of the initial waivers and agreed, among other things, not to commence
voluntary dissolution proceedings, including proceedings under Chapter 11
of the United States Bankruptcy Code, without the consent of these lenders.
As of the date of this Form 10-Q, there are no current waivers from NTL's
secured lenders and NTL is therefore in default under its UK credit
facilities and the Cablecom credit facility. In connection with the
proposed recapitalization plan, it is intended that the existing events of
default under the credit facilities will be cured by amendment with effect
from the effective date of the recapitalization, if it is approved by
creditors and the bankruptcy court. On May 2, 2002, a memorandum was
executed by NTL, a steering committee of its lending banks and the
unofficial committee of its public bondholders indicating the parties'
agreement in principle (on a non-legally binding basis) to the terms of the
proposed recapitalization and the terms on which the NTL's UK credit
facilities should be amended and restated and with respect to certain
matters relating to the sale of, or investment in, Cablecom.
Cablecom GmbH, an indirect wholly-owned subsidiary of NTL (Delaware), Inc.,
is the principal trading company of NTL's Swiss group. There were a number
of technical defaults under the Swiss credit facility made available to
Cablecom and various of its subsidiaries. In addition, as of December 31,
2001, Cablecom's and six of its direct and indirect subsidiaries'
liabilities exceeded their respective assets. As a consequence, under Swiss
law, those entities were deemed to be "overindebted". This also constituted
an event of default under the Cablecom credit facility, which entitled the
lenders to accelerate repayment. Such an acceleration would have resulted
in an event of default under NTL Incorporated's and NTL Delaware's 5.75%
convertible subordinated notes due 2011 and 5.75% convertible subordinated
notes due 2009.
Under Swiss law, the board of directors of an overindebted company is
generally obliged to notify a judge of overindebtedness so that the judge
may either institute insolvency proceedings or postpone such adjudication
and take appropriate measures to preserve the value of the assets. An
overindebted company is not required to notify a judge only if the
creditors of the overindebted entity subordinate their claims in the amount
of the overindebtedness.
On April 30, 2002, Cablecom reached an agreement with the lenders under the
Cablecom credit facility which, together with the implementation of an
intra-group transaction, resolved its overindebtedness. The agreement
included a waiver by the lenders of various additional covenant breaches
under the credit facility. Temporary measures were put in place to ensure
that Cablecom's overindebted subsidiaries were not required to institute
insolvency proceedings. On June 28, 2002, the commercial registry in
Switzerland confirmed the registration of the merger on July 26 and 27,
2002 of three subsidiaries of Cablecom into Cablecom or another member of
the Cablecom group, which mergers resolved the problem of overindebtedness
in respect of those three subsidiaries. With respect to the remaining three
subsidiaries which were affected by the overindebtedness issue,
subordination agreements were reached, precluding the need to notify the
judge of the overindebtedness.
Interest Payments on Public Notes
NTL has substantial interest payment obligations under its existing
indebtedness. The Company did not make scheduled interest payments due
April 1, 2002, in the aggregate amount of $74.2 million, in respect of its
9 1/2% notes due 2008, 11 1/2% notes due 2008 and 11 7/8% notes due 2010.
The Company also did not make interest payments falling due on April 15,
2002, totaling $17.7 million, in respect of the 12 3/4% Senior Deferred
Coupon Notes due 2005 and NTL Incorporated and NTL Delaware did not make
interest payments and payment of related fees falling due on April 15,
2002, totaling $2.5 million, in respect of their 5 3/4% Convertible
Subordinated Notes due 2011. In addition, the Company did not make the
scheduled interest payments due May 15, 2002 in the aggregate amount of
$65.0 million, in respect of its 9 1/4% notes due 2006, 6 3/4% notes due
2008 and 9 7/8% notes due 2009. Interest payments of $18.9 million were
made, when due, on April 2, 2002 in respect of Diamond Cable Communications
13.25% senior discount notes due 2004. In accordance with the proposed
recapitalization plan, NTL does not plan to make future interest payments
on its outstanding publicly traded notes except notes issued by NTL
Triangle and Diamond Holdings Limited.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires there is an event of default under the indenture
in respect of the notes on which the interest is due and unpaid. An event
of default entitles the trustee under the indenture or the holders of 25%
of the outstanding notes to declare the principal amount of those notes to
be immediately due and payable. Even if the maturity of those notes is not
accelerated after the 30 day grace period, such an event of default would
also result in an event of default in respect of other debt (commonly
called cross defaults) under most of NTL's other notes. Therefore, there
was an event of default for failure to pay interest on May 1, 2002 under
the indentures relating to the missed interest payments due April 1, 2002
and on May 16, 2002, under the indentures relating to the missed interest
payments due April 15, 2002. As a result, cross defaults occurred under
NTL's other indentures at NTL Communications, NTL Delaware, NTL
Incorporated and under NTL's UK credit facilities and under the Cablecom
credit facility. This gave holders of the outstanding series of debt at
these entities the right to accelerate repayment of those debts by
declaring the principal amount of the debts to be immediately due and
payable. As a result of the payment defaults as well as NTL's voluntary
filing under Chapter 11 of the United States Bankruptcy Code on May 8,
2002, there is an event of default under all of NTL's credit facilities and
the indentures governing all of NTL's publicly traded debt, other than debt
of NTL Triangle. As a result of the Chapter 11 filings, all of NTL's
publicly traded debt, other than the debt of NTL Triangle, became
immediately due and payable, pursuant to the terms of the indentures
governing such debt. The automatic stay of Section 362 of the United States
Bankruptcy Code prevents the holders of such debt from seeking to enforce
their collection rights under the indentures, except within the context of
the Chapter 11 cases, and even then only with the prior approval of the
bankruptcy court. However, NTL has received letters from the agents for the
lenders under the UK credit facilities reserving such lenders' rights to
accelerate repayment of the facilities and to enforce the security granted
in respect of the facilities on account of the defaults thereunder, actions
which would not be prohibited by the automatic stay.
Credit Rating Downgrades
On April 3, 2002, credit rating agency Standard & Poor's lowered the
long-term corporate credit rating on some of NTL's public debt to D, citing
NTL's failure to make a bond interest payment due on April 1, 2002.
Delisting of NTL Incorporated Common Stock
On March 28, 2002, the New York Stock Exchange ("NYSE") announced that it
was suspending NTL Incorporated's common stock from trading on the NYSE.
This determination was based upon, among other things, the selling price of
NTL Incorporated's common stock, which closed at $0.20 on March 26, 2002.
The continued listing standards of the NYSE, which were applicable to NTL
Incorporated, required maintenance of a minimum share price of $1.00 over a
30 trading day period and average global market capitalization of $100
million over a 30 trading day period. NTL Incorporated's common stock fell
below both of these continued listing standards. In addition, on May 9,
2002, Nasdaq Europe halted trading of NTL Incorporated's common stock
pending receipt of information relating to the restructuring process
because of the filing of NTL's Chapter 11 cases. NTL has complied with this
information request, although there can be no assurance that Nasdaq Europe
will (1) not make additional information requests, (2) remove the trading
halt on shares of NTL Incorporated's common stock or (3) not delist shares
of NTL Incorporated's common stock. NTL Incorporated's common stock is
currently quoted on the Over the Counter Bulletin Board under the symbol
"NTLD".
Sale of NTL Australia
On April 2, 2002, NTL announced that it had completed the previously
announced sale of its Australian broadcast business to Macquarie
Communications Infrastructure Holding Pty Limited for A$850 million (US$448
million) in an all cash transaction. The net proceeds from the sale were
approximately A$581 million (US$306 million). At that time, the business'
bank debt outstanding totaled A$227 million (US$120 million).
On April 5, 2002, NTL Delaware loaned (pound)90 million to NTL (UK) Group,
Inc., which loan was funded by the proceeds of the sale of NTL Australia.
This loan is subordinated to NTL's UK credit facilities. The remaining
proceeds of the sale of NTL Australia remain at NTL Delaware and the
proposed plan of reorganization anticipates that such proceeds will form a
portion of the consideration to be offered to bondholders of NTL Delaware
and NTL Incorporated in satisfaction of their claims against those
companies.
Potential Sale of, or Outside Investment in, Cablecom
It has been agreed to engage UBS Warburg LLC by August 31, 2002 to advise
in connection with an outside investment in, or sale of all or part of,
Cablecom. As part of this process, NTL (Delaware), Inc. and certain of its
subsidiaries have agreed to approve any such outside investment or sale,
which is acceptable to the lenders under the Cablecom credit facility.
It has also been agreed that if such a sale of all or part of Cablecom is
consummated on or before August 31, 2003, the lenders under the Cablecom
credit facility will be entitled to receive additional interest equal to
20% of the net proceeds of such a sale after repayment of the amounts
outstanding under the Cablecom credit facility and other expenses and taxes
of the sale. There can be no assurance that any outside investment in, or
sale of all or part of, Cablecom pursuant to the Cablecom credit facility
will be on terms that are favorable to NTL and such investment or sale
could have a material adverse effect on NTL's finances and business. In
particular, in the current environment, NTL's shareholding in Cablecom may
have little or no value, which may result in NTL receiving little or no
consideration for its equity interest in Cablecom.
Further, if a third party makes an investment in Cablecom there can be no
assurance that NTL will be able to maintain its ability to direct the
management of Cablecom.
Description of Outstanding Notes and Credit Facilities
The following summarizes the terms of the significant notes and credit
facilities issued by the Company and its subsidiaries as of March 31, 2002.
The holders of the debt have the right to accelerate repayment, or may have
such right, which has caused all of the Company's long-term debt to be
classified as current. The automatic stay of Section 362 of the United
States Bankruptcy Code prevents the holders of such debt from seeking to
enforce their collection rights under the indentures, except within the
context of the Chapter 11 cases, and even then only with the prior approval
of the bankruptcy court. However, NTL has received letters from the agents
for the lenders under the UK credit facilities reserving such lenders'
rights to accelerate repayment of the facilities and to enforce the
security granted in respect of the facilities on account of the defaults
thereunder, actions which would not be prohibited by the automatic stay.
NTLCL:
(1) Working Capital Facility, originally for (pound)1,300.0 million
($1,852.5 million); following the issuance of new debt beginning
in October 2000, the commitment has been reduced by (pound)882.5
million ($1,257.6 million), of which (pound)408.3 million ($581.8
million) was outstanding as of March 31, 2002. Interest payable
at least every six months at LIBOR plus a margin rate of 6.00%
per annum, which is subject to adjustment; effective interest
rate of 10.15% at March 31, 2002; the unused portion of the
commitment is subject to a commitment fee of 0.75% payable
quarterly; principal is due in full on March 31, 2006; no undrawn
amounts are available under this agreement;
(2) Senior Credit Facility, of which (pound)2,784.8 million ($3,968.4
million) was outstanding as of March 31, 2002; originally for
(pound)2,500.0 million ($3,562.5 million), dated May 30, 2000;
interest payable at least every six months at LIBOR plus a margin
rate of 2.00% per annum, which is subject to adjustment;
effective interest rate of 6.16% at March 31, 2002; the unused
portion of the commitment is subject to a commitment fee of 0.75%
payable quarterly, which is reduced to 0.50% when over 50% of the
commitment is utilized; principal is due in six quarterly
installments beginning on June 30, 2004; as amended and restated
pursuant to a Restatement Amendment Agreement dated September 26,
2001 which, inter alia, amended such Senior Credit Facility to
make available a (pound)200.0 million ($285.0 million) Term
Facility (interest payable on such Term Facility at least every
six months at LIBOR plus a margin rate of 3.50% per annum,
effective interest rate of 7.66% at March 31, 2002, principal is
due in eight quarterly installments beginning on June 30, 2006)
and increase the availability of funds under the Senior Credit
Facility by (pound)84.8 million ($120.9 million);
NTL Communications:
(3) 12 3/4% Senior Deferred Coupon Notes due April 15, 2005,
principal amount at maturity of $277.8 million, interest payable
semiannually from October 15, 2000, redeemable at the Company's
option on or after April 15, 2000;
(4) 11 1/2% Senior Deferred Coupon Notes due February 1, 2006,
principal amount at maturity of $1,050.0 million, interest
payable semiannually from August 1, 2001, redeemable at the
Company's option on or after February 1, 2001;
(5) 10% Senior Notes due February 15, 2007, principal amount at
maturity of $400.0 million, interest payable semiannually from
August 15, 1997, redeemable at the Company's option on or after
February 15, 2002;
(6) 9 1/2% Senior Sterling Notes due April 1, 2008, principal amount
at maturity of (pound)125.0 million ($178.1 million), interest
payable semiannually from October 1, 1998, redeemable at the
Company's option on or after April 1, 2003;
(7) 10 3/4% Senior Deferred Coupon Sterling Notes due April 1, 2008,
principal amount at maturity of (pound)300.0 million ($427.5
million), interest payable semiannually beginning on October 1,
2003, redeemable at the Company's option on or after April 1,
2003;
(8) 9 3/4% Senior Deferred Coupon Notes due April 1, 2008, principal
amount at maturity of $1,300.0 million, interest payable
semiannually beginning on October 1, 2003, redeemable at the
Company's option on or after April 1, 2003;
(9) 9 3/4% Senior Deferred Coupon Sterling Notes due April 15, 2009,
principal amount at maturity of (pound)330.0 million ($470.3
million), interest payable semiannually beginning on October 15,
2004, redeemable at the Company's option on or after April 15,
2004;
(10) 11 1/2% Senior Notes due October 1, 2008, principal amount at
maturity of $625.0 million, interest payable semiannually from
April 1, 1999, redeemable at the Company's option on or after
October 1, 2003;
(11) 12 3/8% Senior Deferred Coupon Notes due October 1, 2008,
principal amount at maturity of $450.0 million, interest payable
semiannually beginning on April 1, 2004, redeemable at the
Company's option on or after October 1, 2003;
(12) 7% Convertible Subordinated Notes due December 15, 2008,
principal amount at maturity of $489.8 million, interest payable
semiannually from June 15, 1999, convertible into shares of the
Company's common stock at a conversion price of $39.20 per share,
redeemable at the Company's option on or after December 15, 2001;
(13) 9 1/4% Senior Euro Notes due November 15, 2006, principal amount
at maturity of #250.0 million ($217.9 million), interest payable
semiannually from May 15, 2000;
(14) 9 7/8% Senior Euro Notes due November 15, 2009, principal amount
at maturity of #350.0 million ($305.1 million), interest payable
semiannually from May 15, 2000, redeemable at the Company's
option on or after November 15, 2004;
(15) 11 1/2% Senior Deferred Coupon Euro Notes due November 15, 2009,
principal amount at maturity of #210.0 million ($183.1 million),
interest payable semiannually beginning on May 15, 2005,
redeemable at the Company's option on or after November 15, 2004;
(16) 11 7/8% Senior Notes due October 1, 2010, principal amount at
maturity of $500.0 million, interest payable semiannually from
April 1, 2001, redeemable at the Company's option on or after
October 1, 2005;
(17) 12 3/8% Senior Euro Notes due February 1, 2008; principal amount
at maturity of #300.0 million ($261.5 million), interest payable
semiannually from August 1, 2001;
(18) 6 3/4% Convertible Senior Notes due May 15, 2008, principal
amount at maturity of $1,150.0 million, interest payable
semiannually from November 15, 2001, convertible into shares of
the Company's common stock at a conversion price of $32.728 per
share, redeemable at the Company's option on or after May 21,
2004;
NTL Triangle:
(19) 11.2% Senior Discount Debentures due November 15, 2007, principal
amount at maturity of $517.3 million, interest payable
semiannually from May 15, 2001, redeemable at NTL Triangle's
option after November 15, 2000;
Diamond:
(20) 13 1/4% Senior Discount Notes due September 30, 2004, principal
amount at maturity of $285.1 million, interest payable
semiannually from March 31, 2000, redeemable at Diamond's option
after September 30, 1999;
(21) 11 3/4% Senior Discount Notes due December 15, 2005, principal
amount at maturity of $531.0 million, interest payable
semiannually from June 15, 2001, redeemable at Diamond's option
on or after December 15, 2000;
(22) 10 3/4% Senior Discount Notes due February 15, 2007, principal
amount at maturity of $420.5 million, interest payable
semiannually beginning on August 15, 2002, redeemable at
Diamond's option on or after December 15, 2002;
(23) 10% Senior Sterling Notes due February 1, 2008, issued by Diamond
Holdings plc, a wholly-owned subsidiary of Diamond, principal
amount at maturity of (pound)135.0 million ($192.4 million),
interest payable semiannually from August 1, 1998, redeemable at
Diamond's option on or after February 1, 2003; and
(24) 9 1/8% Senior Notes due February 1, 2008, issued by Diamond
Holdings plc, principal amount at maturity of $110.0 million,
interest payable semiannually from August 1, 1998, redeemable at
Diamond's option on or after February 1, 2003.
Contractual Obligations and Commercial Commitments
The following table includes aggregate information about the Company's
contractual obligations as of March 31, 2002 and the periods in which
payments are due. The holders of the long-term debt have the right to
accelerate repayment, or may have such right, which has caused all of the
Company's long-term debt to be classified as current. The automatic stay of
Section 362 of the United States Bankruptcy Code prevents the holders of
such debt from seeking to enforce their collection rights under the
indentures, except within the context of the Chapter 11 cases, and even
then only with the prior approval of the bankruptcy court. However, NTL has
received letters from the agents for the lenders under the UK credit
facilities reserving such lenders' rights to accelerate repayment of the
facilities and to enforce the security granted in respect of the facilities
on account of the defaults thereunder, actions which would not be
prohibited by the automatic stay.
Payments Due by Period
Contractual Less than 1-3 4-5 After
Obligations Total 1 Year Years Years 5 Years
- ---------------------- ---------- ---------- -------- --------- ---------
(in millions)
Long-Term Debt $15,014.4 $ 3.1 $ 418.1 $ 6,246.2 $ 8,347.0
Capital Lease
Obligations (1) 190.8 9.2 15.3 12.6 153.7
Operating Leases (1) 471.8 82.1 103.6 63.0 223.1
Unconditional
Purchase
Obligations 1,299.7 260.1 306.5 191.4 541.7
Other Long-Term
Obligations None
Total Contractual
Cash Obligations $16,976.7 $ 354.5 $ 843.5 $ 6,513.2 $ 9,265.5
(1) These amounts are as of December 31, 2001 which are not significantly
different from March 31, 2002.
The following table includes aggregate information about the Company's
commercial commitments as of March 31, 2002. Commercial commitments are
items that the Company could be obligated to pay in the future. They are
not required to be included in the consolidated balance sheet.
Amount of Commitment Expiration Per Period
Other Commercial Total Amounts Less than 1-3 4-5 Over
Commitments Committed 1 Year Years Years 5 Years
- --------------------- ---------------- ---------- ------- ------ -------
(in millions)
Guarantees $28.1 $ 1.0 $ 12.9 $ 0.1 $ 14.1
Lines of Credit None
Standby Letters of
Credit None
Standby Repurchase
Obligations None
Other Commercial
Commitments None
Total Commercial
Commitments $28.1 $ 1.0 $ 12.9 $ 0.1 $ 14.1
Consolidated Statements of Cash Flows
Cash used in operating activities was $67.3 million and $160.3 million in
the three months ended March 31, 2002 and 2001, respectively. Cash paid for
interest exclusive of amounts capitalized in the three months ended March
31, 2002 and 2001 was $187.1 million and $164.4 million, respectively. In
addition, the change in cash used in operating activities is also due to
changes in working capital as a result of the timing of receipts and
disbursements.
Purchases of fixed assets were $214.5 million in 2002 and $542.0 million in
2001 as a result of the continuing fixed asset purchases and construction.
The Company expects to further reduce purchases of fixed assets in 2002 in
an effort to conserve cash.
Proceeds from borrowings, net of financing costs, of $430.4 million in 2002
includes $439.6 million borrowed under the NTLCL working capital facility.
Results of Operations
Three Months Ended March 31, 2002 and 2001
We expect our growth in 2002 to be curtailed by funding constraints.
Although our current business plan includes a reduction in the number of
new customers and an increase in revenue from existing customers, our cash
constraints present many challenges to the successful execution of the
plan. We are conserving cash through a reduction in capital expenditures
including expenditures to connect new customers to our network. In order to
maintain revenues and cash from operations while reducing the number of new
customers, we must reduce and limit customer churn. We intend to continue
to improve our customer service and increase our service offering to
customers in an effort to curtail and reduce churn. We are in the process
of integrating our various billing systems and customer databases in an
effort to improve one of the main tools we use to provide customer service.
Our plan to reduce churn and to increase ARPU includes an increase in
broadband services to our existing customers. We believe that our triple
play offering of telephony, broadband access to the Internet and digital
television will continue to prove attractive to our existing customer base,
which will result in higher ARPU as revenues per existing customer
increase. However, there is significant competition in our markets, through
digital satellite and digital terrestrial television and through
alternative Internet access media, such as DSL offered by BT. If we are
unable to charge the prices for these services that we anticipate in our
business plan in response to competition or if our competition is able to
attract our customers, our ARPU and results of operations will be adversely
affected.
Media speculation regarding our financial condition and potential outcomes
of the recapitalization process could have an adverse effect on parts of
our business. Similarly, negative press about the financial condition of
alternative telecom carriers in general may effect our reputation. One of
the key strategies in our business plan is to increase our penetration of
higher value small to medium size enterprises (or SMEs) and provide
increased retail services of bundled voice, data and Internet services for
SMEs. However, due to the negative publicity surrounding our financial
condition and the effect of that publicity on our brand name, we may find
it difficult to convince SMEs to become our customers. We believe our
recapitalization process and the general climate for alternative telecom
carriers effected our revenues in the first quarter of 2002 as prospective
customers began deferring orders beginning in the fourth quarter of 2001.
Even if we successfully complete the recapitalization process, there is no
assurance that the negative publicity will not adversely impact our results
of operations or have a long-term negative effect on our brand.
In addition, this uncertainty may adversely affect our relationships with
suppliers. If suppliers become increasingly concerned about our financial
condition, they may demand faster payments or not extend normal trade
credit, both of which could further adversely affect our cash conservation
measures and our results of operations.
There can be no assurance that we will successfully complete the proposed
recapitalization plan in a timely manner in order to sustain our
operations.
Consumer telecommunications and television revenues increased to $504.7
million from $502.2 million. The increase in revenues was due to price
increases and upselling new services to customers. The increase was
partially offset by customer reductions due to the sale of part of our
indirect access telephony business in October 2001, a reduction in the
customer base due to disconnects and a reduction in sales activity.
Business telecommunications revenues increased to $214.7 million from
$200.2 million. In the three months ended March 31, 2002, we recognized
approximately $10.0 million of deferred revenue due to the termination of a
long-term contract. The acquisition of the assets and contracts of Viatel
UK in the third quarter of 2001 accounted for $31.1 million of the revenue
in the three months ended March 31, 2002.
Broadcast transmission and other revenues increased to $73.5 million from
$68.1 million. The 2002 amounts includes $4.0 million for services rendered
to Premium TV Limited, a wholly-owned subsidairy of NTL Delaware (our
parent company). The increase also reflects increases in the number of
broadcast television and FM radio customers and accounts, which exceeded
price cap reductions in our regulated services, and increases in satellite
and media services used by broadcast and media customers. We expect growth
in broadcast services to be driven primarily by contracts related to the
increased demand for tower infrastructure by wireless services operators
expanding and upgrading their networks for wireless broadband, the
digitalization of analog television and radio signals and the further
development of programming for the European markets requiring satellite and
terrestrial distribution services.
In 2002 and 2001, the substantial majority of revenues in all segments were
derived from operations in the UK.
Operating expenses (including network expenses) decreased to $380.9 million
from $397.6 million as a result of decreases in telephony interconnection
and television programming costs. The acquisition of the assets and
contracts of Viatel UK in the third quarter of 2001 accounted for $25.5
million of the operating expenses in 2002. Operating expenses as a
percentage of revenues declined to 48.0% in 2002 from 51.6% in 2001.
Selling, general and administrative expenses decreased to $185.3 million
from $268.6 million, which reflects various cost savings efforts including
restructurings announced in the fourth quarter of 2001. Selling, general
and administrative expenses as a percentage of revenues decreased to 23.4%
in 2002 from 34.9% in 2001.
Recapitalization expense of $32.1 million in 2002 includes $8.8 million for
employee retention related to substantially all of our UK employees and
$23.3 million for financial advisor, legal, accounting and consulting
costs. NTL expects to incur approximately $50.0 million in additional
recapitalization costs until the process is completed.
Other charges of $1.6 million in 2002 are restructuring charges. Other
charges of $7.4 million in 2001 were for information technology integration
and for business rationalization consulting. NTL Ireland incurred the
restructuring charges in 2002 for severance and related expenses for 55
employees. The other costs were incurred by NTL UK in 2001.
Corporate expenses increased to $6.7 million from $4.1 million primarily
due to an increase in legal, accounting, other professional and employee
related costs.
Depreciation and amortization expense decreased to $337.4 million from
$623.7 million due to the adoption of SFAS No. 142 on January 1, 2002 which
ended the amortization of goodwill and other indefinite lived intangible
assets. Depreciation and amortization expense in the three months ended
March 31, 2001, after deducting the amortization of goodwill and other
indefinite lived intangible assets of $309.6 million, would have been
$314.1 million. The increase in 2002 as compared to 2001 as adjusted is
primarily due to an increase in depreciation of telecommunications and
cable television equipment.
Interest income and other, net decreased to $9.4 million from $10.2 million
primarily as a result of a decrease in cash available for investment.
Interest expense increased to $324.8 million from $308.0 million due to
additional borrowings under credit facilities and the issuance of
additional debt subsequent to March 31, 2001. Interest of $199.7 million
and $186.0 million was paid in cash in the three months ended March 31,
2002 and 2001, respectively.
Foreign currency transaction losses decreased to $5.0 million from $5.7
million primarily due to the effect of changes in exchange rates. We and
certain of our subsidiaries have cash, cash equivalents and debt
denominated in non-U.S. dollar currencies that are affected by changes in
exchange rates. In addition, certain of our foreign subsidiaries whose
functional currency is not the U.S. dollar have cash, cash equivalents and
debt denominated in U.S. dollars which are affected by changes in exchange
rates.
Safe Harbor Statement Under the Private Securities Litigation Reform Act
of 1995
Certain statements contained herein constitute "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act
of 1995. When used herein, the words, "believe," "anticipate," "should,"
"intend," "plan," "will," "expects," "estimates," "projects," "positioned,"
"strategy," and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from those contemplated, projected, forecasted,
estimated or budgeted, whether expressed or implied, by such
forward-looking statements. Such factors include, among others, those set
forth under the caption "Risk Factors" in this Form 10-Q as well as: the
ability of the Company to continue as a going concern, the ability of the
Company to obtain trade credit and shipments and terms with vendors and
service providers for current orders; the Company's ability to maintain
contracts that are critical to its operations; potential adverse
developments with respect to the Company's liquidity or results of
operations; the ability to fund and execute its business plan; the ability
to attract, retain and compensate key executives and associates; the
ability of the Company to attract and retain customers; general economic
and business NTL Communications Corp. and Subsidiaries conditions,
technological developments, 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 impact of restructuring and integration actions, the impact of new
business opportunities requiring significant up-front investment and
interest rate and currency exchange rate fluctuations. We assume no
obligation to update the forward-looking statements contained herein to
reflect actual results, changes in assumptions or changes in factors
affecting such statements.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (referred to as
the FASB) issued Statement of Financial Accounting Standards (referred to
as SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," effective for the Company on January 1, 2002. This Statement
superceded SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and other related
accounting guidance. The adoption of this new standard had no significant
effect on the results of operations, financial condition or cash flows of
the Company.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated
asset retirement costs. The Company is in the process of evaluating the
financial statement impact of the adoption of SFAS No. 143.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that
the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Use of the pooling-of-interests method is no
longer permitted. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets
acquired in a business combination that is completed after June 30, 2001.
SFAS No. 142 ends the amortization of goodwill and indefinite-lived
intangible assets. Instead, these assets must be reviewed annually (or more
frequently under certain conditions) for impairment in accordance with this
statement. This impairment test uses a fair value approach rather than the
undiscounted cash flow approach previously required by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company adopted SFAS No. 142 on January 1,
2002. Primarily due to the significant impairment charge that the Company
recorded in 2001, the adoption of this new standard did not have a
significant effect on the results of operations, financial condition or
cash flows of the Company.
The following table shows the Company's net loss as adjusted for the
adoption of SFAS No. 142, had SFAS No. 142 been in effect on January 1,
2001 (unaudited) (in millions).
Three Months Ended March 31,
2002 2001
----------------- -----------
Net (loss)-- as reported $ (459.9) $ (835.8)
Amortization of:
Goodwill -- 288.3
License acquisition costs -- 18.8
Other -- 2.5
----------- --------
-- 309.6
Net (loss)-- as adjusted $ (459.9) $ (526.2)
=========== ========
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the
potential loss arising from adverse changes in market rates and prices,
such as foreign currency exchange and interest rates. The Company does not
enter into derivative financial instruments for trading or speculative
purposes. The Company has entered into derivative financial instruments to
hedge exposure to movements in the British pound/U.S. dollar exchange rate
and the Euro to British pound exchange rate, and interest rates related to
certain of its floating interest rate debt. The counterparties are major
financial institutions.
Foreign Exchange Contracts
To the extent the Company obtains financing in U.S. dollars and incurs
construction and operating costs in various other currencies, the Company
will encounter currency exchange rate risks. Furthermore, the Company's
revenues are generated in foreign currencies while its interest and
principal obligations with respect to most of its existing indebtedness are
payable in U.S. dollars.
In 2001, the Company entered into a British pound forward exchange
agreement consisting of twenty-six accumulating forward contracts to reduce
its exposure to movement in the British pound/U.S. dollar exchange rate in
accordance with its market risk strategies. In March 2002, this agreement
was closed out, and the Company received cash of (pound)0.5 million.
At March 31, 2002, the Company had cross currency swaps to hedge exposure
to movements in the Euro to British pound exchange rate. In May 2002, the
Company closed out its cross currency swaps for a cash payment of $2.0
million, and recognized a loss of $2.0 million.
Interest Rates
The fair market value of long-term fixed interest rate debt and the amount
of future interest payments on floating interest rate debt are subject to
interest rate risk. Generally, the fair market value of fixed interest rate
debt will increase as interest rates fall and decrease as interest rates
rise.
In 2001, the Company entered into interest rate swaps, with a notional
amount of (pound)100.0 million, to hedge exposure to the floating rate
indebtedness incurred under the NTLCL Term Facility. In March 2002, these
swaps were sold, and the Company received cash of (pound)0.2 million.
The following table provides information about the Company's long-term
fixed and floating interest rate debt and derivative financial instruments
that are sensitive to changes in interest rates and foreign currency
exchange rates.
NTL COMMUNICATIONS CORP. AND SUBSIDIARIES
Nine
Months Year Year Year Year Year Fair
Ending Ending Ending Ending Ending Ending Value
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 Thereafter Total 03/31/02
--------- --------- -------- -------- -------- -------- ---------- ------- --------
Long-term Debt Including Current
Portion
U.S. Dollars
Fixed Rate -- -- $ 285.1 $808.8 $1,050.0 $ 820.5 $5,142.1 $8,106.5 $2,859.3
Average Interest
Rate 13.25% 12.09% 11.50% 10.38% 9.60%
U.K. Pound
Fixed Rate -- -- -- -- -- -- (pound) (pound) (pound)
Average Interest 890.0 890.0 319.3
Rate 10.09%
Average Forward
Exchange Rate 1.4381
Euro
Fixed Rate -- -- -- -- (euro) -- (euro) (euro) (euro)
Average Interest 250.0 860.0 1,110.0 340.6
Rate 9.25% 11.14%
Average Forward
Exchange Rate .8986 .9118
U.K. Pound
Variable Rate -- -- (pound) (pound) (pound) -- -- (pound) (pound)
90.0 2,494.8 408.3 2,993.1 2,993.1
LIBOR LIBOR LIBOR
Average Interest
Rate Plus plus plus
2.0% 2.0% 6.0%
Average Forward
Exchange Rate 1.4133 1.4152 1.4189
U.K. Pound
Variable Rate -- -- -- -- (pound) (pound) (pound) (pound) (pound)
20.0 40.0 140.0 200.0 200.0
LIBOR LIBOR LIBOR
Average Interest Rate plus plus plus
3.5% 3.5% 3.5%
Average Forward
Exchange Rate 1.4189 1.4242 1.4301
Interest Rate Derivative Financial
Instruments Related to Long-Term Debt
Receipt of UK Pounds
Notional Euro Amount (euro) -- -- -- -- -- -- (euro) (euro)
67.0 67.0 (3.7)
Average Contract Rate .6465
Risk Factors
We currently have limited liquidity. If we are unable to successfully
implement a recapitalization, there is substantial doubt about our ability
to continue as a going concern.
We have limited liquidity. We do not currently have access to our historic
sources of liquidity in the capital markets and our credit facilities are
either fully drawn or we are currently unable to access remaining undrawn
amounts. As a consequence, we need to restructure our outstanding debt
and/or raise new funds. On May 8, 2002 we filed an arranged joint
reorganization plan under Chapter 11 of the United States Bankruptcy Code.
On May 24, 2002, we filed an amended plan, which sets forth the joint
reorganization plan, subject to court approval, to which NTL, an unofficial
committee of its public bondholders and France Telecom, a significant
holder of NTL Incorporated's preferred stock, have agreed in principle. A
steering committee of the lending banks under NTL's credit facilities has
given its agreement in principle (on a non-legally binding basis) to the
terms of the proposed plan of reorganization. However, the proposed plan of
reorganization remains subject to a favorable vote of NTL's impaired
creditors and bankruptcy court approval. We may also face the possibility
of insolvency proceedings in the UK or elsewhere.
The successful implementation of the proposed recapitalization plan will
require the support of NTL's creditors.
The completion of the proposed recapitalization contemplated by the
agreement in principle with the unofficial bondholder committee will
require support from NTL's creditors and holders of NTL Incorporated's
preferred stock, including France Telecom. The proposed recapitalization
plan will be implemented pursuant to a Chapter 11 bankruptcy proceeding.
Consummation of the proposed reorganization plan will require a favorable
vote by impaired classes of creditors, satisfaction of bankruptcy law
requirements and confirmation by the United States bankruptcy court, which,
as a court of equity, may exercise substantial discretion and choose not to
confirm the proposed reorganization plan. Even if such a plan receives the
necessary support from many classes of NTL creditors, there can be no
assurance that it will be completed. If a protracted reorganization were to
occur, or a liquidation would be necessary, there is a risk that the value
of NTL would be eroded to the detriment of some or all NTL stakeholders.
Despite an agreement in principle between NTL and its prospective lenders
under the DIP facility, there can be no assurance that a definitive
agreement will be reached which may adversely affect reorganized NTL's
ability to access sufficient liquidity to continue ordinary operations.
Despite an agreement in principle between NTL and the prospective lenders
under the DIP facility, GE Capital, the sole holder of the 5 3/4%
Convertible Subordinated Notes due 2011, and Wilmington Trust Company, the
trustee, have objected to the terms of the DIP Facility. There can be no
assurance that a definitive agreement will be reached with the prospective
lenders or that Wilmington Trust Company and GE Capital will not continue
to delay or prevent the entering by the United States Trustee of the final
order approving the terms of the DIP facility as it is currently drafted.
Failure to reach an agreement or obtain a final order may have an adverse
affect on NTL's ability to access sufficient liquidity to continue ordinary
operations.
We are in default under our credit facilities.
Before NTL could commence negotiations with the unofficial committee of our
bondholders it needed to obtain waivers from the lenders under its credit
facilities. These lenders granted waivers which, until April 30, 2002 in
the case of the UK credit facilities, or May 14, 2002 in the case of the
Cablecom facility, provided that NTL's commencement of negotiations with
bondholders with a view to rescheduling of its debt would not constitute an
event of default under its credit facilities.
The UK credit facilities waivers terminated on April 29, 2002, as a result
of which, there was an event of default under each of the credit facilities
with respect to the missed interest payments on April 1, 2002. In addition,
NTL's voluntary filing under Chapter 11 of the United States Bankruptcy
Code constituted an event of default under our UK credit facilities and the
Cablecom credit facility. These events of default entitle the lenders under
the credit facilities to accelerate repayment. We do not have sufficient
cash resources to repay our outstanding indebtedness if it is declared
immediately due and payable. In addition, the lenders could also seek to
take control over the assets over which they hold security.
NTL did not pay interest due on some of its outstanding notes on April 1,
2002, April 15, 2002 and May 15, 2002, and NTL does not plan to make future
interest payments on most of its outstanding notes.
NTL Incorporated, NTL (Delaware), Inc. and NTL Communications did not make
scheduled interest payments and payments of related fees due on April 1,
2002, April 15, 2002 and May 15, 2002. In accordance with the proposed
recapitalization plan, NTL does not plan to make future interest payments
on its outstanding publicly traded notes except notes issued by NTL
Triangle and Diamond Holdings Limited.
As a result of these payment defaults and as a result of NTL's Chapter 11
bankruptcy filings, there is currently an event of default in respect of
all of NTL's publicly traded notes other than the notes issued by NTL
Triangle. As a result of the Chapter 11 filing, this debt is immediately
due and payable.
NTL has no current availability under its existing credit facilities.
NTL has no current ability to borrow under its existing UK credit
facilities, as it has borrowed the full amounts available. With respect to
the Cablecom credit facility, the term tranche is fully drawn and the
revolving tranche has been capped at its utilized amount of CHF 1,055.0
million although the availability may be increased with the consent of the
requisite percentage of lenders under the facility. If that facility is not
refinanced or Cablecom cannot be sold, the Cablecom credit facility is due
to be repaid on April 30, 2003. Without substantial investment from a third
party or further borrowing, Cablecom would be unable to repay the facility
which would have a material adverse effect on its business.
It is likely we will lose our net operating loss carryforwards for U.S.
income tax purposes in connection with the proposed recapitalization plan.
A restructuring of our debt can be expected to give to rise to cancellation
of indebtedness ("COD"), which if it occurs in the course of a proceeding
pursuant to Chapter 11 of the United States Bankruptcy Code, would be
non-taxable. If the COD is non-taxable, we will be required to reduce our
net operating loss carryforwards and other attributes such as capital loss
carryforwards and tax basis in assets by an amount equal to the
non-recognized COD. As a result, it is likely that as a result of the
successful completion of the proposed plan of recapitalization, we will
have no U.S. net operating loss carryforwards.
Uncertainty over NTL's financial condition may harm our business and our
brand name.
Adverse publicity or news coverage regarding NTL's financial condition,
NTL's Chapter 11 bankruptcy filing and potential outcomes of the
recapitalization process could have an adverse effect on parts of our
business. Similarly, negative press about the financial condition of other
cable and pay television operations and alternative telecom carriers in
general may effect our reputation. For example, one of our key strategies
is to increase our penetration of higher value small to medium size
enterprises, or SMEs, and provide increased retail services of bundled
voice, data and Internet services for SMEs. However, due to the negative
publicity surrounding NTL's financial condition and the potential effect of
that publicity on our brand name, we may find it difficult to convince SMEs
to take up our services. Even if NTL successfully completes the
recapitalization process, there is no assurance that it will not adversely
impact our results of operations or have a long-term effect on our brand.
In addition, this uncertainty may adversely affect our relationships with
our suppliers. If suppliers become increasingly concerned about NTL's
financial condition they may demand quicker payment terms or not extend
normal trade credit, both of which could further adversely affect our
working capital position. We may not be successful in obtaining alternative
suppliers if the need arises and this would adversely affect our results of
operations.
The recapitalization process has required significant time and resources of
NTL's directors and senior managers, which could adversely affect the
operation of our business.
NTL's senior managers and directors have needed to spend significant
amounts of their time dealing with the negotiations with bondholders, bank
lenders and other stakeholders in connection with the recapitalization
process and it is likely that they will continue to devote significant
amounts of their time to this process for the foreseeable future. This has
diverted their time and resources from managing the operations of our
business. If NTL's senior managers and directors continue to spend
significant amounts of their time in connection with the recapitalization
process, this may have a negative impact on our operations.
We have historically incurred losses and generated negative cash flows and
we cannot assure you that we will be profitable in the future.
Construction and operating expenditures and interest costs have resulted in
negative cash flow. We also expect to incur substantial additional losses.
We cannot be certain that we will achieve or sustain profitability in the
future. Failure to achieve profitability has and could in the future
diminish our ability to sustain our operations, obtain additional required
funds and make required payments on any indebtedness we have incurred or
may incur.
Our growth has been curtailed by funding constraints.
We have significantly decreased the amount we are spending on capital
expenditures due to our liquidity constraints. As a result, we will be
unable to increase our subscriber numbers in the short term and our revenue
may be adversely affected. The decrease in capital expenditure is the
result of our need to divert increasing amounts of our financial resources
to service our debt. The decrease in capital spending is in line with our
current strategy of maximizing revenue from our existing customers rather
than increasing our customer base. In our consumer business in the UK, we
expect subscriber numbers to decrease in 2002. The revenue we expect to
result from our capital expenditure is long-term in nature. The reduction
in capital expenditures for connecting new subscribers to our network will
likely lead to a decrease in the rate of revenue growth in the future.
Difficulties in obtaining additional funding will likely hamper our ability
to connect new subscribers to our network and increase our revenue.
One of our key strategies is to reduce customer churn. However there can be
no assurance that we will successfully accomplish this or that our churn
rate will not increase.
We have experienced rapid growth and development in a relatively short
period, either through acquisitions or connecting customers to our network.
One of our biggest challenges as we have grown has been to limit our
customer churn and the successful implementation of our business plan
depends upon a reduction in the percentage of our customers that stop using
our services. Factors contributing to increase of churn during 2001
included the continued integration of our ConsumerCo acquisition, the
existence of multiple billing systems, the introduction of digital
television and our decision to disconnect some of our poor paying
customers.
In order to reduce churn in the future, we aim to improve our customer
service. This improvement will be difficult to obtain without an integrated
billing system and a customer database across the entire NTL network. NTL
does not as yet have an integrated billing and operational platform.
Another part of our strategy leading to reduction in churn is an increased
take up of broadband services by our existing customers. If this increased
level of take up does not materialize we may have difficulties in reducing
churn levels, thereby adversely impacting our results of operations.
Failure to successfully market broadband to our existing consumer client
base will adversely impact our revenue and results of operations.
A significant component of our strategy to increase our average revenue per
unit is to successfully market broadband products to our existing consumer
client base. However, we believe that our triple play offering of
telephony, broadband access to the Internet and digital television will
prove attractive to our existing customer base and allow us to increase our
average revenue per user. However, we face significant competition in these
markets, through digital satellite and digital terrestrial television and
through alternative Internet access media, such as DSL offered by BT and
some of our competitors have substantially greater financial and technical
resources than we do. If we are unable to charge prices for broadband
services that are anticipated in our business plan in response to
competition or if our competition delivers a better product to our
customers, our average revenue per unit and our results of operations will
be adversely affected.
We are dependent upon a small number of key personnel.
A small number of key executive officers manage our businesses. The loss of
one or more of these executive officers could have a material adverse
effect on us. We believe that our future success will depend in large part
on our continued ability to attract and retain highly skilled and qualified
personnel. We have not entered into written employment contracts or
non-compete agreements with, nor have we obtained life insurance policies
covering those key executive officers.
Our principal businesses are subject to government regulation, including
pricing regulation, and changes in current regulations may adversely affect
us.
Our principal business activities in the UK and the Republic of Ireland are
regulated and supervised by various governmental bodies. Changes in laws,
regulations or governmental policy or the interpretations of those laws or
regulations affecting our activities and those of our competitors, such as
licensing requirements, changes in price regulation and deregulation of
interconnection arrangements, could have a material adverse effect on us.
We are also subject to regulatory initiatives of the European Commission.
Changes in EU Directives may reduce our range of programming and increase
the costs of purchasing television programming or require us to provide
access to our cable network infrastructure to other service providers,
which could have a material adverse effect on us.
The telecommunications industry is subject to rapid technological changes
and we cannot predict the effect of any changes on our businesses.
The telecommunications industry is subject to rapid and significant changes
in technology and the effect of technological changes on our businesses
cannot be predicted. Our core offerings may become outdated due to
technological breakthroughs rendering our products out of date. In
addition, our business plan contemplates the introduction of services using
new technologies. Our investments in those new services may prove premature
and we may not realize anticipated returns on these new products. The cost
of implementation for emerging and future technologies could be
significant, and our ability to fund such implementation may depend on our
ability to obtain additional financing. We cannot be certain that we would
be successful in obtaining any additional financing required.
We do not insure the underground portion of our cable network.
We obtain insurance of the type and in the amounts that we believe are
customary for similar companies. Consistent with this practice, we do not
insure the underground portion of our cable network. Substantially all of
our cable network is constructed underground. Any catastrophe that affects
our underground cable network could result in substantial uninsured losses.
We are subject to currency risk because we obtain a substantial amount of
financing in U.S. dollars and Euro but generally generate revenues and
incur expenses in other currencies.
We encounter currency exchange rate risks because we generate revenues and
incur construction and operating expenses in other currencies, primarily in
pounds sterling while we pay interest and principal obligations with
respect to most of our existing indebtedness in U.S. dollars and Euro. We
cannot assure you that the hedging transactions we have entered into or any
other hedging transactions we might enter into will be successful or that
shifts in the currency exchange rates will not have a material adverse
effect on us. For example, to the extent that the pound sterling declines
in value against the U.S. dollar and, to a lesser extent, the Euro, and we
have not fully hedged against such declines, the effective cost of
servicing our U.S. dollar and Euro debt will be higher and we will incur
currency losses.
The Company, Diamond and NTL Triangle are holding companies that are
dependent upon cash flow from their subsidiaries to meet their obligations
- -- their ability to access that cash flow may be limited in some
circumstances.
The Company, Diamond Cable Communications, Diamond Holdings and NTL
Triangle are holding companies with no independent operations or
significant assets other than investments in and advances to their
respective subsidiaries. Each of these companies depends upon the receipt
of sufficient funds from their subsidiaries or their respective parent
companies to meet their respective obligations. The terms of existing
indebtedness of their respective subsidiaries and the laws of the
jurisdictions under which those subsidiaries are organized generally limit
the payment of dividends, loan repayments and other distributions to them,
subject in some cases to exceptions that allow them to service indebtedness
in the absence of specified defaults.
Defense of putative class action suits filed against NTL Incorporated and
certain of its officers and directors could have a negative impact on NTL's
businesses.
The putative class action lawsuits filed against NTL Incorporated and
certain of its officers and directors which were commenced by seven of its
purported security holders, on behalf of certain purchasers of NTL
Incorporated's securities may have a negative impact on its results of
operations and business. Three of these lawsuits have been voluntarily
dismissed with respect to NTL Incorporated because they were filed
subsequent to the commencement of NTL's Chapter 11 cases. The claims
arising out of the remaining suits against NTL Incorporated will be
discharged if the proposed recapitalization plan is confirmed by the
bankruptcy court. The claims arising out of the suits against the
individual officers and directors remain and will not be discharged under
the recapitalization plan. Defense of such suits may divert these officers'
or directors' time and resources from managing the operations of NTL's
business. If these officers and directors spend significant amounts of time
defending these lawsuits, there may be a negative impact on results of
operations and business.
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Defaults under Credit Agreements
Negotiations with Bondholders
Before NTL could commence negotiations with the unofficial committee of its
bondholders, it was necessary to obtain waivers from the lenders under the
UK credit facilities. Effective March 8, 2002, these lenders granted
waivers which, until March 29, 2002, provided that the commencement of
negotiations with bondholders with a view to rescheduling its debt would
not constitute an event of default under the credit facilities. But for the
initial waivers, the commencement of negotiations with bondholders would
have been an event of default under the credit facilities. Effective March
28, 2002, these lenders agreed to amend the initial waivers to extend the
duration of the initial waivers to April 29, 2002.
In connection with the granting of these waivers, NTL agreed to various
affirmative obligations with respect to the lenders under the credit
facilities and significant restrictions on its conduct. The amended waivers
prevented NTL from making an exchange offer with respect to its outstanding
notes or from entering into an agreement with bondholders without the
consent of the lenders under each of the credit facilities. The amended
waivers also prohibited NTL from commencing voluntary dissolution
proceedings, including proceedings under Chapter 11 of the United States
Bankruptcy Code, without the consent of these lenders.
As of the date of this Form 10-Q, there are no current waivers from the
lenders under the credit facilities. As a consequence, the Chapter 11
filings resulted in events of default under NTL's UK credit facilities.
Missed Interest Payments on NTL's Public Bonds
As a result of the missed interest payments not cured within the 30 day
grace period with respect to certain of NTL's publicly traded bonds
(described below), as of May 1, 2002, there was an event of default under
the UK credit facilities.
Chapter 11 Bankruptcy Filing
On May 8, 2002, NTL Incorporated, NTL (Delaware), Inc., NTL Communications
Corp., Diamond Cable Communications Limited, Diamond Holdings Limited and
Communications Cable Funding Corp. filed an arranged joint reorganization
plan under Chapter 11 of the United States Bankruptcy Code. NTL's operating
subsidiaries were not included in the Chapter 11 filing. The Chapter 11
filing constituted an event of default under NTL's UK credit facilities,
allowing the lenders thereunder to declare amounts outstanding to be
immediately payable.
Defaults on High Yield and Convertible Notes
Payment Defaults
NTL Communications Corp. did not make scheduled interest payments due April
1, 2002, in the aggregate amount of $74.2 million, in respect of its 9 1/2%
notes due 2008, 11 1/2% notes due 2008 and 11 7/8% notes due 2010. NTL
Communications also did not make interest payments falling due on April 15,
2002, totaling $17.7 million, in respect of its 12 3/4% Senior Deferred
Coupon Notes due 2005. In accordance with the proposed recapitalization
plan, NTL does not plan to make future interest payments on its outstanding
publicly traded notes except notes issued by NTL Triangle and Diamond
Holdings Limited.
If the applicable issuer does not pay interest on these notes after a 30
day grace period expires there is an event of default under the indenture
in respect of the notes on which the interest is due and unpaid. Therefore,
there was an event of default for failure to pay interest on May 1, 2002
under the indentures relating to the missed interest payments due April 1,
2002 and on May 16, 2002, under the indentures relating to the missed
interest payments due April 15, 2002. As a result, cross defaults occurred
under the indentures at NTL Communications and under NTL's UK credit
facilities.
Chapter 11 Bankruptcy Filing
The Chapter 11 bankruptcy filing constituted an event at default under the
indentures of each of the entities which made the Chapter 11 filing and
amounts outstanding under these indentures became immediately due and
payable.
Aggregate Amount of Defaults
Interest
As a result of the events of default described above, as of June 13, 2002,
NTL Communications Corp. is in default in respect of an aggregate of $157.9
million of interest payments in respect of its 9 1/2% notes due 2008, 11
1/2% notes due 2008, 11 7/8% notes due 2010, 12 3/4% notes due 2005, 9 1/4%
notes due 2006, 6 3/4% notes due 2008 and 9 7/8% notes due 2009, including
interest accrued on the April 1 and April 15, 2002 missed interest payments
up to May 8, 2002.
Principal
As a consequence of the Chapter 11 filings on May 8, 2002, all amounts
outstanding under the indentures governing the high yield and convertible
debt of the entities having commenced Chapter 11 cases automatically became
immediately due and payable. However, the automatic stay of Section 362 of
the U.S. Bankruptcy Code serves to prevent the holders of such debt from
seeking to enforce their collection rights under the indentures, except
within the context of the Chapter 11 cases, and even then only with the
prior approval of the bankruptcy court. As a result of the default and
acceleration resulting from the Chapter 11 filing, as of March 31, 2002:
o NTL Communications Corp. is in default in respect of an aggregate of
$7,911.9 million in principal amount of debt; and
o Diamond Cable Communications and Diamond Holdings are in default in
respect of an aggregate of $1,539.0 million in principal amount of
debt.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 2002.
SIGNATURES
Pursuant to the requirements 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.
NTL COMMUNICATIONS CORP.
Date: June 28, 2002 By: /s/ Barclay Knapp
-----------------
Barclay Knapp
President and Chief Executive Officer
Date: June 28, 2002 By: /s/ Gregg N. Gorelick
---------------------
Gregg N. Gorelick
Vice President-Controller
(Principal Accounting Officer)
NTL COMMUNICATIONS CORP.'S QUARTERLY REPORT ON
FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2002
EXHIBIT G
TO
AMENDED DISCLOSURE STATEMENT WITH RESPECT TO SECOND AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
LIQUIDATION ANALYSIS
LIQUIDATION ANALYSIS
Introduction
- ------------
The Liquidation Analysis reflects the Debtors' estimates of the proceeds
that would be realized if the Debtors were to be liquidated in accordance
with Chapter 7 of the Bankruptcy Code. The Liquidation Analysis is based on
the Debtors' projected assets as of August 31, 2002.
The Liquidation Analysis presented below is premised on numerous estimates
and assumptions which, although developed and considered reasonable by the
Debtors' management, are inherently subject to significant economic and
competitive uncertainties and contingencies beyond the control of
management, and could be subject to change during the course of an actual
liquidation. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE VALUES
REFLECTED IN THE LIQUIDATION ANALYSIS WOULD BE REALIZED IF THE DEBTORS
WERE, IN FACT, TO UNDERGO SUCH A LIQUIDATION, AND ACTUAL RESULTS COULD VARY
MATERIALLY FROM THOSE SHOWN HERE. For a discussion of the parameters of the
Liquidation Analysis, see Section XIII.C of this Disclosure Statement
entitled "Liquidation Analysis" and Section XIV.B of this Disclosure
Statement entitled "Liquidation Under Chapter 7 Or Chapter 11."
Analysis, Parameters, Assumptions, And Notes
- --------------------------------------------
In performing the Liquidation Analysis, the Debtors and their financial
consultants, Kane Reece Associates, Inc. ("Kane Reece"), examined the
Debtors' major functional business units or segments ("Functional Units"),
the market potential for buyers of such Functional Units, and the financial
condition and outlook for both the subject businesses and the marketplace.
In this regard, Kane Reece reviewed management's historical and projected
financial and operating data for the Debtors and certain of their business
segments, management summary packages, the Plan and Disclosure Statement,
financial and operational data available from various publicly traded
guideline companies, and certain industry-specific data. Additionally, Kane
Reece discussed the current operations and potential of the businesses with
the Debtors' management.
The Liquidation Analysis assumes that, for the majority of the Functional
Units, maximum liquidation value would be realized through the sale of
individual or groups of Functional Units. The Liquidation Analysis further
assumes that the liquidation value of certain other entities, such as (a)
those with negative operating cash flow, and (b) minority interests/joint
ventures, would be limited to a small fraction of their Functional Unit
basis or zero, depending upon whether they were liquidated as part of a
Functional Unit or piecemeal.
In those instances in which liquidation value was determined by considering
the value of the Functional Unit(s), a modified definition of fair market
value has been employed. The "standard" definition of fair market value is
the price, in cash or equivalent, that a buyer could reasonably be expected
to pay and a seller could reasonably be expected to accept, if the property
were exposed in the open market for a reasonable period of time, both buyer
and seller being in possession of the pertinent facts and neither being
under compulsion to act, as of a certain date. This definition assumes that
the buyer and seller contemplate continued use of the facilities at their
present location. For purposes of this Liquidation Analysis, the
liquidation value modifications to the fair market value definition include
adjustments to account for the imposition of a limited time frame for
completion of the sale(s) and the associated costs and operational effects
such a hypothetical liquidation would precipitate. Cost and operational
factors incorporated in the Liquidation Analysis include:
o Fees payable to a Chapter 7 trustee and its advisors;
o Any erosion in value of assets in a Chapter 7 case in the context
of the rapid liquidation required under Chapter 7 and the "forced
sale" atmosphere that would prevail;
o Any adverse effects on the Debtors' businesses as a result of the
likely departure of key employees; and
o Any reduction of value associated with a Chapter 7 trustee's
operation of the Debtors' businesses.
The Debtors and Kane Reece have determined that a six-month time frame from
the Effective Date is the appropriate period for a Chapter 7 trustee to
complete a liquidation because the nature of the Debtors' businesses is
such that (a) they require substantial ongoing capital investment and (b)
the ability to attract and retain new customers is highly dependent on the
Functional Units' ability to fund growth. Further, the Debtors and Kane
Reece believe six months to be a reasonable liquidation period, absent
regulatory delays in the transfer of licenses and franchises. Should such
nominal delays occur, this would only serve to reduce the liquidation
proceeds available.
The Debtors and Kane Reece further believe that the value of the Debtors'
Functional Units is directly related to the ability to attract new
customers and retain existing customers. In a Chapter 7 liquidation, new
customers would be extremely difficult to obtain, making the retention of
existing customers even more important. Although several Functional Units,
such as the UK Broadcasting unit, have some long-term customer contracts,
most do not, and therefore rely on short term or month-to-month service
commitments. For this and the reasons discussed below, the Debtors and Kane
Reece have assumed that during the period necessary to complete a
liquidation, (a) no new customers could be obtained and (b) the typical
customer churn rate would increase.
Quality of service is important for customer retention in a normal
operating environment, and even more so in a Chapter 7 scenario. The
ability of a Chapter 7 trustee to maintain quality of service through the
retention of skilled communication technicians and engineers likely would
be strained if more than six months elapsed between the commencement and
completion of the liquidation process. Further, substantial capital
expenditures are required to maintain the Debtors' networks, and to provide
and install set-top converter boxes, cable modems, and telephony equipment.
The longer the presumed liquidation process, the more the Debtors'
internally-generated cash flow would decline, jeopardizing a trustee's
ability to fund the human and capital resources required to maximize the
sales proceeds for the Functional Units.
Kane Reece employed a variety of valuation techniques in estimating the
Debtors' liquidation value, applying such techniques to the various
Functional Units. In particular, Kane Reece examined the market approach,
including comparable sales and public guideline company analysis, as well
as the income approach, which employs the Discounted Cash Flow Method
("DCF").
The Debtors and Kane Reece believe that the DCF method is the best method
to value a broadband and broadcast business like the Debtors', because few
guideline companies are comparable to the Debtors for purposes of utilizing
a market approach in a Chapter 7 liquidation scenario. Kane Reece thus
relied primarily on the DCF method to test the sensitivity of the various
Functional Units' cash flows to assumptions affecting the risk associated
with a Chapter 7 liquidation. Using the DCF method, Kane Reece tested the
Debtors' cash flow projections to simulate the effects of market,
technical, and financial parameters on the cash available to fund
operations. It is this measure that directly relates to value on a
risk-adjusted, present value basis.
The Liquidation Analysis further assumes no material tax on any gain
associated with the sale of individual or groups of Functional Units,
because the tax basis in most of the likely sale scenarios would result in
little or no taxable gain to the Debtors. Even in those circumstances in
which the Debtors could realize taxable gain, such gain likely could be
offset by Net Operating Loss carry forwards to mitigate any actual tax
liability. In the event that an actual tax liability were to be incurred,
the effect would be to reduce the liquidation proceeds available to the
Debtors' creditors.
Finally, the Liquidation Analysis assumes that, as is typical in the
Debtors' industry, the current assets (excluding cash) and current
liabilities or, taken together, the net working capital assets, are part of
the Functional Units' sale proceeds. If assets were to be sold on a
non-Functional Unit basis, it is possible that further liabilities
associated with accounts payable could create additional claims on any
piecemeal asset sale proceeds, thereby further reducing the aggregate
proceeds available for distribution to creditors. Additionally, the
collection of the accounts receivable would be compromised, further eroding
net liquidation values.
Proceeds From Liquidation Sale Of Functional Units (Note 1)
- -----------------------------------------------------------
Estimates of the net cash proceeds that might be realized from the
liquidation of the Debtors' Functional Unit assets are shown in Schedule 1.
The proceeds are applied to the corporate ownership entity beginning at the
lowest level of the NTL corporate hierarchy structure. This allows any
"excess" proceeds to flow "upward" to the next NTL corporate ownership
level and be available for those creditors as well, to the extent
available.
In performing the Liquidation Analysis, the Debtors and Kane Reece have
considered value to be derived from the Debtors' long-term investments,
which include NTL Communication Corp.'s equity investment in its Media
joint ventures; NTL Delaware's equity investments in Universal Studios'
"the Studio", ITN News Channel, Diva Systems, iesy, and B2 Bredband, and
NTL Inc.'s equity investments in Noos, Global Radio, Into Networks, and NTL
TWTV Holdings Limited. The Debtors and Kane Reece have also considered
proceeds from the sale of the Debtors' consumer, business, and broadcast
businesses as Functional Units, and believe this approach would realize the
maximum proceeds for distribution to creditors (as opposed to piecemeal
liquidation of assets). The telecommunications/media industry both in
Europe and the United States is currently in turmoil, primarily due to high
debt obligations associated with the construction of duplicated network
facilities and strong competition for customers. There is a glut of fiber
optic network facilities in the marketplace and many broadband network
providers have sought bankruptcy protection or are struggling to avoid
bankruptcy. The Debtors and Kane Reece believe that piecemeal sale of the
Debtors' assets such as fiber optic, telephone switches, broadcast towers,
consumer electronics equipment, etc., would yield de minimis proceeds.
Indeed, recent marketplace sales of switches, routers, and fiber
electronics have yielded prices ranging from ten to twenty-five cents on
the dollar, exclusive of sales commissions and de-installation expenses.
Estimate Of Costs (Note 2)
- --------------------------
Costs of liquidation under Chapter 7 would include fees payable to a
Chapter 7 trustee as well as those payable to the attorneys and other
professionals engaged by such a trustee. Costs of liquidation would also
include any obligations and unpaid expenses incurred by the Debtors until
conclusion of the Chapter 7 cases.
Additional claims could arise by reason of any contract rejections or
obligations incurred by the Debtors during the bankruptcy cases. It is thus
possible that in Chapter 7 cases, the Chapter 7 administrative expenses may
be greater or less than the estimated amount. Such expenses are in part
dependent on the length of time of the liquidation.
There are two considerations for determining the reasonable and necessary
compensation of a Chapter 7 trustee. The first is the lodestar analysis,
under which compensation is reviewed primarily on the basis of multiplying
the number of hours spent by the trustee by the hourly rate normally
charged by the trustee. The second consideration is the twelve so- called
"Johnson" factors: (1) the time and labor required; (2) the novelty and
difficulty of the issues; (3) the skill required to perform the legal
services properly; (4) the preclusion of employment by the trustee due to
acceptance of the case; (5) the customary fee; (6) whether the fee is fixed
or contingent; (7) time limitations imposed by the client or the
circumstances; (8) the amount involved and the result obtained; (9) the
experience, reputation, and ability of the trustee; (10) the understanding
of the case; (11) the nature and length of the professional relationship
with the client; and (12) the awards in similar cases.
Based on estimates of the nature and magnitude of the tasks to be performed
by a trustee, who effectively would be serving as the chief executive
officer and board of directors for the liquidating Debtors, the Debtors and
Kane Reece have estimated the hours, functional tasks, and hourly rates of
compensation for a hypothetical trustee. These cost estimates were assumed
to accrue for a six-month liquidation period, and converted into a
percentage of gross liquidation proceeds, enabling the determination of
estimated trustee fees for each Functional Unit. Specifically, the trustee
fees were estimated at 0.75% of the proceeds realized from the sale of
Functional Units. The Debtors and Kane Reece believe that this is
consistent with sections 326 and 330 of the Bankruptcy Code ("Limit on
Compensation of Trustee"). In addition, the professional fees were assumed
to cover accounting, auditing, legal, and consulting tasks, and were
calculated in a manner similar to that for the trustee fees.
Brokerage Fees were estimated to be 1.0% of the realized sale price of the
Functional Units, based generally on typical investment banking fees for
sales of business entities, as derived from the Lehman formula, a
traditional fee determination methodology, which supports a 1% fee for
relatively large transactions such as the sales of the Functional Units.
The following are the effective assumed fees used in the Liquidation
Analysis, expressed as a percentage of the gross Functional Units'
liquidation proceeds:
- Trustee Fees: 0.75%
- Brokerage Fees: 1.00%
- Professional Fees: 0.50%
Estimate Of Additional Claims (Note 3)
- --------------------------------------
This category consists of additional claims that could be asserted against
the Debtors in a Chapter 7 liquidation scenario, including certain
guaranties by, and funding obligations of, the Debtors. Depending on the
resolution of various contractual and statutory subordination issues, such
additional claims would either rank immediately senior to, pari passu with,
or immediately junior to claims of other creditors. Intercompany claims
between Debtors and/or between Debtors and Non-Debtor Subsidiaries have not
been included, as the Debtors and Kane Reece have determined that inclusion
of such claims would not materially affect the results of the analysis.
Net Liquidation Proceeds Available For Payment Of Creditors (Note 4)
This represents the gross Functional Units' liquidation proceeds less the
Estimate Of Costs (Note 2) and Estimate Of Additional Claims (Note 3).
Cash (Note 5)
- -------------
Consists of all cash in banks or operating accounts and cash held at NTL
Inc. and subsidiary levels as of August 31, 2002, as estimated by the
Debtors' management. Cash is assumed to be fully recoverable.
Additional cash from operations during the liquidation period is not
assumed to be available for distribution to creditors because such cash
will be used to operate and maintain the Functional Units.
Liquidation Proceeds From Subsidiary And Net Proceeds Available For Payment
Of Creditors (Note 6)
- ---------------------------------------------------------------------------
These items provide for the upward flow of proceeds from a lower corporate
hierarchy Functional Unit sale in those instances in which proceeds exceed
100% of the creditors' claims at such lower corporate entity. The net
liquidation proceeds available for payment of the creditors is then
calculated as the net liquidation proceeds available for payment of
creditors, plus cash, plus liquidation proceeds from its direct subsidiary
(if any).
Distribution Of Net Proceeds From Liquidation (Note 7)
- ------------------------------------------------------
The claims, costs, expenses, and fees described in Notes 1-6, as well as
such other claims as may arise in the Chapter 7 cases, would be paid in
full from the liquidation proceeds before the balance of those proceeds
would be made available to unsecured claims. Under the absolute priority
rule, no junior creditor would receive any distribution until all senior
creditors were paid in full. Thus, the Liquidation Analysis allocates the
net proceeds to senior and subordinated creditors in their respective order
of priority. The "Notes" column of Schedules 1 and 2 identify creditor
claims by use of the letters A through Y.
Remaining Proceeds To Parent (Note 8)
- -------------------------------------
This item describes whether any liquidation proceeds remain at each
respective NTL entity level (for distribution to a parent entity), by
subtracting the Distribution Of Net Proceeds (Note 7) from the Net Proceeds
Available For Payment Of Creditors (Note 6).
Recovery Of Creditors Claim Summary
- -----------------------------------
Schedule 2 summarizes the application of the net proceeds available to each
class of creditors and interest holders based on estimated balances
prepared by the Debtors as of May 8, 2002. The proceeds are determined from
Schedule 1 and their respective recovery is summarized and compared to
recoveries under Chapter 11.
Recoveries are presented in Schedule 2 on a non-discounted basis. Schedule
2 compares the estimated recovery under the Plan with the recovery under
the hypothetical Liquidation Analysis. For purposes of the analysis,
estimated balances as of May 8, 2002 were used to estimate recoveries at
September 1, 2002.
Conclusion
- ----------
The Liquidation Analysis is an estimate of the proceeds that may be
generated and distributed as a result of a hypothetical Chapter 7
liquidation of the assets of the Debtors. It is based on many estimates and
assumptions that are inherently subject to significant economic,
competitive, and operational uncertainties and contingencies beyond the
control of the Debtors or a Chapter 7 trustee. In addition, various
liquidation decisions upon which certain assumptions are based are subject
to change. Thus, there can be no assurance that the assumptions and
estimates of realizable proceeds, were the Debtors to undergo an actual
liquidation, are correct. Further, the actual amount of claims against the
Debtors could vary from the estimates set forth herein, depending, in large
part, on the scope and nature of the claims asserted during the pendency of
the Chapter 7 cases. Finally, this Liquidation Analysis does not include
liabilities that may arise as a result of litigation, certain new tax
assessments, or other potential claims, or potential recoveries from
avoidance actions, or proceeds resulting from the sale of certain assets
with intangible value (if any such assets exist). As a result, the actual
liquidation value of the Debtors could vary from the estimates provided
herein.
The Liquidation Analysis is based on estimated liquidation values of the
Debtors' assets on September 1, 2002. To the extent the results of the
Debtors' operations through such date are different than currently
projected, the asset values may change. These values have not been subject
to any review, compilation, or audit by any independent accounting firm.
As summarized in Schedule 2, the Debtors and Kane Reece have concluded that
each class of impaired Claims and Interests will receive under the Plan not
less than it would receive if the Debtors were liquidated in hypothetical
Chapter 7 cases on the Effective Date of the Plan.
Schedule 1
NTL Incorporated & Subsidiaries Liquidation Proceeds Analysis
Notes Diamond Holdings Limited Notes Diamond Cable Communications Limited
--------------------------------------- -----------------------------------------------
($ millions) ($ millions)
1 Proceeds From Liquidation Sale
Of Functional Units
Diamond 686.0 0.0
Less:
2 Liquidating Trustee Fees 5.1 0.0
2 Brokerage Fees 6.9 0.0
2 Professional Fees 3.4 0.0
3 Funding Guarantees 0.0 0.0
3 Other (Chapter 11 Administrative Claims & DIP) 12.1 0.0
4 Net Liquidation Proceeds Available 658.5 0.0
For Payment Of Creditors
Plus:
5 Cash 14.1 N/A
6 Liquidation Proceeds From Subsidiary
Diamond Holdings Limited 356.4
6 Net Proceeds Available For Payment Of Creditors 672.6 356.4
7 Distribution Of Net Proceeds From Liquidation
Senior Creditors Senior Creditors
B 10% Senior Sterling Notes 203.5 D 13-1/4% Senior Sterling Notes 80.8
C 9-1/8% Senior Notes 112.7 E 11-3/4% Senior Sterling Notes 155.2
F 10-3/4% Senior Sterling Notes 120.4
8 Remaining Proceeds To Parent:
Diamond Cable Communications Limited 356.4 NTL Communications Corp. 0.0
Columns may not add due to rounding; zero values may be small values rounded to zero
Schedule 1
NTL Incorporated & Subsidiaries
Liquidation Proceeds Analysis
Notes NTL (Triangle) LLC: Cablelink Notes NTL (Triangle) LLC
---------------------------------------------- ------------------------------------------------
($ millions) ($ millions)
1 Proceeds From Liquidation Sale
Of Functional Units
Cablelink 133.0 NTL (Triangle) LLC 428.0
Less:
2 Liquidating Trustee Fees 1.0 3.2
2 Brokerage Fees 1.3 4.3
2 Professional Fees 0.7 2.1
3 Funding Guaranties 0.0 0.0
3 Other (Chapter 11 Administrative Claims & DIP) 2.3 7.6
4 Net Liquidation Proceeds Available 127.7 410.8
For Payment Of Creditors
Plus:
5 Cash 0.0 49.6
6 Liquidation Proceeds From Subsidiary
Cablelink 29.1
6 Net Proceeds Available For Payment Of Creditors 127.7 489.5
7 Distribution Of Net Proceeds From Liquidation
Senior Creditors Senior Creditors
NTL Communications Corp. 98.6 11.2% Senior Discount Debentures 489.5
8 Remaining Proceeds To Parent:
NTL (Triangle) LLC 29.1 NTL Communications Corp. 0.0
Columns may not add due to rounding; zero values may be small values rounded to zero
Schedule 1
NTL Incorporated & Subsidiaries
Liquidation Proceeds Analysis
Notes NTL Communications Limited Notes NTL Communications Corp.
-------------------------------------------- ---------------------------------------------------
($ millions) ($ millions)
1 Proceeds From Liquidation Sale
Of Functional Units
UK Consumer 3,243.0 Media JVs 8.6
UK Business 2,149.0
Broadcast 1,045.7
Less:
2 Liquidating Trustee Fees 48.3 0.1
2 Brokerage Fees 64.4 0.1
2 Professional Fees 32.2 0.0
3 Funding Guarantees 0.0 0.0
3 Other (Chapter 11 Administrative Claims & DIP) 113.6 0.2
4 Net Liquidation Proceeds Available 6,179.3 8.3
For Payment Of Creditors
Plus:
5 Cash 24.7 0.0
6 Liquidation Proceeds From Subsidiary
NTL (Triangle) LLC 0.0
NTL Communications Limited 1,459.7
Diamond Cable Communications Limited 0.0
6 Net Proceeds Available For Payment Of Creditors 6,204.0 1,467.9
7 Distribution Of Net Proceeds From Liquidation
Senior Creditors Senior Creditors
Credit Agreement 4,087.0 H 12-3/4% Senior Deferred Coupon Notes 56.4
A Working Capital Agreement ( Guarantee) 598.7 I 11-1/2% Senior Deferred Coupon Notes 204.9
Other ( UK Group Mortgage Notes) 58.6 J 10% Senior Notes 77.4
K 9-1/2% Senior Sterling Notes, less
unamortized discount 36.7
L 10-3/4% Senior Deferred Coupon Sterling
Notes 75.9
M 9-3/4% Senior Deferred Coupon Notes 225.9
N 9-3/4% Senior Deferred Coupon Sterling Notes 76.2
O 11-1/2% Senior Notes 126.5
P 12-3/8% Senior Deferred Coupon Notes 72.0
Q 9-1/4% Senior Euro Notes 45.2
R 9-7/8% Senior Euro Notes 63.5
S 11-1/2% Senior Deferred Coupon Euro Notes 27.4
T 11-7/8% Senior Notes, less unamortized
discount 101.4
U 12-3/8% Senior Euro Notes, plus unamortized
premium 53.7
G 6-3/4% Convertible Senior Notes 224.7
Subordinated Creditors:
V 7% Convertible Subordinated Notes -
8 Remaining Proceeds To Parent:
NTL Communications Corp. 1,459.7 NTL (Delaware), Inc. -
Columns may not add due to rounding; zero values may be small values rounded to zero
Schedule 1
NTL Incorporated & Subsidiaries
Liquidation Proceeds Analysis
Notes Cablecom Notes NTL (Delaware) Inc.
---------------------------------------------- --------------------------------------------------
($ millions) ($ millions)
1 Proceeds From Liquidation Sale
Of Functional Units
Cablecom 1,699.0 Premium TV Limited 50.4
Sweden 32.5
Germany 26.4
Universal Studios' "The Studio" 1.6
ITN News Channel 0.0
Less:
2 Liquidating Trustee Fees 12.7 0.8
2 Brokerage Fees 17.0 1.1
2 Professional Fees 8.5 0.6
3 Funding Guaranties/PTV Swap 0.0 78.5
3 Other (Chapter 11 Administrative Claims & DIP) 30.0 2.0
4 Net Liquidation Proceeds Available 1,630.8 27.9
For Payment Of Creditors
Plus:
5 Cash 25.0 301.2
6 Liquidation Proceeds From Subsidiary
NTL Communications Corp. 0.0
Cablecom 0.0
6 Net Proceeds Available For Payment Of Creditors 1,655.8 329.1
7 Distribution Of Net Proceeds From Liquidation
Senior Creditors Subordinated Creditors
Term Loan Facility 1,655.8 V 7% Convertible Subordinated Notes 90.3
Revolving Facility 0.0 W 5-3/4% Convertible Subordinated Notes 177.7
Other 0.0 X 5-3/4% Convertible Subordinated Notes
(France Telecom) 42.6
Y 5-3/4% Convertible Subordinated Notes 18.5
8 Remaining Proceeds To Parent:
NTL (Delaware), Inc. 0.0 NTL Inc. 0.0
Columns may not add due to rounding; zero values may be small values rounded to zero
Schedule 1
NTL Incorporated & Subsidiaries
Liquidation Proceeds Analysis
Notes NTL Inc. Notes Communications Cable Funding Corp.
---------------------------------------------- ------------------------------------------------
($ millions) ($ millions)
1 Proceeds From Liquidation Sale
Of Functional Units
Global Radio 0.0 0.0
Into Networks 0.0
TWTV 0.2
Noos 1.3
Less:
2 Liquidating Trustee Fees 0.0 0.0
2 Brokerage Fees 0.0 0.0
2 Professional Fees 0.0 0.0
3 Funding Guarantees 1.5 0.0
3 Other (Ch. 11 Admin Claims & DIP) 0.0 0.0
4 Net Liquidation Proceeds Available 0.0 0.0
For Payment Of Creditors
Plus:
5 Cash N/A 0.0
6 Liquidation Proceeds From Subsidiary
NTL (Delaware), Inc. 0.0
6 Net Proceeds Available For Payment Of Creditors 0.0 0.0
7 Distribution Of Net Proceeds From Liquidation
Subordinated Creditors Senior Creditors
V 7% Convertible Subordinated Notes 0.0
W 5-3/4% Convertible Subordinated Notes 0.0
X 5-3/4% Convertible Subordinated Notes 0.0
G 6-3/4% Convertible Senior Notes 0.0
8 Remaining Proceeds To Parent:
NTL Inc. 0.0 0.0
Columns may not add due to rounding; zero values may be small values rounded to zero
Schedule 2
NTL Incorporated & Subsidiaries Liquidation Recovery Analysis
Recovery
($ Millions) Percent
Under
Notes Corporation Creditors Class Chapter 11
----- ----------- --------- ----- ----------
2 Administrative Claims (Chapter 7) N/A
Administrative Claims (Chapter 11) Incl's $2M + DIP Repayment of $165.7M 100.0%
Priority Tax Claims 1 100.0%
Other Priority Claims 1 100.0%
A NTL Communications Corp. UK Working Capital Agreement(Guarantee) 2 100.0%
NTL Inc. PTV Swap 2 100.0%
B Diamond Holdings Limited 10% Senior Sterling Notes '08 4 100.0%
C Diamond Holdings Limited 9-1/8% Senior Notes '08 4 100.0%
3 Additional Claims Against Debtors 100.0%
D Diamond Cable Communications 13-1/4% Senior Sterling Notes 6 63.0%
Limited
E Diamond Cable Communications 11-3/4% Senior Sterling Notes 6 63.0%
Limited
F Diamond Cable Communications 10-3/4% Senior Sterling Notes 6 63.0%
Limited
G NTL Communications Corp. 6-3/4% Convertible Senior Notes '08 7, 10 73.0%
H NTL Communications Corp. 12-3/4% Senior Deferred Coupon Notes '05 7 63.0%
I NTL Communications Corp. 11-1/2% Senior Deferred Coupon Notes '06 7 63.0%
J NTL Communications Corp. 10% Senior Notes '07 7 63.0%
K NTL Communications Corp. 9-1/2% Senior Sterling Notes, less unamortized discount '08 7 63.0%
L NTL Communications Corp. 10-3/4% Senior Deferred Coupon Sterling Notes '08 7 63.0%
M NTL Communications Corp. 9-3/4% Senior Deferred Coupon Notes '08 7 63.0%
N NTL Communications Corp. 9-3/4% Senior Deferred Coupon Sterling Notes '09 7 63.0%
O NTL Communications Corp. 11-1/2% Senior Notes '08 7 63.0%
P NTL Communications Corp. 12-3/8% Senior Deferred Coupon Notes '08 7 63.0%
Q NTL Communications Corp. 9-1/4% Senior Euro Notes '06 7 63.0%
R NTL Communications Corp. 9-7/8% Senior Euro Notes '09 7 63.0%
S NTL Communications Corp. 11-1/2% Senior Deferred Coupon Euro Notes '09 7 63.0%
T NTL Communications Corp. 11-7/8% Senior Notes, less unamortized discount '10 7 63.0%
U NTL Communications Corp. 12-3/8% Senior Euro Notes, plus unamortized premium '08 7 63.0%
V NTL Communications Corp. 7% Convertible Subordinated Notes 8, 9, 10 74.0%
W NTL (Delaware), Inc. 5-3/4% Convertible Subordinated Notes 9, 10 54.0%
X NTL (Delaware), Inc. 5-3/4% Convertible Subordinated Notes( France Telecom) 9, 10 N/A
Y NTL (Delaware), Inc. 5-3/4% Convertible Subordinated Notes 9, 10 54.0%
Communications Cable Funding N/A N/A
Corp.
Old Senior Preferred Stock Interests
If Class 12 Accepts Plan 12 20.0%
If Class 12 Rejects Plan 12 0.0%
Old Junior Preferred Stock Interests
If Class 13 Accepts Plan 13 5.0%
If Class 13 Rejects Plan 13 0.0%
Class 14:Old Common Stock Interests
If Class 14 Accepts Plan 14 N/A
If Class 14 Rejects Plan 14 0.0%
Securities Claims 15 0.0%
Other Old Equity Interests And 16 0.0%
Claims
Columns may not add due to rounding; zero values may be small values rounded to zero
Chart Continued
Recovery Recovery
($ Millions) Amount Percent
Under Under
Notes Corporation Chapter 7 Chapter 7
----- ----------- --------- ----------
2 Administrative Claims (Chapter 7) $ 213.9 100.0%
Administrative Claims (Chapter 11) 167.7 100.0%
Priority Tax Claims 0.0 100.0%
Other Priority Claims 0.0 100.0%
A NTL Communications Corp. 598.7 100.0%
NTL Inc. 33.8 100.0%
B Diamond Holdings Limited 203.5 100.0%
C Diamond Holdings Limited 112.7 100.0%
3 Additional Claims Against Debtors 80.0 87.2%
D Diamond Cable Communications 80.8 27.9%
Limited
E Diamond Cable Communications 155.2 27.9%
Limited
F Diamond Cable Communications 120.4 27.9%
Limited
G NTL Communications Corp. 224.7 18.9%
H NTL Communications Corp. 56.4 18.9%
I NTL Communications Corp. 204.9 18.9%
J NTL Communications Corp. 77.4 18.9%
K NTL Communications Corp. 36.7 18.9%
L NTL Communications Corp. 75.9 18.9%
M NTL Communications Corp. 225.9 18.9%
N NTL Communications Corp. 76.2 18.9%
O NTL Communications Corp. 126.5 18.9%
P NTL Communications Corp. 72.0 18.9%
Q NTL Communications Corp. 45.2 18.9%
R NTL Communications Corp. 63.5 18.9%
S NTL Communications Corp. 27.4 18.9%
T NTL Communications Corp. 101.4 18.9%
U NTL Communications Corp. 53.7 18.9%
V NTL Communications Corp. 90.3 17.9%
W NTL (Delaware), Inc. 177.7 17.9%
X NTL (Delaware), Inc. 42.6 17.9%
Y NTL (Delaware), Inc. 18.5 17.9%
Communications Cable Funding N/A N/A
Corp.
Old Senior Preferred Stock Interests
If Class 12 Accepts Plan
If Class 12 Rejects Plan 0.0 0.0%
Old Junior Preferred Stock Interests
If Class 13 Accepts Plan
If Class 13 Rejects Plan 0.0 0.0%
Class 14:Old Common Stock Interests
If Class 14 Accepts Plan N/A
If Class 14 Rejects Plan 0.0%
Securities Claims 0.0%
Other Old Equity Interests And 0.0%
Claims
EXHIBIT H
TO
DISCLOSURE STATEMENT WITH RESPECT TO AMENDED JOINT
REORGANIZATION PLAN OF NTL INCORPORATED AND CERTAIN SUBSIDIARIES
PROJECTED FINANCIAL INFORMATION
Financial Projections
Responsibility For And Purpose Of The Projections
As a condition to confirmation of a plan, the Bankruptcy Code
requires, among other things, that a bankruptcy court determine that the
plan is "feasible" (i.e., that Confirmation is not likely to be followed by
a liquidation or the need for further financial reorganization of the
debtor) as set forth in section 1129(a)(7) of the Bankruptcy Code. In
connection with the development of the Plan, and for purposes of
determining whether the Plan satisfies feasibility standards, the Debtors'
management has, through the development of financial projections, analyzed
the ability of New NTL and Euroco to meet their respective obligations
under the Plan to maintain sufficient liquidity and capital resources to
conduct their respective business. The Financial Projections were also
prepared to assist each holder of a claim entitled to vote under the Plan
in determining whether to accept or reject the Plan.
The Financial Projections indicate that New NTL and Euroco should
have sufficient cash flow to (i) make the payments required under the Plan
on the Distribution Date, (ii) repay and service debt obligations, and
(iii) maintain operations on a going-forward basis. Accordingly, the
Debtors believe that the Plan complies with section 1129(a)(11) of the
Bankruptcy Code. The Financial Projections should be read in conjunction
with the assumptions, qualifications and footnotes to tables containing the
projections set forth herein, the historical consolidated financial
information (including the notes and schedules thereto) and the other
information set forth in NTL Inc.'s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 annexed to this Disclosure Statement as
Exhibit B, NTL Inc.'s Quarterly Report on Form 10-Q for the three months
ended March 31, 2002 annexed to this Disclosure Statement as Exhibit C,
Amendment No. 1 to NTL Inc.'s Annual Report on Form 10-K/A annexed to this
Disclosure Statement as Exhibit D, NTL CC's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001 annexed to this Disclosure
Statement as Exhibit E, and NTL CC's Quarterly Report on Form 10-Q for the
three months ended March 31, 2002 annexed to this Disclosure Statement as
Exhibit F. The Financial Projections were prepared in good faith based upon
assumptions believed to be reasonable and applied in a manner consistent
with past practice. The Financial Projections are based on assumptions as
of February 28, 2002, updated in certain respects to May 20, 2002, related
principally to the relevant terms of the Plan. As of the date of this
Disclosure Statement, the general economic, competitive and business
conditions prevailing as of February 28, 2002 have changed because the
business environment for competitive telecommunications services has
weakened considerably, particularly for those serving business customers.
In addition, while NTL has attempted to minimize the effects of the Chapter
11 Cases on its non-debtor operating companies, it believes that the news
and uncertainty surrounding the Restructuring has had a negative impact on
NTL's overall performance. Thus, while NTL is currently meeting or
exceeding most of the key performance indicators that underlie the
Financial Projections, it expects to fall short of the 2002 revenue targets
set forth in the Financial Projections. Notwithstanding this expected
shortfall, NTL still believes that the Financial Projections, when taken as
a whole, will not be materially impacted by these factors and that they
present NTL's expected results fairly in all material respects. The
expected revenue shortfall is principally the result of the performance of
NTL's UK business services unit, which has been impacted by both the
negative trends in the business telecommunications market in general, as
well as the uncertainty potential customers associate with the Chapter 11
Cases. NTL cannot assure you that it will not experience any further
challenges to its performance.
In addition, since the preparation of the Financial Projections,
NTL has been considering accelerating a number of projects including
investment in customer growth and the integration of its UK billing
systems. These projects may result in incurring capital expenditures and
operating expenses during 2002 that would otherwise have been incurred in
2003 and beyond in an effort to improve NTL's performance in 2003 and
beyond.
As of the date of this Disclosure Statement, New NTL and Euroco do
not exist as separate entities and the Debtors' activities have been
carried out on an integrated basis as part of the NTL group. Consequently,
certain revenues, costs, assets, and liabilities previously reported within
legal entities comprising the NTL group have been allocated to New NTL and
Euroco to reflect the assets and liabilities attributable to New NTL and
Euroco, respectively. These allocations have been effected in good faith
upon assumptions believed to be reasonable, but there can be no guaranty
that New NTL and/or Euroco will not incur greater costs in operating as
separate entities.
The Financial Projections were not prepared with a view towards
complying with the guidelines for prospective financial statements
published by the American Institute of Certified Public Accountants.
Neither the Debtors' independent auditors, nor any other independent
accountants, have compiled or examined the accompanying prospective
financial information to determine the reasonableness thereof and,
accordingly, have not expressed an opinion or any other form of assurance
with respect thereto.
The Debtors' management has prepared the Financial Projections set
forth below to comply with the requirements of the Bankruptcy Code. The
accompanying prospective financial information was not prepared with a view
toward public disclosure or with a view toward complying with the
guidelines established by the American Institute of Certified Public
Accountants with respect to prospective financial information, but, in the
view of the Debtors' management, was prepared on a reasonable basis,
reflects the best currently available estimates and judgments, and
presents, to the best of management's knowledge and belief, the expected
course of action and the respective expected future financial performance
of New NTL and Euroco. However, this information is not fact and should not
be relied upon as being necessarily indicative of future results, and
readers of this Disclosure Statement are cautioned not to place undue
reliance on the Financial Projections. In particular, this information
should not be relied upon to determine how to proceed in connection with
the Offerings or the exercise of Series A Warrants and does not form part
of the UK Prospectus. Accordingly, the Debtors do not intend, and disclaim
any obligation, to (a) furnish updated projections to holders of Claims or
Interests prior to the Effective Date or to holders of New NTL Common Stock
or Euroco Common Stock or any other party after the Effective Date, (b)
include such updated information in any documents that may be required to
be filed with the SEC, or (c) otherwise make such updated information
publicly available.
The Financial Projections provided in this Disclosure Statement
have been prepared exclusively by the Debtors' management. These Financial
Projections, while presented with numerical specificity, are necessarily
based on a variety of estimates and assumptions which, though considered
reasonable by management, may not be realized, and are inherently subject
to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Debtors' control. No
representations can be made as to the accuracy of these Financial
Projections or to New NTL or Euroco's ability to achieve the projected
results. Some assumptions inevitably will not materialize. Further, events
and circumstances occurring subsequent to the date on which these Financial
Projections were prepared may be different from those assumed or,
alternatively, may have been unanticipated, and thus the occurrence of
these events may affect financial results in a material and possibly
adverse manner. The Financial Projections, therefore, may not be relied
upon as a guaranty or other assurance of the actual results that will
occur.
Finally, the following Financial Projections include assumptions
as to the equity values of New NTL and Euroco and the fair value of their
respective assets and liabilities as of August 31, 2002. New NTL and Euroco
will be required to make such estimations as of the Effective Date. Such
determination will be based upon the fair values as of that date, which
could be materially greater or lower than the values assumed in the
foregoing estimates.
Financial Projections
The Financial Projections prepared by the Debtors' management are
summarized in the following tables. Specifically, the attached tables
include:
(1) New NTL Projected Consolidated Balance Sheet as of August 31, 2002 Reflecting
Restructuring Adjustments;
(2) New NTL Projected Consolidated Balance Sheets as of December 31, 2002 through
December 31, 2006;
(3) New NTL Projected Condensed Consolidated Statements of Operations for Fiscal Years
Ending December 31, 2002 through December 31, 2006;
(4) New NTL Projected Consolidated Statements of Cash Flows for Fiscal Years Ending
December 31, 2002 through December 31, 2006;
(5) Euroco Projected Consolidated Balance Sheet as of August 31, 2002 Reflecting
Restructuring Adjustments;
(6) Euroco Projected Consolidated Balance Sheets as of December 31, 2002 through December
31, 2006;
(7) Euroco Projected Condensed Consolidated Statements of Operations for Fiscal Years Ending
December 31, 2002 through December 31, 2006; and
(8) Euroco Projected Consolidated Statements of Cash Flows for Fiscal Years Ending December
31, 2002 through December 31, 2006.
Captions in the following projections may not correspond exactly
to the Debtors' historical external reporting.
NEW NTL PROJECTED CONSOLIDATED BALANCE SHEET AS OF
AUGUST 31, 2002 REFLECTING RESTRUCTURING ADJUSTMENTS
(dollars in millions)
Fresh Start
Projected Restructuring Fresh Start Balance Sheet
August 31, 2002 Adjustments Adjustments (8) August 31, 2002
--------------- -------------- --------------- -----------------
Assets
Current assets
Cash and cash equivalents $ 88.6 $ 141.4(1) $ 230.0
Accounts receivable, net 498.1 498.1
Due from affiliates 51.1 (51.1)(2) -
Prepaid and other 267.8 267.8
--------------- -------------- --------------- -----------------
Total current assets 905.6 90.3 - 995.9
Fixed assets, net 10,633.7 10,633.7
Intangible assets, net 1,020.8 (102.2)(3) $ 346.5 1,265.1
Loan to Euroco 150.0 (150.0)(4) -
Other assets, net 13.3 13.3
Deferred Tax Asset 426.8 426.8
--------------- -------------- --------------- -----------------
Total assets $ 12,723.4 $ (161.9) $ 773.3 $ 13,334.8
=============== ============== =============== =================
Liabilities & Shareholders' (Deficiency) Equity
Current liabilities
Accounts payable $ 284.1 $ 284.1
Accrued expenses and other 493.0 493.0
Due to affiliates 144.3 $ (144.3)(5) -
Interest payable 326.8 (187.9)(6) 138.9
Deferred revenue 283.1 283.1
Current portion of long-term debt 14,912.2 (14,909.7)(7) 2.5
--------------- -------------- --------------- -----------------
Total current liabilities 16,443.5 (15,241.9) - 1,201.6
Long-term debt - 6,030.4(7) 6,030.4
Deferred income taxes 83.4 $ (83.4) -
Other 5.7 5.7
Shareholders' (deficiency) equity
Preferred stock - -
Common Stock - 2.3(7) 2.3
Additional paid-in capital 13,917.7 6,094.8(7) (13,917.7) 6,094.8
Accumulated other comprehensive (loss) - -
(Deficit) (17,726.9) 2,952.5 14,774.4 -
--------------- -------------- --------------- -----------------
(3,809.2) 9,049.6 856.7 6,097.1
--------------- -------------- --------------- -----------------
Total liabilities and shareholders'
(deficiency) equity 12,723.4 $ (161.9) $ 773.3 $ 13,334.8
=============== ============== =============== =================
Notes To New NTL Projected Consolidated Balance Sheet As Of August 31, 2002
Reflecting Restructuring Adjustments:
(1) Represents the aggregate receipts and disbursements associated
with the consummation of the Plan.
(2) Represents the $24.7 million repayment from Euroco for funding of
corporate expenses, advisory fees, and investments from May to
August and the write off of the remaining balance in accordance
with the Plan.
(3) Represents write off of $166.1 million of deferred financing
costs, net of accumulated amortization on the Diamond Cable Notes,
NTL CC Senior Notes, and NTL CC Subordinated Notes, plus the $63.9
million amendment fee.
(4) Represents write off of Intercompany Claims consistent with the
treatment of these claims agreed in the Plan.
(5) Represents repayment of the Delaware/NTL (UK) Group Note
(including interest) and cancellation of the $5 million remaining
balance in accordance with the Plan.
(6) Represents write off of $187.9 million of accrued and unpaid
interest on the Diamond Cable Notes, NTL CC Senior Notes, and NTL
CC Subordinated Notes.
(7) Represents (i) write off of $9,213.6 million of outstanding
borrowing under the NTL CC Senior Notes and the NTL CC
Subordinated Notes and the transfer of the Diamond Cable Notes to
NTL CC, consistent with the treatment of these liabilities in the
Plan plus the $500 million New NTL Exit Facility less the $165.3
million DIP Facility repayment, (ii) reclassification of remaining
debt to long term, and (iii) issuance of New NTL Common Stock in
accordance with the provisions of the Plan.
(8) New NTL would account for the reorganization and the related
transactions using the principles of "fresh start" accounting as
required by Statement of Position 90-7 ("SOP 90-7") issued by the
American Institute of Certified Public Accountants. For purposes
of these projections, the Reorganization Value has been based upon
the midpoint of the estimated enterprise value range of New NTL as
described in "Feasibility Of The Plan And The Best Interests Of
Creditors Test - Valuation Of The Reorganized Debtors" in this
Disclosure Statement. Under "fresh start" accounting principles,
New NTL will determine the reorganization value of New NTL at the
Effective Date. This value will be allocated, based on estimated
fair market values, to specific tangible assets, and New NTL will
record an intangible asset equal to the reorganization value in
excess of amounts allocable to identifiable assets. New NTL is in
the process of evaluating further how the reorganization value
will be allocated to various assets. It is likely that the final
allocation as well as depreciation and amortization expense, will
differ from the amounts presented herein. The amount of
shareholders' equity in the fresh start balance sheet is not an
estimate of the market value of the New NTL Common Stock after
confirmation of the Plan, which value is subject to many
uncertainties and cannot be reasonably estimated at this time. New
NTL does not make any representations as to the market value, if
any, of the New NTL Common Stock to be issued pursuant to the
Plan.
NEW NTL PROJECTED CONSOLIDATED BALANCE SHEET
FISCAL YEARS ENDING 2002 THROUGH 2006
(dollars in millions)
As of December 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
----------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 339.4 $ 274.1 $ 391.1 $ 699.9 $ 1,287.9
Accounts receivable, net 485.8 548.4 690.9 796.5 980.4
Other 270.1 255.5 234.1 214.9 203.1
-------------- ------------ ------------ ------------ -------------
Total current assets 1,095.3 1,078.0 1,316.1 1,711.3 2,471.4
Fixed assets, net 10,428.7 10,176.6 10,168.2 10,333.2 10,722.8
Intangible assets, net 1,265.3 1,229.4 1,193.4 1,232.3 1,207.0
Other assets, net 14.7 19.1 25.9 32.2 32.3
Deferred tax asset 487.6 590.9 525.6 282.6 -
-------------- ------------ ------------ ------------ -------------
Total assets $ 13,291.6 $ 13,094.0 $ 13,229.2 $ 13,591.6 $ 14,433.5
============== ============ ============ ============ =============
Liabilities & Shareholders' Equity
Current liabilities
Accounts payable $ 250.4 $ 382.0 $ 486.6 $ 543.9 $ 665.9
Accrued expenses and other 466.5 487.3 537.3 576.5 648.2
Interest payable 285.2 288.1 275.1 268.6 257.5
Deferred revenue 281.3 293.1 310.6 329.0 354.0
Current portion of long-term debt 2.5 2.5 2.5 2.5 2.5
-------------- ------------ ------------ ------------ -------------
Total current liabilities 1,285.9 1,453.0 1,612.1 1,720.5 1,928.1
Long-term debt 6,031.8 5,990.3 5,895.4 5,668.7 5,232.8
Deferred income taxes - - - - 72.7
Other 5.7 5.7 5.7 5.7 5.7
Shareholders' equity
Preferred stock - - - - -
Common Stock 2.3 2.3 2.3 2.3 2.3
Additional paid-in capital 6,094.8 6,094.8 6,094.8 6,094.8 6,094.8
Accumulated other comprehensive (loss) - - - - -
(Deficit) Retained Earnings (128.9) (452.1) (381.1) 99.6 1,097.1
-------------- ------------ ------------ ------------ -------------
5,968.2 5,645.0 5,716.0 6,196.7 7,194.2
-------------- ------------ ------------ ------------ -------------
Total liabilities and shareholders' equity $ 13,291.6 $ 13,094.0 $ 13,229.2 $ 13,591.6 $ 14,433.5
============== ============ ============ ============ =============
NEW NTL PROJECTED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FISCAL YEARS ENDING 2002 THROUGH 2006
(dollars in millions)
As of December 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
----------------------------------------------------------------------
Revenues $ 3,410.1 $ 3,896.3 $ 4,968.6 $ 6,321.3 $ 7,919.8
Costs, expenses and other (income)
Operating expenses 1,542.7 1,585.2 1,888.8 2,293.8 2,795.9
Selling, general and administrative expenses 838.4 946.9 1,049.9 1,202.4 1,365.0
Corporate expenses 31.8 39.6 39.6 39.6 39.6
Reorganization costs 73.8 - - - -
Gain from debt discharge (2,957.2) - - - -
Other charges 2.2 - - - -
Depreciation and amortization 1,106.8 1,222.8 1,336.3 1,547.0 1,759.3
Interest income and other, net (8.6) (8.2) (8.5) (16.5) (31.9)
Interest expense 774.9 533.1 520.4 520.8 505.2
-------------- ------------ ------------ ------------ -------------
Earnings before taxes 2,005.3 (423.1) 142.1 734.2 1,486.7
Income tax (expense) benefit 89.9 99.9 (71.1) (253.5) (489.2)
-------------- ------------ ------------ ------------ -------------
Net income (loss) $ 2,095.2 $ (323.2) $ 71.0 $ 480.7 $ 997.5
============== ============ ============ ============ =============
NEW NTL PROJECTED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDING 2002 THROUGH 2006
(dollars in millions)
As of December 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
----------------------------------------------------------------------
Operating activities
Net income (loss) $ 2,095.2 $ (323.2) $ 71.0 $ 480.7 $ 997.5
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,106.8 1,222.8 1,336.3 1,547.0 1,759.3
Amortization of original issue discount 89.1 - - - -
Gain from debt discharge (2,957.2) - - - -
Change in Deferred Tax Asset (91.2) (103.3) 65.3 243.0 355.3
Other 90.8 13.8 26.3 40.2 46.7
Changes in operating assets and liabilities:
Accounts receivable (6.7) (62.7) (142.5) (105.6) (183.9)
Prepaid and other 1.6 14.7 21.6 19.3 11.7
Accounts payable (128.0) 131.6 104.5 57.6 121.8
Accrued expenses and other (359.2) 19.6 50.0 39.2 71.8
Interest payable 206.3 2.9 (13.0) (6.5) (11.0)
Deferred revenue (8.9) 11.7 17.6 18.4 25.0
-------------- ------------ ------------ ------------ -------------
Net cash provided by operating activities 38.6 927.9 1,537.1 2,333.3 3,194.2
Investing activities
Purchase of fixed assets (695.2) (934.7) (1,292.0) (1,686.6) (2,123.5)
Increase in other assets (72.6) (4.5) (6.7) (70.6) -
-------------- ------------ ------------ ------------ -------------
Net cash (used in) investing activities (767.8) (939.2) (1,298.7) (1,757.2) (2,123.5)
Financing activities
Proceeds from borrowings, net of financing costs 1,113.7 - - - -
Principal payments (296.2) (54.0) (121.4) (267.3) (482.7)
-------------- ------------ ------------ ------------ -------------
Net cash provided by (used in) financing activities 817.5 (54.0) (121.4) (267.3) (482.7)
(Decrease) increase in cash and cash equivalents 88.3 (65.3) 117.0 308.8 588.0
Cash and cash equivalents at beginning of year 251.1 339.4 274.1 391.1 699.9
-------------- ------------ ------------ ------------ -------------
Cash and cash equivalents at end of year $ 339.4 $ 274.1 $ 391.1 $ 699.9 $ 1,287.9
============== ============ ============ ============ =============
EUROCO PROJECTED CONSOLIDATED BALANCE SHEET AS OF
AUGUST 31, 2002 REFLECTING RESTRUCTURING ADJUSTMENTS
(dollars in millions)
Projected Restructuring Fresh Start
August 31, Adjustments Fresh Start Balance Sheet
2002 Adjustments (9) August 31, 2002
----------------- -------------- --------------- -----------------
Assets
Current assets
Cash and cash equivalents $ 336.5 $ (169.0)(1) $ 167.5
Accounts receivable, net 65.7 65.7
Due from affiliates 139.3 (139.3)(2) -
Prepaid and other 196.3 196.3
----------------- -------------- --------------- -----------------
Total current assets 737.8 (308.3) - 429.5
Fixed assets, net 1,496.8 1,496.8
Intangible assets, net 1,230.0 (25.6)(3)$ 42.4 1,246.8
Other assets, net 14,148.3 (14,005(10) 142.7
----------------- -------------- --------------- -----------------
Total assets $ 17,612.9 $ (333.9)$ (13,963.2)$ 3,315.8
================= ============== =============== =================
Liabilities & Shareholders' (Deficiency) Equity
Current liabilities
Accounts payable $ 64.2 $ 64.2
Accrued expenses and other 176.1 $ (37.0)(4) 139.1
Due to affiliates 200.6 (200.6)(5) -
Interest payable 37.2 (28.8)(6) 8.4
Deferred revenue 71.4 71.4
Current Portion of long-term debt 3,554.1 (3,554.1)(7) -
----------------- -------------- --------------- -----------------
Total current liabilities 4,103.6 (3,820.5) - 283.1
Long-term debt - 2,254.1)(7) 2,254.1
Redeemable preferred stock 2,773.7 (2,423.7)(8) 350.0
Deferred income taxes 124.0 $ (86.7) 37.3
Other 151.8 151.8
Shareholders' (deficiency) equity
Preferred stock
Common Stock 2.8 0.2(7) (2.8) 0.2
Additional paid-in capital 13,720.0 239.3(7) (13,720.0) 239.3
Accumulated other comprehensive (loss) (77.4) 77.4 -
(Deficit) (3,185.6) 3,416.7 (231.1) -
----------------- -------------- --------------- -----------------
10,459.8 3,656.2 (13,876.5) 239.5
----------------- -------------- --------------- -----------------
Total liabilities and shareholders' (deficiency) equity $ 17,612.9 $ (333.9) $ (13,963.2) $ 3,315.8
================= ============== =============== =================
Notes To Euroco Projected Consolidated Balance Sheet As Of August 31, 2002
Reflecting Restructuring Adjustments:
(1) Represents the aggregate receipts and disbursements associated
with the consummation of the Plan.
(2) Represents the repayment from New NTL of the Delaware/NTL (UK)
Group Note (including interest).
(3) Represents write off of $25.6 million of deferred financing costs,
net of accumulated amortization on the NTL Delaware Subordinated
Notes and NTL Inc. Subordinated Notes.
(4) Represents write off of $37.0 million of accrued and unpaid
dividends on the Old Preferred Stock.
(5) Represents repayment/cancellation of Intercompany Claims
consistent with the treatment of these claims agreed in the Plan.
(6) Represents write off of $28.8 million of accrued and unpaid
interest on the NTL Delaware Subordinated Notes and NTL Inc.
Subordinated Notes.
(7) Represents (i) write off of $1,300.0 million of outstanding
borrowing in connection with the NTL Delaware Subordinated Notes
and NTL Inc. Subordinated Notes (as described in clauses (a) and
(b) of the definition thereof) consistent with the treatment of
such liabilities in the Plan, (ii) reclassification of remaining
debt to long-term, and (iii) issuance of Euroco Common Stock in
accordance with provisions of the Plan.
(8) Represents write off of $2,773.7 million of Old Senior Preferred
Stock, net of the $350 million Euroco Preferred Stock, consistent
with the treatment of these claims agreed in the Plan.
(9) Euroco would account for the reorganization and the related
transactions using the principles of "fresh start" accounting as
required by Statement of Position 90-7 ("SOP 90-7") issued by the
American Institute of Certified Public Accountants. For purposes
of these projections, the Reorganization Value has been based upon
the midpoint of the estimated enterprise value range of New NTL as
described in "Feasibility Of The Plan And The Best Interests Of
Creditors Test - Valuation Of The Reorganized Debtors" in this
Disclosure Statement. Under "fresh start" accounting principles,
Euroco will determine the reorganization value of Euroco at the
Effective Date. This value will be allocated, based on estimated
fair market values, to specific tangible assets, and Euroco will
record an intangible asset equal to the reorganization value in
excess of amounts allocable to identifiable assets. Euroco is in
the process of evaluating further how the reorganization value
will be allocated to various assets. It is likely that the final
allocation as well as depreciation and amortization expense, will
differ from the amounts presented herein. The amount of
shareholders' equity in the "fresh start" balance sheet is not an
estimate of the market value of the Euroco Common Stock after
confirmation of the Plan, which value is subject to many
uncertainties and cannot be reasonably estimated at this time.
Euroco does not make any representations as to the market value,
if any, of the Euroco Common Stock to be issued pursuant to the
Plan.
(10) Represents elimination of $14,005.6 million investment in NTL CC in
accordance with the Plan.
EUROCO PROJECTED CONSOLIDATED BALANCE SHEET
FISCAL YEARS ENDING 2002 THROUGH 2006
(dollars in millions)
As of December 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
----------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents $ 113.1 $ 66.5 $ 33.0 $ 59.1 $ 56.1
Accounts receivable, net 232.9 276.2 349.0 371.8 386.8
Other 196.3 185.7 185.7 185.7 185.8
-------------- ------------ ------------ ------------ -------------
Total current assets 542.3 528.4 567.7 616.6 628.7
Fixed assets, net 1,499.5 1,479.7 1,477.3 1,444.6 1,402.8
Intangible assets, net 1,246.8 1239.9 1,233.0 1,226.0 1,219.1
Deferred Tax Asset - - 7.9 - -
Other assets, net 149.2 166.7 168.3 122.0 118.2
-------------- ------------ ------------ ------------ -------------
Total assets $ 3,437.8 $ 3,414.7 $ 3,454.2 $ 3,409.2 $ 3,368.8
============== ============ ============ ============ =============
Liabilities & Shareholders' (Deficiency) Equity
Current liabilities
Accounts payable $ 68.3$ 75.9 $ 86.8$ 91.5$ 103.0
Accrued expenses and other 141.0 153.3 171.3 179.0 197.9
Interest payable 47.9 48.9 49.2 49.2 49.2
Deferred revenue 226.4 268.4 318.8 391.2 392.0
-------------- ------------ ------------ ------------ -------------
Total current liabilities 483.6 546.5 626.1 710.9 742.1
Long-term debt 2,253.8 2,297.2 2,303.8 2,133.6 1,906.3
Senior Redeemable Preferred 333.3 368.4 407.1 450.0 497.4
Deferred income taxes 26.3 0.6 - 5.9 31.9
Other 147.5 137.7 126.5 120.3 120.3
Shareholders' (deficiency) equity
Preferred stock - - - - -
Common Stock 0.2 0.2 0.2 0.2 0.2
Additional paid-in capital 239.3 239.3 239.3 239.3 239.3
Accumulated other comprehensive (loss) - - - - -
(Deficit) (46.2) (175.2) (248.8) (251.0) (168.7)
-------------- ------------ ------------ ------------ -------------
193.3 64.3 (9.3) (11.5) 70.8
-------------- ------------ ------------ ------------ -------------
Total liabilities and shareholders' (deficiency) equity $ 3,437.8 $ 3,414.7 $ 3,454.2 $ 3,409.2 $ 3,368.8
============== ============ ============ ============ =============
EUROCO PROJECTED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FISCAL YEARS ENDING 2002 THROUGH 2006
(dollars in millions)
As of December 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
----------------------------------------------------------------------
Revenues $ 505.3 $ 631.7 $ 785.1 $ 961.6 $ 1,160.6
Costs, expenses and other (income)
Operating expenses 140.9 162.3 196.8 238.4 277.8
Selling, general and administrative expenses 224.8 270.9 292.9 307.0 338.9
Corporate expenses 22.7 15.8 16.5 17.2 18.1
Reorganization costs 21.2 - - - -
Gain from debt discharge (3,416.7) - - - -
Depreciation and amortization 155.7 179.3 196.5 221.4 240.3
Interest income and other, net (16.4) (2.1) (1.4) (1.6) (1.5)
Interest expense 146.1 123.5 123.0 117.5 106.0
-------------- ------------ ------------ ------------ -------------
Earnings before taxes and discontinued operations 3,227.0 (118.0) (39.2) 61.7 181.0
Income tax (expense) benefit 31.4 24.1 4.3 (21.0) (51.3)
-------------- ------------ ------------ ------------ -------------
Earnings before discontinued operations 3,258.4 (93.9) (34.9) 40.7 129.7
Discontinued operations, net of loss on sale of asset 16.0 - - - -
-------------- ------------ ------------ ------------ -------------
Net income (loss) $ 3,274.4 $ (93.9) $ (34.9 $ 40.7 $ 129.7
============== ============ ============ ============ =============
Preferred Dividend (8.3) (35.1) (38.7) (42.9) (47.4)
-------------- ------------ ------------ ------------ -------------
Net income (loss) available to common $ 3,266.1 $ (129.0) $ (73.6) $ (2.2) $ 82.3
============== ============ ============ ============ =============
EUROCO PROJECTED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDING 2002 THROUGH 2006
(dollars in millions)
As of December 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
----------------------------------------------------------------------
Operating activities
Net income (loss) $ 3,274.4 $ (93.9) $ (34.9) $ 40.7 $ 129.7
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 155.7 179.3 196.5 221.4 240.3
Gain from debt discharge (3,416.7) - - - -
Change in deferred tax asset (32.4) (25.7) (8.5) 13.7 26.0
Other (91.2) 15.1 3.4 0.9 -
Changes in operating assets and liabilities:
Accounts receivable (35.5) (43.3) (72.9) (22.7) (15.1)
Accounts payable 27.7 7.5 11.0 4.7 11.5
Accrued expenses and other 21.5 12.3 18.0 7.8 18.8
Interest payable 26.2 1.1 0.3 - -
Deferred revenue 35.0 42.0 50.4 72.4 0.8
-------------- ------------ ------------ ------------ -------------
Net cash (used in) provided by operating activities (35.3) 94.4 163.3 338.9 412.0
Investing activities
Purchase of fixed assets (157.3) (152.5) (187.2) (181.7) (191.6)
Proceeds from sale of assets 193.6 - - 44.7 -
Decrease in other liabilities (14.5) (14.5) (14.5) (7.3) -
Increase (decrease) in other assets (17.7) (17.5) (1.7) 1.7 3.8
-------------- ------------ ------------ ------------ -------------
Net cash provided by (used in) investing activities 4.1 (184.5) (203.4) (142.6) (187.8)
Financing activities
Proceeds from borrowings, net of financing costs 247.3 114.1 97.2 - -
Distribution to equity holders (308.6) - - - -
Principal payments (25.0) (70.6) (90.6) (170.2) (227.2)
-------------- ------------ ------------ ------------ -------------
Net cash provided by (used in) financing activities (86.3) 43.5 6.6 (170.2) (227.2)
(Decrease) increase in cash and cash equivalents (117.5) (46.6) (33.5) 26.1 (3.0)
Cash and cash equivalents at beginning of year 230.6 113.1 66.5 33.0 59.1
-------------- ------------ ------------ ------------ -------------
Cash and cash equivalents at end of year $ 113.1 $ 66.5 $ 33.0 $ 59.1 $ 56.1
============== ============ ============ ============ =============
Summary Of Significant Assumptions
The Debtors' management has developed the Financial Projections to
assist Noteholders and holders of Old Common Stock and Old Preferred Stock
in their evaluation of the Plan and to analyze its feasibility. The
Financial Projections are based upon a number of significant assumptions
described below. Actual operating results and values may and will vary from
those projected.
(i) Fiscal Years. New NTL's and Euroco's fiscal year
ends are on the last day of each calendar year.
Any reference to "Fiscal" immediately followed
by a specific year means the period ending on
December 31 of such year.
(ii) Plan Terms And Consummation. The Financial
Projections assume an Effective Date of August
31, 2002 with allowed claims and interests
treated in accordance with the treatment
provided in the Plan with respect to such
allowed claims and interests. Although the
Effective Date under the Plan may not occur
until September 2002 or later, August 31, 2002
was selected as an assumed date of effectiveness
of the Plan so that there would be a close
proximity between the time in which CSFB and
Kane Reece reviewed materials in forming their
valuation and liquidation analyses and the
assumed date of valuation. If the Effective Date
does not occur within the anticipated timeframe,
this may have an adverse effect on the
respective abilities of New NTL and Euroco to
achieve the projected results. Further, if the
Effective Date does not occur within the
anticipated time frame, additional
bankruptcy-related expenses will be incurred
until such time as a new plan of reorganization
is confirmed. These expenses could significantly
impact New NTL and Euroco's results of
operations and cash flows.
(iii) 2002 Income Statement. Assumptions are based on
the budgets for the operating entities prepared
by the individual management teams in
conjunction with the senior management of the
Debtors.
(iv) Revenues. The Debtors' management expects future
revenues to be achieved by continuing to provide
new services, such as digital television,
broadband Internet and mobile telephone services
to consumer customers. In addition, the Debtors'
management continues to focus specific sales and
marketing effort on winning business customers
in its franchise areas and providing incremental
services to new and existing customers of its
broadcast division.
(v) Operating Expenses. Operating expenses are
expected to increase principally as a result of
increases in interconnection and programming
costs due to revenue growth.
(vi) Selling, General & Administrative Costs.
Selling, general and administrative costs as a
percentage of revenue, are expected to continue
to decrease as a result of various cost saving
efforts.
(vii) Corporate Expense. Corporate expenses are
projected based on historical trends with
certain assumptions regarding the costs of New
NTL and Euroco being required to create
duplicate facilities to reflect the fact that
New NTL and Euroco will no longer form part of
an integrated group.
(viii) Interest Expense. Interest expense reflects
current and estimated interest rates on various
components of debt and presumes interest rates
will not change materially.
(ix) Interest Income. Interest income reflects
current and estimated market rates on cash and
cash equivalents and presumes interest rates
will not change materially.
(x) Income Taxes. Income tax expense or benefit as
reflected in the Projected Statements of
Operations and the related deferred tax asset or
liability balances on the Balance Sheet and tax
payments in the cash flow statements are based
upon certain accounting and tax planning
assumptions, projected net income by country
assuming the current statutory tax rate in each
country does not change throughout the period of
the projections and the anticipated reduction of
tax loss carryforwards as a result of the
Restructuring.
(xi) Capital Expenditures. Capital expenditures are
consistent with management's business plan to
the extent they can be supported by the capital
structure and projected operating results of New
NTL and Euroco.
(xii) Acquisitions. The Financial Projections do not
include any future acquisitions or disposals.
(xiii) Working Capital. Components of working capital
are projected primarily on the basis of historic
patterns applied to projected levels of
operation. It has been assumed that vendor trade
terms remain at normal levels during the Chapter
11 Cases and Diamond Administration Cases and in
the period thereafter.
(xiv) Fresh Start Accounting. New NTL and Euroco would
account for the Restructuring and the related
transactions using the principles of "fresh
start" accounting as required by SOP 90-7 issued
by the American Institute of Certified Public
Accountants. Under "fresh start" accounting
principles, New NTL and Euroco will determine
the post-Restructuring values of New NTL and
Euroco, respectively, at the Effective Date.
These values will be allocated, based on
estimated fair market values, to specific
tangible assets, and New NTL and Euroco will
record intangible assets equal to the
post-Restructuring values in excess of amounts
allocable to the relevant identifiable assets.
New NTL and Euroco are in the process of
evaluating further how the post- Restructuring
value will be allocated to their respective
various assets. It is likely that the final
allocation as well as depreciation and
amortization expense, will differ from the
amounts presented herein. The amounts of
shareholders' equity in the fresh start balance
sheets are not estimates of the market values of
the New NTL Common Stock and Euroco Common Stock
after confirmation of the Plan, which values are
subject to many uncertainties and cannot be
reasonably estimated at this time. The Debtors
do not make any representation as to the market
values, if any, of the Euroco Common Stock or
New NTL Common Stock to be issued pursuant to
the Plan.
(xv) Premium TV Limited. The Financial Projections
relating to Euroco have been prepared by
reference to the current business plans for
Premium TV Limited and the joint ventures to
which it is a party. However, Premium TV Limited
is currently in discussions with certain of
these joint venture partners with a view to
restructuring the relevant joint ventures. In
the event that these discussions do not reach a
resolution acceptable to Premium TV Limited,
Premium TV Limited may seek to discontinue these
joint ventures and terminate their activities
(which may also result in a cessation of
substantially all of Premium TV Limited's
activities). Due to the uncertain nature of
these discussions and their likely resolution,
the Debtors consider it appropriate to prepare
the Financial Projections on the basis of the
current business plans of Premium TV Limited and
the relevant joint ventures.
(xvi) Impairment. The Financial Projections assume
that there will be no factors which indicate the
impairment of any of the tangible or intangible
fixed assets of New NTL or Euroco which would
require a charge to income.
(xvii) Trading. The Financial Projections assume that,
except as set forth above, there will be no
significant changes in trading relationships
with suppliers or customers.
(xviii) Restructuring. The Financial Projections assume
that there will be no reorganization,
restructuring or further change in the
composition of New NTL and Euroco, except as set
forth in the Plan.
(xix) Exchange Rates. The Financial Projections assume
that the various foreign exchange rates
underlying the Financial Projections are held
constant throughout the period.
(xx) Material Change. The Financial Projections
assume that there will no material changes in
the economic, regulatory or political
environments in which New NTL and Euroco
operate.